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Two years ago, Wayzata businessman Gerald “Jerry” Seppala approached the city of Chisholm, Minnesota with a proposal to put a movie studio in the basement of Chisholm City Hall. The space, once home to a hockey rink, was sitting unused. Seppala hoped to take advantage of the state of Minnesota’s Snowbate program, which offered a 25 percent rebate to movies shot in the state, and a similar program offered by the Iron Range Resources and Rehabilitation Board (IRRRB), which offered an additional 20 percent rebate to movies shot on the Iron Range. Seppala wanted to position Ironbound Studios to take advantage of what he called “the world’s greatest economic incentives for film production.”
Seppala’s nice suits, his BMW, and his open, forthright manner all bespoke a man who knew his business. He spoke knowledgeably of deals involving millions of dollars, dropping the name of a big movie here and a famous actor there. On December 2, 2015, when an interviewer with KAXE radio asked him, “What kind of projects are you hoping to attract?” Seppala replied matter-of-factly, “Well, it’s more than just hoping. We’ve got commitments for over $70 million worth of film production over the next 12 to 18 months….To be honest with you, I have more projects pitched to me than I can possibly produce.” He said he expected the studio to create about 200 jobs by the time it was fully operational. To an Iron Range reeling from mine closings and slowdowns, this was great news.
Sadly, in June of 2016, Seppala and two other men were indicted for fraud in federal court. The charges stated that they had forged letters, falsified bank statements, and made fraudulent representations to several victims in order to defraud them of $12 million. The money was supposed to have been invested in movies, but the defendants actually used it for themselves. The scam was alleged to have run from 2012 to 2016, which included the entire time Seppala had been doing business in Chisholm.
Ironbound Studios was not named in the indictment, but all the rosy promises of millions of dollars abruptly stopped. Ironbound’s Facebook page, which had been churning out several enthusiastic posts a week, fell silent. Seppala resigned as CEO and was replaced by Ironbound co-founder Jeffrey Erb.
When some citizens criticized Mayor Mike Jugovich and the Chisholm city council for doing business with a con artist, the public officials angrily defended themselves, saying they had done their due diligence with regard to the project. But had they? To answer this question, I decided to see what information I could find about Jerry Seppala—information that anyone who had actually done their due diligence should have been aware of. What I found was that Seppala’s problems had been apparent for years to anyone who cared to look for them—and that the city had been aware of at least some of them. I also found that Seppala made a number of false representations to the city, which apparently nobody at the city checked.
Ironbound Studios was incorporated on January 28, 2014, by Jerry Seppala and Jeffrey Erb. The first official document of the company that I was able to find was a report by Architectural Resources, Inc. (ARI), dated June 16, 2014, entitled “Budget Projections, Phase 1: Ironbound Studios, Chisholm City Hall Complex.” This is also probably the first document that Chisholm city officials saw when Seppala approached them with the project.
The report consists of floor plans showing how the movie studio would fit into the space at City Hall and a short narrative laying out Ironbound’s plans for the future. The report states: “We have secured $65 million in Letters of Intent (LOIs) to film on the Iron Range on location and in Ironbound Studios….The first two productions that we have been able to convert to contracts will begin shooting before Thanksgiving 2015. The first two productions are $5.5 million and $4.5 million in budget size respectively.”
The $65 million represents the lowest number that Ironbound cited to people. In news stories, as in the KAXE interview, Seppala used the figure of $70 million, and in a speech he gave to the Lakeville Rotary Club on February 11, 2016, Seppala said that Ironbound had secured commitments for $85 million worth of projects.
Whatever the amount, any city official who was doing their due diligence would have asked to see the Letters of Intent and the contracts. If anyone ever did, they didn’t keep a record of it. The letters are not included in the city of Chisholm’s paperwork on the project. Internal city emails show that the mayor, Seppala, and others spent a lot of time thanking and congratulating one another, but no mention is made of Letters of Intent or contracts. Ironbound vice president Mary Brascugli-Rosett told me she did not know anything about the Letters of Intent, because she hadn’t been working at Ironbound at that time. When I spoke with Ironbound CEO Jeffrey Erb, he said he did not know what report I was talking about, then hung up on me. When I called Mark Casey, who was Chisholm city administrator at that time (and is now the city administrator of Proctor), he refused to comment, saying he had put the issue behind him.
An undated sheet in the back of Chisholm’s Ironbound file is entitled, “Projects with Signed Letter of Intents in Year 1.” Nine films are listed, with budgets ranging from $1.5 million to $12 million, for a total of $47 million—but it’s just a list that anybody could have drawn up. The Letters of Intent themselves are non-existent.
