Can Trump’s Treasury Secretary Mnuchin Shake Fraud Lawsuit?

Kavanaugh and Mnuchin

[Feature] RKA Film Financing is suing Relativity Media for misappropriating funds meant to finance advertising budgets for future releases, into the troubled company’s general accounts before filing for bankruptcy protection.

RKA Film Finance claims that Steven Mnuchin, now the United States Treasury Secretary, knew about several unrealistic film release plans and fraudulent budgets prepared by Relativity Media, but proceeded in securing an $80 million loan from RKA regardless.

Mnuchin served as Co-Chairman at Relativity from October 2014 to May 2015. He joined when Dune Capital Management, a private investment firm he founded, purchased debt and equity in Relativity.

While the Co-Chairman at Relativity he was also the CEO of the lead lender, OneWest Bank. Mnuchin remained in his position at Relativity until weeks before the company filed for Chapter 11 bankruptcy.

Et tu, Brute?

Before joining Trump’s administration, Mnuchin’s OneWest Bank funneled over $160 million into Relativity, at a time when it was an open secret that Relativity was operating as a Ponzi scheme.

Once the loan closed in May 2015, Relativity founder Ryan Kavanaugh and Mnuchin jetted around in their co-owned Dassault Falcon 50 jet to Aspen, Cabo, and Hawaii.

However, court documents reveal that one day before the loan matured, Mnuchin resigned from Relativity’s board and seized $50 million from Relativity’s bank accounts at OneWest. This withdrawal spiraled Relativity into bankruptcy; unable to pay vendors or complete and release films.

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Details of the Litigation

RKA loaned Relativity funds for the express purpose of prints and advertising for films including, Solace, Masterminds, and The Disappointments Room, but the funds were used to met Relativity’s general expenses and several sizable payouts to executives.

Latham & Watkins, the law firm representing RKA, claims that Mnuchin knew about the diversion of funds and was complicit in the fraud.

According to Christopher J. Clark, RKA’s attorney at Latham, Mnuchin not only knew about the fraud but also willfully aided its concealment.

“To cover his tracks when he knowingly misdirected the RKA P&A loans for impermissible purposes, Mnuchin surreptitiously obtained a legal opinion that purportedly blessed using those funds as working capital.” Furthermore, “if RKA had known what Mnuchin knew… it would have never extended loans in December 2014 and March 2015 that Mnuchin then misappropriated totaling over $50 million.”

Mnuchin Claims Ignorance

The more traditional defence Mnuchin is employing is that he had no financial relationship with RKA.

Sadly, in perhaps the most egregious attempt to evade responsibility, Mnuchin claims ignorance of film finance. Although, prior to leading a group of investors to buyout IndyMac (a sub-prime lender) and transform the bank into OneWest, he was a former banker at Goldman Sachs arranging slate financing for major studios, such as Fox.

In court filings, he continues to portray himself as an outsider and not an officer at Relativity for his lack of knowledge, involvement, and ultimately, liability.

What’s Next?

Judge Ramos in New York’s Supreme Court will soon decide if Mnuchin remains a plaintiff in the case. In oral arguments, he was openly flippant about including the now Treasury Secretary saying, “…if this is a way to plead fraud, you could join the Pope as a defendant in this case.”

However, RKA’s attorney pressed on, “…and when they made those [false] representations, they lied to us. When we asked questions, they lied to us. I’m not trying to overreach,” Clark said.

RKA Film Financing LLC v. Ryan Kavanaugh, et al., case number 652592/2015, in the Supreme Court of the State of New York, County of New York.