Zach Avery convinced clients, to the tune of $227 million, that he had a deal with HBO and Netflix that would help net them speedy 35 percent returns, the S.E.C. said.
The 2017 film “Bitter Harvest” would not, by many definitions, be considered a success.
“It’s a bad sign when even the prayers in this movie are crappy,” observed one reviewer, who contributed to the film’s 15 percent critic rating on Rotten Tomatoes.
It pulled in less than $600,000 in the United States. But that did not mean it did not still have moneymaking potential abroad. All investors needed to do was help buy the rights to distribute it and a number of other films in Latin America, Africa and New Zealand. Major distribution deals with HBO and Netflix were on the cusp of being formalized, they were told. Once those fell into place, the investors would get returns of at least 35 percent.
That is the essence of what the Securities and Exchange Commission and federal prosecutors are calling a Ponzi scheme run by Zachary J. Horwitz, a not particularly famous actor with a rather extravagant home. Mr. Horwitz, who went by the stage name Zach Avery, was arrested on Tuesday on wire fraud charges. He is accused of defrauding investors of at least $227 million and fabricating his company’s business relationship with HBO and Netflix.
“We allege that Horwitz promised extremely high returns and made them seem plausible by invoking the names of two well-known entertainment companies and fabricating documents,” Michele Wein Layne, director of the S.E.C.’s Los Angeles regional office, said in a news release on Tuesday.
Prosecutors said that correspondence Mr. Horwitz had forwarded to clients, which featured HBO and Netflix email addresses, was as fictitious as the subject matter of his most recent film, the horror movie “The Devil Below” (Rotten Tomatoes critic score: 0 percent). Mr. Horwitz did not star in any of the 50 or so films he promised could make investors millions, according to Thom Mrozek, a spokesman for the U.S. Attorney’s Office in Los Angeles.
Mr. Horwitz was in jail on Wednesday, Mr. Mrozek said. Attempts to reach other employees of One in a Million Productions, whose website features the tag line “When Odds Are One in a Million. Be That One,” were unsuccessful. (Later Wednesday afternoon, the site had been taken down.)
Mr. Horwitz’s lawyer, Anthony Pacheco, did not respond to a request for comment.
The Ponzi scheme began to unravel when an investor wanted money refunded in 2019 and could not get it, Mr. Mrozek said.
For several years, 1inMM — as the company styles its name — found ways to pay investors, according to the S.E.C. Court documents do not list all of the films investors thought they had helped buy rights to, but the complaint features an image from 1inMM’s “library”; the 1989 Jean-Claude Van Damme movie “The Kickboxer” and the 2013 romantic comedy “The Spectacular Now” are included.
The way that money can be made in the movie distribution world is to say, “I’ll give you $100,000 for Latin America rights,” for example, Mr. Mrozek said, adding, “I go to HBO or whomever and say, ‘Give me $200,000 to show the movie.’”
It’s possible that the company did succeed in buying international distribution rights to a handful of films or even that it started with good intentions, Mr. Mrozek said. But what it did not have was the relationship with HBO and Netflix that Mr. Horwitz told investors it did. It was that relationship that he said essentially guaranteed them returns of 35 percent or more within six months or a year.
“I believed that if HBO was involved, my investment was safe,” one investor told the S.E.C.
At first, Mr. Horwitz was able to follow through on his promises. In typical Ponzi scheme fashion, earlier investors got money from newer investors, Mr. Mrozek said. His clients could go on believing that investing in viewings of “The Kickboxer” in New Zealand and Latin America was smart.
But at some point, there wasn’t enough money flowing in to maintain the illusion — even with the help of the Johnny Walker Blue Label scotch Mr. Horwitz sent to principals, according to F.B.I. agent John Verrastro, who outlined the scheme in a complaint. Mr. Horwitz was also inappropriately using investor funds on a $5.7 million home and $700,000 in fees for a celebrity interior designer, according to the S.E.C.
Since December 2019, 1inMM has defaulted on more than 160 payments, according to court documents. One investor in Chicago, who was owed more than $160 million in principal and $59 million in profits, wanted his returns and could not get them, Mr. Mrozek said. That investor contacted the authorities.
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