Hollywood producers' telemarketing practices defrauding people by hundreds of millions, law enforcement says

Film producers are often looking for investors to bankroll what they hope will be a blockbuster
Film producers are often looking for investor... 08:06

Making movies in Hollywood costs a lot of money, so film producers are often looking for investors to bankroll what they hope will be a blockbuster.

CBS News has learned some Hollywood producers are using telemarketers to cold call Americans, convincing them to make risky investments.

Law enforcement tells CBS News it's a widespread fraud worth hundreds of millions of dollars over more than a decade, and CBS News has now spoken to more than a hundred investors who never saw their money again after sending a check to a voice on the phone. 

In a special investigative report, CBS News g... 04:31
 Bette Anderson remembers the day her phone rang at her house in Minnesota. She says the voice on the other end offered her a guaranteed way to make money, investing in movies. "They just prey on your hopes and dreams," she said.

Asked if she thought she had stumbled across a pretty good deal, Anderson said, "Oh yeah. After having been laid off my job of 26 years, it provided some hope again for me. I just thought this was going to save my life, basically."

Instead, however, she said, "it destroyed it."

She was sent a professionally produced documents with the names of famous writers and actors and was told she could make $1.5 million. In total, Anderson said she invested $315,000, and got nothing back.

It wasn't hard for CBS News producers to find people offering movie investments over the phone.

Other investors receiving telemarketing calls put CBS News in touch with Gene Richards. CBS News set up a meeting in Los Angeles, which was shot on hidden cameras. Richards wanted us to invest $35,000 in a horror film called "Corbin's List."

He gave a movie trailer and a brochure, which said actors Ray Liotta and Megan Fox were reading the script.

Asked by CBS News producer Pat Milton if Liotta would be in the movie, Richards said, "Yeah. Yeah. Uh-huh."

Asked if he'd already signed on to it, Richards said, "He's signed on. And we're in negotiations with Megan Fox, as well."

Asked by a Milton what happens if the movie flops -- if there would be any return, Richards said, "Yeah. Even if it flops you'll -- you double your money."

At that point in the conversation, CBS News' Ben Tracy confronted Richards and after introducing himself, the two had the following exchange:

TRACY: "So you were talking to Pat here. And -- I heard you say that -- even if this movie's a flop you could basically guarantee doubling or tripling her money?"

RICHARDS: "No, no.  I didn't say guarantee.  I said we're not allowed to say 'guarantee'."

TRACY: "So if we called -- if we called Ray Liotta today he would verify that he's attached to this film?"

RICHARDS: "You would have to talk to his management company."

TRACY: "Yeah, we could do that?"

RICHARDS: "Uh-huh (affirm)."

Representatives for Liotta and Fox told us they've never heard of Gene Richards, or his film.

Assistant U.S. Attorney Ellyn Lindsay said that "what makes it illegal, is that the investment is sold through lies."

Lindsay has prosecuted 18 people for movie investment fraud. She said even though Richards did not use the word "guarantee," the fraud is in the lies, omissions, and misrepresentations.

"When you minimize the risk, when you lie about the amount of money that's actually going to make the movie, when you lie about the percentage of proceeds that will go back to the investor. That, then, becomes a fraud," she said.

CBS News also connected with the man who convinced Anderson to invest. He sent two associates to meet with CBS News, hoping we'd hand over a $100,000 check for a horror film called "The Animal Among Us."

Jonathan Murphy was optimistic about the potential for our investment. "Well, with -- with what I told you, 500 percent domestically to 1,200 percent, let's split that and go 700 percent return on a $100,000 investment. You're looking at -- you just made $600,000," he said.

Cara Kidwell told CBS News producers she helped produce two films -- "Spring Break '83," starring John Goodman, which was shot more than six years ago, but has not been released, and "What Love Is," starring Cuba Gooding Jr, released in 2007.

CBS News producers spoke with Americans acros... 01:38
 Kidwell said investors actually doubled their return. She said to CBS News' Milton, "I remember the first check that rolled in was for a unit, and that project was $30,000, OK. ... And then all of a sudden the money started coming in and everybody got really quiet, really happy, and wanted to clink champagne glasses on the red carpet premiere."

Milton said, "Cause how much did they get back?"

Kidwell said, "I'm not in accounting, so I don't know. I was a producer on it."

Investors told CBS News they've never seen a dime of a return from "What Love Is."

Ben Tracy entered and introduced himself.

TRACY: "They were told up front that they were likely to make money off of this, and they haven't.  So what do you say to those people?"

KIDWELL: "Well, you know what? Why don't I do this? Why don't I connect you directly with Big Sky Motion Pictures, which was the company that actually produced that hired me?  And then you can ask them -- all the questions you want and they can give you the direct answers to it."

TRACY:  "Big Sky Motion Pictures is a company you've worked for?"

KIDWELL: "Yes. Big Sky Motion Pictures."

TRACY: "Okay, are you aware that Big Sky Motion Pictures and Spring Break '83 Productions have several cease-and-desist orders against them for soliciting these kinds of investments?"

KIDWELL: "No, I don't believe....they do."

Kidwell told us she felt the producers aren't at fault -- it was the marketing firm they hired that might have done things the wrong way.

But CBS News found public records that show Kidwell has been paid by the marketing firm that Big Sky used to raise money for their films. And investors gave us documents listing Cara Kidwell as director of partner relations for Big Sky. She even issued tax forms to investors so they could write off their losses, directly contradicting her claim to our producers that investors doubled their money.

Both Kidwell and Big Sky's chief executive officer Mars Callahan declined CBS News' request for a sit-down interview.

Joel Craft says he sold thousands of investor names and phone numbers to Big Sky. He's been indicted for selling telemarketing leads to other Hollywood production companies that defrauded investors. "They are professional money raisers, they are not professional film producers," he said.

"It's a glorified telemarketing operation. I would say several hundred investors invested in Big Sky," he said. "They did produce the films, but unfortunately none of the investors have seen their money back." 

Bette Anderson's investment cost her life's savings and likely her home. "It's not what I had planned for my life. I didn't expect to be in this place at this stage of my life. So, uh, yeah it's been devastating," she said.

CBS News did get a response from Kidwell via email. She told CBS News she thought our producer was an accredited investor, and that the documents she sent us clearly state that investing in movies is high-risk. However, law enforcement sources tell CBS News that it's still fraud if lies are told and key omissions are made when the investment is pitched to people over the phone or in person.

So what should you do if you get a call from a telemarketer? Tracy said on "CBS This Morning," "You have to ask lots of questions. You got to ask these people about their past projects. Ask to see the financials from those projects. And then, get an accountant or a financial adviser involved and bottom-line, if it sounds too good to be true, it probably is."