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—summary_fact_check [2016/12/16 15:10] – [Commercial Studio] Carlos Pedraza
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 +<WRAP>
 +{{::warhammer.jpg|}} \\
 +<wrap lo>**WARHAMMER** A December 2015 trip to London for a Warhammer 40K convention was one instance of international travel Alec Peters insisted was not paid for by Axanar donations. <wrap lo>//Photo/Axanar Productions//</wrap></wrap>
 +</WRAP>
  
 +
 +<WRAP>
 +//**__<wrap em>Fact Check</wrap>__**//
 +</WRAP>
 +
 +====== Peters' Personal Spending Spurs Axanar Accounting ======
 +{{TOC}}
 +<WRAP>
 +//**__ __**// <wrap lo>**By [[user>cpedraza|Carlos Pedraza]]**</wrap>
 +</WRAP>
 +
 +<wrap lo>//See also: [[summary_motions_filed|Plaintiffs Cite Peters' Shocking Personal Spending in Asking Judge for Summary Judgment]] and [[defense_summary-filing|Axanar Wants Summary Judgment, Says Studios ’Squashing Creativity’]]//</wrap>
 +
 +Inappropriate spending alleged by plaintiffs [[CBS]] and [[Paramount Pictures]] in their copyright lawsuit against [[Alec Peters]] led the producer to issue a statement November 18, 2016, denying he misspent money donated by Star Trek fans to produce his feature film, //Axanar//.
 +
 +In a motion for [[summary_motions_filed|partial summary judgment]], the plaintiffs asserted that defendants Peters and his company, Axanar Productions Inc., raised, and spent, well over a million dollars, paying themselves, actors, and crew members, while renting out a studio (which Peters intended to lease out for other productions), to pay "tens of thousands of dollars of restaurant bills, to pay their phone bills, gas, insurance, and to travel around the country as the 'producers' of Star Trek: Axanar."((Motion for Partial Summary Judgment, Section 3, Part C, p. 13, 11/16/16.))
 +
 +===== Axanar PR Goes Into High Gear =====
 +
 +Following those public revelations from plaintiff documents that were [[axamonitor_redaction| inadequately redacted]], Peters' public relations machine went into high gear to deflect the attendant calls for where the $1.5 million he raised to produce //Axanar// had gone.
 +
 +Despite the Axanar camp's condemnation of the plaintiffs' attorneys inadvertently revealing Peters' lavish spending, **AxaMonitor** also reported that the same information was disclosed by his defense attorneys in [[axamonitor_redaction#defense_released_same_information|unredacted exhibits]] attached to the defense's summary judgment motion.
 +
 +{{page>fact check}}
 +
 +===== Statement Answers Plaintiffs' Spending Allegations =====
 +
 +The November 16 court filings, which included the [[defense_summary-filing|defense's own motion]] for summary judgment, were detailed in news stories the following day, with Peters' response November 18, apparently authored by PR director Mike Bawden, on multiple platforms — updates to the film's Indiegogo and Kickstarter pages, direct emails to supporters, a post on the Axanar website and publication on the website of surrogate Jonathan Lane, Fan Film Factor.
 +
 +The apparent author of Peters' statement, Axanar PR director Mike Bawden, also emailed a nearly word-for-word version to other supporters. As part of its ongoing Fact Check series, **AxaMonitor** examined the claims Bawden and Peters made in response to the financial disclosures. Bawden wrote:
 +
 +> In light of information contained in the Motions for Summary Judgement filed by both sides in our continuing litigation with CBS Studios and Paramount Productions, we think it’s important to provide some information to our fans and backers to help put everything into context.(([[http://www.axanarproductions.com/axanar-productions-statement-regarding-recent-motions-for-summary-judgement/|"Axanar Productions’ Statement Regarding Recent Motions for Summary Judgement," Axanar Productions website]], by Mike Bawden, 11/18/16.))
