Sony Documents Pull Back Curtain on Studio Dealings in China wsj/articles/sony-documents-show-studio-dealings-in-china-1420849438 Navigating Beijingâs Rules on Importing Movies Leads to SEC Subpoena in Bribery Probe ENLARGE Actress Milla Jovovich in âResident Evil: Afterlife,â a Sony film whose distribution deal for China has been the subject of an SEC bribery probe. SCREEN GEMS/EVERETT COLLECTION By ALEXANDRA BERZON and BEN FRITZ Jan. 9, 2015 7:23 p.m. ET The voluminous Sony Corp. documents leaked after the cyberattack on the companyâs film studio in November are shedding light on a U.S. government investigation into how Hollywood gets its movies distributed in China and whether any bribery laws have been violated. Sony received a subpoena from the Securities and Exchange Commission regarding possible violations of the U.S. Foreign Corrupt Practices Act, which makes it a crime to bribe an overseas government official, in June 2013, according to emails that have been reviewed by The Wall Street Journal. As recently as October, Sony was preparing a detailed response to the federal agency. The SECâs questions to Sony dealt primarily with potential bribery related to the release of âResident Evil: Afterlifeâ in China in 2010, according to email communication between Sonyâs in-house and outside legal counsel. A Sony-led investigation that followed the SEC subpoena examined the companyâs distribution efforts more broadly, the emails show. The subpoena indicates an escalation of an inquiry that began in 2012 when the SEC requested that every major studio voluntarily provide information about their movie-distribution practices in China, a request that was publicly reported at the time. However the SECâs specific concerns werenât disclosed nor was it previously known that the agency had stepped up its probe with a subpoena. Advertisement Sony documents show that the SEC refers to its probe as âIn the Matter of Lions Gate Entertainment Corp,â indicating that the rival Hollywood studio behind âThe Hunger Gamesâ has been asked questions as well. EARLIER ⢠China Tells Sony to Hold PS4 Sales ⢠Sony Hackers May Have Left Deliberate Clues, Expert Says (Jan. 8) ⢠FBI Official: No Evidence Sony Hack Was Inside Job ⢠U.S. Confident on North Korea Involvement in Sony Threats (Jan. 7) ⢠Behind the Scenes at Sony as Hacking Crisis Unfolded (Dec. 30, 2014) ⢠Sony Releases âThe Interviewâ Online(Dec. 24, 2014) ⢠U.S. Approaches China in Effort to Respond to North Korean Hacking(Dec. 20, 2014) ⢠U.S. Struggles for Response to Sony Hack (Dec. 18, 2014) ⢠Victims of Sony Breach Left Fuming(Dec. 8, 2014) ⢠Sony Hack Exposed Personal Data of Hollywood Stars (Dec. 5, 2014) ⢠Data Breach Sets Off Upheaval at Sony Pictures (Dec. 4, 2014) China film industry experts say that other movie studios are likely part of the probe, but it isnât known whether they are in talks with the SEC. Spokesmen for Sony and Lions Gate declined to comment. The emails highlight Sonyâs work with a company called Dynamic Marketing Group, a Beijing firm with a U.S.-born chief executive that has helped American studios navigate Chinaâs quota and censorship systems to secure distribution for their films in that country. DMG helped distribute Sony Pictureâs âResident Evil: Afterlife,â a horror film based on a popular videogame. It also helped to release several Lions Gate movies in China, including âTwilightâ in 2009. Walt Disney Co. worked with DMG on the 2013 release of âIron Man 3â in China. A Disney representative wouldnât comment. Bethany Hengsbach, a Los Angeles-based lawyer for DMG counsel Sheppard, Mullin, Richter & Hampton LLP, said the law firm investigated DMGâs film industry practices and found âabsolutely no evidence of improper payments or other actions that would violate the Foreign Corrupt Practices Act. DMG began as a business focused on advertising Western products in China before also becoming a film-distribution company now listed on the Shenzhen stock exchange. U.S. authorities, including both the SEC and the Justice Department, have ramped up overseas bribery enforcement in recent years, often investigating firms doing business in China. In 2013, following its Sony subpoena, the SEC told the studio that it knew of an email sent in 2011 from a Sony employee in Beijing that said that DMG had used âspecial influenceâ to get âResident Evil: Afterlifeâ released in China, according to a leaked document. In response, investigators at the law firm Paul, Weiss, Rifkind, Wharton & Garrison LLP, which had been hired by Sony, reviewed 570,000 documents and interviewed 39 employees, including that employeeâs emails, a Paul Weiss lawyer said in a memo prepared last fall for any talks with the SEC. The memo said the lawyers from the firm found no such communication nor any evidence of bribery by studio employees or outsiders, such as DMG, working on their behalf. âAlthough certain documents raise questions, such as questions involving the claimed government connections to third-party film distributors,â attorney Mark Mendelsohn wrote, âour review to date has not shown that [Sony Pictures] or any [Sony Pictures] distributor improperly influenced, or attempted to improperly influence, a Chinese official.