A Burbank business owner was arraigned this week on 89 felony counts related to a $9-million Ponzi scheme.
Mahmoud Karkehabadi — also known as Mike Karkeh — is accused of promising investors up to 35% returns for making loans to his B-movie production company.
His business, Alliance Group Entertainment on South Main Street in Burbank, is responsible for producing B-movie flops such as “Confessions of a Pit Fighter” (2005) starring rapper and reality television star Flavor Flav and “Hotel California” (2008) and received 150 “movie production loans” from across the country, according to California attorney general’s office.
The majority of the victims are from California, officials said, although investigators believe there are more.
Karkehabadi, 53, and his agents allegedly told investors they would see sizable returns within a year. After the first year, Alliance Group Entertainment would request extensions for repayment dates or ask investors to apply the loan money to the next movie project, according to the criminal complaint.
Karkehabadi’s lawyer could not be reached for comment.
After receiving complaints from investors, state officials referred the case to the state attorney general’s office in 2007. Investigators then reviewed bank records and interviewed investors.
The records showed deposits of more than $11 million from investors and only $535,000 in revenue from the movies produced by the company, according to a statement from the attorney general’s office. Most of the money from new investors was allegedly used to pay off earlier investments.
In a May 2007 decision from California Department of Corporations Commissioner Preston Dufauchard, Karkehabadi was ordered not to offer or sell movie production loans after he allegedly failed to apply for the proper permits and certificates.
“This con artist sold securities under the guise of a loan to fool investors and try to avoid following the rules,” Atty. Gen. Jerry 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.”
Investments by victims ranged from $10 to $1.4 million, said Rebecca MacLaren, spokeswoman for the attorney general’s office.
Karkehabadi was previously on the attorney general’s radar when he violated the state’s false advertising and unfair business practices laws after marketing credit cards that could not be used in stores. He filed for bankruptcy after a 2003 judgment ordering $5 million in repayment — neither of which was allegedly disclosed to investors in the Burbank-based company.
Timothy Cho, 54, of Newport Beach and Deanna Salazar, 53, of Yucca Valley, are also accused of selling securities to victims of the Alliance Group Entertainment scheme. Cho, also known as Hin-Kong Cho, remains at-large. Salazar has agreed to surrender, according to the attorney general’s office.
Karkehabadi, a Laguna Niguel resident, is scheduled to argue for reduced bail, which now stands at $11 million, at hearing on Sept. 3. He faces more than 25 years in prison if convicted on all charges, including securities fraud and grand theft.