To hear him talk about the economic challenges facing the entertainment industry, you’d think that Jeffrey Katzenberg, CEO of DreamWorks Animation SKG, would be worried. Still, sitting in a meeting room on the DreamWorks campus, surrounded by plush toys commemorating his company’s biggest hits, Katzenberg speaks in a tone that borders on serenity.

“I tell people, ‘Wherever you are today, this is the new great,’ ” he says, a Kung Fu Panda doll looming over his shoulder. “The sooner you forget what you had, the better off you’ll be.”

Katzenberg’s Zen-like calm is especially surprising, given that just weeks before, he’d learned that he was among the Hollywood victims of Bernard Madoff’s Ponzi scheme. Both Katzenberg and his DreamWorks co-founder, Steven Spielberg, had millions tied up with Madoff, most of it money they’d set aside for charity and all of it probably gone. As Katzenberg speaks of the belt-tightening that is happening in Hollywood, it’s hard not to wonder about his own belt.

“If you look at where you were last summer, and that’s your measure of how you’re doing, it’s hopeless,” he says. His words could also apply to life after Madoff, I suggest. Katzenberg nods. His loss was humiliating, he admits. “It’s gone. It’s finished,” he says. He refuses to reveal how much “it” is, though public tax filings show his and his wife’s foundation had assets of more than $22 million in 2007. “I’m as lucky and as blessed as I can be,” he says. “Let’s move on.”

If only it were so easy. The names of Madoff’s other Hollywood victims are still gradually and grudgingly coming to light. Condé Nast Portfolio has learned that Arnon Milchan, the billionaire producer of such films as Fight Club and Pretty Woman, lost at least $18 million in the scam. (Milchan declined to comment.) Actors Kevin Bacon and Kyra Sedgwick, who are married, have acknowledged that they too were taken.

How did so many smart people get so suckered? By Katzenberg’s own account, he had never met Madoff, never even heard his name. Katzenberg is not a member of the Jewish country clubs in Palm Beach and Minneapolis where Madoff and his agents trolled for investors. He doesn’t move in the social circles of New York’s Upper East Side to which many of the scheme’s patsies belong.

The answer, it turns out, lies closer to home. Katzenberg and Spielberg, like many people on the top rungs of the entertainment business, relied on the services of a personal business manager. Madoff had apparently figured out what industry insiders have known for years: More than agents, more than lawyers, business managers are the financial gatekeepers to Hollywood’s elite.

Since Madoff confessed to spinning a web of deceit that bilked thousands of people, universities, and philanthropic organizations out of an alleged $50 billion, two West Coast business managers have been embroiled in the scam. One is Katzenberg and Spielberg’s adviser Gerald Breslauer, who at 80 years old is widely revered as the dean of his profession. The other is Stanley Chais, 82, who has been helping prominent Angelenos invest their money for decades.

In addition to steering their clients to Madoff, both Breslauer and Chais reportedly have incurred huge personal losses themselves. But in Chais’ case, at least, that shared misfortune hasn’t ­prevented clients from suing. A magician and entertainer named Michael Chaleff was the first to file, accusing Chais, in a $250 million federal action, of “false, misleading, unlawful, unfair, and fraudulent acts and practices.” (Chais would not comment for this story.)

Then, on Christmas Eve, screenwriter Eric Roth—who won an Oscar for Forrest Gump—sued Chais in Los Angeles County Superior Court. In a classic good news-bad news scenario, the 65-year-old scribe had learned on the same day he was nominated for a Golden Globe Award for The Curious Case of Benjamin Button, a drama in which Brad Pitt ages backward, that his retirement nest egg was gone.

“I’m the biggest sucker that ever walked the face of the earth,” Roth told the Los Angeles Times soon after discovering his loss. But in his suit (the damages he is seeking are unspecified), he laid the blame squarely on Chais, charging that he collected “enormous fees” even as he ignored “red flags.”
 
Part bookkeeper, part consigliere, the business manager first emerged in Los Angeles in the 1950s as the Hollywood studio system came to an end. Up to that point, studios had handled chores for the stars they kept under contract. Then, suddenly, actors, directors, and writers wanting to manage their press coverage had to hire their own help, a change that spawned the personal publicity industry. Similarly, for the first time ever, “talent” had to organize and account for their own money, and the business-­management field blossomed to fill the gap.