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Financial Report Delay Shines Light on Management Issues

See also: Committee Reviews Only Part of Axanar's Finances and What's Behind Resignation from Axanar Financial Review? and Peters' Personal Spending Spurs Axanar Accounting

With continued delays in Axanar’s long-promised “independent” financial report, emerging details began to paint a troubling portrait about how the production’s finances were managed by Alec Peters, a trained lawyer and avowed serial entrepreneur.

Even Axanar supporters have begun to ask questions about how Peters completely spent the estimated $1.5 million he raised without ever producing the promised feature film. What few answers have trickled out of the Axanar camp have only raised further questions.

Financial Review

In response to court documents alleging Peters had used donor money to pay for personal expenses, Peters promised in November 2016 that an independent body would review Axanar’s financial records and report its findings to those who donated to its crowdfunding campaigns.

The independence of that review committee fell into question when AxaMonitor learned its members were avowed Axanar supporters and/or members of its crew. One even resigned in the face of a possible conflict of interest.

Report’s Release In a blog post March 5, 2017, Peters announced the financial report was finally going to be released. Fan Film Factor’s Jonathan Lane confirmed he was preparing to publish the report on his blog.1)

Late Report

Peters had been promising the financial report was imminent for months, despite one committee member’s statement that the report would be released when it was ready, not on any schedule dictated by Peters.

Limited Scope

Peters also revealed the committee was not reviewing all of Axanar’s financial records, only those selected by him as relevant. However, the report’s delay and the high expectations Peters created to exonerate him from allegations of personal spending of donors’ dollars created an information vacuum that others rushed to fill.

THREE YEARS of financial records on display amid Alec Peters’ awards and screen memorabilia just prior to release of Axanar’s financial review. Photo/Axanar Productions

'Sloppy Accounting'

For example, blogger Jonathan Lane of Fan Film Factor, often a surrogate for Axanar, attempted to explain away the salary Peters said in 2015 he had paid himself but during the lawsuit in 2016 he claimed was not a salary. According to Lane, the $41,000 Peters received in compensation didn’t count as a salary since Peters was not an employee and no employment paperwork or employer taxes were filed with the IRS. Lane wrote:

Alec Peters never had Axanar Productions issue him a W4 [sic — it should be a W2], 1099, K-1, or any kind of tax form that would identify him to the IRS as an “employee” or “freelancer” or “equity partner” of any kind. Now, if you want to call it sloppy accounting, that’s fine.2)

Speaking for the IRS

Lane went on to speak for the IRS without citing any documentation:

In the eyes of the Internal Revenue Service, Alec Peters was never considered an employee of Axanar Productions. And when the shat hit the fans after the lawsuit was filed and Alec finally brought in Mike Bawden and a decent accountant, both took a look at the books and realized that Alec had put in way more than he took out (in what he’d called a “salary” in the 2015 annual report).3)

However, court documents filed by CBS and Paramount Pictures in their copyright infringement lawsuit against Peters and Axanar alleged that Peters’ “reimbursement” was an after-the-fact transaction intended to make it appear he’d never drawn money for himself from donor funds.

« Alec Peters never had Axanar Productions issue him any kind of tax form. … If you want to call it sloppy accounting, that’s fine. » Jonathan Lane, Fan Film Factor

Disappearing Expenses

Under Peters’ reimbursement theory, such personal expenses that were revealed during the lawsuit in Axanar’s financial records submitted to the court (e.g., tires, car maintenance, cell phone bills, health insurance) should not be counted because he eventually paid Axanar Productions Inc. that money back.

