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Civil Complaint Sheds Light On Hollywood Industry Sweep

Previous posts here [1]here [2], here [3], and here [4] highlighted the so-called industry sweep of Hollywood film studies for its business practices in China. These prior posts were generally from 2012 and 2013 and given the passage of time it appears that this sweep did not yield any Foreign Corrupt Practices Act enforcement actions.

Nevertheless, this recent civil complaint [5] filed in California state court by Christopher Fenton (pictured – a former General Manager and Motion Picture Group President of DMG Entertainment) sheds light on the matter specifically as it relates to DMG Entertainment. In the complaint, Fenton alleges that after a “long, successful tenure with DMG, [and his] prominent role within the organization” DMG Entertainment, related entities and individuals failed to comply with certain contractual obligations and oral promises to compensate him in connection with the company’s eventual initial public offering.

Among the job tasks Fenton alleges in the complaint was his successful handling of the SEC’s FCPA investigation of the company. If nothing else, the allegations make for an interesting read on the alleged impact the FCPA inquiry had on Fenton’s life and career.

The complaint alleges:

“[I]n or about April 2012, DMG learned of an SEC investigation into potential violations of the Foreign Corrupt Practices Act (“FCPA”) by the Hollywood Studios. Soon after, DMG was notified by the SEC that it too was a target in the investigation, embroiling DMG ( as well as Plaintiff personally) in the ongoing SEC investigation of potential FCPA violations by DMG’s China-based executives. With DMG squarely in the SEC’s crosshairs, Plaintiff was prevented from furthering DMG’s alliances with the major studios, and even worse, many of Plaintiffs ongoing discussions and/or negotiations with major studios were abruptly halted, so Plaintiff had to find aggressive financiers who were willing to work with DMG to replicate the success of [certain films].

[6]

Under the heading “Plaintiff is Left to Manage the SEC’s Investigation Into DMG Without any Participation From the Founders,” the complaint alleges:

“As previously mentioned, DMG became involved in an SEC investigation concerning alleged violations of the FCPA in 2012. The investigation focused on DMG’s alleged bribery of Chinese officials, including Han Sanping, the chief executive of the China Film Group, which is a state-owned entity that effectively controls the movie industry in China. The SEC investigation also examined several Hollywood movie studios that engaged DMG to help navigate China’s quota and censorship systems, and to secure distribution of their movies in China.

In or about March 2012, prior to the SEC informing DMG of its investigation of DMG, Mr. Sanping (who was accompanied by Mintz’) met with executives at Sony, Universal and Disney, and also met with Bruce Willis, who starred in Looper, in Los Angeles. At or around that time, Mintz was photographed with Mr. Sanping and several other unnamed officials from the China Film Group aboard a private jet flight that DMG organized to fly the individuals to Las Vegas for the weekend.

As the head of DMG’s operations in the United States, Plaintiff oversaw, coordinated and became the face of DMG during its response to the SEC investigation, despite having no personal involvement in any of the events that gave rise to the investigation. At no point did Mintz, Wu or Xiao make themselves available to meet with the SEC for the investigation or alleviate the burden on Plaintiff. This caused Plaintiff substantial stress and exerted an immense toll on his family life, given that his personal and professional reputation (which he had worked decades to build) was at risk of being destroyed. The investigation also negatively impacted Plaintiffs ability to perform his job, as it tainted DMG’s and Plaintiffs personal reputation with Hollywood studios, production companies, banks and financiers, among others. Even worse, many of the lost business opportunities came with no explanation, since several of the Hollywood executives – whom Plaintiff dealt with on a regular basis and were people whom Plaintiff considered close friends – were under orders not to disclose the SEC inquiry of DMG as a reason for rejection. Instead, Plaintiff later confirmed his suspicions either when he learned of the hacked emails of Sony executives in late 2014 [see here [7] for a prior post on that topic] or when those executives came clean to Plaintiff after his departure from DMG in 2018. Meanwhile, during the majority of the investigation, Mintz, Wu and Xiao stayed out of the United States and had no communications whatsoever with the SEC, leaving Plaintiff to manage the investigation on his own. (emphasis in original).

On February 28, 2013, Plaintiff met with members of the SEC’s Los Angeles bureau. Plaintiff prepared and gave a presentation to educate the SEC on the workings of the Chinese film industry, and spent three and a half hours answering questions from the SEC about DMG’s business, even though many of the questions pertained to events in China for which Plaintiff had no involvement. DMG’s general counsel, Tim Shih, even praised Plaintiff for doing a “great job” during the presentation to the SEC. Throughout the investigation, Plaintiff handled DMG’s response to the SEC’s inquiries for information and documents. Plaintiff believed strongly in the purpose of DMG’s mission of bridging China’s and Hollywood’s film industries – a mission that when successful, not only provides innovative access for Hollywood to the Chinese audience, but also, most importantly, fosters cultural diplomacy between the United States and China in a very high-profile way. As a result, Plaintiff tirelessly responded to any concerns that the SEC had against DMG with regard to the alleged FCPA violations. Plaintiff’s responses to the SEC were in accordance with what he believed to be truthful at the time, although after seeing the reports of DMG’s troubles in China over the course of 2018, Plaintiff has reason to believe that pertinent information was deliberately withheld from him.

Ultimately, on September 2, 2015, due almost entirely to Plaintiff’s efforts, the SEC informed DMG in a written letter [set forth below] stating that the investigation into “DMG Media” was completed and no enforcement action was recommended, though the matter was never officially closed. […]  Thus, after enduring over three years with the black cloud of an SEC investigation hanging over his personal and professional life (which caused severe stress on both Plaintiff and Plaintiff’s wife, as well as creating stress-related health issues to Plaintiff, and triggering long bouts of insomnia as evidenced by lengthy emails from Plaintiff to Mintz), Plaintiff had navigated the investigation to a best possible and successful conclusion, as described by DMG’s counsel at Shepard Mullin and reiterated by Plaintiff’s personal counsel at Caldwell Leslie & Proctor, PC.”