 +
 +[{{ :bawden-peters.jpg|Axanar PR director **Mike Bawden**, left, beside producer **Alec Peters**.}}]
 +
 +==== Peters' $150,000 Contribution ====
 +
 +The statement confirmed earlier reports that Peters had been paying the rent on the commercial studio he built in warehouse space leased using donor funds:
 +
 +> Alec Peters has put in approximately $150,000 of his own money into Axanar over the past year. He is currently paying the $15,000 a month it costs to keep the studio open, out of his own pocket, as he has been doing since this for the past 6 months.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +
 +<wrap em>HEARSAY</wrap> **Peters' $150,000 Contribution**. This amount has only recently been quoted by Peters, presumably encompassing money he claims to have given Axanar from proceeds of the recent auction by Propworx, another company he owns that also uses office space, apparently rent-free, in Peters' paid-for-by-donors [[industry_studios|commercial studio]]. However, the amount he claims grows by the week. He originally claimed to "donate" $20,000, but over the course of two weeks, the figure had grown to $45,000 with no explanation.
 +
 +The trouble with the claim Peters put "$150,000 of his own money into Axanar" is that there is absolutely no way to confirm that he did or that was the actual amount. Peters has produced no records to substantiate his claim.
 +
 +**DUBIOUS STUDIO OWNERSHIP** His claim of paying the rent for Axanar's studio is troubling because it's unclear if Axanar even owns the lease to the building anymore. The facility is now run as a commercial soundstage called [[industry_studios|Industry Studios]], whose ownership appears to include Peters in limited liability companies established in Georgia and California by Peters' attorney, [[industry_studios|Sheldon Friedman]]. However, Peters steadfastly refused to clarify the [[investor_group|ownership]] of the studio.
 +
 +**UNPAID RENT** In addition, Peters admitted, under oath, in his deposition, that his separate company, [[propworx-email|Propworx]], has paid no rent for its use of the facility.((Declaration of David Grossman in Support of Motion for Summary Judgment, ¶63, pp. 18-19 [redacted]: "Mr. Peters testified that the studio is leased out to Axanar Productions, which he owns. He further testified that he uses the studio (rented and built out using fan funds) as the office for his company, Propworx. <wrap hi>Propworx does not pay rent to Axanar Productions</wrap>.")) So if Propworx' auction proceeds did eventually go to Axanar, wouldn't that more properly be classified as back rent rather than Peters' claimed generosity?
 +
 +Finally, why? Given the amount of money Peters should have [[ambition_vs._achievement#lawsuit_impact|had on hand]] following his two successful crowdfunding campaign, why was the infusion of an additional $150,000 even necessary — particularly given estimates of as much as $200,000 in [[compel_discovery#undisclosed_proceeds|additional revenue]] (e.g., direct donations for //Axanar//, so-called "[[ambition_vs._achievement#undisclosed proceeds|retroactive donations]]" entitling donors to Blu-ray copies of //Prelude to Axanar//, Donor Store [[merchandise]] sales, etc.). Without documentation, Peters' statement merely asks people to trust him, a dubious proposition given the evidence the plaintiffs found in discovery.
 +</WRAP>
 +
 +==== Salary or Reimbursement? ====
 +
 +Despite Axanar's annual report explicitly stating Peters and other staff, including his girlfriend [[perks|Diana Kingsbury]], were paid a salary, the November 18 statement now claims he has repaid any proceeds that had gone into his pocket:
 +
 +> Alec has not kept a single dollar from donor funds, either in salary, or expense reimbursements. Any money Alec received was paid back through the money he has been putting into Axanar. This means, Alec has worked full time on Axanar for over 2 1/2 years and not received a dime in salary, benefits or expense reimbursements.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>MOSTLY FALSE</wrap> **Not Kept a Single Dollar**. The statement conflates Peters' payments to himself in such a way as to obscure the fact he **was** by his own admission paid a salary. The plaintiffs claimed Peters personally //financially benefited// from his production, through his salary, paid travel expenses and personal expenses. "Direct financial benefit" is one of the causes of action in their copyright suit against him. So even if he paid back those expenses two years later, Peters still financially benefited from having paid himself at the time; replacing the money later does not erase that fact.
