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Securities & Exchange Commission v. Braslau

United States District Court, C.D. California

November 17, 2014

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
SAMUEL BRASLAU, RAND J. CHORTKOFF, and STUART E. RAWITT, Defendants

For Securities and Exchange Commission, Plaintiff: John W Berry, LEAD ATTORNEY, Securities and Exhange Commission, Los Angeles, CA; Peter F Del Greco, U.S. Securities and Exchange Commission, Los Angeles, CA.

For United States of America, Movant: Ellyn M Lindsay, Office of U.S. Attorney, Criminal Division - U.S. Courthouse, Los Angeles, CA.

For Samuel Braslau, Defendant: Samuel Braslau, LEAD ATTORNEY, Law Offices of Sam Braslau, Los Angeles, CA.

For Rand J Chortkoff, Defendant: James D Henderson, Jr, LEAD ATTORNEY, James D Henderson Jr Law Offices, Santa Monica, CA.

ORDER GRANTING PLAINTIFF'S MOTION FOR DEFAULT JUDGMENT AGAINST DEFENDANT STUART E. RAWITT [36]

OTIS D. WRIGHT, II, UNITED STATES DISTRICT JUDGE.

I. INTRODUCTION

Samuel Braslau, Rand J. Chortkoff, and Stuart E. Rawitt fraudulently offered and sold securities to investors who were told their money would finance a multi-million dollar movie starring A-list celebrities that was " sure" to generate significant returns. (Compl. ¶ 1.) The movie was never made and, considering the large percentage of investor proceeds earmarked for purposes unrelated to making the movie, likely never could have been made. (Id.) The Securities Exchange Commission (" SEC") filed suit against Braslau, Chortkoff, and Rawitt for multiple violations of the Securities Act and the Securities Exchange Act. (ECF No. 1.) When Rawitt failed to respond to the Complaint, default was entered and the SEC moved for entry of default judgment. (ECF No. 36.) For the reasons discussed below, the Court GRANTS the SEC's Motion.[1] (Id.)

II. FACTUAL ALLEGATIONS

1. Formation of the Fraud

In 2010, Braslau and Chortkoff discussed acquiring several million dollars purportedly to finance the production of a movie. (Compl. ¶ 19.) In December 2010, Braslau formed Mutual Entertainment, LLC--a company that offered and sold securities in the form of " membership units" investors purchased ostensibly to finance the movie. (Id. ¶ 20.)

An unemployed actor was named the managing member of Mutual Entertainment, but Braslau exercised de facto control over the company, its finances, and operations. (Id. ¶ 21.) The actor-managing member and Braslau shared signature authority over Mutual Entertainment's bank accounts, but Braslau transacted all the activity and did not share records of his transactions. (Id. ¶ 22.)

In January 2011, Mutual Entertainment contracted with a film director to purchase the rights to an unpublished story titled Marcel, later retitled The Smuggler, for " $25, 000 or 1% of the final going in budget, whichever amount is greater." (Id. ¶ 23.) Film Shoot, LLC paid $25, 000 to Jasmine Pictures pursuant to this agreement. (Id.) An unemployed musician was named the managing member of Film Shoot, but Braslau exercised de facto control over the company, its finances, and operations. (Id. ¶ 42.) The musician-managing member and Braslau shared signature authority over Film Shoot's bank accounts, but Braslau transacted all the activity and did not share records of his transactions. (Id.)

Mutual Entertainment contracted with the same director to direct the movie and agreed to finance the estimated $3.5 million budget. (Id. ¶ 24.) The director was never used or paid. (Id.)

In February 2011, Mutual Entertainment contracted with Film Vergnuegen, Inc. to secure a producer. (Id. ¶ 25.) The producer was never used and was paid $75, 000. (Id.)

In March 2011, Mutual Entertainment began offering and selling up to $7.5 million of securities in the form of membership units at $1 per unit with a $25, 000 required minimum. (Id. ¶ 27.) The company reserved, and exercised, the right to accept investments less than $25, 000. (Id.)

2. Execution of the Fraud

Mutual Entertainment obtained investors through Mutual Entertainment Ventures, Inc. (" MEV") and Chortkoff. (Id. ¶ 28.) MEV and Chortkoff hired " fronters" to cold call potential investors from lead lists that MEV and Chortkoff purchased. (Id.) Braslau and Chortkoff created a script that fronters used to solicit potential investors. (Id. ¶ 29.) Per the script, fronters asked whether the person was a qualified investor and, if so, whether the person wanted to opt in and hear more about an " opportunity to get in with a production company seeking qualified investors." (Id.)

Once the self-accredited potential investor opted in, fronters explained that Mutual Entertainment was looking for people to invest in " the kind of project that only comes around once in a great while." (Id. ¶ 31.) Fronters said the movie would be directed and produced by professionals with previous commercial success. (Id.) Fronters provided a website with the movie's " proposed" A-list cast and asked whether the person was interested ...


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