2ND UPDATE, 1:07 PM: Discovery Communications has released a statement suggesting that the FBI’s probe of its dealings with its longtime show supplier LMNO Productions is focusing on LMNO’s business practices, not Discovery’s, as LMNO suggested in an earlier statement.

“Today, it has been reported publicly that federal authorities have executed a search warrant in connection with a criminal investigation at LMNO, one of Discovery’s long-standing production partners,” Discovery said. “Several months ago, law enforcement contacted Discovery to seek information in connection with an ongoing criminal investigation into LMNO’s business practices. Since that time, we have been cooperating fully with the authorities, including complying with a subpoena and providing records as legally required. We are not privy to the details of the government’s investigation of LMNO, but can confirm that Discovery did not initiate the investigation or file any kind of complaint with the authorities; instead the authorities first came to us in connection with their investigation of LMNO.

“At the same time we were cooperating with the federal investigation, Discovery also was independently reviewing our existing production agreements with LMNO. This review revealed procedures and practices inconsistent with Discovery’s contractual rights. Earlier this month, Discovery made the decision to terminate certain of our contracts with LMNO, based on the results of our own review. LMNO subsequently filed suit against Discovery and made numerous allegations about our business practices. While we do not comment on ongoing litigation, we will vigorously defend against LMNO’s lawsuit.

“Based on today’s reported events, it appears that the federal criminal investigation has progressed. We intend to continue to cooperate with any further requests from the government.

“Discovery is a global content company committed to operating with integrity in all our business practices and we expect our business partners to live up to that same standard. We have terminated these agreements with LMNO because they have not met our standards. We hope for a resolution to the matters at hand so we can focus our efforts on working with our valued partners to continue creating content for our viewers.”

UPDATE, 11:19 AM: FBI agents showed up with a search warrant today at the Encino, CA offices of LMNO Productions. The company is embroiled in a bitter falling-out with Discovery Communications, which recently took control of six of the shows LMNO was producing for its channels.

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“A federal search warrant is being served at that location,” said FBI spokesperson Laura Eimiller. “The affidavit in support of that warrant has been sealed by a judge, so I’m prohibited from commenting on the nature of the investigation.”

The company said in a statement: “LMNO can confirm the FBI arrived at the company’s offices today. We are fully supportive of and cooperating with the full investigation of criminal activity perpetrated against our company.”

PREVIOUSL, JUNE 23 AM: Two major players in reality TV, Discovery Communications and independent production company LMNO, are locking up in litigation that has the potential to be one of the messiest breakups in the genre’s history. It’s a tale of intrigue and betrayal worthy of a segment of one of their crime show collaborations, complete with allegations of extortion and a scheming accountant who actually might not be a licensed CPA.

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Late last night, LMNO filed a $7 million breach-of-contract and copyright infringement lawsuit against Discovery (read it here), accusing the giant media company of conspiring with a “criminal extortionist” to squeeze LMNO out of six of its shows, including TLC hit The Little Couple.

LMNO has been one of Discovery’s leading suppliers since 1999, producing more than two dozen series and numerous specials for its various cable networks, including TLC and Investigation Discovery. Deadline spent Wednesday making inquiries into the fracturing of the relationship between production company and network. The lawsuit, filed just before midnight in U.S. District Court in Los Angeles by LMNO Cable Group, comes five days after Discovery informed LMNO it had temporarily halted production on six of its shows following an audit of the production company’s books. That same day, LMNO laid off more than 20 of its staffers, telling them that the company hoped it would only be a “temporary” hiatus. The shows in limbo, which represent the bulk of LMNO’s production slate, include The Little Couple and 7 Little Johnstons for TLC as well as Unusual Suspects, Killer Confessions, Hollywood & Crime and The Coroner: I Speak for the Dead. 

The suit is replete with high drama. LMNO claims that it’s been the victim of an extortionist accountant who’d been embezzling from the company for years and falsifying the records to conceal his crime. When confronted, the suit claims, he attempted to extort $800,000 from the company, and when LMNO Productions President and CEO Eric Schotz refused, he turned the company’s financial records over to Discovery, which then launched an audit of LMNO’s books. According to the lawsuit: “Discovery’s actions were all designed to drum up the pretense of a contract dispute, so that Discovery could claim to ‘terminate’ the contracts and distance itself from LMNO. On June 17, 2016, Discovery did exactly that: sending notices of termination on six different series.”

