May 8, 2006 issue - In March 2005, Brad Grey, the heavyweight producer of "The Sopranos," chose to accept a difficult mission—to become CEO of Paramount Pictures and mastermind its rebound. He began triumphantly enough. In his first and most perilous task, the rookie studio boss jumpstarted the filming of "Mission: Impossible III" by negotiating down Tom Cruise's cut of the profits, trimming the cost of the film by millions. In the movie, opening this week, there's plenty of smart action, plot twists and mayhem as secret agent Ethan Hunt tracks the villain, played by Philip Seymour Hoffman, from Rome to Shanghai. Like Cruise's character, Grey is dealing with startling plot twists of his own. Never, for example, could he have expected to be ensnared in one of Hollywood's seamier scandals. But Grey's name has surfaced in front-page accounts of a federal probe of private eye Anthony Pellicano—the subject of a sweeping federal indictment in February alleging that, among other things, he bugged the Hollywood enemies of Grey and other clients. "We wish it all would just stop," says John Lesher, head of Paramount's specialty film division.

True-crime stories likely weren't part of Grey's script for recapturing the glory days of Hollywood's oldest studio. When he took over, Paramount's problems included a plunging box-office take and a reputation for prickly talent relations. But after 14 months of jettisoning top execs, landing new projects and pulling off the $1.6 billion purchase of DreamWorks, Grey has Paramount poised for a promising sequel. "The most important thing ... is the turnaround of the studio," said Grey—who won't discuss Pellicano—in a statement on Saturday. "We're looking forward to a great summer."

From now through Christmas, Paramount is mounting its strong-est box-office assault in years. There's the animated "Over the Hedge" from the DreamWorks deal. Oliver Stone directs "World Trade Center." "Dream Girls" leaps from Broadway to the big screen, with Beyoncé and Jamie Foxx. The splashy "M:i:3" opening was supposed to kick off Grey's turnaround. But now the Affair Pellicano is stealing some spotlight.

It's an unusual position for Grey, who never wanted for publicity as he scaled Hollywood's power charts by managing stars and producing hit TV shows. In the process, he has left his imprint on pop culture and reaped an estimated fortune of at least $500 million. Grey, 48, helped guide Brad Pitt's career, and steered Dana Carvey and Dennis Miller to "Saturday Night Live." Among his TV hits: NBC's "Just Shoot Me" and HBO's "The Larry Sanders Show" and "The Sopranos." "If I could do every project with him, I would," says Chris Albrecht, CEO of HBO.

For Hollywood's denizens, the Affair Pellicano is so riveting, in part, because they can imagine a possibility that it could topple a studio boss. (Other players making for good copy, too, include attorney Bert Fields and Mike Ovitz, the onetime powerful agent.) The scandal originated in the underbelly of the film industry, where paternity suits, divorces and broken business deals often get settled with the help of dirt-digging sleuths. Pellicano, a Chicago native, had worked for a litigious crowd of Hollywood heavyweights since the 1980s. In recent years, as federal investigators closed in on him, Pellicano's alleged penchant for wiretapping came to light, along with Grey's name. "The media is interested in where he fits into the story," says Tom Freston, CEO of Viacom, Paramount's parent. "He's in a big job. This is Hollywood. I believe in Brad."

Grey can take some comfort in the support from his Viacom bosses, including chairman Sumner Redstone. Grey, his handlers argue, is a victim of unflattering innuendo and inaccuracies in the media. Pellicano, they add, was hired by Bert Fields, Grey's lawyer. Grey hasn't been charged with anything, and his handlers note that he is only a potential witness.

Even if there were a risk of criminal charges against Grey, time may be on his side. Business associates of his tell NEWSWEEK that they've been advised that the statute of limitations has run out on any possible misconduct related to Pellicano's work on Grey's behalf. Because of the sensitive nature of the case, all asked not to be identified. Among their charges in Pellicano's 110-count indictment, prosecutors accuse him of bugging the phones of Vincent Zenga, a producer of "Scary Movie," five years ago. Zenga was then suing another of the producers, Grey, whose lawyer brought in Pellicano. Responding to NEWSWEEK, a Paramount spokesperson said, "The government has always said that Mr. Grey is only a potential witness in the case, so there has been no reason for his attorneys to focus on the statute of limitations."

Grey's associates say he's maintaining his focus. Lorne Michaels, the "Saturday Night Live" czar and a Paramount producer, recently lunched with Grey to discuss "Hot Rod," his next comedy, about an aspiring daredevil. If the scandal were a 15-round fight, "he's taken an enormous amount of body blows in the first eight," Michaels said. "But from what I saw, he was still standing. He was lucid and clear."

In remaking Paramount, Grey has landed blows of his own. Several senior execs at Paramount found out from friends, or were told by the studio while traveling abroad, that they were being axed. After the DreamWorks acquisition, Paramount wiped out its distribution arm, firing about 100 staffers and replacing them with DreamWorks employees. Meanwhile, Grey is exploring a deal to bring to the Paramount lot a branch of The Grill, the famous Beverly Hills steakhouse, for his top exec team. The "changes created a lot of pain in people's lives," says Freston. "And change isn't great for buzz. Maybe some things weren'tdone optimally. I'll cop to that." Yet, he adds, it was neces- sary because Para-mount was "the bottom of the heap," Freston says. "Now the remaining team is building good morale." Grey's mission now—and he has no choice but to accept this one—is to hope screenwriters don't start circling the juicy story of a rogue private eye and a besieged studio. If only a business turnaround story were just as compelling.

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