'Hollywood effect' lures accountants from pinstripes into gold chains

Giancarlo Parretti is no Sam Goldwyn; nor is he a new Louis B Meyer. He is a former cruise ship waiter from Sicily with rumoured Mafia connections and a string of fraud charges against his name.

Yet for a time, incredibly, one of Europe's biggest banks thought he had the stuff of Hollywood moguls.

Last week the public humiliation of Credit Lyonnais of France, played out in glorious living Technicolor with full Dolby stereo sound, entered its final phase in Los Angeles when the bank took the last bids for Metro- Goldwyn-Meyer, the studio it acquired involuntarily when Mr Parretti finally defaulted. It is set to lose a mountain of money.

But as the Parisian bank executives sweat it out, they can at least console themselves by reading California's current best-seller and discovering that they are not the only mugs in town. The book, Hit & Run, tells in lurid detail what happened when the Sony Corporation of Japan bought another top-rank studio, Columbia. Sony became the victim of what has been called "the most public screwing in the business".

When it comes to Hollywood, it seems, even the hardest, shrewdest businessmen in the world make complete fools of themselves.

The story of Mr Parretti, movie mogul, began when he was commissioned by a Roman Catholic organisation to oversee production of Bernadette, a film about a peasant girl in Lourdes who saw visions of the Virgin Mary. The enterprise was crowned with a viewing in the Vatican for the Pope, who is said to have been deeply moved.

Mr Parretti was more than moved, he was smitten, and in November 1990 he leapt straight into the movie business big-time by taking over Metro- Goldwyn-Meyer. In its lion, MGM possesses Hollywood's most venerable trademarks. On the day of his takeover, a suitably theatrical Mr Parretti preceded a large live lion through the studios, yelling: "Non me mangia! (don't eat me)."

The money was coming from Credit Lyonnais, which pumped in an estimated $2bn. Unfortunately Mr Parretti proved even more free with cash. Deficit spending at MGM under his sway reached an estimated pounds 1m a day, while he is alleged to have used $9m of the bank's money for a Beverly Hills mansion and a Rolls-Royce for himself. Fortune magazine has alleged that those Credit Lyonnais officials he could not impress, he bribed - something the bank denies.

Mr Parretti is now appealing against extradition to France, as tax investigators and prosecutors from several countries buzz around MGM like flies. The studio, meanwhile, fell into the hands of Credit Lyonnais, which by US law must sell up and is considered likely to get as little as 30c back on every dollar it has spent.

As Stephen Chrystie, a Los Angeles attorney, puts it: "They turn your head in Hollywood." Mr Chrystie gives seminars on how to invest in films. "It's a great way to make money, but you need someone to protect you."

Exactly the same lesson applies in the story of Sony and Columbia, described as "Pearl Harbor revenged". In Hit & Run, the role of Mr Parretti is taken by Jon Peters, former hairdresser and lover of Barbra Streisand, and his partner, Peter Guber. Sony bought Columbia Studios for nearly $5bn and chose Mr Peters and Mr Guber to run it. Even though they had a mediocre production track record (the highlight was the Streisand vehicle A Star is Born) Sony spent an extraordinary $1bn to buy the two out of their own loss-making production company and their contract with rival Time- Warner.

The pair quickly gave Columbia a reputation for profligacy and a string of so-so films like Arnold Schwarzenegger's Last Action Hero. Meanwhile, as the names of company executives were discovered on the client list of Heidi Fleiss, the "Hollywood Madam", Mr Guber acquired a $6m New York apartment and set up his wife, Lynda, in her own production company at the studio even though her only experience was co-producing a yoga video.

Sony's Japanese bosses, it appears, stood largely aloof from all this; it was their American advisers who were entranced by the flashy Mr Guber and his celebrity friends - Streisand, Michael Jackson, and Robert de Niro. By the time it was over, Sony had splurged another $3bn at Columbia on top of the purchase price.

Why does it happen? "Hollywood is uniquely seductive," said Hit & Run author Kim Masters. "There are these beautiful women and such a huge amount of money and this kind of luxuriousness and ease with which everything is done. Movie executives... they sure have fun."

Sony could have learned a lot, it is said, from a quiet word with the Anglo-Dutch firm PolyGram, which came to Hollywood with bright eyes and a bulging wallet in 1979.

In no time, strait-laced European accountants from a company that specialised in classical music were sporting gold chains and driving Mercedes convertibles. PolyGram pulled the plug after sinking nearly $100m into a string of duds like Endless Love, a forgettable high-school melodrama starring Brooke Shields.

You would think they would learn, but as every moviegoer knows, the seductive magic of Hollywood never fades. Who is now in the bidding to take MGM off Credit Lyonnais's hands? PolyGram.