A federal prosecutor told jurors Monday that a trio of business partners “exploited every human being that they could” to defraud Louisiana’s generous film tax credit program, taking advantage of accountants and a young woman working in a bank, among others.
One of the high-profile defendants, Michael Arata, a New Orleans lawyer and businessman, used his local connections, smile and reassuring handshake to “make people put their guards down” — a charm offensive he even tried on an FBI agent as he sought to “talk his way out of being charged,” said the prosecutor, Assistant U.S. Attorney Chandra Menon.
“It was all smoke and mirrors,” Menon said, accusing Arata and his two co-defendants, movie producers Peter and Susan Hoffman, of going to great lengths to trick the state into issuing tax credits they hadn’t earned.
The defendants face charges of conspiracy, wire fraud and mail fraud for allegedly submitting false and misleading bank statements and other financial records to document the renovation of a three-story, 10,617-square-foot mansion at 807 Esplanade Ave. into a post-production facility that serves the local film industry. Arata also faces four counts of making false statements to the FBI.
In the opening chapter of a complex white-collar trial, which is expected to last two weeks, jurors heard sharply conflicting versions of the work done on the formerly dilapidated Whann-Bohn House, with prosecutors saying the reported expenditures were fraudulently exaggerated and defense attorneys claiming the state got precisely what it paid for and then some.
It’s the latest in a series of corruption cases involving Louisiana’s film tax-credit programs, which have paid out hundreds of millions of dollars through generous incentives that have made the Pelican State the nation’s busiest locale for feature-film shoots.
Menon, in his opening statement Monday, said the trio had “wildly inflated” the expenditures they reported to the state, prompting the state’s Department of Economic Development to issue $1.1 million in tax credits that Arata quickly sold off. He said jurors would hear from an accountant — the expenses had to be verified by an independent CPA to qualify for the tax credits — who became so skeptical of the group’s finances that she quit.
The prosecutor said the defendants were undeterred and hired another accountant, whom they kept in the dark and provided with only partial bank records, masking a series of “circuitous” payments from one of the group’s corporations to another. He said they claimed to have bought fancy film equipment that was never acquired, even though bank records indicated it had been purchased.
“What she didn’t know was that there were other bank documents that showed the complete story,” Menon said, referring to the second accountant, whom he said was taken in by the defendants’ appearance of being “very respectable business people.” The accountant’s firm signed off on the expenses, prompting the state to issue the tax credits that Arata sold. Prosecutors noted, however, that the firm later withdrew its findings.
While Arata’s defense attorney painted his client as an upstanding New Orleanian — he’s married to Emily Arata, a top deputy to Mayor Mitch Landrieu who sat in the front row Monday — Menon told jurors that they would get to read emails in which the former Tulane football player jokes with a friend about bogus legal fees he claimed for fraudulent tax credits.
Defense attorneys sought to portray the prosecution as an overzealous foray by the federal government into a complicated — and at times chaotic — state subsidy program that had flexible regulations in its infancy.
They said the Esplanade Avenue project was not unlike a host of similar, legitimate ventures that have made use of the Louisiana Motion Picture Incentive Act, a subsidy in which taxpayers agreed to pay for 40 percent of the costs of qualified movie industry infrastructure projects like studios. The program has since been phased out.
When the Hoffmans and Arata decided to go into business together, the state had been begging for such infrastructure investments, said Lance Unglesby, an attorney for Peter Hoffman, the colorful Hollywood producer who runs California-based Seven Arts Entertainment. Unglesby said his client took “an enormous risk” and that the state got “exactly what they wanted.”
“The big picture is, everything we said we were going to do, we did it,” he said. “This was a very legitimate project. This was not an illusory scam.”
In their opening statements, defense attorneys stressed that the renovated mansion has been a boon to the local film industry, providing office space and residences for crews working on productions like “True Detective,” the HBO crime drama.
“The taxpayers of Louisiana didn’t lose a dime on this project,” said Billy Gibbens, Arata’s defense attorney.
Gibbens told jurors that state officials, after conducting two audits, determined that the project had actually qualified for $1 million more in tax credits than it received. He said the evidence will show that $4 million was spent on the renovation alone, and he sought to play down Arata’s role in the project, saying Arata “was not calling the shots.”
“At the end of this, you’ll be wondering, like I am, why the federal government is even fooling with this state program,” Gibbens said.
Pat Fanning, a veteran defense attorney who represents Susan Hoffman, said he had trouble comprehending why his client — who has “never even had a traffic ticket”— was charged in the case.
While prosecutors claimed Susan Hoffman used a special relationship with a contractor to further the scheme, Fanning urged jurors not to lump her into the “they” used by prosecutors to describe the broader conspiracy. The original indictment in the case did not charge Susan Hoffman; she was charged in a superseding indictment.
Fanning also seemed to imply that her signature had been forged on a series of important documents.
Fanning said he personally likes the agents and prosecutors pursuing the case.
“They just got this one all wrong,” he said.
Follow Jim Mustian on Twitter, @JimMustian.