Planet Hollywood Made Insider Deals

Planet Hollywood International Inc. wrote off $5 million in loans to celebrities and created a “tangled web” of insider deals that benefited top executives and other insiders, an independent review of the company shows.

The once highflying restaurant company, which counted Arnold Schwarzenegger, Bruce Willis, Demi Moore and Sylvester Stallone as celebrity backers, is struggling to emerge from bankruptcy protection for a second time in two years.

The independent examiner’s report, ordered by the court at the request of the firm’s unsecured creditors who are owed $20 million, was filed Monday in U.S. Bankruptcy Court in Orlando, Fla. The names of celebrities who had loans forgiven weren’t made public.

The examiner, Soneet R. Kapila, criticized Planet Hollywood’s founders, Chief Executive Robert I. Earl and Keith Barrish, for being too chummy with the celebrities.

The celebrity backers had been given shares of Planet Hollywood when the company went public in 1996, but many of them later wanted to divest their shares.

To avoid bad publicity from celebrity sales, Planet Hollywood helped the celebrities arrange loans secured against the company’s stock. Later, the company “effectively stepped into the shoes of the financial institution” and posted the full value of the loans, the report said.

Earl and Planet Hollywood’s bankruptcy attorney, Scott Shuker, said the company didn’t recover the loans because they were backed by stock that is now worthless and the loans were written off the first time the company filed for bankruptcy protection.

A legal analysis is needed to see whether the loans constitute fraud or whether there was management misconduct, Kapila said.

Earl and Chief Financial Officer Tom Avallone made sweetheart deals for themselves and others by creating arrangements between the company and franchises that were owned or controlled by the executives or board members, according to the report.

Earl and Shuker deny any wrongdoing.