Doubts about a movie charmer

Hollywood moguls and Wall Street hedge fund operators have a few things in common. They live and work among smart, sophisticated people, while billions of dollars flow through their fingers. They also seem equally susceptible to a glittery line of chatter.

Some might say that’s the best explanation for the phenomenon of Ryan Kavanaugh and his entertainment company, Relativity Media.

After years illuminating the Hollywood firmament, first as a conduit for hedge fund money seeking to invest in movies, then as a “mini-major” studio turning out pictures on its own, Relativity filed for bankruptcy July 30.

What looks to be Relativity’s ultimate crash gives us an opportunity to examine what a screenwriter might call the arc of Kavanaugh’s career. At the center is the question: Why did people line up to invest money with Ryan Kavanaugh?

Many who have followed his career mention his “charm,” and the seductive if convoluted logic of a financing scheme he pitched that would somehow limit investment risk in the incredibly volatile business of movies.

Yet investors who performed due diligence on Kavanaugh might have found grounds for doubt. (My instinct after my own first meeting with Kavanaugh was to verify his claim to have a degree from UCLA; it didn’t exist.) In the late 1990s, Kavanaugh operated a Santa Monica investment firm from which sprang a number of lawsuits and threats of legal action from unhappy investors, some of whom accused him of fraud. Hollywood producer Jon Peters, a marquee investor, threatened to sue to recover his $5-million stake; according to a legal ruling, Kavanaugh settled with Peters before the producer could file.

The longest-running dispute involved Los Angeles PR executive Michael Sitrick, who invested $6.2 million with Kavanaugh on the understanding that it would be invested exclusively in publicly traded companies. After discovering that some of the money was going into private companies, Sitrick sued to get his money back and in 2002 won a $7.7-million arbitration judgment. The judgment went largely unpaid, as Kavanaugh claimed the dot-com crash had left him almost penniless and his