Businessmen with briefcases walk through a road. (Photographer: Chris Ratcliffe/Bloomberg)

Bankers, Celebrities Sue Over Film Deals Turned Tax Avoidance

(Bloomberg) -- Bankers, athletes and celebrities are suing Ingenious Media Holdings Plc, saying that they were misled about investments in the film industry that were later branded tax avoidance by the U.K. government.

Dozens of traders and managers from Goldman Sachs Group Inc., Lloyds Banking Group Plc, HSBC Holdings Plc, Credit Suisse Group AG and other banks are among approximately 500 investors taking part in the London lawsuit, according to court documents released earlier this month. Celebrities including British composer Andrew Lloyd-Webber are also among the claimants.

The U.K. government has cracked down on the misuse of movie tax breaks in recent years. The Treasury expanded tax relief for films in 1997 to boost the British film industry, but loopholes in the system were widely abused, resulting in multiple lawsuits and at least seven men being sent to jail including three former Jefferies Group LLC bankers.

Ingenious Media, whose movies include the Life of Pi and Avatar, ran investment plans focused on films that were designed to be tax efficient, according to court documents. Investors say, however, that Ingenious Media “made representations of fact which were false and which they had no reasonable grounds for believing were true” while promoting the plans. This induced the claimants into joining the plans and losing money, they said.

Ingenious denies that the plans were set up as a tax dodge and is in its own legal battle with the U.K. tax authorities over the issue. A specialist tax court ruled in August 2016 that some parts of the investments were eligible for tax relief and others weren’t, with both sides claiming victory. A spokesperson for Ingenious said that they were confident of validating the rest of the investment vehicles at a hearing next March.

Patrick McKenna, the Ingenious chairman who is also a defendant in the lawsuit, said through his spokesperson that the claims are “entirely without merit and will be vigorously defended.”

200 Million Pounds

The number of claimants in the case is rising, though it still only represents about a quarter of the people who invested in the plans, said David Pickstone, a lawyer at Stewarts Law who represents the claimants. They expect to recover around 200 million pounds ($257 million) in total.

Former Goldman trader Dermot Keane, Lloyds head of flow credit trading Oliver Carter, former Barclays Plc director Rob Dornton-Duff, former Credit Suisse managing director Simon Meadows, former HSBC managing director Arthur Hogarth, and a managing director at EFG Private Bank Ltd., Andrew Imlay, are among the investors in the case, according to documents released by the court last week. The investors either confirmed their participation in the lawsuit by phone or were verified through public records.

Pickstone said that the investors in the lawsuit didn’t want to comment on an individual basis.

The U.K. tax office has said that one of the Ingenious plans tried to use artificial losses arising from investments in a range of movies, and that in some variations users claimed more in tax relief than they had invested.

Investors have sued over failed investment schemes that claimed to reduce taxes in the past. In 2011, Rothschild executives sued a Swiss bank for advising them to take part in a failed U.K. tax shelter, while in 2007 executives and bankers sued tax advisers for negligence after they failed to receive millions in promised rebates on investments in film through company Little Wings Ltd.

The 500 claimants include two other groups bringing similar claims advised by law firms Peters & Peters and Mishcon de Reya. The court will start by looking at sample claims rather than every case individually. A hearing is scheduled for next year.

The case is Balarkas v. Ingenious Media Holdings Plc, High Court of Justice Chancery Division, Case No HC-2017-000490.

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