Bloomberg News

Fortress, Relativity Sued by Investor in Sony Film Deal

February 09, 2012

(Updates with excerpt from filing in third paragraph.)

Feb. 8 (Bloomberg) -- Fortress Investment Group LLC and Relativity Media LLC were sued by an investor who claimed $44 million in losses from a film financing agreement with Sony Corp.’s movie studio.

Aramid Entertainment Fund Ltd., a hedge fund that specializes in financing movies, filed the complaint today in Los Angeles County Superior Court. The fund accuses Fortress of breach of contract, among other claims, for allegedly using confidential information obtained from Aramid to make a deal with Sony that destroyed Aramid’s investments.

“This is one of the greatest heist stories ever told in the movie business,” Aramid said in the complaint.

Aramid in 2008 invested $22 million in Class B notes in a so-called film-slate financing deal negotiated between Relativity Media, an independent movie financier and producer, and Sony Pictures, according to the complaint. The agreement was set up to fund as many as 45 movies over five years and included a $525 million commitment from Citigroup Inc., Aramid said.

In 2010, New York-based Fortress, a manager of buyout and hedge funds, did due diligence on Aramid’s portfolio, according to the complaint. Fortress didn’t make an offer for any of Aramid’s assets and used information about the Sony investments to buy the outstanding balance of Citigroup’s stake, $226.7 million, for 50 cent on the dollar, according to the complaint.

$216 Million

Fortress, now the majority owner of the Class A and Class B notes, then agreed with Sony to cap the amount of payments due to the investors at $216 million, which left nothing for Aramid, the only other investor in the Class B notes, according to the complaint.

Fortress made a gross profit of at least $96.1 million and paid Relativity $14.5 million to agree to the deal, Aramid said.

Gordon Runte, a spokesman for Fortress, didn’t immediately return a phone call to his office seeking comment on the allegations after regular business hours.

Relativity Media is involved in movie finance, production and distribution. Last year, the West Hollywood, California- based studio participated in movies including “Immortals,” “Bridesmaids,” and “Cowboys and Aliens.” Relativity also owns and operates Rogue Pictures, a unit that specializes in teen-oriented films.

Billionaire Ron Burkle agreed to buy Elliott Management Corp.’s minority stake in Relativity last month, two people with knowledge of the situation said on Jan. 6. Relativity founder Ryan Kavanaugh had been seeking a buyer for Elliott’s holding since last year.

Adam Keen, a spokesman for Relativity, didn’t immediately return a call to his office seeking comment on the lawsuit.

The case is Aramid Entertainment v. Fortress Investment, BC478589, Los Angeles County Superior Court.

--With assistance from Michael White in Los Angeles. Editors: Peter Blumberg, Joe Schneider

To contact the reporter on this story: Edvard Pettersson in Los Angeles at epettersson@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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