Minnesota film studio founder faces fraud charges
MANHATTAN, N.Y. -- The founder of a northern Minnesota film studio is among three movie financiers arrested this week on charges that they defrauded investors of more than $12 million that was provided to produce films and documentaries starring,...
MANHATTAN, N.Y. -- The founder of a northern Minnesota film studio is among three movie financiers arrested this week on charges that they defrauded investors of more than $12 million that was provided to produce films and documentaries starring, among others, Nicolas Cage, Harry Connick Jr. and Willie Nelson.
An indictment filed in Manhattan federal court Tuesday accuses James David Williams, Steven Brown and Gerald “Jerry” Seppala of conspiring to fraudulently solicit investments in films from 2012 to 2016 with promises of guaranteed returns and profit participation.
"Rather than making movies, the defendants perpetrated an advance fee scheme, allegedly using the investors' money to pay themselves and pay other investors back," U.S. Attorney Preet Bharara, U.S. Attorney for the Southern District of New York, said in a statement.
Seppala, 47, of Wayzata, Minn., was indicted on one count of conspiring to commit wire fraud and one count of wire fraud. He was arrested in Wayzata on Tuesday, authorities said. Seppala could not be reached for a comment Wednesday and his attorney was not immediately known.
Williams, 54, of Los Angeles and Brown, 46, of New York face charges of conspiracy to commit wire fraud and wire fraud, as well as a charge of conspiracy to commit money laundering. An attorney for Brown did not immediately respond to a request for comment and an attorney for Williams could not immediately be identified.
Seppala is the founder and chief executive officer of Ironbound Studios Minnesota. The studio, which is not mentioned in the indictment filed this week, has operated in Chisholm City Hall in a lease-purchase agreement with the city. The studio began occupying the basement and upper floors of Chisholm City Hall in October and was in the process of renovating the space.
Chisholm officials have said the aging city hall is no longer meeting the city government’s needs, and officials are in the process of considering locations for a new city hall.
Chisholm Mayor Mike Jugovich said Wednesday that the indictment was an “unfortunate situation,” and the city will let the legal process regarding the charges against Seppala take its course. City officials haven’t had a chance to meet with legal counsel on possible options regarding the agreement with Seppala since news broke of the charges, but they will be doing so “in the near future,” Jugovich said.
“In the interim, it doesn’t change what’s going on for the city of Chisholm. I think that we’ll be looking at our options, but the city of Chisholm will continue to move forward and find out what the end result is with Jerry’s case,” Jugovich said.
Chisholm City Administrator John Tourville said Ironbound is behind on its monthly payments to the city. The studio pays $500 per month to the city for a total of $6,000 per year, according to the lease agreement. The city last received a monthly payment from Ironbound in April, Tourville said. He said he’s seen little activity in the building in the past several months.
The indictment said Seppala, Williams and Brown misled investors about their own investment in the films or the funding they had already received from other investors, and used falsified documents to support their claims.
Prosecutors said that in one instance, Williams - in an effort to get a $2 million investment from one victim - allegedly told the victim that he had contributed $2 million of his own money to the film project. As proof, Williams allegedly showed the victim a bank statement showing a balance of more than $1.9 million.
"True and accurate records for that account, however, show that on the date Williams sent that statement to (the victim), there was actually no money in the account and, indeed, there was never any money in that account until (the victim) provided the solicited $2 million investment," a news release from the U.S. Attorney's Office states.
The indictment alleges that Williams, for example, used the investors’ money to buy a home in California and a new car, and on personal expenses at clothing stores, club memberships and his children's school tuition.
None of the films was identified by name in the indictment. But some of the films matched the description of movies at the heart of a lawsuit filed in 2014 in federal court in Los Angeles by one of their former investors, Bill Busbice.
In the lawsuit, Busbice, a former chairman of the Louisiana Wildlife and Fisheries Commission who appeared in television network A&E's "Country Buck$" reality show, said the men swindled him out of $10.9 million to secure investments in four films.
Those movies included "Angels Sing," a 2013 Christmas family drama starring Connick and Nelson, and "Left Behind," a 2014 Christian apocalyptic thriller starring Nicolas Cage.
A lawyer for Busbice declined to comment.
At 28,000 square feet, Ironbound Studio Minnesota’s facility in Chisholm is the largest film studio in Minnesota, Seppala said in January. Seppala said at the time that he hoped that one day it also will be Minnesota's largest studio in terms of the volume of work it brings in.
He said he was interested in opening the studio on the Iron Range because his father grew up in Virginia.
In January, Seppala said Ironbound had letters of intent to film at the Chisholm studio totaling $70 million worth of work. However, he said the film industry is "really fluid," and expected work totaling $20 million to $30 million to be done by the end of 2016.
He said Ironbound was planning to host a party at the Sundance Film Festival and planned to have representatives at film festivals in Berlin, Toronto and Cannes to sell the Iron Range as a filming location.
He worked as a political fundraiser before becoming involved in fundraising for the film industry in Minnesota, he said in January.
Reuters and News Tribune reporter Lisa Kaczke contributed to this report.