 +
 +Peters' 'not kept a single dollar' claim directly contradicts the financial records Peters turned over to the studios' lawyers, and which the plaintiffs have filed with the court. In recent public statements, Peters accused opposing counsel of lying:
 +
 +> "It just amazes me that some people are stupid enough to believe that just because CBS/Paramount's lawyers put something in a document it is true. Let's be clear, the [CBS and Paramount] lawyers at [[Loeb & Loeb]] were given lots of facts that they ignored, and twisted facts to suit their narrative."(([[https://www.kickstarter.com/projects/194429923/star-trek-axanar/comments?cursor=15084919#comment-15084918|Alec Peters comment, Star Trek Axanar Kickstarter project]], 11/21/16.))
 +
 +**EASY TO PROVE, HARD TO DISCLOSE** Never mind that CBS and Paramount's lawyers' sworn declarations are based on evidence Peters himself turned over in discovery, and that lying could get them disbarred. Of course, it would be easy for Peters to prove his claim by simply making Axanar's financial information public, at least to his donors — something he had repeatedly promised but never produced. Moreover, his attorney, [[Erin Ranahan]], already notified the court of her intention to have the financials excluded as evidence from Axanar's upcoming trial.((Defendants’ Opposition to Plaintiffs’ Ex Parte Application for Order, p. 7, 10/28/16: "Despite Defendants’ position that these documents lack any relevance to this case, Defendants produced the financial information they had available at the time in an effort to be cooperative and avoid wasting the Court’s time on discovery disputes. <wrap hi>Defendants fully intend to seek to exclude these expenditures before trial</wrap>."))
 +
 +**HOW REPORTED TO IRS?** Peters appears to be claiming that any money he was paid as a "salary," has been more than repaid by contributions he claims to have made to keep Axanar afloat — but the repayments happened two years later. So how was his salary originally reported to the Internal Revenue Service? According to its own FAQ, Axanar Productions [[http://www.axanarproductions.com/faq/|has no employees]]; everyone who works there (including Peters) is an independent contractor. Axanar should've reported each contractors' income to the IRS, and each one would have had to pay their own taxes on that amount. (N.B., it's quite possible that classifying those people as contractors violates how the IRS instructs employers to differentiate between contractors and employees — a common problem among independent film productions.)(([[http://www.abspayroll.net/payroll101-hiring-independent-contractors.html|ABS Payroll — "Educate and inform yourself in the basics of payroll: Hiring Independent Contractors,"]] retrieved 3/24/16.))
 +</WRAP>
 +
 +==== What Accountant When? ====
 +
 +At the heart of Peters' defense against the allegations in the plaintiffs' motion for partial summary judgment is his claim that an accountants' review absolves him of the studios' claims about his spending donors' money. According to his statement:
 +
 +> Axanar now has an accountant who has taken all of the voluminous notes and records Alec and the team have kept and completed financial statements for the past 2 1/2 years. The financials will now be reviewed by our CPA/Tax accountant next week as she prepares our tax returns.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>PARTLY TRUE</wrap> **Accountant's Review**. While it is likely true that an accountant at some point has reviewed Peters' financials, it's not clear who conducted this review, when it was conducted and when a report was completed. The truth is, Peters and his attorney have contradicted one another (and Peters has contradicted himself) about the supposed review of Axanar's financials, as documented in an earlier **AxaMonitor** [[order_fact_check|Fact Check]]:
 +
 +<wrap em>CONTRADICTORY</wrap> **Which Financial Data?** It's unclear precisely which financial information Peters, his attorney and the studios' lawyers are talking about, with each party describeing the records quite differently.
 +
 +  * **Financial "Summary"**. In its October 27 [[emergency_motion|emergency (ex parte) motion]], the plaintiffs described the document this way:
 +
 +> The only document Mr. Peters has turned over relating to the expenditure of the $1.4 million he raised from Star Trek fans to create //Star Trek: Axanar// is <wrap hi>a financial summary prepared by his accountant</wrap>. … This document shows the amounts and dates on which Mr. Peters paid himself and his colleagues, and paid for his personal expenses with funds from Star Trek fans.((Plaintiffs’ Ex Parte Application for Order, Memorandum of Points and Authorities, p. 2, 10/27/16.))
