Banks Claim they Were Scammed by Regent Group

BY BOB KECSKEMETY

LOS ANGELES – Merrill Lynch and Bank of America claim they were scammed for $90 million by a director of the Regent Group of Entertainment Companies, who used bogus movie license and distribution agreements to get loans. Merrill and BofA claim that Stephen P. Jarchow and his string of companies falsely represented that they would use the money to buy film rights and advertising, but used it to line Jarchow’s pockets instead.

The Regent Group includes: Out Magazine, The Advocate, Alyson Books, Gay.com and the here! subscription cable network.

However, the Regent Group’s largest financial activities were in Hollywood where, according to the 57 page complaint filed with the Superior Court was, “finances, produces and distributes theatrical and television motion pictures.”

Merrill Lynch (now a division of BofA) claims that in 2005 and 2006 it advanced $50 million on two loan agreements to Regent’s affiliates, for them to acquire film rights and “to finance the print and advertising costs in connection with the exploitation” of those film rights, which were considered collateral, the complaint states.

Merrill Lynch became part of BofA shortly after the stock market crash and financial crisis in the United States, which began in 2008.

Regent promised to sublicense the film rights to get licensing fees, which would be used to pay back the loans, according to Merrill.

Merrill contends that it based its loans to Regent on licensing contracts with third parties. But it claims that Regent and its affiliates “conspired to create sham license and distribution agreements to give the appearance that the films being financed were contractually entitled to a fixed revenue of a certain amount.”

According to the 57 page court complaint, Merrill states that in order to assist in creating a cover, Jarchow “formed undercapitalized shell entities” which were used as parties in the bogus agreements and that from April 2008 through September 2009, Regent’s affiliates “knowingly created unreasonable, inflated – and possible fake – release strategies, financial projections, marketing strategies and film distribution budgets” which they sent to Merrill to support its funding requests.

It continues : ” (The) Defendants knew that these marketing and release strategies and distribution budgets would never be adhered to or executed and that they were inappropriate for the scope of the, more often than not, low-quality straight to DVD film titles, but submitted them to Plaintiffs anyway.”

The complaint also says that Regent may have submitted requests for funding the same films under multiple loan agreements and that many of the films they bought rights for went directly to their cable channel, here!, which Jarchow is chairman of the board.