Federal investigators have stepped up their probe into the financing of Italian businessman Giancarlo Parretti's 1990 purchase of the historic Metro-Goldwyn-Mayer film studio, according to people familiar with the investigation.
The development could prove to be another embarrassment for Credit Lyonnais, the giant French-owned bank that took possession of MGM last year when it foreclosed on Parretti.
Subpoenas were sent out last week by the Securities and Exchange Commission in Washington to various parties seeking information on the broad subject of the deal's financing, according to those familiar with the documents.
In addition, the subpoenas are requesting more specific information on various forms of temporary financing--which the subpoena refers to as "bridge loans"--Parretti needed to keep the deal alive while he lined up permanent financing to complete the deal.
The SEC issued the subpoenas as part of its formal investigation of the activities of Pathe Communications, the company Parretti used when he acquired what was then known as MGM/UA for $1.3 billion.
The SEC investigation has been known publicly since 1991, but there have been few specific details about the scope of the investigation. An SEC spokesman declined comment, citing agency policy.
It is not known how interested investigators are in Parretti's specific dealings with Credit Lyonnais, which supplied him with about $1.1 billion needed to buy the Culver City-based studio from billionaire Kirk Kerkorian. Parretti also used some unorthodox financing methods of his own, including some sales of movie rights now viewed as highly questionable by bank and studio executives, to prevent the deal from dying before he finished the purchase.
Fred Spar, a Credit Lyonnais spokesman, said there is nothing to suggest that the SEC has refocused its investigation to target the bank's actions.
Still, further scrutiny of the bank's ties to Parretti, even if indirect, is likely to prove embarrassing.
Credit Lyonnais' huge problem loans in Hollywood, made principally through a Dutch affiliate, have made the French-owned bank a big political liability in France, where elections are scheduled in March.
Credit Lyonnais has never disclosed exactly how much money it has pumped into MGM in the form of loans to Parretti and additional financial infusions to keep the studio running. But Hollywood executives believe the total could be approaching $2 billion, and some finance experts estimate the bank is spending as much as $350 million to $400 million annually to carry MGM.
U.S. banking laws will require Credit Lyonnais to divest itself of the studio within five years of when it took possession from Parretti. Bank executives are hoping that MGM can come up with some hit films that will enhance its value in a sale so the bank can recoup more of its losses.