What the Report Will Show

Lane, who claimed to have seen Axanar’s books months before, wrote:

Those [personal] expenses … were all things that Alec paid for with personal funds. When you finally see the financials … you and all the detractors will NOT see “sushi” and “tires” and “health insurance” because those were all personal expenses. What you will see is 1) the total raised from donors, and 2) the amount spent on legitimate business expenses … which is slightly higher than the amount raised through contributions. And the difference is the money that Alec Peters has and continues to put in from his own savings.4)

« More than a million dollars of additional donations plus another hundred thousand of Alec’s personal investments … was all mixed together in one set of Quicken books. … Alec was in over his head. » Jonathan Lane, Fan Film Factor

Systems Check

Peters said the financial review committee would also weigh in on the legitimacy of Axanar’s financial systems:

In addition to reviewing how money was spent, the committee is also reviewing how money was handled and the systems we have in place for tracking expenses to make sure money is not misspent or goes missing.5)

But none of the committee members is an independent auditor with experience in judging the soundness of a corporation’s financial systems. The committee’s original brief was merely to assess whether the specific expenses Peters gave them to examine were legitimate filmmaking costs.

Alec Peters

Commingled Funds?

Remarkably, Lane’s account of how Peters managed Axanar’s finances appeared to point to commingling his personal finances with the corporation’s, despite Peters’ self-avowed experience as a serial entrepreneur:

Alec made a mistake (which he admitted to) by not getting an accountant earlier on. And despite having owned other businesses, Alec’s previous companies were sole proprietorships where he paid for everything from his own personal bank account. In my opinion, it was a mistake with Axanar not to get a unique business account for Axanar Productions separate from his own.6)

No Separate Account

The lack of an Axanar account separate from Peters’ personal finances appeared to have persisted for some time, according to Lane:

I’m pretty sure Alec wasn’t the only one not to bother setting up an individual bank account for production-related expenses. He should have, and I am told that is going to be remedied on a go-forward basis.7)

Not Helping

Of course, Lane’s account, surely meant to provide some kind of context to Axanar’s finances, instead highlighted serious accounting problems, if true:

It wasn’t just the $100K for Prelude but more than a million dollars of additional donations plus another hundred thousand of Alec’s personal investments. And it was all mixed together in one set of Quicken books. … Unfortunately, he’d never bothered sorting out the “his” and “theirs” of the payments. As I said, definitely a mistake. … Alec was in over his head.8)
Jonathan Lane
Repudiating Lane

Peters, however, repudiated Lane’s explanation of Axanar’s financial structure. A donor on its Indiegogo page asked, “Is Jonathan Lane correct that donor funds were commingled with personal bank accounts? How is that smart business practice?”9)

Peter replied, “No, Jonathan Lane was not correct.”10) Peters offered no further explanation, even though he had shown Lane the financials months before, and even though Peters repeatedly referred to Lane’s blog as the most accurate, well-researched site covering Axanar.

Peters Not an Employee

See also: Documents Reveal Axanar's Secret Corporate Structure

Lane’s revelations raised still more questions about Axanar’s corporate structure, particularly given his claim that “in the eyes of the Internal Revenue Service, Alec Peters was never considered an employee of Axanar Productions” because no employment paperwork had ever been filed.11)

That claim, however, sidestepped the questions of whether that paperwork should have been filed, given California law governing corporations like Axanar’s.

And Yet: 'A Full-Time Job'

However, Lane later claimed Peters did have a job at Axanar Productions:

Alec DID have a job: Executive Producer. And if you look that up, you’ll see it’s the person in charge of, among other things, bringing in money to complete a successful production. And it WAS a full-time job. And who hired Alec? I did…and 14,000 other donors did. We hired him to bring in over a million dollars to make the most kick-ass Star Trek fan film ever.12)

Except, of course, Peters never made that film, finding other ways to spend the $1.5 million he raised for that purpose. The mixed signals and incomplete information led to a larger question:

TWISTED PATH to discover who owns what when it comes to Axanar Productions, its commercial studio and other operations. Read more »

Who is Axanar Productions?

