Because most films lose money, the film industry is constantly searching for new and varied sources of capital to sate its appetite. This condition has let the industry fall prey to an endless parade of bottom feeders -- the schemers and dreamers who purport to have the wherewithal to finance the film of your dreams. You must be able to spot the schemers and dreamers, or you will waste the majority of your precious cash to a scam or the majority of your precious time chasing chimeras. Let me suggest some time-tested techniques for identifying these idiots.
First, let's start with the dreamers -- the pathetic individuals who honest-to-God believe that, through some scheme or another, they can raise all the financing in the world. These individuals are far more prevalent than the schemers (the frauds) and are much harder to spot, since they do not ask for money up front, so there is no obvious motivation for their actions. They are always, however, driven by less obvious desires: being "players," being treated like big-shots, the feeling of power, and hobnobbing with stars. They like being taken to lunch, and they particularly like being picked up by limousines. Even far short of that, they are more than happy to waste your time with important sounding phone calls and faxes. How to spot them:
•Look for a glazed-eye stare. No kidding.
•Question them in detail on what transactions they have closed. Demand references, and call them.
•Question them in detail on their alleged sources of financing, and insist on having some written proof (bank accounts, commitment letters, etc.) that the sources of financing are real. It may appear rude to request a bank statement of someone who is purporting to be a financial angel, but it must be done.
•Get on the computer and research news databases for any articles on them. Coming up empty will tell you volumes.
•Do basic background checks, such as verifying their résumés.
The schemers (the frauds), though less prevalent, are far more dangerous, because they are con artists out to steal your money. They usually have honed a professional demeanor, and they have their act down to a fine art. You can usually spot schemers because sooner or later their plans always boils down to this: Give them money now, and they will give you much more money later. Sometimes, it's as simple as a request for an advance reimbursement of expenses (I've seen it as low as a request for $400; fraud is cheap these days) to as elaborate as a request for perhaps up to $1 million, which is allegedly placed in escrow in order to release millions of dollars in financing. Whenever you hear a request for any payments prior to closing, you should immediately be on red alert. My early warning system for schemers includes the following:
•Undertake all the steps you would to identify a dreamer, listed above.
•Run litigation checks in the state and federal courts where they reside. All kinds of fun stuff can pop up.
•Whenever they get around to asking for the money up front, offer to double it if it is paid only upon a successful closing. If they refuse this offer, you know they are not willing to put their money where their mouth is.
The one thing in common with schemers and dreamers is that their financing schemes usually involve some elaborate multi-layered proposal that always reminds me of the old game of Mouse Trap: You drop the metal ball into a little basket, and after a series of related machinations all over the board, the plastic mouse finally gets trapped. Whenever I hear how A will post collateral to B, who will issue a letter of credit to C, who will issue a guarantee to D, who will loan money to E, I always ask, "Why doesn't A just loan the money to E?" The truth is there is no good answer to this question, and you are being taken.
Curiously, most of the schemes involve the same buzz words; you should be wary if you hear the words "foreign bank," "bank guaranty," "letter of credit," or "escrow." Particularly be wary if you are told that your advance deposit is secured by any of the foregoing. If you hear all the words combined, run.
And please, never do what too many of my clients have done without telling me: commenced production or made contractual commitments to third parties based on the unverified promises of financing from schemers and dreamers. More than one film has had to have the plug pulled in mid-production because someone made the sorry mistake of relying on the words "trust me."