It's hedge fund vs. hedge fund in a battle over movie studio Relativity Media—and neither is the hedge fund most closely associated with the filmmaker.
Aramid Entertainment Fund yesterday sued both Relativity, whose biggest backer until recently was Elliott Associates, and Fortress Investment Group. According to Aramid, Fortress used confidential information it obtained during talks with Aramid to buy up Relativity debt, and then used its position as Relativity's biggest creditor to wipe out Aramid's investment.
The breach-of-contract lawsuit, filed in Los Angeles state court, alleges that Fortress never made an offer for Aramid's mezzanine, or Class B, loans to Relativity. But it did buy $226.7 million in Class A debt from Citigroup for half its face value, and then used its position as the majority owner of both classes of notes to strike a deal with Sony, which had a film financing agreement with Relativity, and with Relativity itself to cap payments to investors, effectively leading Aramid with nothing. For its trouble, Fortress earned at least $96.1 million, according to Aramid, and paid Relativity $14.5 million to sign off on the deal.
"This is one of the greatest heist stories ever told in the movie business," Aramid said. The hedge fund estimated its losses at no less than $44 million.
Citi, which was under federal government pressure to dump the Relativity debt, was not named in the suit, nor was Sony.