 +
 +[[federal_magistrate_judge_charles_f._eick|Federal Magistrate Judge Charles F. Eick]]'s October 31 order appeared to apply to this document since it was the one described in the ex parte motion, and it was the one in Eick's October 28 order approving the plaintiffs' request to file the financial summary with the court under seal (i.e., not available to the general public).((Civil Minutes, Federal Magistrate Judge Charles F. Eick, p. 1, 10/31/16.))
 +
 +  * **Reviewed by Accountant**. The plaintiffs' description of the document as a summary comported with how Peters himself described the document on October 29:
 +
 +> The <wrap hi>financials are complete and have been reviewed by an accountant</wrap> and show me not having taken one dollar from Axanar over the TWO AND A HALF YEARS I have worked full time on this project. Every dollar donated is accounted for.(([[https://www.kickstarter.com/projects/194429923/star-trek-axanar/comments?cursor=14809457#comment-14809456|Alec Peters comment, Star Trek Axanar Kickstarter]], 10/29/16.))
 +
 +  * **Preliminary Quicken Notes**. Yet in her October 28 opposition brief Ranahan described the earlier records named in the ex parte motion as "certain highly sensitive financial information consisting of thousands of pages of Alec Peters’ Quicken <wrap hi>financial notes … not prepared by an accountant.</wrap>"((Defendants’ Opposition to Plaintiffs’ Ex Parte Application for Order, pp. 6-7, 10/28/16.)) \\ \\
 +  * **Revised Quicken Notes**. The defense appeared to have handed over a new set of documents, described as "a revised version of Mr. Peters' Quicken notes" on October 28. Both it and the revised records, thanks to the judge's order, were now available for the plaintiffs to use in depositions with looser restrictions.
 +</WRAP>
 +
 +==== Independent Financial Review Committee ====
 +
 +In light of Peters' spending as described in the plaintiffs' court documents, Peters' statement appeared to take a pro-active step in assuaging donors' concerns:
 +
 +> We have decided to create an Independent Financial Review Committee, a group of industry professionals and donors, to review the financials and report back to the entire donor base. We believe that the report from this committee will give donors the confidence that the Axanar team spent the donor money wisely and that Alec has not received any compensation or expense reimbursements.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>DUBIOUS</wrap> **Restoring Donor Confidence**. The idea of having an independent committee review Axanar's financials and report to donors sounds like a good idea but the vague terms of the proposal raise more questions than they answer. For example:
 +
 +**Industry Professionals**. Which industry? Film? Accounting? Most filmmakers are not known for being accountants (that's why they hire them), so it's unclear what accounting expertise other film industry people are supposed to being to this endeavor. And if it's accounting professionals, why create a committee instead of just hiring one to examine the financials and report back?
 +
 +**Donors** Which donors? Chosen by Peters? How does his being able choose the donors to be members of the committee ensure its independence and impartiality? If not Peters, then who? And how will that person's independence and impartiality be ensured?
 +
 +**Cost**. Who is paying for this committee? How many members? How will they be compensated for their time? Will this expense also come out of donor dollars?
 +
 +From this vaguely worded proposal, it's unclear what value such a review committee would add to a review of Axanar's financials and Peters' spending already being conducted by an accountant, other than a public relations move calculated to mollify increasingly worried donors.
 +
 +**Peters' Compensation** The statement appears to acknowledge some impropriety in the idea of a fan producer having been paid a salary or otherwise reimbursed for expenses. Yet Peters has always defended being paid. Why the flip-flop? Does it concede the plaintiffs' allegation that Peters gained a "direct financial benefit" as a result of his copyright infringement, while at the same time claiming his paying back those financial benefits make them disappear, or merely redistributed?
