VFX Firm Digital Domain Accused of Cheating Florida Taxpayers Out of $82 Million (Updated)

VFX Firm Digital Domain Accused of Cheating Florida Taxpayers Out of $82 Million (Updated)

A successor to the company founded by James Cameron used the effects firm's reputation to fraudulently obtain grants, the state charges in a lawsuit

The state of Florida has sued Digital Domain Florida and its top executives, claiming the visual effects firm cheated taxpayers out of $82 million.

The state claims that John Textor (above photo), a Florida native “turned wannabe Hollywood movie mogul,” was the point man on what it called a “de facto ponzi scheme” that has been operating since 2007. The allegations came in a civil suit filed earlier this week in St. Lucie County, which granted the supposed start-up $60 million in a bid to promote job growth.

The suit charges that the Florida company used the name of Digital Domain California, the company founded in 1993 by James Cameron and behind the effects on blockbusters like “Titanic” and “Transformers,” to convince then-Gov. Charles Christ to make an end run and approve a $20 million grant over the objections of state officials.

“This lawsuit reads as a politically motivated fiction,” Textor said in statement responding to the suit. Gov. Rick Scott, whose office filed the suit, is running for re-election against Christ.

Also read: Digital Domain CEO: We Can Still Save the Visual-Effects Industry

Cameron's involvement in Digital Domain ended years before the California company filed for Chapter 11 bankruptcy in 2012 and sold many of its prime assets to Galloping Horse America. (The latest iteration of the company, Digital Domain 3.0, the VFX successor company now majority-owned by Hong Kong-based Digital Domain Holdings, is not a target of the suit.) The suit claims that contrary to what its executives told Florida officials, Digital Domain Florida still had ties — and shared million of dollars in debt — with the California company.

“Digital Domain California hatched a new plan to rid itself of debt:

1) start a brand new company with no debt on its books; 2) use Digital Domain California's credentials, together with promises of new high paying jobs for Floridians, as security to obtain grant money for Digital Domain Florida; and 3) use the grant to partially bail out Digital Domain California,” the complaint states. The California company then planned to merge with its Florida counterpart, the suit alleges.

Enterprise Florida, the state agency that checked the credentials of grant applicants, initially rejected the company's request after researching the California company, which had lost more than $35 million between 2005-2008. But Textor, the suit claims, made an end-run around Enterprise Florida by wooing then-Governor Crist and the Legislature, particularly Rep. Kevin Ambler, R-Tampa, who sponsored the bill and was named to Digital Domain Florida's board as a “success bonus.”

Also read: Digital Domain, Company Behind ‘Titanic’ Effects and Tupac Hologram, Files for Chapter 11

Digital Domain eventually obtained a $20 million special budget appropriation June 30, 2009. Textor and others on behalf of Digital Domain then used the grant as political clout to obtain an additional $62 million from St. Lucie and Palm Beach counties, the complaint alleges. Digital Domain was to have created 500 new jobs paying an average salary of $64,233, and to have invested $50 million in real estate improvements in St. Lucie County, neither of which happened, the suit states.

Digital Domain Florida never had a workable business plan and its principals knew that, the suit said.

Also read: The $420 Million Question: How Much Will California Set Aside for TV, Film Tax Credits?

“The special effects industry has changed significantly since 1993, when computer generated imagery (‘CGI') for movies was relatively new,” says the lawsuit. “Computer technology has become cheaper and more powerful, making computers, and in turn CGI technology, cheaper and more accessible. As a result, CGI has almost completely replaced special effects technology used in the past like stop-motion, matte paintings, miniature models and the like. Today, the visual effects industry is highly competitive with very thin margins, which Digital Domain California acknowledged — along with numerous other ‘risk factors’ — in documents it filed with the SEC in 2007… in an unsuccessful bid to take the company public.”

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The suit claims that Digital Domain Florida, after failing in attempts to sell, borrowed millions to stay afloat before declaring bankruptcy in 2012.

The state alleges that Textor and SingerLewak, an accounting firm that is among the 22 co-defendants, acted with “reckless disregard” by rendering unqualified audit opinions for financial statements in 2009, 2010 and 2011. But Textor said the facts don't back that up.

“The studio was built; the workers were hired; the State audited and confirmed that Digital Domain met all of the grant requirements,” he said. “After the bankruptcy, Governor Scott's Inspector General conducted a thorough investigation and found no wrong-doing by me or any of those involved in awarding the grant.

“While I accept that the closure of Digital Domain severely impacted our jobs creation project, I still support its mission– creating a studio for 500 jobs and a college to inspire thousands more,” Textor said. “It's worth noting that while the studio failed, the college continued to prosper even after the bankruptcy. Maybe this lawsuit will force the Governor to explain why he decided to close the college in South Florida in spite of that — the biggest part of our jobs program.”

Pamela Chelin contributed to this report.