The beloved Spadina movie house ceased operations this week due to “problems of a legal and bureaucratic” nature. That’s quite the understatement—the truth is, the theatre was financially doomed before it even opened two years ago.
The Toronto Underground Cinema closed permanently on Sunday, meaning downtown Toronto now has only one remaining independent repertory movie theatre. (That would be the Royal, on College Street.*)
In a parting note posted to the Underground’s website a few weeks ago, its three-man management team said that “problems of a legal and bureaucratic” nature had contributed to the two-year-old venue’s demise.
That’s not an untrue summation of the Underground’s problems, but the full inventory is a lot more interesting. The most direct reason for the theatre’s sudden shutdown was its ownership.
Sedwick Hill, a 54-year-old businessman and financial advisor, bought the space that eventually became the Underground on March 29, 2008, for—according to the property records on file—$726,000. At that same time, he was becoming enmeshed in a maelstrom of money problems that would eventually bring both him and the cinema to financial ruin. Among other things, he owes the Ontario Securities Commission more than $4 million in penalties and fees for his role in operating a fraudulent investment scheme. He denies that he was responsible for any wrongdoing.
Hill’s cashflow problems eventually became the Underground’s cashflow problems. That’s because the fledgling venue was seldom making enough to break even on its expenses, leaving it to rely on Hill, its owner and investor, for operating money. The cinema closed because Hill personally didn’t have the funds to keep it open. He admits this.
“It’s undercapitalized to move forward properly, is what it is,” he said during a phone interview. “I haven’t been able to fund the property so that [the managers] can move forward.”
The evidence suggests he may never actually have had the money to open and operate the Underground in the first place.
The Underground’s space, in the basement of a condo building at 186 Spadina Ave., was once a disused former Chinese movie theatre that had languished for a number of years. Hill bought it intending to turn it into a live theatre venue, but ended up abandoning that plan. Then, in 2010, he struck a deal with Nigel Agnew, Charlie Lawton, and Alex Woodside, three young men with some movie-theatre expertise. (Agnew and Woodside had both worked at the Bloor Cinema.) They built the Underground, using Hill’s bankroll.
But Hill was already having trouble paying the bills on the theatre’s space. The theatre owed condo maintenance fees of about $2,600 per month. Hill stopped sending cheques in May 2009, a full year before opening day.
The building’s condo corporation, Metro Toronto Condominium Corporation 713, waited two months. Then, it started what has become a three-year-long legal battle to evict the Underground and force a sale of the property, in order to recover Hill’s debts. At various times, he’s forked over five-figure sums to buy time. In fall 2010, he even tried countersuing the condo board for damages, but later dropped the suit as part of a settlement. But the theatre is still in arrears.
Hill had at least one other business interest, aside from the theatre. In 2009, around the time the condo fees stopped flowing, Hill and two of his associates in that other business came under scrutiny from the Ontario Securities Commission. Together, they ran a few interrelated companies: LeveragePro, Prosporex Investment Club, and Networth Marketing Solutions.
According to an OSC decision document, LeveragePro, a company for which Hill was listed as a director, spent 2007 and 2008 helping about 1,700 people apply for loans so they could join the Prosporex Investment Club. Prosporex supposedly traded on the international currency market. Potential investors were told that they stood to reap huge returns—as much as $167,000 on a $1,000 investment—after just two years.
The company’s bank accounts were eventually awash with about $29 million of other people’s money. Only about $9 million was ever verifiably invested. About $14.7 million was either used to pay Prosporex owners and employees, or transferred to offshore accounts. The OSC even found $92,685 that had been transferred to a numbered company owned by Hill, expressly for the purpose of buying the theatre that eventually became the Underground.
Prosporex kept its investors happy, for a time, by paying them with money received from other investors. By late 2008, the company was no longer sending out cheques. Many customers lost their investments. In July 2009, the OSC ordered Prosporex to stop trading.
Hill admits to being involved in Prosporex, but denies that he played a significant role in defrauding investors. “They didn’t separate any of the players,” he said. “I dispute the extent of my involvement in it. That’s what I’m saying.” The $92,685 transfer, he said, was a payment on some office space he was renting to Prosporex.
Nevertheless, the OSC found that Hill and his partners had all engaged in fraudulent conduct, unregistered securities trading, and illegal distribution of securities. In March 2012, they were all permanently barred from trading securities and fined astronomical sums of money. On top of more than $800,000 in penalties and fees, Hill personally owes $3.4 million, which is the amount of money the OSC thinks he appropriated from Prosporex. He denies that his problems with the OSC led directly to the Toronto Underground’s capital problems. (He also says he will appeal the decision, however, an OSC media spokesman tells The Grid that there is a 30-day period following a ruling to file an appeal, and that window has closed.)
For their part, Lawton and Woodside, two of the theatre’s three managers, seem saddened by the Underground’s closure, but not bitter. They never invested money in the venture, but they did invest years of their lives. “It was more than a really good job,” said Lawton.
They weren’t aware of Hill’s history, or the extent of the theatre’s problems when they signed on. “We knew that we were not walking into a situation that was necessarily ideal,” said Woodside. “We were all young guys with not much to do, trying to find work.”
“December of 2011 was when we started to get the full picture, and even then it wasn’t completely clear until the beginning of this year,” said Lawton.
During an interview with The Grid, they pointed out that some of the Underground’s problems were general ones that any rep theatre in downtown Toronto would have struggled with. For one thing, the theatre’s proximity to the Yonge-Dundas and Scotiabank multiplexes put it in direct competition with AMC and Cineplex for second-run films. Distributors will only allow a film to play at one venue within set geographic boundaries. For this reason, it’s very difficult to run a successful indie theatre downtown.
To this day, the condo corporation has a lien on the property. It could restart foreclosure proceedings at any time. The corporation’s board declined to comment for this article but, according to Hill, they haven’t renewed their effort to sell the property—yet.
Even with his hold on the theatre slipping, Hill is still curiously optimistic. “I’ve been looking to refinance, take care of those debts, and have some money to fund the place,” he said. He’s looking for investors.
* Unless you count the Cineforum, which operates in Reg Hartt’s Bathurst Street living room, or the Bloor Hot Docs Theatre, which now shows mostly documentaries.