Relativity Media Investor Claims $12.5 Million Fraud
By Gene Maddaus
LOS ANGELES (Variety.com) – A hedge fund investor is doubling down on his claim that Ryan Kavanaugh defrauded him into investing into Relativity Media, the twice-bankrupt mini-studio.
Carey Metz filed an amended lawsuit in Los Angeles Superior Court on Thursday, accusing Kavanaugh, the founder and CEO, of conning him into making a $10 million investment in the company in 2013. Metz had earlier alleged that Kavanaugh duped him into making a $2.5 million investment in the company as it verged on bankruptcy in 2015.
The amended complaint comes two weeks after a New York bankruptcy judge dismissed portions of Metz’s original complaint alleging breach of oral contract, unjust enrichment, and other torts. Judge Michael Wiles held that Metz’s claims were barred by a release that accompanied Relativity’s initial plan of reorganization in 2016.
Relativity first recently declared bankruptcy for a second time, having failed to raise $100 million in new equity since first emerging from bankruptcy two years ago. The company is now seeking a bankruptcy sale to UltraV Holdings.
Wiles’ ruling did not bar Metz from pursuing allegations of fraud. In the amended complaint, he alleges that Kavanaugh lied in order to get Metz to invest the original $10 million.
“He did so by misrepresenting that Relativity based its investing decisions on a proprietary algorithm and computer model based on a rigorous set of inputs and assumptions that enabled it to predict a film’s potential success with greater reliability than even the most experienced studio executives,” the suit states.
Only after making the second investment did Metz discovered the alleged fraud, the complaint states.
“Metz discovered, for the first time, that Relativity’s vaunted model for predicting the potential financial success of a movie lacked mathematical rigor and was of limited, if any, value as a predictive tool,” the suit alleges. “He also discovered that, contrary to Kavanaugh’s representations at the time he originally invested in 2013, Relativity had not consistently followed its own computer model when making decisions about what films to finance.”
Kavanaugh’s representative did not immediately respond to a request for comment.
Update, 10:42 a.m. Friday: Kavanaugh’s spokesman issued the following statement:
“Carey Metz signed a full and complete release; he was on the board of Relativity and had equal or better access to information than Kavanaugh; and the statute of limitations has long passed for his claim. It is suspicious coming on the heels of Metz’s recent loss in US Bankruptcy Court.”
