The Iron Range city of Chisholm planned to sell its city hall to a prospective new movie studio. (City of Chisholm)
Time for another riveting tale of Iron Range economic development gone wrong.
Today’s exhibit: the principal developer in Chisholm-based Ironbound Studios, Jerry Seppala. As you might recall, this is a story I’ve covered before. Seppala faces charges for defrauding investors of millions of dollars. During the same period he was pitching a film studio to be located in an unused portion of the Chisholm City Hall.
John Ramos of the Reader Weekly has been investigating this story since August. That’s when the Chisholm City Council summoned a council candidate to the mic at a public meeting in order to lecture him. Why? He criticized city councilors over the Seppala fraud allegations (citing the article I wrote).
Ramos’s long awaited story finally ran last week in the Reader Weekly. It’s well worth a read.
Here’s the warmup of Ramos’s article:
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.
Please read the whole story to see how Ramos connects the dots.
As Chisholm officials have repeatedly told me, the city did not issue funds to Ironbound Studios. Though, as Ramos points out, Chisholm dedicated significant staff time. The city also used the studio as a hook to sway the Iron Range Resources and Rehabilitation Board to fund upgrades to City Hall infrastructure. Ironbound had wanted this, but refused to share its financials in order to get the money itself.
What seemed to be lacking throughout the process was a firm financial statement, a clear, specific business plan, or a working understanding of the industry involved. Even when the lack of this information caused appropriate skepticism, officials seemed fine with spending other people’s money on it.
The pages of the Mesabi Iron Range Almanac seem to fill with more of these stories every year.
I don’t bring this up to be overly negative. In fact, I will be arguing this week we need a new, more positive outlook on the Iron Range.
Positivity is different than desperation or laziness. Whey you are desperate for jobs, or too lazy to work out the plans, you will be exploited. Today, a smooth talking film producer. Developers. Junior mining companies. There are no shortages of well-spoken “power players” willing to say amazing things and develop big picture ideas that involve us giving treasure, land or labor in exchange for promises of jobs.
Heck, you can’t blame them for trying. But the people of the Iron Range and our elected leaders need to be smarter about deals that raise obvious red flags. We need to protect the reputation and independence of our communities. Finally, we need to understand that questioning and criticism make us stronger, not weaker.
The Iron Range continues to possess potential. Good, smart people work on promising projects every day. Therein lies the best use of our time and energy in 2017.
These politicians have to stop using their ego to go forward in these projects. Sit down and do the background work needed on these projects. If I could find out all the information, they surely could. Find out who you are really dealing with and if it is totally legit. Don’t worry about how many times you will get you picture in the paper. Like the mayors famous saying at a coffee group, if we don’t deal with bankrupt people we will never get anywhere. Really?
I’m confused about the $250K IRRRB grant money. Tourville said most of the grant has been untouched, but I guess he has resigned according to today’s paper. Supposedly, Ironbound paid $175K of it’s own money to refurbish their rental space. Was it stipulated that the grant money could only be used once the $175K Ironbound money was spent? If the $175K money was spent, why are electrical contractors not getting paid out of the grant money? If the project is complete, does that mean the rest of the grant money will go back to the IRRRB – or will the city of Chisholm figure out a way to make use of every last penny of it?
I’d like to say that it doesn’t seem like anyone got screwed in this deal by a slick out-of-town con-man preying on the Range’s economic desperation. It doesn’t seem like Chisholm is getting screwed with the exception of exposing some of their council members as unprofessional bullies. Chisholm is getting a new tenant renting unused space, a refurbishment project to city hall that is costing them nothing, and the potential to have a small working movie studio in their town, employing their residents. Depending on what happens with the grant money, you could possibly argue the IRRRB is getting somewhat screwed, but it seems like they were perfectly ok with money going to the Chisholm city hall being refurbished. Maybe the range residents are getting screwed that the IRRRB thinks it was a good economic development bet to repair Chisholm City Hall? Mr. Erb has probably gotten the most screwed in this ordeal from having associated himself with Mr. Seppala.
Economic development isn’t always going to be pretty. It is always a gamble. We are going to have swings and hits, we’re going to have swings and misses. In my opinion, we can’t be afraid to miss. We do need to learn from our misses, but not to make us so gun shy that we fail to try and swing. Hopefully, we’ll have enough different “swings” happening that enough things will succeed to more than make up for our misses.
You bring up good points, Gray Camp. I’ll do my best to answer based on what I know.
According to the IRRRB and the city, Ironbound did pay 175K of their own money for electrical work. One reason they may not be getting reimbursed from the 250K is that any work that is movie-studio-specific is not reimbursible, as the grant is for City Hall upgrades, not tenant-specific upgrades. I believe that movie studios have much higher electrical demand than some other businesses. At the Chisholm city council meeting of Nov. 22, they were talking about hiring SEH for $5,000 to do a survey of City Hall in order to determine exactly the layout of the electrical, so they would know who was responsible for what. I also think they want to install separate meters. (The SEH work will be paid from the IRRRB grant). If nothing else, this shows that such work was never done beforehand. To me, a layman, it seems like something like that should have been done right away.
Regardless of what is found, I do not think the city will have any trouble spending all of the IRRRB grant–there is LOT of work that needs to be done. According to Tourville and Steven Katkov, attorney for Ironbound, the intention is for the city to spend the 250K on work that is additional to the 175K of work already done–meaning Ironbound wouldn’t be reimbursed for that work. But, as I say, there are a lot of parties involved here, and things may change.
I agree with you that the city of Chisholm does not seem to be in a bad place with this project–right now. The issues of concern are (1) that Seppala’s fraud case might have some impact on Ironbound; and (2) that Seppala’s bankruptcy might have some impact on Ironbound. If it is found that Ironbound had value at the time Seppala filed for bankruptcy, it is conceivable that creditors could come to Ironbound looking for their money. It is suspicious that Seppala didn’t list the company on his filing—was he using the company to hide assets? I know that he hired John Fedo and commissioned the ARI report at around that time, which suggests that Ironbound did have resources–but I have no proof that Seppala or Erb or somebody else didn’t pay for the work themselves, out of accounts that were separate from Ironbound. It’s a question mark that could lead to problems in the future. If it does, I would hold the city responsible, since they were aware of the bankruptcy, yet apparently did not read the filing and notice the absence of Ironbound.
Thanks for your interest.
The most likely reason that Ironbound won’t be reimbursed the 175K is because that was the money used to match the IRRRB grant. If they were reimbursed out of the grant, then the 175K match would still need to come from somewhere.
Thanks for the clarifications about the tenant specific upgrades John. I agree that Ironbound shouldn’t be reimbursed the $175K grand match. This should be at least a $425K project for Electrical and Cooling upgrades.
I’m envisioning that Mr. Erb loaned Ironbound ~$175K of Mr. Erb’s personal money to spend on electrical repairs and they are now asking that the grant money be freed up. I wouldn’t be surprised if either Mr. Fedo or the City of Chisholm folks told Ironbound that if you spend the $175K on tenant specific electrical upgrades, the IRRRB won’t care and will free up the grant, so they took their word for it and spent the $175K. The IRRRB says “not so fast – one of you is in serious legal trouble – we’re going to hold you to a higher standard and make you meet the complete letter of the grant and since you spent $XX of that $175K on movie studio specific wiring, you need to spend an additional $XX on general wiring and cooling before we free up the $250K”. Mr. Erb is maybe saying that he doesn’t have $XX more to put into the company, so now the project is at a standstill.
Is it not obvious to you that Gray Camp is Mr. Erb or someone associated with him?