Already reeling from the writers’ strike, Hollywood was shocked by the sudden shuttering of Axium International, one of the entertainment industry’s biggest provider of payroll services.
In the wake of Axium’s Chapter 7 bankruptcy filing on January 7 and pending liquidation, an untold number of individuals—including many members of below-the-line unions—suddenly found themselves either stuck with checks that couldn’t be cashed or awaiting for payments frozen by the bankruptcy proceeding.
Some production companies also had hundreds of thousands of dollars frozen in accounts with Axium.
Some 400 Axium employees, without warning, received an e-mail telling them they were fired. Besides Los Angeles and Burbank, Axium shut down its offices in New York, London, Toronto and Vancouver.
According to a multimillion dollar suit filed by Axium’s biggest creditor, New York hedge fund GoldenTree Asset Management, the firm’s failure was the result of “massive fraud, theft, self-dealing and the looting of assets of the now-bankrupt company.” It further alleged that the former owners of Axium, John Visconti and Ronald Garber, had used the company as “their own personal piggybank to finance their extravagant lifestyles.”
“This is a double whammy,” declared Ed Brown, business agent for IATSE Local 44, the Propmakers union, adding that the Axium bankruptcy “couldn’t have happened at a worse time.”
Cushioning the fallout to some extent is the fact that over 90 percent of the estimated 250 studios and production companies that used Axium to do their payrolls are considered “primary” employers, and are obligated to make up for unpaid wages or benefits, based on contracts signed with the IA.
IATSE promptly interceded to protect the interests of members of its 18 Hollywood unions who have been affected financially. The union hired a bankruptcy attorney to represent its members in upcoming legal proceedings. It also reminded those studios and production companies considered “primary” employers that they remain liable for any wages and benefits that have gone unpaid due to the payroll company’s demise.
Only in cases where Axium functioned as the “primary” employer will the workers who are owed money have to wait for the culmination of what is likely to be a protracted bankruptcy proceeding to learn if enough assets remain to let them recoup what they are owed.
The IA “has handled the situation as well as possible,” said Russ Nordstedt, assistant business agent for Local 80, the grips union. “There have been fewer members affected than first thought,” he added, noting the studios and production companies seem to be stepping up to their contract obligations. “Right now we’re averaging about 20 people per local that we’re dealing with” in situations involving Axium as the primary employer.
The impact of Axium’s bankruptcy has also been limited pretty much to paychecks from December, the second month of the WGA strike, when a growing number of members were already being laid off.
Meanwhile Entertainment Partners and Cast & Crew, two other major payroll companies servicing the entertainment community, as well as a number of smaller firms, were being signed up by studios and production companies to make sure future wage payments and benefits would be handled properly.
“The unfortunate circumstances surrounding the closing of Axium apparently resulted from one company’s specific business issues and are in no way indicative of industry-wide factors,” noted Entertainment Partners CEO Markham L. Goldstein. “The entertainment industry payroll companies are eager to do whatever we can to help mitigate the impact of this closure upon the production community. Our top priority right now is to lend assistance to production companies and their workers affected by this unfortunate incident and help them transition in order to keep productions up and running.”
Instructions from IA headquarters to guild members were posted on the websites of all the IATSE locals. Among the points made:
– Anyone who has deposited a check from Axium that has bounced due to insufficient funds should keep all pay-stubs and records for those checks.
– If a studio or production company was the primary employer and used Axium only to do payrolls, members should contact the company immediately to find out when new paychecks will be issued. Members should also contact their union to ensure compliance and immediately report any company refusing to make a worker whole as a result of Axium’s default.
– The IA is identifying all jobs that were paid with Axium as the primary employer. If Axium was a member’s primary employer under an IA agreement, then IATSE will add that individual’s name and unpaid wages and benefits to the claims against Axium in bankruptcy proceedings.
– With the bankruptcy filing coming soon after the start of 2008, it’s still unclear what will happen to W-2 forms due from last year’s employers. Someone who doesn’t receive a W-2 form from Axium by February 15 from an employer/payer should call the IRS for assistance in getting a substitute.
Among the charges leveled by GoldenTree in its filing in the United States District Court for the Central District of California against Visconti and Garber is that they “perpetrated a multiyear scheme to create fictitious profit by filing false returns that understated Axium’s employment tax liabilities by tens (and perhaps hundreds) of millions of dollars in cash and other assets from Axium to secret bank accounts and otherwise to their own personal use.”
Other defendants include Garber’s wife Susan Cruz, Visconti’s ex-wife Maha Visconti, and “servant, agent or employee” Christy Futak. Expenses charged to the company included $40,000 in purchases at Tiffany’s for Valentine’s Day, and a Bentley purchased by Axium that went to Visconti’s ex-wife as part of a divorce settlement.
Visconti and Garber, in a statement issued through their lawyer, said GoldenTree had made “false claims” about them, and they were going to take steps “to make sure that the facts regarding the situation will come out.” They said they were not responsible for “pulling the plug” on Axium.
Further allegations in the suit included the possibility that Visconti had multiple social security cards and went under several names, including Bijan Manoocherhri and John Manocheri.
What may be the icing on the cake was an allegation that Axium funds were used to pay for an apartment and automobile for Amber Smith, an actress-model who has appeared on two Sports Illustrated swimsuit-issue covers. Visconti and Garber supposedly issued a number of large payments to Smith, which they justified by calling her a “consultant” to the company, according to the suit. “It’s unclear what services Smith performed,” the filing said.
Attorney Howard Ehrenberg with Los Angeles law firm SulmeyerKupetz has been named the bankruptcy trustee by the court and has begun to sell company assets. Ensemble Chimes Global, a staffing subsidiary acquired by Axium two years ago for $80 million, was sold at auction for $8.1 million to a Florida-based staffing firm.
Axium’s payroll system business was set to be auctioned on January 3l, with opening bids set at $2.5 million. However, reports that Axium’s liabilities approach $500 million will mean the prospects aren’t good for repayment to creditors once there’s a final adjudication.