Fortress Investment Group $FIG Faces Fraud Charges

FORTRESS INVESTMENT GROUPFortress Investment Group (FIG), which is managed by Michael Novogratz, has been named as a defendant in a 48-page complaint filed with the Los Angles County Superior Court on February 8. The complaint was filed by Aramid Entertainment Fund, a film investor. It alleged that Relativity Media and Fortress “defrauded it of at least $44 million in connection with a slate of past and future films from Sony Pictures Entertainment,” reports the New York Times. In the complaint, “It described the inner workings a financial deal under which Citibank, before the 2008 financial crisis, committed $525 million to an investment fund run by Relativity and its chief executive Ryan Kavanaugh, but recently bargained its way out because of pressure from Federal officials to liquidate risky media loans.” Sony (SNE) nor Citibank, a subsidiary of Citigroup (C), were named as defendants in the suit.Relativity Media “has backed dozens of films at both Sony and Universal Pictures through its Beverly investment funds. It has since acquired both the Rogue and Overture film operations, while branching into distribution with films like “Immortals” and “Haywire,” and receiving a $14.5 million cash infusion from Fortress.” According to the complaint, “Fortress simultaneously paid Citibank $113.5 million for notes with a balance of $226 million… In all, …the transactions left Fortress with a profit of about $81.6 million, while wiping out $44 million in loans and accrued interest that were due Aramid as a so-called “mezzanine” lender in a deal that had backed Sony films like “Salt,” “Paul Blart: Mall Cop,” and the yet-to-be-released “21 Jump Street.” In its complaint, Aramid calls the Fortress-Relativity alliance “one of the greatest heist stories ever told in the movie business” – a claim it defends by recounting dealings in which Kavanaugh became a major financier in the movie business in spite of the fact that his company “did not have its own funds.”

Aramid claims that Fortress “then collected credits and fees on films that, in the aggregate, fell short of a projected return to Aramid.” Once the films failed to meet expectations, alleges Aramid, “Fortress persuaded Sony executives to terminate future obligations of the Beverly slate by agreeing to give up $6 million in payments from the first ten years of film sales, and an additional $216 million from the next 20 years of sales to television, home video and digital services.” Aramid says that the reduced terms “wiped out its own prospects for repayment, while enabling Fortress — which had earlier examined the Beverly deal while considering a transaction with Aramid — to cut deals with Citibank and Relativity.”

Relativity is the company behind such hits as “Cowboys & Aliens” (2011), “Bridesmaids” (2011), “Little Fockers” (2010) and “Nine” (2009). According to the Internet Movie Database, Relativity Media will release 9 movies in 2012, including “Wanderlust” and “21 Jump Street”. It spun off from Universal Pictures, which is owned by the Comcast Corp (CMCSA), in June. It was backed by hedge fund Elliott Management Corp. However, Paul Singer, the founder of Elliott Management, sold the majority of the fund’s stake in Relativity Media to billionaire Ron Burkle in January, retaining just a small portion of the company. Burkle owns a large stake in Barnes & Noble (BKS) and is a Director at Yahoo (YHOO), Occidental Petroleum (OXY) and Morgans Hotel Group (MHGC).

Investors in Fortress Investment Group could feel the sting if the case goes in Aramid’s favor, making it a good time to sell or short the stock. However, we are more optimistic. We think that if the case goes to the wayside, Fortress shares will pop. Besides, the company is a decent bet. As of February 9, Fortress Investment Group was priced at $4.38 a share. Analysts predict it could go as high as $7.00 a share in the next year. Fortress Investment Group is also priced low, with a forward P/E ratio of 7.77, and it has strong expected growth. Analysts predict the company’s earnings will grow at a rate of 15.00% per annum over the next five years, easily outpacing its industry’s expectations of 12.52% and its sector’s 10.15%, making it a good buy.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!