Glen Hartford, a film producer, founded Cinamour in 2000 to make and distribute independent films, and served as its chief executive officer and majority shareholder. Glen Hartford used telemarketing to solicit money from individual investors to finance three movies: Forbidden Warrior, From Mexico with Love, and Red Water 12. These three movies are the basis of the United States v. Toll indictment.
Cinamour began raising money for Forbidden Warrior in 2001 out of a telemarketing boiler room in Los Angeles, California. James Lloyd and Paul Baker were involved in the Forbidden Warrior fundraising. That movie was released in 2005 directly to video distribution and made about $500,000, a commercial failure of large proportions.
From 2004 to 2007, Cinamour used telemarketing to solicit purchases of partnership units to finance From Mexico With Love. Cinamour raised approximately $14.2 million from 445 investors nationwide. From Mexico With Love grossed about $800,000 from a very limited theatrical release. The investors received no return on the money they sent. James Lloyd, Paul Baker, and Albert Greenhouse were involved in soliciting investments in From Mexico With Love.
In 2007, Cinamour began telemarketing sales of partnership units in Red Water. Cinamour raised approximately $2.8 million from approximately 100 victims nationwide but spent only $23,000 on making the movie. The investors lost everything. Paul Baker and David Nelson were involved in soliciting the investments in Red Water.
In 2009, after an undercover investigation, the FBI raided Cinamour’s Los Angeles offices. Glen Hartford committed suicide days after the raid.
The indictment in United States v. Lloyd arose from telemarketed investments in two movies written, directed, and produced by a former Central Intelligence Agency officer, Michael D. Sellers. Sellers retained Joel Lee Craft, Jr., founder and chief executive officer of American Information Strategies, Inc., to help raise capital for the films, Eye of the Dolphin and Way of the Dolphin. Michael D. Sellers worked with Joel Lee Craft, Jr., to set up telemarketing boiler rooms, hiring Robert Keskemety in Florida, and later, James Lloyd in California, to manage them.
In 2002, Michael D. Sellers recruited Robert Keskemety to establish and manage the Florida telemarketing office. The goal was to raise money for the two Dolphin movies. In 2004, Robert Keskemety began soliciting investments for Eye of the Dolphin. Michael D. Sellers asked Joel Lee Craft, Jr., to introduce him to other potential boiler-room managers. Through Joel Lee Craft, Jr., Michael D. Sellers met James Lloyd and hired him in 2007 to move from managing the Cinamour telemarketing office in Los Angeles to managing an office in the same city to solicit investments in partnership units to finance Michael D. Sellers’s films. Robert Keskemety and James Lloyd hired and paid the other telemarketers to raise money for the Dolphin films.
When James Lloyd began managing the Los Angeles boiler room for Michael D. Sellers, he had been working for Cinamour for over four years soliciting money for Forbidden Warrior and From Mexico With Love. He brought the same marketing techniques to selling partnership units in Eye of the Dolphin and Way of the Dolphin. The California and Florida boiler rooms together raised $9.6 million from 264 investors for the two Dolphin movies. Both movies failed. The investors in the first movie, as a group, received only $370,656 of their initial investment. The investors in the second movie lost everything.
The boiler rooms were similar. Less experienced telemarketers served as “fronters,” cold-calling potential investors from lists of leads and reading from scripts to pitch the investments. The scripts included assurances to prospective investors of quick and large profits with little to no risk. These promises, and the details supporting them, were false. If the cold-calls led to expressions of interest, “closers”—more experienced telemarketers—would follow up and try to get signed investment documents and a check to close the deal. “Reloaders” would induce some of those who had already invested to put in more.
Many of the defendants had multiple roles, but each of the appellants worked as closers some of the time. James Lloyd helped close investments in Forbidden Warrior and From Mexico with Love. Paul Baker helped close investments in Forbidden Warrior; From Mexico with Love, and Red Water. David Nelson helped close investments in Red Water. Albert Greenhouse helped close investments in From Mexico with Love. James Lloyd and Robert Keskemety were closers for Eye of the Dolphin and Way of the Dolphin.
James Lloyd, Paul Baker, David Nelson, and Albert Greenhouse also worked as “reloaders” on the Cinamour films, targeting those who had already invested to persuade them to invest more. Reloaders participated in conference calls with these investors. The calls included telemarketers who pretended to be investors and enthusiastically agreed to commit more money. James Lloyd also worked as a reloader on the two Dolphin films, but Robert Keskemety did not.
Most of the defendants asserted that they believed the leads they cold-called and persuaded to invest were suitable and accredited individuals who were sophisticated and financially able to risk losing the money. The trial testimony from and about the investors, as well as the information in the presentence reports, tell a different story. Many of the investors had no significant experience in investing and few had significant liquid assets. Many had or were about to retire. At the trial, some of the investors testified that they had told the fronters, the closers, and the reloaders about their limited investment experience, their limited resources, and their life situations. The investors repeatedly testified about the defendants’ assurances that the investments were risk free and would be returned with a profit within a short period. The investors briefly testified about the effects on them of losing the money.
