Seven Arts Founder Peter Hoffman Pleads Not Guilty To Tax Credit Fraud In LouisianaPeter Hoffman pleaded not guilty today at his arraignment in Federal District Court in New Orleans on six felony counts of defrauding Louisiana’s film incentive program. A trial has been set for January. A hearing on the Seven Arts Entertainment founder’s motion to dismiss the charges is scheduled for July 16. Hoffman, his ex-wife, producer Susan Hoffman, and actor and film producer Michael Arata – whose wife is the deputy mayor PeterHoffman-RingMasterofSevenArtsof New Orleans – were indicted earlier this year in what federal prosecutors allege was a conspiracy to defraud the state of $1.13 million in Louisiana tax credits without having done the work they told state officials they were going to do to turn a rundown Crescent City mansion into a state-of-the-art postproduction house and residence for visiting film crews. The arraignment of Susan Hoffman and Arata was continued until June 25.

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At the heart of the case is a once-elegant three-story mansion at 807 Esplanade Avenue in the French Quarter that had been abandoned for years and fallen into a severe state of disrepair before Seven Arts bought it in 2007. After obtaining Louisiana tax credits to perform major repairs and restoration, it reopened as Esplanade Studios in July 2012.

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Image (2) Esplanade-Studios__140602184525-275x183.jpg for post 739025In February, federal prosecutors indicted the Hoffmans and Arata for filing “materially false and misleading film infrastructure tax credit applications and supporting documents” with the state of Louisiana “that fraudulently claimed that certain expenditures had been made relative to 807 Esplanade when, in truth and in fact, the expenditures had not been made as claimed.” The indictment charges that in order to conceal their alleged fraud from state auditors, the trio “conducted circuitous bank transfers to create the appearance of payments” for construction work that was never done and for film equipment that was never purchased.

That wasn’t the first time Hoffman was accused of using the old mansion to scam the state. Fifteen months earlier, in November 2012, former Seven Arts Finance Director David Bailey sent an e-mail containing similar allegations to Jessica Richardson, national register coordinator at the Louisiana Office of Cultural Development, a state agency involved in doling out tax credits to filmmakers, saying he had evidence that the Hoffmans had bought the old mansion and applied for tax credits as part of an elaborate ruse.

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“I was interested to read that Peter and Susan Hoffman have applied for rehabilitation tax credits on 807 Esplanade, and have included them as revenue in accounts filed with the SEC,” Bailey wrote in his e-mail. “This appears to contradict other evidence which strongly indicates that Peter Hoffman and Susan Hoffman are the architects not of a building, but a major economic fraud. Who should I write to with the evidence I personally have that indicates that all the applications made by the Hoffmans are fraudulent, that the amounts claimed were probably not spent, and that some or all of the funds used to renovate the property were improperly diverted…”

The Hoffmans got wind of the e-mail and sued Bailey for defamation in July 2013, claiming that the statements it contained “are untrue and made maliciously without any basis in fact and with intent to damage plaintiffs’ reputations, successes and goodwill, to embarrass plaintiffs and to damage plaintiffs’ business relationships.”

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Their suit, which seeks $3 million in damages, claims that Bailey, a British citizen who worked for Seven Arts in its London office for only four months in 2009, “walked off” the job without notice and without doing the job he was hired to do and “has chosen maliciously to attack plaintiffs … to cover up and distract from his own failures and misrepresentations.”

Their suit states that the approval of the tax credits they received came long after Bailey had left the company and that he “has never seen or received” any of the numerous reports and audits that cleared the way for them to receive the tax credits. Bailey, the suit says, “had and has no knowledge whatsoever of the items claimed as qualified historic preservation expenses…and had no responsibility for any of these expenses at any time, including the four months during which he was engaged by (Seven Arts Pictures).”

Bailey’s e-mail did not trigger the government’s probe of the tax breaks the Hoffmans had obtained for restoring the mansion. That investigation had begun eight months earlier, in March 2012, when the U.S. Attorney’s office in New Orleans slapped Seven Arts with a subpoena for the discovery of documents relating to Louisiana film infrastructure tax credits that it had received to renovate the historic old house. It’s not known whether Bailey subsequently provided the FBI with the evidence of fraud he said he possessed.

But the Hoffmans’ lawsuit against him might offer a preview of the defense they will mount against the government’s charges of criminal tax fraud. Included as exhibits in their suit against Bailey are numerous state and federal reports and audits certifying that Seven Arts was eligible to receive the tax credits to restore the property; dozens of before-and-after photos showing how Seven Arts had restored the dilapidated old mansion into a modern postproduction facility and residence and numerous local newspaper articles extolling the company’s restoration of the pre-Civil War building.