Jason Cloth at the premiere of the film Babylon, in London, in January, 2023.Scott Garfitt/The Associated Press
Jason Cloth, a Toronto financier with executive producer credits on films such as Joker and House of Gucci, conducted a years-long scheme to misappropriate more than $70-million of investors’ funds and to conceal his wrongdoing, the Ontario Securities Commission alleges.
During closing submissions before the Capital Markets Tribunal on Tuesday, Hanchu Chen, a lawyer for the OSC, argued that from 2018 onward, Mr. Cloth’s now-defunct company Creative Wealth Media Finance Corp. operated as a fraudulent scheme that was “only sustained through Ponzi-like payments.”
A Ponzi scheme is one in which the source of distributions to investors is not the underlying value of any investments, but rather money that has been obtained from new investors – “in other words, stealing from Peter to pay Paul,” Mr. Chen said.
The hearing followed Mr. Cloth’s arrest in Los Angeles last week. The 60-year-old film producer was indicted on seven counts of wire fraud in the United States, according to the U.S. Attorney’s Office for the Northern District of Illinois. Each count is punishable by up to 20 years in federal prison.
Mr. Cloth was released on bail, according to Mr. Chen. The allegations levied against him by U.S. prosecutors have not been proven in court.
Canadian film financier Jason Cloth indicted for fraud in U.S.
No one has appeared on Mr. Cloth’s behalf at the Capital Markets Tribunal, an independent division of the OSC that conducts hearings under the Ontario Securities Act.
During Tuesday’s hearing, Andrew Guaglio, a lawyer at Fenton Law Barristers, made a motion to remove himself as counsel for Mr. Cloth because of what he described as “a breakdown in the solicitor-client relationship.” Mr. Guaglio had attended the hearings largely as an observer, according to the tribunal’s adjudicators.
The tribunal considered a brief adjournment to the hearing in light of Mr. Cloth’s arrest, but ultimately decided to proceed and granted Mr. Guaglio’s motion, with some conditions attached.
At the end of Tuesday’s hearing, the tribunal reserved its decision for a later date.
Mr. Cloth could not be reached for comment.
The OSC alleges that between 2013 and 2022, Mr. Cloth and his company, which was headquartered in Toronto, raised more than $500-million from hundreds of investors in Canada and the U.S. for loans to film, television and animation producers.
Creative Wealth entered into two types of contracts with investors: participation agreements to raise funds for a specific media project, and secured loan commitment agreements for projects bundled together as a series. Borrowers were charged a percentage of the loan amount as a facilitation fee.
The OSC alleges that Mr. Cloth, whom the watchdog characterized as the “directing mind” behind Creative Wealth, defrauded investors by diverting more than $70-million to purposes that had not been disclosed.
For instance, between 2018 and 2021, Creative Wealth allegedly lent more than $50-million to a real estate developer for the construction of townhouses in Kingston, without any written agreements and without informing investors, according to the OSC’s application.
The securities watchdog also alleges that in some cases, the amount of funds that Creative Wealth raised for specific projects exceeded the amounts actually lent or specified in agreements. For example, the company raised US$3.7-million for the Ben Foster flick Leave No Trace, even though the agreement stipulated that the maximum amount to be raised for that project was US$2.5-million.
During Tuesday’s hearing, Mr. Chen read from transcripts of Mr. Cloth’s compelled examinations in June, 2023. In one exchange, Mr. Cloth said he didn’t tell his investors about the real estate deals because he was worried they would rush to withdraw their funds, leaving him unable to repay them.
“Mr. Cloth readily admits, had the respondents not engaged in fraud and made misrepresentations, there would have been no repayment possible, and the company would have collapsed,” Mr. Chen said.
He argued that the OSC’s evidence demonstrates that investors suffered “real losses” – some of them to the tune of millions of dollars – as a result of the alleged fraud.
Creative Wealth did eventually collapse, entering bankruptcy proceedings in October, 2023.
The OSC is seeking orders against both the company and Mr. Cloth, including that Mr. Cloth disgorge any funds he obtained by breaking Ontario securities law and that he pay an administrative penalty of up to $1-million for each breach.
The watchdog is also requesting that the tribunal remove Mr. Cloth and Creative Wealth from Ontario’s capital markets.