Funding to Finish Lee’s ‘X’ Halted : Movies: The bond company controlling the over-budget project says layoff notices to film editors may have been intercepted. Work is reportedly proceeding without financing.

A completion bond company that assumed control of “Malcolm X” after director Spike Lee’s film climbed $5 million over budget is refusing to pay to finish the film and has complained that Lee’s production office may have deliberately withheld notification that the film’s editors were being laid off as of last Friday.

In a sternly worded letter to Lee’s New York lawyer dated March 26, an attorney for Completion Bond Co., a Century City firm that insures investors against films going over budget, said that “any work undertaken by the production company after March 27 is undertaken at their expense, not CBC’s.”

Although an attorney for the bond company said Thursday that editing of “Malcolm X” was proceeding, it was unclear who was financing it. “The picture is being completed now and I don’t think it would be productive to talk about it,” said Steven Fayne in Los Angeles.

The $33-million film, an adaptation of “The Autobiography of Malcolm X,” stars Denzel Washington as the charismatic Black Muslim leader. It is scheduled for a November release, and a spokesman for Warner Bros., which is distributing the film in the United States, said Thursday he did not foresee any delays in post-production.

Sources told The Times that Lee’s four-hour rough cut of the film was screened on Wednesday for top-level executives of Warner Bros. and Largo Entertainment, which bought the foreign rights.

Lee is under contract to deliver a three-hour movie, the sources said. The bond company, meanwhile, was said to have wanted a movie that ran only 2 hours and 20 minutes, to cut down on post-production work and aim to produce a more commercial film. Lee has said repeatedly that the film would need a three-hour running time, and has compared the ambitious project to the 3-hour, 7-minute Warner Bros. film “JFK.”

A Warner Bros. spokesman would not comment on the film’s financing, and Lee could not be reached for comment. His attorney, Arthur J. Klein, said: “I can’t make any comments to the press on this matter.”

Completion Bond Co. assumed control of the film in December as the director was wrapping up filming in New York City. In addition, Lee has shot scenes in Upstate New York, Egypt and South Africa.

In Fayne’s angry letter, he said that when the bond company faxed its layoff notices to the editing crew, Lee’s office--By Any Means Necessary Inc.--apparently intercepted the faxes and various crew members later told the bond company they had not received them.

Fayne said that “if the faxes were deliberately withheld from the crew, and that appears to be the fact, CBC intends to hold your clients liable for any damages or loss suffered as a result of your client’s interference with the delivery of these notices.”

Furthermore, Fayne said that when a representative of the bond company visited the production office “he was barred from meeting with the editing crew” to confirm that they had received their layoff notices.

“I find this action on your client’s part to be outrageous,” Fayne wrote to Klein. “Your client was obligated to notify the crew of their termination and its failure to do so and its actions in interfering with CBC’s notices to the crew is a breach of the producers agreement . . .”

The bond company was also upset that although its funding officially ceased last Friday, Lee was to screen the movie the following day and then planned to go back into the editing room and make additional “ ‘corrections’ to the print . . .”

“As CBC’s funding stops on March 27, any activity beyond that date, including a Saturday screening and work on Monday and Tuesday, is not going to be undertaken at CBC’s expense,” Fayne wrote.

Lee has all along said that his movie would cost more than the $28 million for which it was budgeted, noting that it was epic in scope, involving huge rallies, thousands of extras and the construction of a 1940s ballroom.