A rare event is set to begin Monday at the federal courthouse on Camp Street: a trial.
And not just any trial, but a high-stakes affair that pits wealthy, well-known defendants with highly paid, pugnacious lawyers against a group of equally aggressive prosecutors who rarely lose.
One of the defendants is Peter Hoffman, a colorful Hollywood producer who has beaten a federal rap once before. Another is Michael Arata, an actor and lawyer who is married to Emily Arata, a top deputy to Mayor Mitch Landrieu.
The Aratas are related by marriage to Fred Heebe, the landfill magnate who was the target of a federal investigation when he famously brought down former U.S. Attorney Jim Letten and two of his top lieutenants by bringing to light an online-commenting scandal. Arata is being represented by Billy Gibbens, one of the lawyers who helped Heebe get the federal probe of him dropped.
The case due for trial this week centers on whether Arata, Hoffman and Hoffman’s wife, Susan Hoffman, corrupted a program funded by Louisiana taxpayers that was aimed at enticing filmmakers to build studios and other film-related infrastructure here. The case will unfold over perhaps two weeks in U.S. District Judge Martin Feldman’s courtroom.
By coincidence, the trial opens on the same day that the Legislature begins its annual meeting in Baton Rouge, a session that will focus in part on whether giveaway programs like the film subsidy have been too generous — and too susceptible to financial shenanigans.
The Hoffmans and Arata are accused of ginning up phony expenses as they renovated a derelict Esplanade Avenue mansion; their alleged aim was to qualify for more state largesse than they were entitled to legally. Such tactics have been employed by a number of other filmmakers, resulting in a raft of criminal cases, and at least one new case appears to be in the works.
Already, the steady diet of corruption cases coming out of the film program has prompted calls in Baton Rouge for reform, and some legislation reining in the program seems likely to pass.
Louisiana’s movie infrastructure program already has been phased out, but it was designed to closely mirror the film production incentive program that has made the Pelican State one of America’s busiest locales for movie and TV productions. Under the latter program, taxpayers essentially reimburse filmmakers for 30 percent of the costs they rack up while on location in the state.
The infrastructure program, which was intended to help root the film industry here, was even more generous, with taxpayers picking up 40 percent of the costs of qualified projects, such as studios.
Among the projects Louisianians helped to underwrite was the post-production facility that Arata and the Hoffmans — who were married but separated — wanted to bring to life in the decrepit Whann-Bohn house at Bourbon Street and Esplanade Avenue, just outside the French Quarter. They bought the property in 2007.
Their plans, which called for a $14 million makeover, eventually came to fruition, but prosecutors charge that some of the money spent was essentially a mirage. The 22-count indictment notes that the three defendants owned or controlled at least nine corporate entities, and it says some of the costs they attributed to the Whann-Bohn renovation were simply “circuitous” payments from one of their corporations to another.
The defendants used email accounts and postal services to send various “materially false and misleading” documents over a period of about 17 months that made the payments appear to be legitimate, arm’s length transactions, the indictment charges.
Curbing such “related-party transactions” is a focus of efforts to reform the film program in this year’s legislative session.
In the end, the group received $1.1 million in tax credits from the state’s Department of Economic Development, and they were seeking another batch when officials put the brakes on the program. Eventually, the matter was turned over to the state Inspector General’s Office, which brought in the FBI.
The accounting firm that originally signed the audit that led the state to issue the $1.1 million in tax credits later “withdrew” its audit. Arata wound up selling the tax credits, the indictment says.
What the indictment does not spell out is how much taxpayer money, if any, was lost in the alleged scheme to inflate costs. If the group collectively spent $13 million on the renovation of 807 Esplanade, as they told The Times-Picayune they had done in a 2012 interview, they could have been eligible for more than $5 million in state tax credits.
Stephen Moret, Louisiana’s secretary for economic development, said last year that the credits that were issued by the state appeared to be supported by actual spending.
The defense will likely highlight that statement, and it will point to the studio’s successful completion as evidence that the project did taxpayers no harm.
Hoffman’s firm issued a written statement last year making that point: Not only was the Whann-Bohn renovation successfully completed, he said then, but the studio — which does business as Esplanade Studios — has been open since mid-2012.
The prosecution will likely counter that the loss to taxpayers isn’t the central issue — rather, it’s the defendants’ alleged intention to defraud the program that matters. And while Moret has said the tax credits actually issued by the state appeared to be justified, the state’s film office decided that wasn’t the case with the next batch of credits the developers were seeking.
Arata is charged in each of the 22 counts in the indictment: the over-arching conspiracy charge, plus 16 counts of wire fraud, one count of mail fraud and four counts of making false statements to the FBI.
Peter Hoffman faces those same charges, save the four counts of making false statements, while Susan Hoffman is charged in the conspiracy count, the mail fraud count and 12 counts of wire fraud.
Criminal trials are a rarity at the federal courthouse on Camp Street, with perhaps only a dozen trials taking place a year. The U.S. Attorney’s Office files criminal charges against roughly 500 defendants in a typical year.
Peter Hoffman, as it happens, has faced down federal prosecutors before and lived to tell the tale. He was acquitted by a federal jury in Los Angeles in 1997 on two of four felony tax charges he faced; the jury deadlocked on the others. The next year, he pleaded guilty to a single misdemeanor charge.
In that case, Hoffman was accused of breaking federal laws in orchestrating huge tax-avoidance schemes for Carolco Picture, of which he was then the president.
In an interview last year with deadline.com, a Hollywood trade publication, Hoffman said he thinks the new case against him is motivated by the feds’ desire for revenge — though it’s a decade and a half later and a different U.S. Attorney’s Office that’s prosecuting him this time.
“My belief is that they are targeting me because of my prior tax case,” Hoffman said. “They believe I was improperly acquitted. These guys have said repeatedly that although I won my last case, I’m ‘the one who got away.’ They are convinced that I am a bad guy and that I’m some Hollywood sharpie who came to Louisiana to take advantage of the poor Louisiana taxpayers. It’s a complete fantasy.”
U.S. Attorney Kenneth Polite’s office declined to comment for this story.
Questions about the government’s motives and the taxpayers’ interests aside, much of the case will likely hinge on where the money went, as prosecutors seek to show jurors how payments flowed through various entities that were controlled by the owners of the building.
“We’re going to mount a vigorous defense,” said veteran defense lawyer Pat Fanning, who represents Susan Hoffman. “We’re gonna tee it up, let it fly and see where it lands. I expect there will be a lot of documents and a lot of arguments about what the law was and what it requires. I expect it to be a hard-fought battle.”
Editor’s note: This story was updated April 12 to indicate that Stephen Moret remains Louisiana’s secretary for economic development and to clarify that, while Moret has said the tax credits actually issued by the state were justified by spending on the studio project, state officials did not believe that all of the credits sought by the developers were justified.
Follow Gordon Russell on Twitter, @gordonrussell1.