Bad investment

Forbes calls this story "Flack Attack." The piece by Los Angeles bureau chief Seth Lubove details a legal dispute over $6 million in investments that Michael Sitrick of crisis PR fame made with Ryan Kavanaugh, a 29-year-old Hollywood money player whose Relativity Management is doing deals with George Clooney, director Steven Soderbergh and producer Mark Canton.

Sitrick knew Kavanaugh as a family friend and in 2000 agreed to put $6 million into private investment fund KC Capital, which Kavanaugh then ran. Sitrick says in a lawsuit the money was only supposed to be invested in public equities (not so, says Kavanaugh, although an arbitrator sided with Sitrick), but Kavanaugh instead put $4 million of the money into a company called PreCash, which sells a type of prepaid credit card. Kavanaugh was already on PreCash's board, having invested up to $22 million in the company.

Sitrick claims PreCash defrauded him by using his money to keep the then-troubled firm afloat, in a kind of Ponzi scheme to buy out older investors at a profit, according to a separate lawsuit he filed against the company. Sitrick says he's now holding worthless paper.

Sitrick has won the first legal rounds, and naturally it gets more complicated. Lubove notes that "the usually loquacious Sitrick isn't commenting. Kavanaugh says everybody is unfairly picking on him." Stories at Forbes.com require simple, free registration.

Previously: New players at Sitrick