B-Movie King Sues Citco Over $60M Ponzi Scheme Loss
By Brandon Lowrey
Law360, Los Angeles (March 24, 2015, 4:50 PM ET) --
Legendary B-movie director Roger Corman on Monday sued Citco Group Ltd. alleging it tricked him and his wife into withdrawing millions from a successful fund managed by George Soros and investing it in what turned out to be a Ponzi scheme, resulting in a $60 million loss.
In a complaint filed in Los Angeles Superior Court, Corman and his wife, film producer Julie Corman, allege Citco and related companies convinced them to invest millions with the financial services company, which later secretly put the funds under the control of a Ponzi schemer. Citco discovered the Ponzi scheme and removed its own funds but left the Cormans' money there to "go down with the ship," Corman's attorney Don Howarth of Howarth & Smith told Law360 on Tuesday.
"This gives new meaning to breach of fiduciary duties," Howarth said. "This is as extreme as I've seen. ... The whole point of [being] a fiduciary is putting your interests not ahead of your clients' interest but behind it. They reversed that."
According to the complaint, a Citco representative convinced the Cormans to invest with the company in late 1996. In 2002, Citco recommended setting up a corporation in the British Virgin Islands for tax purposes, and created Pasig Ltd. to manage the Corman's funds.
Roger Corman was initially a director of Pasig, but Citco employee and defendant Ermanno Unternaehrer told Corman that he should resign for tax purposes. In June 2008, Citco transferred control of the Cormans' funds to Alphonse "Buddy" Fletcher without telling the Cormans.
Citco obtained a payout of $28 million from the transfer. Unternaehrer allegedly arranged a side deal with Fletcher that netted him $6.6 million, the complaint says.
Meanwhile, Citco was an administrator for Fletcher's funds and knew he was struggling — he had not made a single profitable investment in the 10 months preceding the transfer and was having trouble paying back loans, the complaint said.
In addition, the $28 million that Fletcher paid Citco for the transfer of the Pasig funds came from money invested by the Louisiana Firefighters Pension Fund, which is also suing Citco over the Ponzi scheme, according to the complaint.
Citco had withdrawn its own funds from Fletcher's management without telling the Cormans, the suit says.
"Had Citco told the Cormans that it was pulling its money out of the Fletcher funds, the Cormans would not have left their own funds invested with Fletcher at the time," the suit says.
Citco later tried to withdraw the Cormans' funds in May 2010, but was unable to do so. In the summer of 2013, the Cormans were able to recover just $13 million of the $73 million that had been invested in Pasig, the complaint said.
Corman's suit alleges Citco breached its contract and fiduciary duties, committed fraud, negligence and other claims.
Representatives for Citco did not immediately respond to a request for comment Tuesday.
Corman is represented by Don Howarth, Suzelle M. Smith, Padraic Glaspy, and Jessica L. Rankin of Howarth & Smith.
Counsel information for the defendants was unavailable.
The case is Roger W. Corman et al. v. Citco Group Ltd. et al., case number BC576379, in the Superior Court of the State of California, County of Los Angeles.
--Editing by Emily Kokoll.
A copy of the compalint filed by Howarth & Smith is hosted below: