Movie Production Loans Result In 27-Year Stay At The Greybar Hotel

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In 2007, the Department of Corporations issued this Desist & Refrain Order against Mahmoud Karkehabadi and others for violations of the Corporate Securities Law of 1968.  The Department also made a criminal referall to the California Attorney General’s office.  In 2010, the Attorney General filed this felony complaint charging Mr. Karkehabadi with, among other things, the unqualified sale of securities and fraud in connection with the sale of securities.  The securities involved were so-called “movie production loans” that had been solicited from more than 100 investors across the country.  Mr. Karkehabadi’s company, Alliance Group Entertainment, did produce 4 movies, including “Confessions of a Pit Fighter” (2005) starring rapper Flavor Flav and “Hotel California” (2008).  Apparently, none were successful.  Investors, however, were promised returns of 18 to 35%, regardless of the success of a particular project.  The Attorney General’s office and the Department of Corporations co-prosecuted the criminal case.  Earlier this week, the Department announced that Mr. Karkehabadi had received a 27 year sentence.

There are several lessons here.  First, loans can constitute securities under the CSL.  Just take a look at Corporations Code Section 25019 (“‘Security’ means any note . . .”).  Second, violations of the CSL can be crimes.  See Corporations Code Sections 25540-41.  Third, the Department does make criminal referrals and can assist in the prosecution of criminal actions.  See Corporations Code Section 25533.  Oh yes, if an investment looks to good to be true, it probably is.