When asked for comment, a Discovery spokesperson told Deadline, “While it’s not our practice to comment on ongoing litigation, we will vigorously defend against LMNO’s lawsuit.”

The spokesperson added: “We have worked with LMNO Productions for more than a decade on a number of series and specials that have aired across many of Discovery’s global networks. Together, our companies have enjoyed great success. At this time, we have decided to terminate certain of our contracts with LMNO, based on the results of a lengthy review of long-standing production agreements which revealed procedures and practices that did not respect Discovery’s contractual rights.

“We believe that at the heart of any enterprise is trust and mutual respect between commercial partners,” the spokesperson continued. “Discovery is a global content company committed to operating with integrity in all our business practices and we expect our business partners to live up to that same standard.”

Unusual Suspects
Unusual Suspects
LMNO Productions

LMNO says it first learned that it was “the victim of a crime” in late 2015, when it discovered that its accountant, “who it entrusted with all of the books and records of the company, had engaged in a long-running fraud and embezzlement scheme that included falsifying the records of the company to hide hundreds of thousands of dollars in transfers to himself.”

The suit alleges that when this came to light, “the accountant stole the records of LMNO in order to prevent LMNO from obtaining evidence against him, and attempted to extort money from LMNO. In particular, the accountant demanded that LMNO pay him more than $800,000, or he would irreparably damage LMNO’s reputation and business by taking his doctored books to LMNO’s largest customer and use his own fraudulent creations to destroy LMNO’s business relationship.”

The suit also claims that “LMNO chose to stand up for itself, and refused to pay this illegal ransom. Instead, it reported the accountant to the authorities. In its darkest hour, however, what LMNO did not count on was treachery. Instead of standing by the side of its long-time business partner, Discovery saw an opportunity to enrich itself at LMNO’s expense. Working with, and using documents prepared by a criminal extortionist, Discovery chose this moment to manufacture bad faith claims surrounding the very books and records that it had received from a criminal in a scheme to steal The Little Couple television show from LMNO, and put LMNO out of business. By this complaint, LMNO seeks redress for Discovery’s brazen and unlawful acts, which violate LMNO’s copyrights, LMNO’s contractual rights and both the federal and state law of unfair competition.”

The suit asserts that Discovery’s claim of “bad faith” is in reality “a smokescreen for what Discovery was really after: the ability to steal The Little Couple and produce the show behind LMNO’s back. Without telling LMNO, per the lawsuit, Discovery secretly began shooting new episodes of The Little Couple on its own more than a month ago as part of its scheme to take the show.”

The suit does not identify the accountant, referring to him only as the “Criminal Extortionist” – and as the son of the company’s former accountant. “For many years, LMNO’s accounting, including its internal books and records, was performed by a small accountancy firm and its founding partner. In early 2012, the founding partner died, and the firm was taken over by his son. The son held himself out to be a licensed CPA, fully capable of performing the services that the father had performed for many years. LMNO accepted the son’s representations, and allowed him full access and control over LMNO’s books and records. For years, this purported accountant was in charge of every aspect of the company’s books, including its check and cost records, and its tax returns.”

LMNO said that late last year it “discovered that its accountant had committed numerous acts of malfeasance. He had embezzled money from the company by paying himself unauthorized checks, and then covered up this theft by altering the company’s books to hide the existence and/or details of the payment. He failed to properly keep the company’s books in a number of respects, either as part of his scheme to hide his embezzlement or through general malpractice. He failed to file tax returns. LMNO discovered that, despite written representations, he was never actually a licensed CPA.”

The suit claims that “in a last-ditch effort to hide the evidence of his misconduct, the criminal extortionist tried to dispose of LMNO’s accounting records by throwing them in dumpsters and hiring someone to purposefully mix the papers so that the records could not be recreated.” LMNO said it discovered the remains of its books and records in this condition:

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U.S. District Court

The Little Couple, a show now in its eighth season about the struggles of two little people in an average-sized world, has been one of the top-rated programs on Discovery’s TLC network.

7 Little Johnstons premiered on TLC in March 2015 and, until last week, had been in the process of shooting a second season. LMNO’s true-crime franchise Unusual Suspects recently completed its eight seasons on ID. Killer Confessions premiered last year, and LMNO recently completed shooting the first season of The Coroner: I Speak for the Dead, which ID said this morning will premiere July 18.

In a rare glimpse inside the secretive world of reality TV financing, the suit notes that Discovery paid a “flat fee” of $127,035 for each seventh-season episode of Little Couple, and $380,000 for each episode of I Speak for the Dead.