Founder says Lionsgate’s Burns has conflict of interest in Hollywood Stock Exchange/Cantor Exchange

June 2nd, 2010
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Contributed by: Teri Buhl
The chance to turn your virtual cash into the real thing on the Hollywood Stock Exchange is set to begin at the end of June. The futures market regulator, the CFTC, is moving forward on approving trading futures contracts on box office results. Now Hollywood and Wall Street are anxiously waiting to see if Congress will bless it.

But one of the exchanges’ founders says there are important conflicts of interest that haven’t been investigated. Max Keiser, journalist for Russia Today TV, showed his viewers video tape of his former partner in the HSX/Cantor Exchange, Michael Burns, Vice Chairman of film studio Lionsgate (NYSE: LGF), bragging about trading on inside information on HSX, a virtual exchange they both created in the mid 90’s.

Virtual prices on an exchange like HSX have real world impact - as noted by the Village Voice who wrote about how NBC banned reporting of prices on HSX before a film's opening for fear prices on HSX - and the perception they carry - would impact opening gross results. A problem that could be compounded when hedge funds and derivatives traders keying off CFTC approved box office futures contracts begin. (Source)

The CFTC now has to work out these ethics issues with the exchanges existing owner Wall Street brokerage house Cantor Fitzgerald. But this isn’t Keiser’s only worry – what has him most troubled is it’s unclear if regulators have proven that Burns doesn’t still have an economic interest in the Hollywood Stock Exchange. Burns led a shareholder sell out of the exchange to Cantor Fitzgerald nearly a decade ago – a deal Keiser says was shady from the start.

According to Keiser, Burns told him while at the Cannes Film Festival in 2002 that instead of just a side deal - stock swap payout for their business, Cantor made him a deal that he’d get a cash over ride of HSX trading revenue. A deal that could prove a huge conflict of interest if Burns, the head of a movie studio, is reaping cash off bets on his movie’s success or a competitor's failure.

In April, John Lopez of Vanity Fair, noted that Lionsgate’s sudden stamp of approval over the legalization of movie box office betting was an odd turn of events. Why, because the Hollywood associations his studio has to work with were against it. Lopez writes: “ …Lionsgate went to the Dark Side and came out in support of Hollywood Stock exchanges. It was a crucial crack in the unified Rebel Alliance of the M.P.A.A., D.G.A., and I.A.T.S.E.” (Source)

Burns, who I interviewed in 2007 for Trader Monthly’s feature story on Cantor buying the HSX - admitted to the existence of a over ride deal on Exchange revenue but said the deal is void now and he has nothing to do with the exchange. Keiser says Burns told The Hollywood Reporter the same thing last week, but when I asked for proof of a contract stating Cantor and Burns are no longer financially connected, they refused to provide one. Keiser also says his lawyer has been asking, for over a decade, to see proof of the termination of the Burns-Cantor deal but Cantor just keeps bringing up an excuse that it was destroyed in the World Trade Center office during the 911 attacks. Keiser also points out that neither he nor any of the original HSX stockholders, who invested $40 million, ever saw a drop of cash or stock, or any compensation whatsoever - after Cantor bought their exchange idea in 2001. "Shareholders were raped badly" says Keiser.

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