 +</WRAP>
 +
 +==== Nonprofit Organization ====
 +
 +The statement goes on to state that Axanar has not given up on its long-delayed intention to obtain 501%%(c)%%(3) nonprofit status from the state of California and the federal Internal Revenue Service:
 +
 +> Axanar has also retained a firm to prepare and manage our 501%%(c)%%(3) filing, which should be filed shortly. They are currently waiting on a document back from the [California] Secretary of State approving the change to our articles of incorporation and then they will file our application.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>UNCONFIRMED</wrap> **Nonprofit Status**. This is not news. **AxaMonitor** [[axanar_myths|debunked]] Axanar's nonprofit myth eight months earlier, in March. In an April [[trekzone_spotlight|interview on TrekZONE]] with editor Carlos Pedraza, spokesman Bawden admitted he didn't see what benefit obtaining nonprofit status would confer on Axanar's operations.(([[yout>5xgP5CgcLYA|TrekZONE podcast]], 4/26/16.))
 +
 +Nonetheless, Axanar has continued to use the words "donate" and "nonprofit organization" together in attempts to entice people to donate toward the production of the film despite its actual status as a for-profit California corporation. This in spite of California's Non-Profit Integrity Act, which makes it illegal to portray an organization as nonprofit in order to solicit donations.(([[http://ag.ca.gov/charities/publications/nonprofit_integrity_act_nov04.pdf|State of California Government Code Section 12599.6(f)]] (PDF), retrieved 11/22/16.))
 +
 +**APPLICATION PROGRESS** There’s a process for Axanar to follow to become a federal tax-exempt non-profit organization, starting with formal incorporation as a non-profit in California. That must be done before applying for the IRS 501 status. For example:
 +
 +  * Has Axanar drafted or filed articles of incorporation as a non-profit?
 +  * Has it constituted a board of directors? 
 +  * Has it registered with California’s state agency governing charitable organizations?(([[http://www.nolo.com/legal-encyclopedia/forming-nonprofit-corporation-california-36053.html|Nolo.com: How to Form a California Nonprofit Corporation]], retrieved 3/17/16.))
 +  * Has it prepared or submitted its 501%%(c)%%(3) application to the IRS? 
 +  * Has it drafted its bylaws? 
 +  * Has it prepared its systems for the specific reporting requirements to which non-profits are subject, like IRS Form 990? 
 +
 +At what point in the process does Axanar find itself? What does “we’re working on it” actually mean? Given the lack of clarity about Axanar's nonprofit intentions, it's unclear why this was included in a statement about the lawsuit.
 +</WRAP>
 +
 +==== Commercial Studio ====
 +
 +Axanar's commercial soundstage rental business, [[http://industrystudios.la|Industry Studios]], remained an endeavor shrouded in mystery. In March, Peters claimed it represented no asset of value. Yet his "Mythbusters" post on the Axanar website claimed a group of [[investor_group|secret investors]] were going to ante up as much as $400,000 to take over Axanar's lease and operate the space as a commercial production studio. The only news since March is what Peters released in his statement:
 +
 +> While Axanar has not made one dime off of renting out the studio, that is the intention of the Axanar team, as we hope to continue to be able to pay the rent. Every single dollar raised by renting out the studio (which we now call Industry Studios) will go towards producing Axanar.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>MISLEADING</wrap> **Not One Dime from Studio**. Virtually all public information regarding Industry Studios reveals little about its ownership or operation so it's impossible to know whether this statement is true. The [[investor_group|asset transfer]] has never been confirmed, despite **AxaMonitor**'s repeated questions of Bawden in the months since Peters' announcement.
 +
 +[{{ :twisted-path-4.jpg?nolink&300|**CONVOLUTED CONNECTIONS** revealed in AxaMonitor's investigation of Axanar's "Industry Studios" and a web of [[industry_studios|multi-state companies]].}}]
 +
 +**AxaMonitor**'s investigation of the company supposedly operating the studio revealed a [[industry_studios|tangled web]] of shell companies stretching between California and Georgia, all represented by [[industry_studios#the_peters_connection|Peters' personal attorney]], with no clarity about whether Peters' is part of any ownership group separate from Axanar Productions Inc. or why he was able to [[axanar_finances#the_offer|offer part-ownership]] to departed chief technologist [[Terry McIntosh]] in May.
