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Some Guidance on Federal Securities Law and Film Financing Disputes

By Stan Soocher
November 01, 2019

Disputes over film financing agreements are common, but there are few court decisions that address film financing dustups involving §10(b) of the federal Securities Exchange Act. Now the U.S. District Court for the Middle District of Florida has issued a ruling that addresses the pleading requirements for alleging a §10(b) violation, in litigation between an investor and a film production company. Skypoint Advisors LLC v. 3 Amigos Productions LLC, 2:18-cv-356.

The case arose out of a $50,000 investment by the Florida-based Skypoint Advisors in the Nevada-based 3 Amigos Productions' movie project Lazarat Burning. After becoming concerned about the film's production, Skypoint filed suit alleging 3 Amigos refused to return the $50,000 investment. Skypoint claimed that 3 Amigos' seeking of investors "was merely a facade for a criminal scheme" and that the movie project was a "vehicle for fraud and theft."

The complaint included a §10(b) claim. Senior Middle District Judge John E. Steele explained of the elements for pleading a claim under §10(b) and its implementing provision Rule 10b-5: "[A] plaintiff must adequately allege: (1) a material misrepresentation or omission; (2) scienter [knowledge]; (3) a connection between the misrepresentation and the purchase or sale of a security; (4) reliance; (5) economic loss; and (6) loss causation."

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