Laguna Niguel Movie Producer Gets 27 Years in Ponzi Scheme

A Laguna Niguel B-movie producer was sentenced today to 27 years in prison for running a multimillion-dollar Ponzi scheme by convincing investors to sink money into a series of independent films.

Mahmoud "Mike" Karkehabadi was convicted Jan. 24 of 51 felony counts, most involving the fraudulent sale of securities and grand theft. Prosecutors said the scheme stemmed from the production of five movies featuring mixed martial arts fighter Quinton "Rampage" Jackson and rapper Flavor Flav, among others.

Prosecutors alleged it was a $9 million Ponzi scheme, but jurors found the loss was between $500,000 to $3 million for 21 investors.

Prosecutors argued that more than 150 investors from across the country made loans to Alliance Group Entertainment to produce B-movies since 2005, including "Confessions of a Pit Fighter" and "Hotel California."

Karkehabadi promised investors they would get their money back in a year no matter how well the movie did with audiences, prosecutors said. The promised returns were between 18 to 35 percent.

Karkehabadi persuaded investors to roll their loans over into another project after a year or agree to extensions on repayment of the loans, according to prosecutors.

Bank records showed most of the money in Alliance's accounts was from investors and their money was used to pay principal and interest to earlier investors, prosecutors said. Records showed deposits of more than $11 million from the investors and only $535,000 in revenue from the movies.

The state Attorney General's Office began investigating the company in 2008 after receiving a referral fro the Department of Corporations, which was prompted to look into the accounts when investors complained.

In 2003, the state won a $5 million judgment against Karkehabadi for deceptive marketing of credit cards that couldn't be used in stores and for violating California's false advertising and unfair business practices laws.

Karkehabadi declared bankruptcy after that, but did not tell his investors, prosecutors said.

During a hearing earlier this month, some victims of the scheme told Orange County Superior Court Judge Richard Toohey that their finances were left in ruins.

"Every month we wait for our Social Security check and all of it goes to our loan so we can hold onto our home," Dixie Gibbens said. "Our bills? Let me tell you, we don't do bills very well. ... And our credit rating? You don't want to know."

 - City News Service