Case Study: Johnny Depp Sues Business Manager for Fraud

"Mr. Depp was frequently unable to focus on many of the personal and financial aspects of his life...Depp granted TMG broad control over his financial affairs, including access to his bank accounts"

Sports & Entertainment Fraud Intertwine

Although BrightLights is primarily focused on protecting professional athletes from fraud, the sports and entertainment world constantly intertwine, and many of the financial problems facing athletes are similar to entertainers. As I read Johnny Depp’s allegations of fraud against his business manager, I realized that the lessons learned from these charges certainly applied to athletes as well.


Let’s take a closer look.

Depp vs. Business Manager

Johnny Depp sued his longtime business manager, The Management Group (“TMG”), for more than $25 million, alleging fraud, breach of fiduciary duty, professional negligence, and a host of other allegations in a 52-page complaint provided by Deadline (read here) which lays out the factual and legal bases of the claims.


The complaint is a doozy and offers a ton of lessons in financial management to all in the sports and entertainment industry. Depp created numerous financial risks that were not mitigated by any sort of controls or oversight. Overall, the spending and management of Depp’s money appeared to be a complete mess on both sides of the table.


Depp’s allegations should certainly be taken with a grain of salt for a number of reasons:

(i) these are just allegations and have yet to be ruled upon by any judge or jury;

(ii) Depp’s alleged spending of $2 million per month in a counttersuit do not paint the picture of a reasonable person with his finances (though his spending was deemed irrelevant to the lawsuit);

(iii) emails provided in a Motion of Opposition by the Defense (via Deadline) allege Depp’s sister was his personal manager and financial gatekeeper, yet she is not detailed with any responsibility in Depp’s complaint; and

(iv) these type of complaints generally settle before going to court because both parties don’t want all the dirty laundry of a sixteen year relationship to be aired publicly.

Lessons to Learn from Depp's Fraud Allegations

Depp’s complaint is a great case study to understand the pitfalls of blindly trusting others with your finances. I sincerely hope that you trust the people with your money, but solely trusting someone to adequately manage millions of your dollars creates risks you need to mitigate.


The following are direct passages from the complaint and lessons you can learn to help take control and understand your finances.


1.  Despite Mr. Depp’s professional successes, he, like many artist’s, has no training of any kind in law, accounting, finance, or business management...Mr. Depp was frequently unable to focus on many of the personal and financial aspects of his life. (Page 7)


This aspect comes up frequently in my discussions with agents, financial advisors, and others in the industry. Artists, be it athletes or entertainers, are so absorbed and focused on their craft that they do not have the time to review or understand their financial affairs. Hence, they hire trusted professionals to do it for them. The problem, which becomes apparent after a fraud has occurred, is that the artist did not establish adequate controls and reviews over those trusted professionals with control of their money.


2.  As his legal, business, tax, and accounting advisors, TMG agreed to take responsibility for all aspects of Mr. Depp’s personal and financial life...Depp granted TMG broad control over his financial affairs, including access to his bank accounts and the accounts of his business entities and trusts. (Page 8)


TMG allegedly charged 5% of all of Depp’s earnings for their services, collecting $28 million in fees as manager. This “all-in-one” service is common for athletes and entertainers, but providing access to all of your financials to one company heightens the risk of fraud. This risk can be mitigated by periodically reviewing and understanding your finances. If your trusted advisors know you are reviewing your finances each month with a fine tooth comb, their opportunity and willingness to defraud you will decrease.


Given the circumstances of this lawsuit, do you think Depp was periodically reviewing his finances?


3.  Over the years, as TMG managed Mr. Depp’s personal life and financial affairs...Mr. Depp placed TMG in a position of trust and loyalty with respect to the management of his finances, and, as a result, relied entirely on TMG to monitor and grow his wealth. (Page 10)


Trust but verify. Entirely relying on your trusted advisor creates a lack of oversight which provides the person with the opportunity to defraud you as he assumes the risk of getting caught is low. We all hope that our financial representatives have our best interests at heart, and many of them do, but we’ve also read too many of these stories of advisors and managers defrauding their clients.


I wrote a blog post about the Fraud Triangle which states a person will commit fraud based on the three factors: Pressure, Opportunity, and Rationalization. Once a person controls your finances, you no longer have control over their pressures and rationalizations to commit fraud. For example, how would Depp have known if TMG was under significant financial pressures and had to resort to fraud to keep other failing investments afloat? How would you know if your advisor had some sort of addiction that would lead him to commit a fraud? Typically, you aren’t aware of these pressures in their lives.


I know I’m sounding like a broken record here, but the fact is that you must review and understand the activity in your accounts on a periodic basis to ensure money or investments are not being sent out of your account or made in your name without your authorization. 


