Financing Local Film: A Cautionary Tale?

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Last week WCAX and the Addison Independent reported on a state inquiry into the funding of Addison storyteller Mac Parker's film Birth of Innocence.

Like many low-budget filmmakers, Parker appears to have solicited small sums of money from a large number of individuals to fund his production. At issue is whether these were "loans" (to be paid out regardless of the film's performance) or "securities" (investments, which are regulated by the State Department of Banking, Insurance, Securities and Health Care Administration).

In the latter case, Parker would be at fault for selling unregistered securities, Commissioner Paulette Thabault told WCAX. The state hasn't yet made any criminal allegations.

The WCAX report used the term "Ponzi scheme," which has drawn the ire of some of Parker's lenders and supporters. The Independent quoted Christopher White of Vergennes, spokesman for a newly formed legal defense fund, as saying that "no one has expressed any dissatisfaction with the way Mac has handled this project or dealt with the finances."

As for Parker, he's released a statement that reads, in part:

This is not a scheme, and I have no intention to deceive or violate anyone. [...] I have always considered these loans, and had no idea the State might consider them Securities. [...] 'Birth of Innocence' is nearly completed.  I am asking for the time and freedom to finish it, and to honor my promises to all the good people who are supporting this project.

Pending a resolution to the inquiry, my question is: What do Parker's current problems mean for other local filmmakers seeking "grassroots" funding from the community? Could they also run into problems with state securities regulation?

For some insight in language the financially illiterate can understand, I turned to a hefty 2009 Faber and Faber paperback called The Reel Truth: Everything You Didn't Know You Need to Know About Making an Independent Film, by Reed Martin.

In a section called "Legal Issues Related to Fund-raising," Martin writes that

The first important legal issue most filmmakers do not — or choose not — to understand is that raising money without including specific warnings and investment language in a prospectus or business plan (or in the registration documents) can violate state and federal statutes designed to protect widows and orphans. These laws are important to the public since there is nothing to stop a charlatan indie filmmaker from raising hundreds of thousands of dollars or even millions of dollars and then never actually making the film.

But some well-intentioned filmmakers may not realize this, Martin points out. Why? They've heard industry legends about gonzo fundraising schemes like that of Darren Aronofsky, the young filmmaker who solicited $100 donations from all his college buds to make a nifty little movie called Pi. (Sean Gullette, a guy I knew in college, played the lead.)

That worked out fine for Aronofsky: He went on to direct Requiem for a Dream and last year's The Wrestler, have a kid with actress/model Rachel Weisz, and generally be more famous and successful than anybody else in my undergrad class.

But according to Emerson E. Bruns, the entertainment attorney Martin consulted, "If the securities bureaus had wanted to come down on Darren, he could've theoretically been thrown in jail. ... He didn't do it 'right,' they just didn't hear about it or didn't elect to go after him because they had bigger fish to fry..."

"Doing it right," according to Bruns, means structuring a form-letter solicitation "as a no-interest loan."

If you have no idea what legalese that might entail, it's a good idea to consult an attorney or BISHCA.

Joe Bookchin, executive director of the Vermont Film Commission, says that's where he would send filmmakers with questions about the legality of their fundraising plans. But he's never actually received such an inquiry, he says.

As for Parker, Bookchin says, "I was very surprised to hear about this financial problem he was having. It's disconcerting to hear about things like this. [Parker] has a side of the story that needs to be told."

While he doesn't personally know anyone who gave money to Parker for Birth of Innocence, Bookchin says that "A lot of people were curious about the project in terms of when it was going to see the light of day."

And on a broader level, he hopes this case won't "poison the well" when it comes to future investments in local film. "There needs to be clarity and definition" about the terms on which small-scale contributors offer their money, Bookchin says.

Indeed, he feels the "investment" model may not be a good one for people who are, in essence, hoping to be patrons of a local art form.

For every fluke low-budget film that takes off and makes investors rich (Paranormal Activity, say), there are dozens more that earn, at the very most, glowing reviews.

"People should be involved because they believe in a filmmaker," Bookchin says. "Supporting filmmakers is vital, but it should be more focused on what it is they're trying to achieve. I think that's a much safer bet."

Judging by the statements from White and various commenters on the WCAX and Independent websites, some locals do fervently believe in Parker and his movie. It'll be interesting to see how this plays out.

Comments

[Marna Ehrech]

I loaned some funds to Mac Parker early in his project. I've always had faith in him and his work, I felt he was/is a very genuine and focused and forthright individual, and did, in fact, turn on some other friends to loan him funds. I got the money back when I needed it, and was very happy with our dealings. I am very distressed to hear about this hassle with the state. Here we're worrying about the state budget deficit, and we're spending tax dollars investigating this man? C'mon! I'd rather see my tax dollars going after pedophiles than someone like Mac Parker. Leave off the poor guy, give him his money back, and let him get on with his life and his project.

[Guest]

I say, investigate every penny. This is not an innocent man. Have you even SEEN the trailer??

I feel sorry for all the people who will never see their money again, and I applaud the state for looking after, albeit too late, Vermonters who have lost their money in this embarrassment of a ponzi scheme.

[yabeenhad]

Marna, that's easy for you to say since you actually benefitted from the ponzi scheme. All the people further down the line will never see a penny bc this miserable film will not earn a penny. They thank you for your concern.