By Edward Helmore
Last modified on 2021 Oct 10
Zachary Horwitz ran a five-year scam that defrauded wealthy investors of at least $227m by claiming to be in licensing deals with Netflix and HBO.
It’s a tale about a Hollywood grifter that reads like an outlandish movie script. But this real-life story has left Tinseltown asking how an unknown, peripheral player could have scammed millions from so many out-of-town investors hoping to cash in on the boom of streaming platforms such as Netflix and HBO.
Last week, Zachary Horwitz, a B-movie actor with a taste for the high life, pleaded guilty to a single count of felony securities fraud, carrying a maximum penalty of 20 years in prison. But behind the dry legalese of his plea, something more – though not necessarily new – was learned about the hunger for content and profit in the enduring global capital of the movie business.
Horwitz – who worked under the stage name Zach Avery – had claimed to be in business finding and licensing Spanish-language movies and TV series to Netflix and HBO. But according to FBI, he had in fact run a five-year, multimillion-dollar Ponzi scheme that defrauded wealthy private investors of at least $227m.
Like many before him, including notoriously the Wall Street fraudster Bernie Madoff, the scheme relied in part on the perpetrator’s criminality and in part on the greed of his investors. Like Madoff, Horwitz promised improbable returns on investment loans.
But there was something more: the ineffable lure of Hollywood.
It’s an age-old story, of course, with institutions and individuals hoping to cash out from the movie business and finding, as it has always been, that Hollywood is a small-town industry that, even in the age of globalization and multibillion-dollar streaming services, runs on who you know.
Originally from Indiana, Horwitz graduated from Chicago University with a degree in psychology, and came to Los Angeles. In a 2019 cover story for Swagger, the actor said he moved “with nothing more than his dog, a few suitcases, and a big dream” and the support of Mallory Hagedorn, a hair stylist, who he later married.
Horwitz hired an acting coach and went on the audition circuit. Parts were scarce. But he met a would-be producer, Julio Hallivis, and they set up a company, 1inMM Productions (“One in a Million”) that planned to finance low-budget horror and science fiction films with plum roles for “Zach Avery”.
He featured in a number of straight-to-streaming films, among them Hell is Where the Home Is,Last Moment of Clarity (2020), The White Crow (2018), Trespassers and The Devil Below, and Farming (2018) with Kate Beckinsale and directed by Adewale Akinnuoye-Agbaje.
But some jarring aspects of Howitz’s bit-part acting life didn’t add up, including a lavish $6m Westside home with a screening room, gym and a 1,000-bottle wine cellar. He traveled by private jet, enjoyed expensive cars and a luxury watch subscription, high-roller weekends in Vegas. In court papers, former friends said he often bought courtside seats at Lakers games and once tried to tip a waitress $5,000.
“Every Hollywood scammer has a persona,” says Allison Hope Weiner, an LA investigative journalist. “It’s the place you can become what you want to become. Horwitz understood the importance of image. He looked the part, people could see him flying around, doing well, and that’s how it works.”
The scheme began in October 2014, when investment firms began entering into a series of six- or 12-month promissory notes with 1inMM Capital. Each note was supposed to provide money for 1inMM Capital to acquire the rights to a specific film.
In one case, the Chicago group lent $1.4m to buy the rights to an Italian film, Lucia’s Grace, and resell it to Netflix for distribution in Chile, Argentina, Brazil and a few dozen other countries. The investors were promised a $2m repayment a year later.
To keep his investors from suspecting anything amiss, Horwitz provided fake license agreements, as well as fake distribution agreements with Netflix and HBO, all of which contained forged or fictional signatures.
But the scheme began to unravel in 2019 when Horwitz was unable to meet investors’ demands for repayment and it became clear that his claim of “solid relationships” with the streaming platforms was a lie.
“During the lulling period – the period in which payments come to a halt, but the fraudster is able to buy himself time – in this case it was carried out through very sophisticated means,” says Brian Michael, a lawyer with King & Spalding representing three of Horwitz’s Chicago friends, who alerted the Securities and Exchange Commission (SEC).
