Newport Beach Producer Acquitted in B-Movie Ponzi Scheme

A Newport Beach man was acquitted today, while his partner, a Laguna Niguel B-movie producer was convicted of orchestrating a multimillion-dollar Ponzi scheme involving five films.

Mahmoud Karkehabadi, 55, owner of Alliance Group Entertainment, was convicted of 51 felony counts, most of which involved the fraudulent sale of securities and grand theft. He is scheduled to be sentenced March 15 and could face about 30 years in prison, said Assistant Attorney General Patricia Mary Fusco. Jurors acquitted Timothy Cho, 56, of Newport Beach, of all charges.

The scheme stemmed from the production of five independent movies that featured mixed martial arts fighter Quinton ``Rampage'' Jackson and rapper Flavor Flav, among others. Prosecutors alleged it was a $9 million Ponzi scheme, but jurors found the loss was between $500,000 to $3 million for 21 investors.

``It was such a long ordeal,'' Cho said after the verdicts were announced. ``I'm glad this is over and I'm glad the truth came out.''

Cho's attorney Michael Molfetta slammed the prosecution.

``The government decided through a series of really unfortunate, nonsensical decisions to try to tarnish his reputation,'' Molfetta said. ``This case was tantamount to taking the taxpayers' money and lighting it on fire...It was a complete waste of time.''

Fusco said she was ``a little surprised'' by the jury's verdicts.

``But I'm pleased the jury agreed that Mr. Karkehabadi was guilty of almost everything,'' Fusco said.

She defended the prosecution of Cho.

``I follow the ethical rules of the court and I charge those I believe are responsible for criminal conduct, but it's always up to a jury,'' Fusco said.

Co-defendant Deanna Ray Salazar pleaded guilty June 27 of last year and was sentenced to a two-year prison term. Salazar testified during the trial and her state prison commitment ran concurrent with a federal sentence she is serving for an unrelated Ponzi scheme, Molfetta said.

``She got a freebie on this one,'' Molfetta said.

Karkehabadi's attorney, Robert Weinberg, said his client intends to appeal.

``The essential argument of the attorney general was my client stole $10 million and the jury rejected her theory and found to the contrary,'' Weinberg said, noting that his client faces substantially less time in prison than if he were convicted on all counts.

Prosecutors argued that more than 150 investors from across the country made loans to Alliance Group Entertainment to produce B-movies since 2005, including ``Confessions of a Pit Fighter,'' which starred rapper Flavor Flav, and ``Hotel California.''

Molfetta said ``Hotel California'' had an offer of $15 million for distribution that fell apart when the economy imploded in 2008. Karkehabadi promised investors they would get their money back in a year no matter how well the movie did with audiences, prosecutors said. The promised returns were between 18 to 35 percent.

Karkehabadi convinced investors to roll their ``loans'' over into another project after a year or agree to extensions on repayment of the loans, according to the prosecution.

Bank records showed most of the money in Alliance's accounts was from investors, and their money was used to pay principal and interest to earlier investors, prosecutors said. Records showed deposits of more than $11 million from the investors and only $535,000 in revenue from the movies, prosecutors said.

The attorney general's office began its investigation in 2008 after receiving a referral from the Department of Corporations, which was prompted to look into the accounts when investors complained.

The attorney general in 2003 won a $5 million judgment against Karkehabadi for deceptive marketing of credit cards that couldn't be used in stores and for violating California's false advertising and unfair business practices laws. Karkehabadi declared bankruptcy after that, but did not tell his investors, prosecutors said.

Cho wasn't told either, Molfetta said. Salazar testified that Cho was surprised when he found out the producer's name was not Mike Karkeh, but was  Mahmoud Karkehabadi.

- City News Service