Axanar’s own FAQ claims the corporation has no employees, even though Peters is the sole corporate officer; he claims to work full time.13) That did not appear to comply with federal law:

As a rule, any shareholder in your S corporation who provides services to the corporation must be paid a salary. (The same goes for corporation officers regardless of whether they are also shareholders.) Shareholder-employee salaries are subject to employment taxes in the same way as the salaries of other employees. Taken together, this means that your S corporation must periodically withhold, report on, and pay employment taxes for employee and shareholder-employee wages and salaries.14)

As executive producer, and the only person controlling Axanar’s finances, Peters appeared to fit the IRS definition of a corporate officer who should be treated as an employee: One who performs major services for the corporation.15)

Treating Employees as Non-Employees

Not treating Peters as an employee could incur substantial penalties, according to the IRS:

You will be liable for Social Security and Medicare taxes and withheld income tax if you do not deduct and withhold them because you treat an employee as a nonemployee, including yourself if you are a corporate officer, and you may be liable for a trust fund recovery penalty.16)

UPDATE AxaMonitor obtained copies of Axanar Productions Inc.'s Statements of Information filed with California Secretary of State. Despite Lane’s claims, the documents show Alec Peters is the sole officer and director of the corporation. Read more »

Board of Directors?

Furthermore, Lane’s claim that somehow Peters’ job was accountable to the donors didn’t comport with California law regarding corporations, which requires corporate officers to answer to a board of directors:

A corporation must have at least three directors, unless there are less than three shareholders. In that case, the number of directors may be equal to or greater than the number of shareholders. For example, if the corporation has only one shareholder, the number of directors may be one or two. If the corporation has two shareholders, the number of directors may be two (or three, which is the normal minimum).17)

While Lane claimed, “Axanar Productions does indeed have a Board of Directors,”18) He failed to name who was on the board. In fact, Lane went on to claim, “Alec does not own Axanar Productions and has never claimed to.”19)

Mystery Board

Despite Peters’ penchant for describing Axanar as open and transparent in its operations, the company’s spokesman refused to answer questions about its structure. When contacted by AxaMonitor to learn whether Lane was correct in asserting Axanar had a board and who might sit on it, spokesman Mike Bawden refused to answer:

Who Sits on Axanar’s Board?

Mike Bawden

AxaMonitor: Jonathan Lane claims Axanar has a board of directors. Would you identify them for me?
Bawden: No.
AxaMonitor: I understand. But there is a board. Could you confirm how many people sit on the board?
Bawden: Nope. Sorry. But that’s all.
20)

NOT A CLUE Revealing the number of directors, of course, would have offered a clue to how many shareholders participate in Axanar.21) Fortunately, California now makes that information accessible to the public.

Filing for Nonprofit Status

Despite advisor Bawden's public doubts in 2016 about whether seeking nonprofit status would confer any actual benefit to Axanar Productions, Peters appeared to move ahead with the application. According to Lane:

The filing, I am told, is nearly ready. The person facilitating that process (a professional who helps companies with those kinds of filings) was going back and forth with the California Attorney General’s office trying to get one final piece of paperwork cleared so Axanar Productions could finally file. It’s been a long and frustrating wait, to be sure.22)

COMMENTS
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Keywords

1)
Comment, "An Interview with Axanar Attorney Erin Ranahan, Fan Film Factor blog, 2/13/17.
6) , 8)
Comment, "An Interview with Axanar Attorney Erin Ranahan", Fan Film Factor blog, 2/13/17.
7)
Comment, "An Interview with Axanar Attorney Erin Ranahan", Fan Film Factor blog, 2/13/17.
13)
"Our Shiny New FAQ", Axanar Productions website, 4/2/16.
14)
"S Corporation Tax Filing Requirements", Nolo.com, retrieved 3/3/17.
15) , 16)
Paying Yourself, IRS.gov, retrieved 3/3/17.
17) , 21)
"Forming a Corporation in California", Digital Media Law Project, retrieved 3/2/17.
20)
Emails between AxaMonitor editor Carlos Pedraza and Axanar spokesman Mike Bawden, 3/2/17.