Being the alleged unwitting middlemen should not excuse a group of Chicago financiers from their share of liability for their alleged roles in helping a would-be Hollywood actor allegedly use fictitious content licensing deals with Netflix and HBO to allegedly swindle investors in a $690 million Ponzi scheme, two lawsuits assert.
On Oct. 20, attorneys with the firm of Loftus & Eisenberg filed an amended class action against JJMT Capital in Cook County Circuit Court. According to the complaint, JJMT is legally registered as a corporation in Delaware, but its headquarters and members are all located in Chicago and Cook County.
The original lawsuit against JJMT was filed in April in Cook County court.
The amended class action came five days after the Loftus & Eisenberg attorneys filed a related individual action against Tyler Crookston, who had been affiliated with JJMT in the past.
Both lawsuits level similar accusations against both JJMT and Crookston.
JJMT and its group of “young but sophisticated financial professionals” rose to prominence in the public eye, after federal agents arrested Zachary Horwitz in Los Angeles in April. Horwitz was charged in connection with his alleged role in creating and leading a Ponzi scheme estimated to be worth about $690 million.
The scheme was allegedly centered on Horwitz’s company, 1inMM. According to court documents, Horwitz allegedly misled investors into believing he had stumbled upon an amazing business opportunity, in which he would purchase distribution rights for films, particularly from Latin America, and then license them to Netflix and HBO for distribution.
To further his alleged scheme, Horwitz, who had attempted to pursue an acting career in California under the name Zach Avery, allegedly enlisted the assistance of some of his old college friends, the financial professionals who came together to form JJMT Capital.
According to court documents and published reports, Horwitz allegedly persuaded his old friends to work to recruit and onboard investors, willing to take stake in the alleged fictional film licensing enterprise.
JJMT then allegedly signed up enough investors to amass more than $400 million to help fuel the 1nMM scheme, according to the class action complaint.
According to the complaints, under the arrangement, JJMT would recruit investors, and then lend money to Horwitz and 1nMM, in the form of promissory notes. JJMT would then charge 35% interest, while paying investors 20% interest, reserving 15% interest for the members of JJMT.
According to court documents, Horwitz allegedly used the hundreds of millions of dollars he allegedly illegally amassed to fund lavish personal spending, and never actually sought any kind of legitimate business relationship with Netflix, HBO or any other media distributors.
The plaintiffs acknowledge JJMT didn’t know the content licensing scheme was fraudulent, even as they worked for years on Horwitz’s behalf. Further, Crookston allegedly stopped working with JJMT in 2018, out of suspicion that Horwitz’s business plan may be a sham.
However, the plaintiffs said JJMT and Crookston should have discovered the truth much earlier.
In the complaints, they assert the members of JJMT failed to checked into any of Horwitz’s claims, including checking the credit and business history of 1nMM, or simply checking with Netflix and HBO to verify Horwitz’s story.
Further, the complaint asserts, the JJMT partners also never sought to validate Horwitz’s estimated investment returns.
Instead, the complaints claim, JJMT – and Crookston, for the first few years of the venture – simply relied on Horwitz’s assertions, and continued to do so, "lulled" by the continued paychecks.
Even after his departure, the complaint asserts, Crookston did not tell any investors of the possibility of fraud. Rather, he allegedly told investors he remained “heavily invested” in JJMT.
Further, the complaint asserts Crookston received a $4 million severance, amid his “perfectly timed” departure, which allegedly left him with a bigger payout than anyone else involved in the 1nMM venture.
After Crookston’s departure, the class action complaint said, JJMT continued merely “parroting” Horwitz’s “lies,” “cloaking the scheme in their own credibility.”
“JJMT acted as brokers for investment in 1inMM and owed well defined duties in that role to do some investigation into the investment before offering it,” the plaintiffs wrote. “Instead, JJMT operated in willful ignorance and never sought any third party confirmation of Horwitz’s stories.”
“… Had JJMT called HBO or Netflix, obtained 1inMM bank records, or ordered an audit, as required by controlling regulations, before recommending this investment, all of this would have been prevented and Plaintiff and the class would not have even been presented with this ‘opportunity.’”
According to the complaints, JJMT hired lawyers in February 2021 to “determine validity of 1nMM and to pursue litigation,” and informed investors of the Ponzi scheme on Feb. 28.
“Obviously, the time to determine the validity of 1inMM with the help of competent counsel was before selling nearly $400 million in investment into it,” the plaintiffs said.
Federal investigators filed a securities fraud complaint against Horwitz on April 5, “detailing the obvious fraud that was easily unraveled with minimal investigation.”
The complaints seek damages of at least $120 million from JJMT, and more than $500,000 from Crookston, plus attorney fees.
The plaintiffs in the 1nMM- and JJMT-related actions are represented by attorneys Alexander Loftus, David Eisenberg and Jeffrey Dorman, of the Loftus & Eisenberg firm, of Chicago.