Likewise, internal city emails, obtained by the Reader via Freedom of Information request, are missing a lot of information. In at least nine instances, the emails reference attachments which the city did not include in its response. It seems strange that archived emails would be missing their attachments, but apparently that’s what happens in Chisholm. Neither city attorney Bryan Lindsay nor any of Chisholm’s administrative staff have any idea where the attachments might have gone.
On September 10, 2015, Steve Peterson of the IRRRB emailed Mayor Jugovich and city councilor Todd Scaia, advising them that the IRRRB would need a number of documents before they could proceed with consideration of Ironbound Studios for an economic development grant. Among the items Peterson requested were a “complete and accurate business plan,” “up-to-date financials and projections of the company,“ “complete financial statements” for Ironbound’s owners, and two years of audited tax returns. Seppala responded, saying, “Yes, I will have the package by Tuesday latest.”
Shortly after this, the plan for Ironbound changed: Rather than having Ironbound apply to the IRRRB for a grant, it was decided that the city of Chisholm would apply for a grant instead, to upgrade City Hall’s cooling and electrical systems. With the city as the applicant, Ironbound no longer had to divulge any financial information to the IRRRB.
The truth is that Jerry Seppala, BMW and suits notwithstanding, was bankrupt. In March of 2014, three months before Seppala approached the city of Chisholm, US Bank sued him, seeking to recover a $75,000 loan on which Seppala had defaulted. At the same time, Seppala was sued in civil court by reality TV personality Bill Busbice, star of the A&E series “Country Buck$,” who alleged that Seppala and two others had defrauded him of $11 million that was supposed to have been invested in movies (this civil case would become the basis of the criminal case filed by the federal government two years later). In both cases, the courts ruled in favor of the plaintiffs.
In September of 2014, Seppala filed for Chapter 7 bankruptcy protection. In addition to the judgments against him from the civil cases, he owed $46,000 in back taxes to the federal government, $23,000 in back taxes to the state of Minnesota, $26,000 in credit card debt, $75,000 on a home equity loan, and a long list of other debts.
Seppala’s bankruptcy filing has a curious omission. On page 18, he was asked to list all companies that he had an interest in. He included GR Seppala and Associates, a political fundraising company he owned, and Griffin Productions, a movie production company he founded in 2012 in Wayzata
(which never produced any movies), but Ironbound Studios, which had been incorporated for eight months at that point, is not listed. A bankruptcy attorney I spoke with confirmed that, indeed, debtors are supposed to list all of their companies on bankruptcy filings, even if those companies have no assets or value. It is left to the trustee assigned to the case to determine what the companies are worth. “If [a company] had value, the trustee would sell it” to pay off creditors, said the attorney. (He was speaking in general terms, not about Seppala’s case specifically.)
The attorney also said that an omitting a company on a bankruptcy filing might not necessarily lead to a re-opening of a case, because “if the company had no value, I don’t know that we care.” As I went through the city’s files on Ironbound, I kept an eye open for canceled checks, contracts, memos or anything else that would prove that Ironbound Studios had had value at the time of Seppala’s bankruptcy. I didn’t find anything.
In September of 2015, Seppala, Jeffrey Erb and a third partner in Ironbound, Anthony Burton, all submitted Personal Financial Statements to the city of Chisholm. Seppala’s statement indicated that he had been involved in a bankruptcy and that he owed $60,000 in back taxes to the federal and state governments (he actually owed $69,000). That’s where his sort-of truth-telling dried up. In his bankruptcy filing, Seppala had stated that he earned $60,000 a year, but in his statement to the city he listed his annual income as $180,000. His house, which he listed on the bankruptcy as being worth $650,000, mysteriously grew in value to $729,000 on the city’s form. And when the city’s form asked, “Are you a defendant in any suits or legal actions?” Seppala left that line blank. At the time, he was embroiled in the Busbice civil suit.
Anybody at the city could have checked out Seppala’s claims. Apparently nobody did.
One reason that Ironbound Studios may have been able to slide through the system with no alarm bells going off is that many projects on the Iron Range (as elsewhere) get done through political connections. No one checked Ironbound’s background because all the right people were lined up to push the project through.
Early on, Seppala employed the services of John Fedo to promote Ironbound. From 1980 to 1992, Fedo was the very controversial mayor of Duluth. To sum up a complicated political career in a few words, Fedo had a dictatorial style that accomplished many projects and made him many enemies. After losing the mayorship to Gary Doty in 1992, Fedo moved to the Iron Range and started an economic development consultancy. Projects that he has worked on range from the mundane (a Dollar General store in Ely) to the grandiose (a proposed horse-racing track and casino in Hibbing).
Fedo is the quintessential insider. He knows everybody. His name appears frequently in internal Chisholm city emails about Ironbound Studios. In pictures of Ironbound’s ribbon-cutting ceremony, Fedo can be seen schmoozing in the background. In news stories published before Seppala’s fraud case, Fedo explained and extolled the project. After the fraud case broke, Fedo disappeared. I called him for comment many times while I was researching this story, but he never called me back.
