02.21.14 10:45 AM ET
How Four Men Conned People Into Investing in a Jean-Claude Van Damme-Starring WWII Epic
As audiences revel in the excesses of Martin Scorsese’s The Wolf of Wall Street, which tells the real-life tale of Jordan Belfort, a lascivious broker—played by Leonardo DiCaprio—who scammed investors out of millions, a group of California men were arrested and indicted on federal fraud charges Thursday morning for running a scam so incredible not even Hollywood could cook it up.
According to a grand jury indictment filed in U.S. District Court for the Central District of California, as well as a separate civil suit filed by the Securities and Exchange Commission, the four men—Samuel Braslau, 53; Rand Jay Chortkoff, 64; Stuart Rawitt, 47; and Robert Matias, 50—allegedly ran a boiler room operation out of Van Nuys, Calif., that scammed 70 investors out of $1.7 million to fund a film project supposedly set in Paris during World War II and starring a cast of luminaries ranging from Gerard Butler to Jean-Claude Van Damme.
“The glamour associated with Hollywood and movies is something that really hooks people in,” Assistant U.S. Attorney Ellyn M. Lindsay, who works in the Major Frauds section and is handling the case, told The Daily Beast. “What’s scary is that older people and people who really can’t afford it are putting their life savings into this because they’re told it’s safe, and of course it’s not.”
According to the indictment, the saga began in Dec. 2010 when, Braslau and Chortkoff co-founded a company called Mutual Entertainment LLC (“Mutual”) for the purported purpose of raising money for a movie project. Then, in Jan. 2011, Mutual spent $25,000 to acquire the rights to Marcel, an unpublished story set in Paris during World War II. Co-founders Braslau (an attorney by trade) and Chortkoff, who also ran the sales office of Mutual, enlisted the services of Rawitt and Matias (whom the DOJ calls a “fugitive”) to serve as sales closers for the company.
Rawitt (alias: “Stuart Roberts”), Matias (alias: “Bobby Matias” or “Bobby Stuart”), and Braslau then began cold-calling people across the country claiming they worked for a national research firm conducting marketing surveys for film companies. If the person expressed any interest in investing in film, the men allegedly claimed that Mutual was an independent film company seeking investors, before providing “false and misleading information” about the company to the potential investor, according to the indictment.
This is how the alleged scam worked, according to the SEC’s complaint: interested parties were sent a package via FedEx which included subscription agreements, private placement memoranda, correspondence, sales literature, and film profit comparisons. After sending the mail, Rawitt and Matias called the potential investor again and made their pitch. According to the indictment, the salesmen—Rawitt, Matias, and Braslau—claimed that, among other things, the fund-raising goal of $7.5 million for Marcel, the aforementioned Paris-set WWII epic, was almost met; filming was scheduled to begin in Summer 2013; 64 percent of investor money would be used to produce the film; salespeople would receive little to no commission; their investment carried minimal risk; that Mutual was a successful film company with a proven track record that included the Harold and Kumar franchise; and that “certain well-known actors” including John Cusack, Gerard Butler, Jean-Claude Van Damme, Donald Sutherland, Jon Voight, and Scott Adkins “were contracted to appear” in the film.
Investors would fill out and return a completed questionnaire and subscription agreement to Mutual and provided payment, in the form of check or wire transfer, which was then allegedly deposited into bank accounts controlled by Braslau. The investors typically forked over $12,500 or $25,000 to the salesmen, says the complaint.
On Aug. 4, 2011, the Alabama Securities Commission caught wind of the alleged telemarketing scam and filed an administrative order against Mutual (and Rawitt), so Braslau and Chortkoff changed the company name from “Mutual” to “Film Shoot,” and the title of the movie from Marcel to The Smuggler in an attempt to hide the Alabama order from potential investors.
Still, the cold-calling persisted, with the trio collecting a total of $1.7 million from 70 investors between Dec. 2010 and Nov. 2013 to fund their “movie project,” says the complaint.
According to the indictment, however, it was all a clever ruse. The fundraising for The Smuggler was nowhere near completion, no actors had been cast, the project carried a high degree of risk, only a small portion of money from investors was used for the project, and filming, of course, never began. Instead, the money was allegedly split up between the four men, with “closers” Rawitt and Matias receiving commissions of up to 20 percent of investor money, Braslau getting over 15 percent, Chortkoff netting over 9 percent, and additional “surveyors” pocketing 3 percent. Other investor funds were allegedly spent on rent for the Van Nuys office where they made the calls, printing and publishing costs for the phony literature they sent to investors, and telephone bills.
According to the charges, less than 10 percent of investor funds were to be spent on the production of The Smuggler. Furthermore, prior investors who had put money into previous motion pictures touted by Chortkoff, Rawitt, and Matias had lost most of their money, and in 2009, Rawitt was even charged for his involvement in an oil-and-gas scheme. The four defendants in the “Smuggler” matter were hit with a 29-count indictment that included mail fraud, wire fraud, attempted wire fraud, and making false statements. The wire fraud and mail charges each carry a maximum penalty of 20 years in prison.
Unfortunately, the tale of The Smuggler is nothing new in Tinseltown, according to Lindsay.
“This is a long-lasting scam that’s been going on for at least 10 years,” she said. “There are multiple boiler rooms in the Los Angeles area that are pulling this movie-investment scam, and we’re only able to go after some of them since it’s just so prevalent.”
Indeed, two more men were indicted on Thursday in the same California court for running a similar boiler room scam, according to the grand jury indictment. Mack Machen (alias: “Patrick Henry Machen” or “Dr. Machen”), 70, and Anthony David Millan, 37, were charged with running a telemarketing scam that defrauded a total of 80 investors out of $3 million.
The two men formed the companies C22 Capital, Inc. and C22 LLC, Inc. (collectively “C22”)—Nevada corporations that conducted business in Los Angeles’s San Fernando Valley. Machen acted as C22’s president and Millan as its CEO. According to the indictment, beginning in Oct. 2008, the men allegedly hired telemarketers to cold-call investors across the country to convince them to invest in C22. They allegedly claimed that their money would be used to provide short-term bridge loans to various individuals and companies within the entertainment industry to finish or promote movies, including a wrestling movie titled Beyond the Mat. The men allegedly issued promissory notes to investors in C22 claiming that, within a year of their investment, they’d receive their money back (plus interest at a rate of 12 to 13 percent), as well as profit participation in the movies related to their investments.
Instead, however, Machen and Millan allegedly used the money to pay their telemarketers commissions of approximately 20 percent of all the money they brought in. According to the indictment, they used the rest to “fund their own lavish lifestyles,” including paying for their personal bills and salaries of $10,000-12,000 per month. The investors allegedly lost all the money in C22, and Machen and Millan were named in a 19-count indictment that accuses them of mail fraud, wire fraud, and attempted wire fraud.
“Unfortunately, with people in Los Angeles, everybody knows the movie industry is completely risky, and losing your money when you’re talking about investing in a movie is kind of a given, but they’re sold to the public as a very safe investment,” said Lindsay.
She added, “I watched American Hustle and I got so enraged because the scam artists were getting away with it. I won’t even watch Wolf of Wall Street.”