 +
 +Moreover, "not one dime" earned from the studio makes it appear as if Axanar wasn't trying to earn money until now. What appears to actually be the case is that the soundstage simply wasn't ready until recently to rent out to film or television productions. 
 +
 +Though Peters boasted in May that the studio would be operating the following month, it turned out the facility needed additional work before it could officially open for business, including upgrading the fire sprinkler system to meet fire department codes. Peters contracted with a firm to assist him in getting the studio to pass the permit process and be certified for film, television and photo projects.(([[http://static.signalscv.com/flipbook/SCVBJ/2016/09/files/mobile/index.html#11|"Industry Studios Aims to Provide Affordable Space for Smaller Productions," Santa Clarita Valley Business Journal]], p. 11, September 2016.))
 +</WRAP>
 +
 +==== Disinformation ====
 +
 +Peters' statement also claims it's an attempt to offer accurate facts about the production, its finances and its executive producer in order to counter disinformation:
 +
 +> With everything going on concerning the lawsuit and the amount of disinformation being spread by people whose intention is to see Alec Peters fail, embarrass those who worked with him and make it impossible to share our vision for the story of //Axanar// with the tens of thousands who financially supported this project, we thought it was important to give you our side.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>MOSTLY FALSE</wrap> **Disinformation about Axanar**. This statement, echoed in court documents as well by Peters' attorneys, paints a portrait of a vast disinformation campaign leveled against Axanar. While it's true the lawsuit and Peters himself often attract vitriolic attacks against him, he has identified almost no specific instances of inaccuracy or disinformation. The furthest he's gone is only general condemnation for news sources he doesn't like, such as The Mary Sue and AxaMonitor.
 +
 +In fact, given its hundred thousand Twitter followers, tens of thousands of fans on Facebook, claimed 14,000 donors and the national (even international) positive news articles from such outlets as Space.com, Newsweek, Bloomberg, the Washington Post, and Wired, it's difficult to see how a disinformation campaign with a far smaller reach could threaten Axanar.
 +
 +**HIDING DISSENT** Meanwhile, since the lawsuit was filed in December 2015, Peters has [[night_knives|purged]] hundreds of former fans from its various Facebook pages, blocked many from its Twitter feed and, after failing to [[no_refunds|silence critics]] with a combination of refunds and non-disclosure agreements, forced refunds on backers in order to [[no_refunds|delete their critical posts]] in Axanar's Kickstarter comment section and posted dozens of [[no refunds|spam messages]] on Kickstarter in order to obscure critics' comments by moving them down the web page..
 +</WRAP>
 +
 +==== Addressing Copyright Concerns ====
 +
 +The statement concludes with an assurance to its supporters that Axanar is committed to finding a way to work with CBS and Paramount:
 +
 +> Axanar Productions remains committed to addressing the copyright concerns of CBS Studios and Paramount Pictures Corporation in a way that allows us to tell the story of //Axanar// our fans and donors have supported. Once this lawsuit is resolved, Axanar Productions’ team will meet and discuss what kinds of modifications need to be made so we can move forward with production.
 +
 +<WRAP todo>
 +<WRAP>
 +//**__True or False?__**//
 +</WRAP>
 +<wrap em>DISINGENUOUS</wrap> **Copyright Concerns** The language sounds conciliatory but Axanar's actions through its lawyers tell a different story. In their motion for summary judgment, Peters' attorneys claim the studios have no copyright interest in the story of //Axanar//, and that the film would copy Star Trek in no way that wasn't generic to the genre of science fiction. Months of settlement [[settlement_conference|talks have fizzled]] because it's clear Axanar cannot address the studios' copyright concerns without a court ruling in their favor. {{:axamonitor-ico.gif?nolink|}}
 +</WRAP>
 +
 +----
 +**Keywords** {{tag>fact_check lawsuit defendants}}