The city of Chisholm’s application for the IRRRB grant is extremely sketchy on details. It mainly consists of the 2014 ARI report—which is strange, since the city, not Ironbound Studios, is the applicant. But nobody at the IRRRB seemed to mind. Only thirteen days elapsed between Chisholm applying for the City Hall improvement grant and the IRRRB granting it. At their meeting of February 22, 2016, some commissioners did express concern that the upgrades to City Hall benefit the city as a whole, rather than just Ironbound Studios.
“If, for whatever reason, Ironbound wasn’t there long-term, would we still benefit from these kinds of investments?” Commissioner Mark Phillips asked rhetorically, before answering himself in the affirmative. “We’re doing some core things to the building over the long haul. Even if they repurpose the building in the future, it would have some value.”
His fellow commissioners agreed, and unanimously granted Chisholm the $250,000. John Fedo, sitting in the audience, could congratulate himself on another job well done.
Seppala was the public face of Ironbound Studios, but Jeffrey Erb, Ironbound’s current CEO, seems to be the person with the money. On his personal financial disclosure to the city, Erb lists an income of $250,000 and a savings account containing $200,000 in cash.
In September of 2015, Pioneer Bank made a $1 million loan to Ironbound Studios, naming Erb as the guarantor. One condition of the IRRRB grant was that the city match it with $175,000 of its own money, but Ironbound Studios paid that $175,000 itself, largely for electrical work. When I spoke with Chris Ismil at the IRRRB, he said that, from the IRRRB’s perspective, it didn’t matter who put up the match, as long as the money was spent on real improvements to City Hall. So it seems that the city of Chisholm received a substantial benefit without spending any of their own money.
Erb is no stranger to the movie business. Unlike Seppala, Erb has actually produced movies, most of them in the period from 2007-2009. One bigger movie that he was involved with was Just Add Water, starring Danny DeVito. Erb’s production company, Framelight Productions, specializes in bringing stories based on graphic novels and comic books to the movie screen. Erb lives near Philadelphia.
In 2008, Erb was involved with a big redevelopment project in Norristown, a Philadelphia suburb. He and his partners planned to build a $55 million, 90,000-square-foot movie-and-television-production facility in a failing Norristown shopping center. Their rationale will sound familiar: They wanted to take advantage of generous movie rebates offered by the state of Pennsylvania. “We plan to be up and running by the fall of 2009,” Erb told the Philadelphia Inquirer in 2008. Area boosters enthused about the imminent coming of “Phillywood.” Erb and his partners convinced Montgomery County to sink $25 million of taxpayer funds into the project.
Alas, by 2014 the Norristown project had failed. Public officials, caught up in the excitement, hadn’t scrutinized the financial safeguards of the project. When the state reduced its movie rebates in 2009, a big Hollywood studio that Erb had recruited to the project backed out, which in turn caused the state of Pennsylvania to withdraw a $10 million redevelopment grant. After that, the rest of the dominoes fell, and taxpayers were left holding a gigantic bag of debt. When the dust finally settled, the shopping center’s largest tenant was a thrift store.
Norristown was a much bigger undertaking than Ironbound, but in one way it resembled Ironbound very much: It depended more on political connections and promises than financial reality to get built.
All in all, the city of Chisholm doesn’t seem to be in a bad position with regard to Ironbound Studios. Although they have committed a lot of staff time to Ironbound, they have not put up a lot of money. According to current city administrator John Tourville, the IRRRB grant remains mostly untouched. The grant language specifies that the grant expires on Dec. 31, 2016, but, of course, deadlines can be changed.
The movie rebates are real, and may yet provide Ironbound with the competitive advantage that helps them land projects. Ironbound’s last Facebook post, from June 28, 2016, announced that Erb had optioned the rights to bring the comic book “Destiny: Queen of Thieves” to the movie screen. An option does not guarantee that a movie will be made, but it is a sign that things are moving; at any rate, Erb has committed resources to the project, which bodes well for his confidence in it. And the fact that he was willing to bet $1 million on Ironbound Studios is also encouraging (though hopefully it doesn’t mean that he, too, was flim-flammed by Seppala).
Ironbound VP Mary Brascugli-Rosett told me that Ironbound was pursuing two projects that they had very high hopes for, as well as looking at a handful of smaller projects. While this is a far cry from the “$70 million in two years” promises upon which the studio was built, the very fact that Ironbound is still in business with at least one paid employee is a good sign.
According to Tourville, Ironbound is current on all of its rent and utility bills. Other financial problems may exist. A May 16, 2016 email from Ryan Baumgard of Independent Electric to Seppala references an unpaid bill for contracting work done at Ironbound Studios. “Jerry, you indicated you would have money by the 15th,” wrote Baumgard. “If I don’t get full payment this week I will have to take legal actions.”
