The Bavarian state prosecutor's office in Munich has begun preliminary proceedings against the managers of German film fund VIP Medienfonds -- Andreas Schmid, Eduard Wallner and Andreas Grosch -- on a


COLOGNE, Germany (The Hollywood Reporter) -- The Bavarian state prosecutor's office in Munich has begun preliminary proceedings against the managers of German film fund VIP Medienfonds -- Andreas Schmid, Eduard Wallner and Andreas Grosch -- on allegations of questionable accounting.

The prosecutors question the validity of the guarantee structure VIP built into two of its funds -- VIP 3 and VIP 4 -- and suggest that VIP may have deceived its investors by not properly revealing the risks involved.

VIP 3 and VIP 4 raised hundreds of millions of euros in private investment cash and plowed it back into high-end productions like "The Punisher," "The Upside of Anger" and "The Jacket," as well as such upcoming releases as "All the King's Men," "Soul of the Age" and "Perfume: The Story of a Murderer."

But the funds' returns have fallen far short of their initial forecasts. VIP 3, for example, initially promised a return of some $37 million by 2004, but by the end of last year had made only $645,000.

When VIP pitched its new funds to investors, it neglected to mention this shortfall, an omission that could now have legal consequences. The Munich prosecutors office argues that VIP investors would never have put their money in the company's funds had they known the real risk.

VIP's difficulties came to a head in August when Germany's Commerzbank issued a ban on the sale of VIP's new funds, citing fears of a financial fallout.

VIP on Sept. 28 dismissed the prosecution's charges as groundless, saying its funds had been designed by "international financial and tax experts" and a similar fund structure was used by several of its competitors in Germany.

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