A group of Chicago area investors who claim they were swindled out of $100 million by Hollywood move financier Jason Cloth have settled their claims against a Chicago intermediary they say acted as a broker to help Cloth run his alleged Ponzi scheme, under a deal that would sign over the broker's $60 million claim against an insurance company.
On Sept. 24, attorneys for named plaintiff Diane Fowler and a class of additional allegedly bamboozled investors asked a Cook County judge to sign off on a settlement with defendant Sanford Schmidt and his firm, Schmidt Advisory Services Inc.
The firm does business as Catalyst Wealth Management.
The settlement does not provide for the immediate transfer of any money. Rather, it assigns to the plaintiffs the right to directly sue Schmidt's insurer, Markel American Insurance Company. In a memorandum to the court explaining the settlement, the plaintiffs assert Schmidt "has limited assets and lost $6 million in the scheme himself." But they assert Markel Insurance allegedly "breached its duty to Schmidt."
Plaintiffs' attorneys say they believe the forthcoming legal action alleging bad faith against Markel should be worth as much as $60 million.
"The settlement yielding a $60 million judgment is an extraordinary result," said attorney Alexander Loftus, of the Chicago firm of Loftus & Eisenberg, who are representing the plaintiffs, in a statement posted online to his Linkedin page.
"Rather than engaging in lengthy litigation that would have depleted the local advisor's (Schmidt's) assets, we worked with experienced insurance coverage attorneys to achieve a settlement that should return the vast majority of the investors' losses directly from insurance via a bad faith claim."
The settlement only resolves the plaintiffs' claims against Schmidt within the larger class action over the alleged Ponzi scheme. The claims against Cloth continue, Loftus and the plaintiffs said.
The lawsuit centers on investment pitches worth as much as $180 million run by Cloth and his associations from 2019-2023. According to the complaint, included entities known as BRON Studios, Creative Wealth Media Finance Corp. and C2 Motion Picture Group.
According to the complaint, the various business entities were all in on the alleged Ponzi scheme, allegedly allowing Cloth and his associates to shift funds among the various corporate entities and avoid repaying most investors.
According to the complaint, they follow a "business model" set by a Canadian entity known as Crystal Wealth, which was operated by a man identified as Clayton Smith and in which Cloth was allegedly involved.
According to the complaint, Crystal Wealth was shut down under an investigatory action launched by Canadian financial regulators.
In the meantime, the lawsuit asserts BRON Studios and Cloth's new company, Creative Wealth, had produced other U.S. films, notably including the successful supervillain origin story, "Joker."
However, in 2022, those ventures allegedly were beginning to default, and Cloth at that time launched a new venture, C2, which "picked up where Creative Wealth left off but apparently with new investors."
According to the complaint, over the next four years, Cloth's ventures collectively raised millions more for other film projects. According to the complaint, this was allegedly accomplished through two intermediaries, the Schmidt group in the Chicago area and another group in Texas, identified as Maraboyina Capital.
According to the complaint, Schmidt allegedly was paid through "carried interest" from investments placed in Creative Wealth through them.
According to the complaint, investors were allegedly promised payment based on the success of the films in which they were investing, but were allegedly either never paid or paid to keep them from exposing the scheme.
According to the complaint, it allegedly did not matter if the film projects were actually successful or not.
The complaint noted the pattern could be seen in investor payments in films co-produced by Cloth affiliated entities, including "Ghostbusters: Afterlife" and the Netflix movie, "Monkey Man."
Both films proved profitable, but according to the complaint, Cloth allegedly only repaid certain investors, and then at times only to allow them to reinvest in other film projects.
In the meantime, the complaint asserts Cloth would use Schmidt and Maraboyina to essentially string investors along, promising them payment that usually never materialized.
According to the complaint, Schmidt and Maraboyina never actually confirmed any of the messages they passed along to investors were accurate or factual.
"Cloth's scheme was a house of cards and an iota of due diligence by the middleman ... would have demonstrated this investment was not safe for anyone," the complaint said.
According to the complaint, both BRON Studios and CMWF have since entered bankruptcy.
According to the complaint, CMWF has claimed $80 million in total liabilities, including an estimated $34 million allegedly owed to investors in Illinois.
According to the complaint, Cloth and C2 invested more than $100 million in four Paramount movies released in 2022 and 2023, including "Mission: Impossible - Dead Reckoning;" "Transformers: Rise of the Beasts;" "Dungeons & Dragons: Honour Among Thieves;" and "Babylon."
The complaint was filed by named plaintiff Diane Fowler, of Oklahoma, who allegedly invested $1 million in CWMF, allegedly as part of a $20 million loan, under which Fowler allegedly was promised a return of 12% interest, paid monthly.
She allegedly never received payment.
The lawsuit seeks to include everyone who invested in Cloth's ventures from 2020-2023.
The lawsuit accuses Cloth of fraudulent misrepresentation and violations of Illinois state securities law, and accuses the Schmidt defendants of negligent misrepresentation. It accuses all defendants of unjust enrichment.
The plaintiffs were seeking actual damages of at least $80 million, plus punitive damages of at least $100 million, plus attorney fees.
According to the settlement documents, the plaintiffs say they believe Schmidt was also a different kind of victim in the alleged scheme, asserting he also was duped by Cloth.
"Schmidt was taken by the charlatan and, sadly, took his friends and clients with him," the plaintiffs said in their Sept. 24 filing. "... Schmidt is family business with a good reputation (sic). Its reputation and large wealth client base enabled the sale to dozens of investors with no knowledge of the film business and plenty of funds available for investment.
"Schmidt relied on personal relationships and word-of-mouth referrals to obtain investors.
"... Plaintiff alleges Schmidt negligently relied on only representations from Cloth when recommending the investment to Plaintiff rather than confirming anything with third parties, CWMF's finances, or the principal's previous Ponzi scheme."
According to the settlement memo, Schmidt negotiated the settlement while maintaining no liability or wrongdoing, in a bid to ensure Cloth would wear the full blame.
The settlement comes as Cloth's legal troubles show no sign of unwinding soon. Earlier this spring, for instance, a Florida jury ordered Cloth to pay $19.6 million, including $13 million in punitive damages, to an investor who claims Cloth committed fraud when raising money for "The Pathway," a TNT docuseries about the NBA draft.
According to published reports about the verdict, Cloth failed to appear in court for the trial.