“Horwitz banked through a well-respected national institution that had a focus on serving clients in the entertainment industry, had a major global law firm representing 1inMM, fabricated a complete suite of seemingly authentic documentation and communications among 1inMM, HBO and Netflix and had previously repaid millions in loans on time,” Michael adds.
A federal grand jury indicted Horwitz in May on five counts of securities fraud, six counts of wire fraud and two counts of aggravated identity theft. Under his plea agreement last week, he admitted to defrauding more than 250 investors – the Chicago trio, along with their parents, grandparents, siblings and in-laws.
Horwitz was arrested at dawn on 6 April, when FBI agents raided the house. His wife, Mallory, soon filed for divorce, saying in court that her husband had been “deceiving and manipulating me and everyone around him, and he is not the person that I believed he was”.
According to an SEC complaint, in order to delay paying back investors, principally the Chicago investors of $490m, Avery had “fabricated email communications with representatives of HBO as well as false collections accounts allegedly showing funds available from HBO and Netflix for distribution”.
“There is a lot of money ‘missing’ here,” US magistrate Jean P Rosenbluth said at Howitz’s arraignment. Brian Michael says “his understanding is that the investigation is ongoing.”
The perhaps more interesting question is not how Horwitz pulled off the scam, but the larger circumstances of the movie and TV industry. It might not have worked at all if he had been connected to the business in any coherent way.
But the streaming platforms spend billions on content in a battle for subscription growth and for every White Lotus or The Squid Game, there are thousands of shows, in every language and for every audience, that never make it to Netflix or HBO’s algorithm-gamed customer facing page and exist to keep people on the platform.
According to estimates, streamers’ spend on producing and licensing new entertainment content (excluding sports) rose by 16.4% in 2020 to reach $220.2bn. The Walt Disney Company alone spent $28.6bn, and the overall spending on streaming content is expected to exceed a quarter of a trillion this year.
“In deceiving his victims, Horwitz leveraged fictitious documents and communications as well as the fact that these are sophisticated platforms with good reputations and deep pockets that are known in the market to be aggressively acquiring content,” says Michael.
According to Hope Weiner, the scam relied as much on people falling for the allure of Horwitz’s lifestyle trappings as it did on mystique around fast-growing streaming platforms – and how little people understand of how that business works.
“It’s like the dotcom boom. There’s incredible competition between these services, everybody wants to get in, and there’s a lot of a talk about how much money is being made. Maybe the global nature of the business has made it easier for people to lie but people forget this is also a small town,” Weiner said.
Several years ago, investor-playboy Jho Low walked into town with millions linked to the massive 1MDB sovereign fund scandal in Malaysia. He financed The Wolf of Wall Street, a three-hour epic of bad behavior, with Leonardo DiCaprio. He flew the actor and friends for a double New Year’s Eve in California and then Australia, purchased art and broadly established himself around town.
But the latest scandal has little of Jho Low’s criminal, red-carpet panache. “Horwitz was dealing with people who were not savvy,” says Hope Weiner. “An LA person would ask, ‘who is this guy, what has he produced, who does he know. OK, so he’s an actor. What else?’”
But – this being Hollywood – there’s always someone looking to capitalize on infamy.
Orson Oblowitz, the director of Trespassers, a 2018 horror flick shot in Malibu, in which the actor writhed on the deck of a swimming pool with a thick dagger plunged into his stomach, told the LA Times that he was unmoved by Horwitz’s acting but hoped the scandal might give his film cult status.
“It’s mind-blowing,” Oblowitz told the paper. “This dude does not strike me as a criminal mastermind. I am amazed.”
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(For the source of this, and many other equally intriguing and important articles, please visit: https://www.theguardian.com/money/2021/oct/10/hollywood-ponzi-scheme-zachary-horwitz-zach-avery/)