Budget Fraud in the Film Industry
Most movies rely on money from different investors in order for them to take off. Typically, when a film investor puts down money for a film and the movie is successfully released, revenues from the movies will first go back to the investors to repay their investments and settle all debts incurred during the production of the film. Then, the profit sharing is the next thing to do and usually, the profit is shared evenly between the investors and producers. The producers pay the cast, director and writers from their own profits. Of course, prior to investing, all investment proposals would have been put into writing with arbitration clauses in case there is ever a need to resolve any disputes.
The normal thing to do is put a completion clause in place to cover cost overruns instead of making investors bear the burden. But the question to ask is, “does fraud take place in the film industry?” The answer is yes, fraud happens when money from investors disappears or is mismanaged and the investors not having full transparency into the profits and losses made from the films. The sensible thing, is to place the funds raised from investors in an escrow account for more accountability and transparency. If the minimum amount is not raised, the funds should be returned to the investors and that is why it is important for investors to work with an experienced professionals in the film industry.
But in rare cases where investors do correctly complete their due diligence and falls into the hands of fraudsters, we wonder if this happens at all. There have been instances where supposed movie producers approach investors about a film under the pretext that they have put some of their own monies in the project as well, and the investors supports the project with more money. What usually happens in cases like this is that the chain never ends. Whatever money a new investor pays will be used to pay back earlier investors — similar to a Ponzi scheme. Of course, the movie is never completed, leaving the investors frustrated.
But in cases where a movie is actually produced, released and distributed, some film producers do not provide transparency into the accounting and profit distributions. Distributed ledger technology provides transparency into the use of funds.