What FilmCabbage Does Differently
(originally published 09/10/19)
Caution is the watchword when it comes to film lending programs. There are always plenty of con artists out there looking for new ways to defraud film investors. Most recently, the president of WeatherVane Productions, another film producer and a former Wells Fargo employee were indicted on charges of fraud and money laundering after years of operation. See the Justice Department release here:
Remembering these people are considered innocent until proven otherwise in court, the indictment alleges that the accused would partner with investors to “match funds” – the production would provide 50% of the money required, and the accused would provide the other half. What they allegedly did instead was build a pyramid scheme where money coming in for new projects was used to fund existing loans, with large amounts going to the accused to finance their lifestyle; like all pyramid schemes it was only a matter of time before it collapsed on itself. The co-accused former bank employee's role was to provide false banking information to investor inquiries that their funds were still in place and safe.
I am posting article this today to describe how the FilmCabbage program is different from the WeatherVane program and others like it in very key ways, in particular relating to the security of the client/investor's funds. During TIFF I've had several people mention the Weathervane case, so I feel it is important to spell these differences out.
First, FilmCabbage takes no partnership or ownership position in the projects we fund. The investor's funds are always their own, and ONLY their own. While they sit in the 3rd party law firm's escrow they can't be leveraged, used to collateralize any additional loans or credit lines, or anything else. Those funds simply sit idle in that account until they are returned to the account of origin. It would appear that WeatherVane was counting on profits from the movies they actually made to help keep their scheme going – alternately FilmCabbage charges interest-only on top of principal, and have no claim on the profits of projects we fund.
Secondly are the organizations FilmCabbage partners with to make our program possible. We work closely with Price Waterhouse (who do our risk assessments and provide the loan custodian in every deal), HSBC Head Office in the UK, only top tier, easily vetted law firms to hold funds in escrow, and Brinks and G4S to provide financial guarantees for the client's funds. In all elements of the FilmCabbage process related to our client's funds, for their peace of mind we partner only with the largest and most respected institutions and service providers in the industry.
But the most important point of differentiation is the pillar of additional security FilmCabbage builds around all client funds. The indictment against WeatherVane states that they used falsified “Performance Bonds” to secure investor money. What FilmCabbage does instead is provide unquestionable, fully verifiable security that cannot be falsified. We have specially developed agreements in place with Brinks, G4S, Ferrari Group and Malca-Amit where they provide an unconditional guarantee of client's funds in full at all times. This guarantee remains in full effect until those initial funds are returned from the escrow to the account of origin.
Additionally, since our clients work directly with their fiduciary law firm and the safekeeping companies in setting up this security, they have every opportunity to vet all documents ahead of execution, so they can be confirmed with lawyers, bankers, or anyone else they desire. FilmCabbage clients can also receive confirmation of their funds and/or the SKR any time that they require.
In any deals where funds are escrowed using a banking instrument (a SBLC or Bank Guarantee) the language of the instrument needs to adhere closely to the ICC/UCP 600 international banking standard, but FilmCabbage ENCOURAGES them to have their bank add a stipulation that the instrument must be returned in full value and without encumbrance. Your own bankers will confirm that this completely guarantees the safety of the money backing the instrument.
FilmCabbage uses these security methods to provide unconditional, independently verifiable security for the funds of each and every client at all times. And since we have no upfront fees, and no fees of any kind until after the borrower is receiving funding from us, every client has the ability to abandon the process at any time if they ever feel that there is any risk, and never be out a single cent.
On a considerably more personal note, I detest the fact that I felt compelled to write this piece. Fraudsters make it incredibly difficult for legitimate lenders to establish trust in the film industry. So that FilmCabbage clients do not need to worry about such issues with our program, our processes are designed to fully confirm everything pertaining to the security of client funds throughout the entire process. FilmCabbage and FundingNet mitigate all financial risk so our clients can always be completely assured their films will be successfully funded.
Cliff Endicott, President - FilmCabbage, a Division of FundingNet