The Securities and Exchange Commission has begun an investigation of the movie industry, informed sources said yesterday.
The probe will be patterned on investigations that uncovered millions of dollars in foreign and domestic payoffs by such major U.S. companies as Gulf Oil Corp., Lockheed and Exxon.
In the time since the SEC initiated the first management accounting fraud cases in 1975, more than 400 companies have disclosed questionable foreign and domestic payments.
The agency's new probe comes only days after David Begelman resigned at president of the motion picture and television division of 'Columbia Pictures Industries Inc.
Begelman had been reinstated by the company in December after an internal investigation revealed he had cashed more than $60,000 in checks made out to others and had padded his expense account by $23,200.
The regulatory agency's interest in financial affairs of the industry was sparked by press disclosures that were followed by Begelman's resignation.
As in the management fraud investigation, the SEC will attempt to learn if there is a pattern by concentrating on a few cases. "We're going to handle the movie industry in much the way we handled those first management fraud cases," said one source.
Three or four attorneys from the SEC's Washington headquarters have been assigned to the probe.
Investigators will probe below the management level of the film companies in an attempt to learn how costs are allocated on movies. The SEC wants to check out reports that movie budgets are padded to cover high living by stars, producers, directors and executives.
The SEC also is interested in studying the accuracy of profit-reporting on motion pictures - an area in which there have been numerous complaints and a number of law suits by creative participatnts against the companies.
Commission sources say the investigators are still educating themselves on the financial complexities of the industry, where each movie is, in effect, a separate business.
Columbia Pictures turned over to the SEC the results of its Begelman investigation, which helped familiarize the investigators in some of the rudiments of movie studio finance.
The investigation will be headed by the same branch chief who brought the initial management fraud cases against Ashland Oil, Northrop and Phillips Petroleum, among others. The successful investigation of these cases led to revelations of questionable or illegal activities in almost every U.S. industry.
In recent days the movie industry has attempted to counter the bad publicity growing out of the Begelman affair. On Thursday, Jack Valenti, president of the Motion Picture Association, issued a press release attacking what he described as "an outrageous twist of the truth to smear the entire American film industry."
Yesterday, the lead story in the trade paper, Daily Variety, was headlined: "Hollywood and the Media Blitz - Leaders Bury Heads in Sand As Half-Truths Given Wide Press, Mag., TV Circulation."