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Orange County producer charged with movie Ponzi scheme [updated]

August 25, 2010 |  2:18 pm

A Laguna Niguel businessman has been charged with a Bernie Madoff-like Ponzi scheme in which he allegedly bilked investors out of $9 million.

Mahmoud Karkehabadi, who went by Mike in press materials for his company Alliance Group Entertainment, faces 89 felony counts, all related to securities frauds and grand theft. If convicted, he could go to prison for up to 25 years, according to the California attorney general's office. [Update, 4:39 p.m.: An earlier version of this post incorrectly said he faces up to 11 years in prison.]

Karkehabadi allegedly promised his more than 150 investors returns of between 18% and 35% within one year on loans made to his production company for four low-budget films, including the 2005 action drama "Confessions of a Pit Fighter," starring Armand Assante and Flavor Flav, and the 2008 thriller "Hotel California" starring model Tyson Beckford.

In a press release announcing "Hotel California," Alliance was described as "a multi-faceted entertainment company specializing in cutting-edge Film, Music and Television projects."

Alliance Group's accounts showed revenue from movies of only $535,000, according to the attorney general's office. Karkehabadi allegedly convinced some investors to roll their original loans over into future movie projects or extend dates for repayment.

Richard Steingard, Karkehabadi's attorney, declined to comment on the allegations. "Anything we have to say will be said in a courtroom," he said.

Timothy Cho and Deanna Salazar, who allegedly worked as agents for Alliance Group, have also been charged in the case. Salazar has surrendered to authorities; Cho remains at large.

In 2007, the California Department of Corporations sent a cease-and-desist letter to Karkehabadi and Cho ordering them to stop selling securities, including movie productions loans, in the state of California. Among their alleged violations were misrepresentations and omissions of material facts. The Department of Corporations then referred the case to Attorney General Jerry Brown, whose office began an investigation in 2008.

"This con artist sold securities under the guise of a loan to fool investors and try to avoid following the rules," Brown said in a statement. "He ran a cold and calculated scam, making promises he never intended to keep and using the funds of new victims to pay off the earlier ones."

In 2003, the state secured a $5-million judgment against Karkehabadi for credit card fraud, after which he filed for bankruptcy. Neither fact was disclosed to Alliance Group investors, according to the attorney general's office.

Karkehabadi was arraigned Tuesday in Orange County Superior Court. Bail was set at $11 million. A hearing on Karkehabad's request to reduce the bail amount is set for Sept. 3.

-- Ben Fritz