4.  TMG rarely consulted with Mr. Depp regarding financial transactions, legal or tax matters, or investments. Indeed, when TMG required Mr. Depp’s signature, often he would be presented with only a signature page to sign than a full document. (Page 10)


Do not sign a document - particularly loan documents, contracts, private investments, or anything that will involve a sizable amount of money - without thoroughly reading the document, understanding it, and/or having an unaffiliated lawyer read it. Keep a copy for your records.


If your trusted advisors are just presenting signature pages for you to sign, request the full documentation, have them walk through what the full document entails, and then have an unaffiliated lawyer review the document if it involves a sizable amount of money.


5.  Depp had two trust accounts, 25 accounts in the names of various business entities Depp wholly owned, two accounts in Depp’s name, and three accounts for family members...TMG had unrestricted access to these accounts. (Page 9)


First off, I wonder who had the idea for Depp to open 32 accounts? Seems like that's just a recipe to make things complicated and harder for Depp to follow.


How would Depp keep track of the activity of all the accounts that TMG had unrestricted access to? He could frequently monitor his bank and investment accounts online and review his account statements. He could follow-up with questions to his business manager to ensure he understood the inflows and outflows of his cash and investments. The problem was that Depp did not have the time or the professional to do this.


The lesson here is to simplify to make monitoring your activity easier. Do you really need 32 accounts? 


6.  TMG failed to maintain a proper set of accounting records for Mr. Depp, personally, and for each business entity he owned. TMG kept only sporadic and incomplete records of Mr. Depp’s finances, accounts, and business transactions. Further, TMG made numerous loans without proper disclosure or backup, and without any apparent agreements memorializing their terms. (Page 11)


Ensure that your accountants, advisors, agents, and business people are properly maintaining records and providing you copies. Typically, any loan in your name or your business entities should be memorialized by a written document with terms of the loan. Other contracts, agreements, and anything else that you sign should be maintained in your records.


7.  Throughout TMG’s representation of Mr. Depp, TMG failed to sufficiently and consistently report to Mr. Depp the current state of his finances. TMG failed to prepare and provide Mr. Depp with periodic detailed reports of cash receipts and disbursements, personal financial statements or statements of net worth, revenue and expenses...balance sheets, statement of operations and statements of cash flows. (Page 12)


After sixteen years with TMG as his business manager, Depp claims he was never provided with basic financial reports. This is a failure by both sides and astounding that Depp and his business managers let this occur.


Protect yourself by establishing written expectations of what should be reviewed and discussed with you by your business people. As Depp’s suit shows, these alleged frauds occurred over years - how much earlier could Depp have identified what was going on and stopped all this if he or a professional like BrightLights was reviewing his activity? And how much would it have saved him?


8. TMG improperly loaned money to third parties without Mr. Depp’s knowledge or prior authorization. Over the years, TMG disbursed nearly $10,000,000 to third parties...For example...TMG disbursed millions of dollars to a third party close to Mr. Depp without requiring any contract or note, terms of repayment, interest, default provisions, or any security. (Page 13 - 14)


There are a number of other charges against TMG in this complaint, including TMG’s conflicts of interest and self-dealing, failing to file tax returns on time and suffering IRS penalties in the millions of dollars, TMG borrowing money on Depp’s behalf, and the mismanagement of Depp’s expenses and engagement in financial waste.


These allegations - if ever proven to be true - are first the result of Depp’s business manager failing to maintain its fiduciary duty to their client, but it also shows that Depp failed to implement controls over his finances to mitigate the risk of fraud from occurring.

Conclusion on Depp's Fraud Controls

Depp was an individual with no financial experience who hired one firm (basically operated by two people) to handle all of his finances and business affairs while conducting little to zero oversight over the activity of his 32 accounts and entirely relying on these individuals. Sixteen years after the business relationship began, Depp sued TMG for fraud, conflicts of interest, and mismanagement of a fortune of hundreds of millions of dollars in a complaint that identifies failures on both sides.


The overall lesson in this saga for all the athletes and entertainers out there is Trust but Verify. If you have no idea what is going on with your finances and have provided unfettered access to all of your accounts, the potential risk of fraud has been significantly elevated. You must maintain an understanding of your financial state because it is your responsibility to understand these things, and many times, you signed the documents to allow the activities to occur.


You may ask: I pay and trust these individuals to take care of my finances, so why do I need to maintain oversight of this activity? The sad answer is that when fraud occurs, the onus and the cost is left on you to civilly litigate the fraud (which is hard enough) and then recover the stolen money that has already been spent or moved offshore.


If you do not believe that you can adequately oversee your finances, please contact BrightLights for a free consultation and risk assessment.