The Securities and Exchange Commission charged three company executives Friday with defrauding investors in a purported project to construct the largest movie studio in North America at a suburban location outside Savannah, Georgia.

Manu Kumaran, the founder and former chairman and CEO of a startup movie production company called Medient Studios, and later Moon River Studios, allegedly schemed with his successor CEO Jake Shapiro to make an assortment of false and misleading statements in press releases and corporate filings, the SEC said in its court filing in U.S. District Court for the Southern District of Georgia.

Meanwhile, three company directors—the former New York Governor David A. Paterson, music producer Charles A. Koppelman and Mathew T. Mellon II, the former chairman of the New York Republican Party Finance Committee—who are not alleged to have participated in the fraud, were separately charged with violating federal securities laws by failing to timely report their stock transactions in the company while serving on its board. 

Kumaran and Shapiro allegedly “claimed that construction was underway and projected dates by which the studio would be operational while knowing full well they did not have anywhere near sufficient funding to begin building the touted ‘Studioplex,’” the SEC stated.

In addition, Kumaran, Shapiro and Roger Miguel—the CEO of a separate successor public company called Fonu2 that also operated under the name Moon River Studios—are alleged to have backdated and falsified promissory notes as part of a scheme to issue common stock in exchange for financing, the SEC found.

The SEC further alleges that while the Studioplex “never materialized and the company eventually shuttered without releasing a single movie or video game, Kumaran and Shapiro nonetheless enriched themselves in the process.” 

According to the SEC’s complaint, Kumaran spent an average of $1,700 per day of company funds on his globetrotting travel and personal expenses from April 2014 to June 2014 after claiming publicly that he did not draw a salary and assuring shareholders that all funds were being used to benefit the company.  

Shapiro allegedly misappropriated company funds for personal use after becoming CEO and lived in a house worth nearly $1 million that was paid for by the company.

Miguel agreed to settle the charges against him without admitting or denying the allegations. He also agreed to be barred from participating in any penny stock offerings or serving as a public company officer or director for five years, and the court will determine monetary sanctions at a later date, the SEC states.

The settlement is subject to court approval.

The litigation continues against Kumaran and Shapiro. 

—Related on ThinkAdvisor: