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To The Director, SEBIAlternative Investments/VCFSubject: Fraudulent Practices by Trustees/ Management of SEBI Approved Cinema Capital Venture Fund (IN/VCF/08-09/117)I had jointly invested Rs.10 lakh in the Cinema Venture Capital Fund (CCVF), based on advise/ recommendations of ICICI Bank who were agents/ distributors of the Fund (exclusively on private placement basis) and both my parents were holders of HNI account with the bank . The first installment of Rs 250,000/- was paid in Nov 2008 and rest in 3 more installments. The duration of the fund was 5 years. Now, 7 years have lapsed and till now, the trustees of the fund have redeemed only 2% of the capital investment and have advised that though current NAV is Rs 73.95 per unit only (against Paid up Rs 100 per unit), but currently all this money is locked up and unrealizable, and investors will have to bear further exit load of 70-90% of NAV if they wish to get back their money after another 6-9 months. Thus in effect without getting any return, the investor will be able to get hardly about Rs 75000/; on an investment of Rs10 lakhs, against a targeted annual return of 35%; that too after 71/2 years. Sir, I have very strong reasons to believe that the Trustees and Management of SEBI approved Cinema Venture Fund have acted in fraudulent manner in following respects:1.Mis-selling of the fund to the investors by the Trustees and Management of the Fund in collusion with the Management of ICICI Bank by promising/luring them with false data of high returns .2. Failure of Management of ICICI Bank ; and Trustees and Management of the Fund to apprise the Potential Investors about the ‘Risks’ associated with such ventures by deliberately withholding various facts known to them. In fact they tried to play down the normal public’s risk perceptions by making false statements.3. Gross mis-management of the Fund by running it in an unprofessional and non- transparent manner, causing huge loss to the investors . 4. Failure to take timely action (as per stated duration of the fund) to exit from the fund and soliciting 3 years more extension (even after forced extension of 2 years) by projecting exit load of 70-90% of NAV, if not done so.The reasons for above statements are as under:Mis-selling of the fund: Managers of ICICI Bank personally visited the premises of their esteemed customers and advised them to invest in SEBI approved Cinema Venture Capital Fund (CCVF) , those based in Kolkata were also invited in their promotional meeting, in Taj Bengal Hotel, with Power Point Presentation (followed by cocktail dinner) and brochure promising/luring with false hopes of high returns, as underOn page33 of their brochure they wrote “Films have been known to give upto 4-6 times the initial amount invested in them. In the last two years with all around growth, a number of films have delivered such returns.”They also mentioned that Content Films like ‘Bheja Fry’ and ‘Khosla ka Ghosla’ have generated estimated profit of 433% and 400% respectively, Mid-budget Films like ‘Lage Raho Munnabhai’ and ‘Pyar ke Side Effects’ have generated estimated profit of 172% and 55% respectively, Big Budget Films like ‘Krish and ‘Rang De Basanti’ have generated estimated profit of 72% and 55% respectively; whereas even regional Films have generated profits of 250%.’ Thus investors were falsely lured by quoting such returns of Blockbuster films in several pages of their brochure But none of the films financed by CCVF and labeled as Blockbuster by them could give an IRR of more than 12% . Their ‘Blockbuster Film’ ‘Krish 3’ could give an IRR of only 12%, which if discounted with their unrealizable revenue of 70- 90% implies a net loss somewhere between 66.4-88.8% to investors.On page33 of their brochure they also wrote in FAQ ‘What does it mean when a film is a “FLOP” ?Answer : The term ‘FLOP’ is usually given to a film which has not performed in the box-office. In the current scenario with fast growing alternative revenue streams like television rights, dvd, dth, online and gaming, most films can limit their downside to 10-15% of the production cost. This usually gets recovered over a medium term due to exploitation and re-sale of IPR rights. This was a totally false statement as they have later advised that in most of their ‘Flop’ films the entire investment got wiped out. In films “Action Replay’ and ‘Yamla Pagla deewana2’ the loss was almost 100% and 46% respetivelyOn page7 of their brochure they wrote ‘Risk minimization due to growth of multiple revenue streams,’. Further on page 15, they listed that whereas earlier there were only 3 revenue streams, in current scenario there are 13 revenue streams. But, they have never advised the investors, what %ages of revenue were generated from each of these streams. It appears the list was meant to catch the investors.On page3 of their brochure they wrote “ The Indian Media and Entertainment Industry is poised to enter a Golden Era.’ And the Further on page it was mentioned that ‘The fund will employ a “best of breed” strategy to deliver returns in a highly transparent and professional manner supported by industry experts in areas of media, film, legal, tax and finance. This was a totally false statement as the fund has been run in most unprofessional and non- transparent manner as proved subsequently.Target IRR- 35% pa (post-expenses and pre-tax) and Hurdle rate- 15% pa (post-expenses and pre-tax). It now transpires that by ‘-‘, they indicated ‘minus’.Failure to apprise the Potential Investors about the ‘Risks’ and downplaying even commonly known Risk perceptions, thus violating normal rules: In their brochure as well as in their Power Point Presentation before the Potential Investors, they did not mention any ‘RISK FACTOR’ associated with such investments. Moreover, they deliberately withheld this information from Potential Investors Quote ‘Way back in 2008, the success ratio in Bollywood was a little less than 15%’ Quote Close(page 9 of their recent communiqué)Rather they told them that even a flop movie is able to recover its investment. Quote from their FAQ‘What does it mean when a film is a “FLOP” ?Answer : The term ‘FLOP’ is usually given to a film which has not performed in the box-office. In the current scenario with fast growing alternative revenue streams like television rights, dvd, dth, online and gaming, most films can limit their downside to 10-15% of the production cost. This usually gets recovered over a medium term due to exploitation and re-sale of IPR rights. Further downplaying even commonly known Risk perceptions by saying ‘Risk minimization due to growth of multiple revenue streams, ‘By saying that ‘ There is a shift from traditional sources of finance to institutional investors and IDBI has not had a single Non Performing Asset since it started financing film companies’ they wanted to imply that investors should not have any fear of their investment becoming Non Performing Asset. The above quote was extensively used by them in media publicity.This is Gross mis-management of the Fund:Most of the films financed by CCVF received critical/ negative reviews by film critics and also failed at the ‘box-office’ thus causing huge losses to the investors. The proportion of their films which received critical/ negative reviews was very high compared to normal film industry standards, which indicate that Advisory and Management team did not show professional competence. Moreover, they decided to prematurely exit from potential successful movies like “Bol Bachchan ” by settling at 12% IRR, which was nowhere near the estimated profits believed to be generated by these films. As per Wikipedia ‘Bol Bachchan had a good opening at the box office. The film reportedly made a record for its advance bookings. It was remade in Telugu as Masala with Venkatesh and Ram Pothineni reprised the roles of Ajay Devgan and Abhishek Bachchan respectively.’ In case the management had not decided to exit prematurely the investors would have earned handsomely on at least a few films.This indicate that the management had vested interest in minimizing the profits of successful films. Further, CCVF in their recent communiqué have informed that ‘The principal project of Stellar ‘Sher’ has been delayed indefinitely due to legal cases being faced by the line production company Shree Ashtavinayak Cinevision Ltd (SACVL) executing the film. As on date the management of SACVL has been imprisoned and their company is under process of liquidation. This shows that the management of the fund has not exercised even normal prudence in selection of the companies for financing.They have not organized even a single investor’s meet during the last 7 years even though the fund was performing very badly right from its inception.The balance sheets of the companies promoted and financed by CCVF, the list and profile of their entrepreneurs and their share in the seed capital was never intimated to the investors.Failure to take timely action (as per brochure) to exit from the fundThey stated in the brochure that following EXIT OPTIONS shall be exercised ‘Sale to Strategic BuyerLarge business groups seeking to enter the film and entertainment business and expansion by existing players. Examples: Turner-Miditech, Disney-UTV, Kosmic-Greycells Entertainment, Reliance Adlabs, Synergy Adlabs, Mahindra Group, Reliance Industries, Aditya Birla GroupSale to Financial BuyerGlobal PE firms now operating in India such as Blackstone, 3i, Columbia Capital, Carlyle, TPG and Soros Funds Management have significant entertainment assets internationally and are looking at expansion into India. Examples of such transactions are deals of 3i-Nimbus and JM Financial-Ushodaya., PVR Pictures – J.P. Morgan/ICICI Ventures.IPO Route (Domestic and International)CCVF investee companies can successfully launch an IPO in India within 36-48 months. Examples of successful IPO’s in the last three years – Pyramid Samaira, Balaji Telefilms, UTV, Adlabs and Shree Ashtavinayak’Now after forced extension of the fund by 2 years, they have advised that none of the above options are available to them. They have falsified their own strategy by now stating that IPO route is not possible since ‘…established entertainment companies who have gone in for listing have been in existence for typically 10 - 15 years’ implying that they deliberately mislead the investors by saying that CCVF investee companies can successfully launch an IPO in India within 36-48 months.In fact right from day one they probably had no intention of timely exit since they invested entire fund money in Greenfield Ventures floated by unknown parties, not using the other options listed in their brochure such as investment in ‘established business houses’ and ‘Production ventures of established actors/ directors’As CCVF was approved by SEBI, use of such fraudulent practices by Trustees/ Management of CCVF is also spoiling the reputation of SEBI,. I, therefore, humbly request you to thoroughly investigate the matter.Thanking You Yours Sincerely ................
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