The indictment, July 30 -- Jason Cloth had producer credits on Joker, Licorice Pizza, and House of Gucci. He had accumulated enough standing in award-season Hollywood to function as a credible counterparty for institutional investors seeking film exposure. When he was arrested Tuesday in Los Angeles, he was facing seven federal wire fraud counts alleging he had spent seven years building what prosecutors are calling a Ponzi scheme financed by the same credibility he spent years developing.

to a Canadian real estate development project, to repayments for earlier clients whose returns needed covering.

The mechanism prosecutors describe is functionally standard Ponzi architecture: incoming capital services the obligations created by earlie...