â Attorneys at Paul Weiss involved in the Sony probe, including Mr. Mendelsohn, didnât comment The writings are among hundreds of thousands of emails and documents stolen from Sony Pictures on Nov. 24 in a cyberattack that the U.S. government connected to North Korea. The hackers subsequently leaked documents and emails online. Some emails include highly detailed notes and reports on distribution partners and practices in China, illuminating the difficulties faced by Hollywood movie studios as they navigate quotas, censorship practices and other government oversight there. Despite the challenging business environment, China has emerged as a critical outlet for studios, having surpassed Japan to become the worldâs second-biggest movie market. Box-office sales totaled $4.8 billion in 2014, according to a government agency, up 36% from 2013. Hollywood studios are barred from distributing films on their own in China, but instead work with the state-owned China Film Group to secure one of the 34 highly coveted spots offered each year for imported movies. DMG and other third-party distribution firms help studios navigate the bureaucracy. The emails, many from the inbox of Sony Pictures general counsel Leah Weil, also provide a rare glimpse of the lawyer-client dance that occurs when lawyers are hired by a company to collect and analyze potentially incriminating information and pass that along to the government. In one instance, for example, an attorney for Paul Weiss sent Sony attorneys an outline of the points that the law firm could make to the SEC with the accompanying note, âThe draft is naturally designed to argueâand accentuateâour strong points, without dwelling on potential weaknesses.â Those talking points were later edited by Sonyâs in-house lawyers, according to the emails. It is unclear from the emails and documents whether the talking points were presented to the SEC or what the agencyâs response might have been. A spokeswoman for the SEC said the agency had no comment. Mr. Mendelsohn, who is based in Washington, D.C., said in his talking-points memo that investigators at the law firm had discovered documents that outlined DMGâs assertions of government connections, or âguanxi,â which appeared consistent with legal relationships and permissible forms of persuasion.â Still, Mr. Mendelsohn noted in his talking points some findings that raised questions. For example, his firmâs investigators found Sony budget slides that referred to line items listed as âred pocketsâ for importing certain films into China. He said that sounded like a reference to the Chinese practice of distributing money in red envelopes as gifts. The attorneys didnât find proof that funds were used to give cash to Chinese government officials, let alone in exchange for film importation, Mr. Mendelsohn said. He theorized that the funds could have been an internal reference to importing fees levied by the government. In the course of their probe, Paul Weiss investigators focused heavily on the business activities and emails involving Joe Zhang, a senior Sony marketing executive in Beijing, the emails indicate. For example, they investigated the possibility that Mr. Zhang was involved in creating fake invoices around the same time that âResident Evilâ passed censorship, according to the emails. Paul Weiss investigators also found an email that they said appeared to show Mr. Zhang using coded language with a government official to talk about a money exchange, according to the emails. The outcome of the firmâs investigation into Mr. Zhangâs activities is unclear. Mr. Mendelsohnâs prepared remarks to the SEC didnât mention Mr. Zhang or the law firmâs work to untangle his business dealings. He wrote that his firm had examined government invoices from around the time that âResident Evilâ was receiving approval and determined that âthe work consisted of post-production or marketing activities that would or could have been performed in the weeks leading up to a release.â Mr. Zhang declined to comment. âBased on various aspects of these documents, we may wish to explore whether the expense was paid for some other purpose than was described on the face of the invoice,â a Paul Weiss attorney wrote to Sony attorneys last April. âLaurie Burkitt and Rachel Louise Ensign contributed to this article. Write to Alexandra Berzon at alexandra.berzon@wsj and Ben Fritz at ben.fritz@wsj
Posted on: Sun, 11 Jan 2015 15:59:19 +0000
Trending Topics
Recently Viewed Topics
© 2015