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Local Studio Backers Hit With Fraud Suit

By Andrew Webb
Copyright 2007 Albuquerque Journal; Journal Staff Writer
    Lights, camera, legal action!
    Two California businessmen building the $74 million Albuquerque Studios are being accused of fraudulently using money and the name of the historic Culver Studios to help get the local project off the ground.
    Pacific Coast Capital Partners, or PCCP, is the majority owner of Culver Studios. It filed suit Monday in Los Angeles County Superior Court against Pacifica Studio Equity Partners and its principals, Hal Katersky and Dana Arnold.
    Katersky and Arnold are also principals in Pacifica Ventures, which owns the nearly complete Albuquerque Studios at Mesa del Sol.
    Pacifica is described as a specialty real estate company serving the film industry.
    The lawsuit alleges Katersky and Arnold, who managed Culver Studios from 2004 until October 2006, charged more than $1 million to Culver Studios for services not related to Culver.
    Representatives from Pacifica Ventures on Thursday called the lawsuit "outrageous" and said a countersuit is planned.
    The "fraudulent" expenses listed in the complaint included trips to New Mexico and Europe to look at studio properties, paychecks to employees of Albuquerque Studios and payments to consultants and lawyers involved in projects unrelated to Culver.
    The suit alleges Katersky and Arnold hid the expenditures in financial reports to Culver's owners.
    The suit claims that, because of the improprieties, Pacifica, Katersky and Arnold didn't meet the requirements of their contract to manage Culver and are therefore not entitled to an ownership share in the studios.
    It seeks unspecified damages and a permanent injunction against Pacifica, Katersky and Arnold from claiming ownership of Culver Studios.
Ownership dispute
    The lawsuit is the latest salvo in a dispute over Pacifica's claims of an ownership stake in Culver Studios.
    Pacifica, which built Albuquerque Studios with the financial backing of two union pension funds, has said for at least two years that it acquired Culver Studios from Sony Pictures in 2004.
    Last week, Katersky clarified that. He said he and his partners were given a small stake in Culver for helping negotiate the sale of the studio from Sony to a joint venture between PCCP and New York-based investment bank Lehman Brothers.
    Published reports said the deal was worth $123 million.
    The lawsuit says Katersky and Arnold helped broker the deal and were charged with managing day-to-day activity of the studio.
    Pacifica's contract with PCCP, according to the lawsuit, gave them a 12.5 percent stake in any proceeds from the eventual deal, providing their contract was not terminated "for cause."
    Though Pacifica's contract expired Oct. 31, 2006, PCCP contends their "various acts of fraud and embezzlement," which occurred throughout Pacifica's management of Culver Studios, constitutes a "for cause" event and therefore terminates any equity stake in Culver Studios.
    The suit is based on audits performed by a third-party California accounting firm.
    The audit report cites several expenditures made by Pacifica while it managed Culver Studios. They include:
  • Payments to BNSF Railway Co., which owns an Albuquerque railyard where Pacifica originally intended to build a studio;
  • Payments exceeding $20,000 to Albuquerque Studios employees;
  • Payments to attorneys representing Pacifica in a separate lawsuit brought by a former partner.
        Pacifica, in a statement, says the expenditures were either approved by PCCP or reimbursed and alleges the plaintiffs aim to "deprive Arnold and Katersky of their rightful interest in the Culver Studios."
        Katersky said a countersuit is coming.
        "We will be suing all the principals in Pacific Coast Capital Partners, Culver, and (Culver financier) Lehman Brothers for this outrageous lawsuit," Katersky told the Journal.
    'Without merit'
        In its statement, Pacifica contends it transformed Culver from a virtually empty space to a "thriving independent studio serving all of the major producers and broadcast networks as well as independent producers, commercial makers and producers of special events."
        "The lawsuit is totally without merit," the statement says. "We believe it is brought in bad faith in an attempt to squeeze Arnold and Katersky out of their original interest in the Culver Studios."
        Albuquerque Studios has said the disagreement about Culver's ownership is immaterial to the $74 million complex of massive soundstages and office space at Mesa del Sol, a sprawling planned development south of the Albuquerque International Sunport.
        Culver Studios has been in operation since 1918 and served as the set for "E.T." and "Gone With The Wind."