The scripts the telemarketers used varied depending on the movie they were pitching, but there were many common elements. In initial solicitation cold-calls, the fronters stated that: (1) there was little to no risk in the investment because there were presale distribution contracts for the movies, which guaranteed that the investors would recoup their investments and make a profit; (2) investors would quickly begin to receive returns because the movies were completed or nearing completion and, with the presales contracts, would be distributed in the near future; (3) films previously produced by the same company had yielded good returns for investors; (4) the money invested would be used to make, promote, and distribute the movies, not to pay for fundraising, overhead expenses, or sales commissions; (5) the marketers earned little to no commissions; (6) investors would get their money back and more out of the movie proceeds before the promoters and Michael D. Sellers were paid; and (7) there was a time limit because the units would shortly become unavailable, requiring a quick commitment. These statements were affirmatively and materially false or omitted material information needed to make them true.
The evidence presented at trial and recounted in the presentence reports showed that there were few or no guaranteed presale distribution contracts and no prospects of obtaining them. While some of the movies were finished and failed in distribution, some were not in production and were never made. Prior investors in films produced by the same company had lost money. Most of the money from investors did not go to make or distribute the films, but to pay personnel and promoters. Most of the telemarketers earned 35 percent in commissions, although some earned as little as 12 percent and others as much as 40 percent. There was no time limit on the investments. Lies abounded.
If a fronter’s cold-call produced an expression of interest, the potential investor would receive a private placement memorandum. The memorandum contained some cautionary language but repeated many of the same lies. Closers would follow up, making similar promises to get signed investment contracts and checks. Some of the investors were later targeted for reloading through the staged conference calls. In general, the defendants did not contend that the statements they made were true, but rather that they believed what they were told to say.
Five defendants appeal their convictions or sentences for selling unregistered securities. The defendants worked for telemarketing “boiler rooms” in California and Florida, soliciting investments in partnerships to finance the production and distribution of movies. The defendants promised potential investors that the investments would return swift and large profits, with little to no risk. Approximately 650 individuals—including unsophisticated people who could not afford the financial loss—invested over $23 million. Most of the investors lost it all.
These appeals arise from two indictments issued in the Central District of California on June 15, 2011. The indictment in United States v. Daniel Toll et al., No. 11-cr-543-JFW, charged James Lloyd, who managed a boiler room in Los Angeles, California; telemarketers Paul Baker, David Nelson, and Albert Greenhouse; and eight others, all of whom worked through a California boiler room to sell partnership units in three movies produced (or supposed to be produced) by Cinamour Entertainment, LLC. The indictment in United States v. James Lloyd, No. 11-cr-542-JFW, charged James Lloyd, who left Cinamour to manage a different boiler room in California, and Robert Keskemety, who managed a Florida boiler room, along with seven others, for selling partnership units in two movies. These movies were produced by Q Media Assets LLC, a company owned by the same person who owned Cinamour. Both indictments charged conspiracy, mail fraud, wire fraud, and securities fraud between 2001 and 2009.
The two boiler room managers, James Lloyd and Robert Keskemety, were convicted after they pleaded guilty. They appeal only their sentences. Two Cinamour telemarketers working in California, David Nelson and Paul Baker, and Albert Greenhouse, a Cinamour telemarketer working in Florida, were tried together. David Nelson and Paul Baker appeal their convictions and sentences. The only issue in the Albert Greenhouse appeal is the sentence.
The number of defendants, the lengthy period involved, and the type of conduct made this a difficult case for any trial court to resolve. The record shows that the district judge competently and fairly resolved many of the innumerable issues that arose in trial and at sentencing. The points on which The United States Court of Appeals, Ninth Circuit, disagreed with the district judge raised issues that are both complex and close.
James Lloyd pleaded guilty to two counts of wire fraud and Robert Keskemety to one count of mail fraud. They appeal their sentences. The United States Court of Appeals, Ninth Circuit, affirmed James Lloyd’s sentence, but The United States Court of Appeals, Ninth Circuit, concluded that Robert Keskemety’s sentence for managing the Florida telemarketing boiler room improperly included fraud losses from the California boiler room that James Lloyd managed. The United States Court of Appeals, Ninth Circuit, vacated Robert Keskemety’s sentence and remand for resentencing.
David Nelson and Paul Baker appeal both the convictions and sentences entered after the jury convicted each of one count of conspiracy to commit mail and wire fraud and to offer and sell unregistered securities, two counts each of mail and wire fraud, and two counts of offering and selling unregistered securities. The United States Court of Appeals, Ninth Circuit, reversed David Nelson’s conviction based on evidentiary rulings, vacate the sentence, and remand. The United States Court of Appeals, Ninth Circuit, affirmed Paul Baker’s conviction due to the overwhelming evidence against him, making the evidentiary errors harmless, but The United States Court of Appeals, Ninth Circuit, vacated Paul Baker’s sentence and remand for resentencing because of an error in calculating the Guidelines sentence.
Finally, Albert Greenhouse appeals the sentence he received after the jury convicted him of two counts of offering and selling unregistered securities. The United States Court of Appeals, Ninth Circuit, found no error, and The United States Court of Appeals, Ninth Circuit, affirmed.
The facts summarized above are excerpted from what was written by the United States Court of Appeals, Ninth Circuit. More information is available from the source documents: Nos. 12-50499, 12-50500, 12-50509, 12-50514, 12-50526, 12-50566, United States Court of Appeals, Ninth Circuit December 4, 2015, opinion of Rosenthal with Berzon and Clifton concurring.