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As expected, criminal charges follow civil action in Horwitz case. Professional investment advisers are at risk.

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There's an actor called Zachary Joseph Horwitz. He's also known as Zach Avery. He lives in a place called Berverlywood. Honestly. It's not Beverly (sic) Hills and it's not Hollywood. Actors, at least the good ones, are skilled at creating an illusion. What you see is not supposed to be real.

So what happens when an actor takes those skills away from the stage? The answer is... he gets arrested for fraud. And then the Federal Bureau of Investigation gets excited and issues a media release worthy of a hyperbolic - and grammatically dubious - studio. But under that, there's actually a good story.

We are not going to try to correct the grammar in this: "Investigators Estimate Victims of Ponzi Scheme Put Nearly One-Quarter Billion Dollars into Company that Has Not Been Repaid."

Here's the press release that was under it. Our previous story on this topic is here: KYC: Don't buy the Hollywood Dream

Beverlywood Man Arrested for Allegedly Bilking Investors by Falsely Claiming to License Latin American Film Rights to Netflix and HBO
Tuesday, April 6, 2021
LOS ANGELES – A Beverlywood man was arrested this morning on a federal criminal complaint alleging that victims put $227 million – investment principal that has yet to be repaid – into a scheme based on false claims their money would be used to acquire licensing rights to films that HBO and Netflix had agreed to distribute abroad, particularly in Latin America.

Zachary Joseph Horwitz, 34, who has used the screen name “Zach Avery,” was taken into custody by special agents with the FBI. The criminal complaint was unsealed during Horwitz’s initial appearance this afternoon in United States District Court.

The criminal complaint filed Monday charges Horwitz with wire fraud, a crime that carries a statutory maximum penalty of 20 years in prison.

According to the affidavit in support of the complaint, over the course of about five years, Horwitz solicited investors to invest in his company – 1inMM Capital LLC – which he claimed would use the funds to purchase regional distribution rights to films and then license the rights to online platforms such as Netflix and HBO. Horwitz provided promotional materials to investors that claimed 1inMM Capital offered “safe” investments because “we receive confirmation from each of our outputs indicating their desire to acquire the rights to any title we purchase PRIOR to us releasing funds for the film,” according to the affidavit.

However, instead of using the funds to acquire films and forge distribution deals, Horwitz allegedly operated 1inMM Capital as a Ponzi scheme, using victims’ money to repay earlier investors and to fund his own lifestyle, including the purchase of his USD6 million Beverlywood residence.

The scheme allegedly began in 2015, when investment firms began entering into a series of 6-month or 12-month promissory notes with 1inMM Capital based on Horwitz’s statements. The funds supplied under each note were supposed to provide money for 1inMM Capital to acquire the rights to a specific film. To convince investors he was legitimate, the affidavit states, Horwitz provided investors with fake license agreements, as well as fake distribution agreements with Netflix and HBO, all of which contained forged or fictional signatures. Despite Horwitz’s claim of “solid relationships” with online platforms, representatives for Netflix and HBO have denied that their companies engaged in any business with Horwitz or 1inMM Capital, the affidavit states.

Investors started to complain after 1inMM Capital began defaulting on notes at various times in 2019, the affidavit states. To prolong the scheme in the wake of mounting defaults, Horwitz provided excuses that were purportedly given by Netflix and HBO, forwarding to investors spoofed correspondence with Netflix and HBO in which Horwitz again fraudulently used the identities of Netflix or HBO employees.

According to the affidavit, private investment firms have transferred approximately USD227 million to 1inMM Capital pursuant to promissory notes since late 2018. Horwitz, through 1inMM Capital, allegedly has defaulted on all these underlying notes.

A criminal complaint contains allegations that a defendant has committed a crime. Every defendant is presumed innocent until and unless proven guilty in court.

During this afternoon’s initial appearance, a United States Magistrate Judge set Horwitz’s bond at USD1 million, but he will not be released from custody until the bond is approved. An arraignment in this matter was scheduled for May 13.

Notes

In the action by the Securities and Exchange Commission, it is alleged that the fraud amounted to USD619 million. No explanation has been provided for the discrepancy but there is an interesting aspect to the Department of Justice's press release: it appears to relate to moneys paid by investment businesses. That's going to include "hedge funds" and "family offices." In short, professional investment advisers put money into this alleged fraud. This raises the question as to how much due diligence they did, or should have done and whether it is reasonable to rely on a single source of information in relation to its efficacy.

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