When I called Independent Electric, co-owner Holly Baumgard declined to tell me whether they had ever been paid, saying only that the Ironbound project had “left a sour taste in everyone’s mouth.” She didn’t comment further. As Independent Electric bids on other city projects, and Chisholm has a vindictive political culture (see sidebar), the Baumgards undoubtedly do not wish to upset anyone at the city by talking to the media.
It remains to be seen whether Seppala’s fraud case or his incomplete bankruptcy filing will have any effect on Ironbound. Seppala has pled not guilty to the fraud. His next appearance in New York Federal Court is scheduled for November 22.
The viciousness of Chisholm
I first became interested in Chisholm while watching a video of the Chisholm city council meeting of August 11, 2016. At that meeting, city council president Todd Scaia summoned an audience member to the front of the room and proceeded to lecture him for posting something critical on Facebook about the city’s handling of the Ironbound Studios project. Todd’s brother Kevin Scaia, another city councilor, joined in the badgering, as did city councilor Tracy Campbell and Mayor Mike Jugovich. It was bad enough that they were shaming a citizen in public (especially since the citizen was in the right), but what really grated on me was how thrilled they were to do it. They were animated and giddy, casting sidelong smirks at one another like naughty children as they put the hapless citizen in his place.
I wasn’t the only one who noticed. On August 23, a citizen named Lori Stavnes published a letter in the Hibbing Daily Tribune calling the city to account. “Seeing Chisholm City Council members and the mayor of Chisholm bullying Chisholm city resident Brandan Fiedler with patronizing tones, smirks, intimidation and overt defensiveness is incredibly disheartening,” wrote Stavnes. “Each city resident has every right to share their opinions publicly on any social media format of their choosing. Doing so isn’t ‘hiding behind a keyboard,’ as Mike Jugovich and Todd Scaia labeled it.”
On September 8, city councilor Kevin Scaia trolled the Internet until he found a picture of Ms. Stavnes. He posted her picture on his Facebook page, commenting, “Who is this butch? What a menace to society!”
Stavnes wrote another letter to the editor on September 13, calling out Councilor Scaia. “Free speech and peaceful opposition of our elected officials should never be met with intimidation, punishment and public humiliation….According to City Councilor Tracy Campbell, ‘When you get elected you have to work with people, and to make enemies isn’t the way to go about it.’ Interesting.”
To which Councilor Campbell responded on her Facebook page, “Who is the true bully? I don’t even know this woman and now she is taking personal attacks on me. Shame on you!!!! Keep me out of your political arena and personal crap you have going on with others and for your friend’s politicall [sic] gain for the county commissioner’s race. That is what this is really about. Some of us are in this for true goodness for our community. Demonizing others are all tactics that obstruct progress. The use of polarizing titillation divert public attentions [sic] from clear understandings [sic] of real issues that need to be focused on. Deceptive spin, political propaganda, snide mockery on social media, and unbalanced journalism all make for a good political arena for some other candidate’s political gain. Just saying…..”
Councilor Campbell was talking about the county commissioner’s race. Mayor Mike Jugovich was running against Melissa Scaia (yes, there are a lot of Scaias in Chisholm—ask me to tell you how they all relate sometime), and Lori Stavnes was a Melissa Scaia supporter. According to Campbell, the only reason Stavnes was criticizing the city council was because she wanted to hurt Mayor Jugovich in the county commissioner race. Campbell apparently had no problem at all with her colleague Kevin Scaia posting Stavnes’s picture to the Internet, but she had a gigantic problem with Stavnes directly quoting something Campbell herself had said at a meeting. In Campbell’s mind, that was a personal attack.
At that point, I thought I had heard the last from the Chisholm loony bin, but I was not so fortunate. As it happened, retiring county commissioner Steve Raukar declined to support Mayor Jugovich for the county commission race, and Jugovich’s good friend, city councilor Todd Scaia, did not appreciate that. On November 4, Scaia wrote a frothing letter to the editor attacking Raukar, accusing him of “myopic, ineffective leadership” that had created a whole array of problems for the county.
According to Scaia, Raukar was “hurtful,” “a disgrace,” “derelict to the taxpayers,” “self-serving,” and—I loved this one—“divisive.” “[You] have forever tarnished the seat,” ranted Scaia. “Enjoy your retirement on the taxpayers’ dollar.”
The goofiest charge that Scaia leveled against Raukar was the accusation that Raukar had voted to support a highway relocation project “so you can get to your cabin five minutes faster.” I had to read that one again. Did the city council president of Chisholm really write that? In public?
The punch line is that since Mayor Jugovich won the county commissioner’s race, Todd Scaia may very well become Chisholm’s next mayor. Perhaps he’ll create a position of Chief Internet Troll and hire his brother Kevin.