Report Alleges Cozy Pact Between Bergstein and Tutor

The David Bergstein saga continued this week with the release of a damning trustee’s report that alleges the financier engaged in a complicated shell game to cover up millions of dollars of losses

It keeps getting uglier.

The ongoing David Bergstein saga continued this week with the release of a damning trustee’s report that alleges that the controversial film financier engaged in a complicated shell game to cover up millions of dollars of losses and pay off gambling debts. 

Written by court appointed forensic accountant Ronald Durkin, the 400-page report alleges that Bergstein deleted thousands of pages of documents and tried to undermine an investigation into his tangled finances.

It makes exhaustive use of depositions from Bergstein and his business partner Ron Tutor, as well as financial documents and loan requests from companies the film financier controlled.

But Bergstein told TheWrap that the report's release and the suit brought by more than 30 creditors are just an attempt to discredit him and Tutor, a billionaire construction magnate.

“They don’t have anything against Ron and I. This is an attempt to embarrass Ron into paying the trustee and the creditors,” Bergstein told TheWrap.

Not so, says David Molner, Aramid Entertainment chief and one of the leaders of the creditors.

“Taking the trustee's report even at face value, this is quite possibly the most spectacular fraud in the modern history of entertainment, making the failure of Carolco, the Franchise Pictures bankruptcy and the Giancarlo Peretti episode at MGM all seem quaint vignettes from another era,” Molner told TheWrap. 

The trustee’s report comes on the heels of federal court judge Barry Russell’s decision last February to place five companies run by Bergstein into bankruptcy. 

The Durkin report was briefly allowed to see the light of day, before Bergstein’s lawyers filed an emergency order to reseal it.

Most damaging are assertions that Bergstein tried to cover up the depth of his business relationship with billionaire and winning Miramax bidder Tutor.

Among the activities he allegedly participated in were back-dating an ownership agreement to show that Tutor had sold his stake for one of the bankrupt entities for $10 in January 2009 before the litigation began. The pair began investing in film projects together in 2002. 

According to the report, Tutor later contradicted himself in deposition after he had reportedly sold his stake by stating that he owned 50 percent of one of the Bergstein managed entities.

“There is substantial basis to conclude that the 1/23/09 MPA was created by Bergstein and Tutor during the bankruptcy case to make it incorrectly appear that Tutor and his affiliates had distanced themselves from the affiliates and were not their insiders,” the report reads.

Moreover, the report maintains that Tutor enabled the money-losing enterprise to continue by underwriting a $40 million guarantee that he admitted “contained representations that Tutor knew to be false concerning his knowledge about the Debtor’s financial affairs.”

Despite claiming that Tutor's business relationship with Bergstein ended in 2009, the investor also allegedly paid the film financier's legal bills through last summer while the litigation dragged on.

Tutor led the group of investors who purchased Miramax last winter for $660 million. His spokesman did not respond to requests for comment. Bergstein served as an advisor on that deal.

In addition to refusing to give Durkin access to certain computers, Bergstein purportedly deleted thousands of documents starting when the creditors' suit was filed and continuing through the trustee’s appointment.

Nearly 5,000 documents were destroyed during the month Durkin was appointed, roughly 10 times more than were destroyed in the two years prior to the trustee’s arrival.

Moreover, the report documents an extensive network of “shell companies” established by Bergstein to obfuscate the company’s finances.

“It is apparent that, in an effort to circumvent the blanket liens, guarantees, and restrictive covenants … the Debtors and their co-borrowers spun a web of shell companies …,” the report reads.

Bergstein said he disagreed with the report’s findings and told TheWrap that Durkin, whose pay is tied to assets found in recovery, is trying to pressure Tutor to remove a $45 million lien on the bankrupt companies.

“The vast majority of this report we disagree with and there’s significant falsehoods in it, as well, Bergstein added. It was rushed out to help fuel the dispute I’m having with Aramid. The trustee has spent $3 million in recovery, and he’s realized there are no assets, and the only chance to get paid is to get Ron to surrender his claim.”

To bolster his case that Durkin and Aramid were operating under similar agendas, Bergstein cited a transcript of a June 2010 meeting between Molner and his investors. During the meeting, Molner referenced an hour-long conference call with the trustee during which he said they discussed a reorganization plan that would create a $50 million tax liability for Tutor. According to those minutes, Molner said that would pressure Tutor to pay creditors rather than allow the plan to go forward. 

Leonard Gumport, an attorney for Durkin, said that the report was independently written and that his client had nothing to do with its findings being made public.

“Mr. Bergstein is entitled to dispute the report. He is entitled to his opinions and his view of the matters at issue,” Gumport said.

(Photo by the Los Angeles Times)