Friday, July 17, 2009

Paris Hilton film trial rooted in Ponzi scheme

Paris Hilton film trial rooted in Ponzi scheme

In an odd intersection of showbiz and securities fraud, proving a claim that Paris Hilton was a lousy pitchwoman would benefit investors jilted by a Ponzi scheme she had no part in.

A federal lawsuit set to go to trial Thursday against Hilton contends she didn't do enough to promote the 2006 sorority hijinks movie "Pledge This!" and seeks about $8 million in damages from Hilton and her company, Paris Hilton Entertainment Inc.

One of the main investors in the box-office bomb was once a high-flying concert and theater promoter from Miami named Jack Utsick, who was listed as one of the movie's producers. When the admittedly bad movie lost money, his now-defunct Worldwide Entertainment Group took a financial hit.

But it's not Utsick who's suing Hilton. Rather, the lawsuit stems from an effort to repay people ripped off in what federal securities investigators say was a $300 million Ponzi scheme hatched by Utsick. Hilton's work on the film had nothing to do with the scheme.

The Securities and Exchange Commission said Worldwide Entertainment was a multimillion-dollar fraud and won a civil judgment earlier this year against Utsick and several associates. A federal judge appointed attorney Michael Goldberg as receiver to collect as much money as possible for some 3,300 wronged investors.

It was Goldberg who filed the lawsuit against Hilton. He claims she failed to adequately promote the DVD release for "Pledge This!" and that she deprived the film's investors of $8.3 million in profits by not cooperating.

Hilton and her attorneys claim she went the extra mile to plug the movie, which played in just 25 theaters and made only about $2.9 million worldwide, according to court documents. Hilton, 28, is expected to testify in the three-day bench trial before U.S. District Judge Federico Moreno.

In a deposition, Hilton said she did promotion events at the Cannes Film Festival in France, appeared at the movie's Chicago premiere and generally mentioned it publicly whenever possible.

"Any chance I got, any red carpet, any press, if I was doing something for another product, even if I wasn't asked about it, I would just bring it up," she said.

Goldberg, however, contends that she rejected numerous TV talk shows and wouldn't do several radio or magazine interviews to promote the movie despite a contract requiring her to do so. But Hilton, who was paid $1 million to act in the movie, counters she never was paid a promised $125,000 bonus.

The film's completion came as Utsick's Worldwide Entertainment venture was plummeting from its once-lofty perch that included setting up concert tours for acts such as Elton John, Shania Twain, Ricky Martin, Santana, the Pretenders and Aerosmith.

The SEC claimed in a 2006 lawsuit that Utsick and his associates ran a Ponzi scheme, promising unreasonable returns while pocketing money to fund a lavish lifestyle and paying off older investors with cash from new ones.

Utsick refused to leave Brazil, where he now lives, to give a deposition in the SEC lawsuit, contending through his attorneys that he'd be arrested in the U.S. No criminal charges have been filed against him, and Utsick claims that the SEC's allegations are wrong and plans to appeal, said his lawyer Richard Kraut.

Utsick "wants it known to all that he operated a large, worldwide business with legitimate operations," Kraut said.

U.S. District Judge Paul Huck took a different view, ordering Utsick in May to cough up more than $4.1 million in ill-gotten gains and assets that afforded him a rented luxury Miami condominium, yacht and vintage cars. Any money recovered from Utsick or the Hilton lawsuit would go to defrauded investors.

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