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Finally, The Eric Edmeades Interview! by Doniphan Blair and Eric Edmeades
Kerner KEO Eric Edmeades, here on a photography safari, was born in South Africa and has family there, although he was raised in Canada. photo: courtesy E. Edmeades
Eric Edmeades is a fascinating guy who has lived all over the world and worked in a variety of endeavors, from tech startups and motivational speaking to running Kerner Optical, in San Rafael. The latter was the renown effects house which broke off from George Lucas's Industrial Light and Magic (ILM) in 2006 and became one of the Bay Area's hardest working and most colorful media companies—only to go broke amidst bankruptcy and scandal at the end of August.
The reason, as CineSource and Variety reported on September 30th, was Kerner's accumulated debt and prodigious leap into 3D but also the spinning and possible criminality of a known con man, Joe Siuicki/Sevitski, who helped organize the initial buyout from ILM.
Kerner was covered extensively over the years, including an in-depth CineSource article, July 2010, and its dissipation into recrimination and jurisprudence was naturally of interest. Indeed, "The Kerner Collapse" and "Rose Duignan and the Kerner Closing" became two of CineSource's most read articles with the latter quoted in Variety.
Another first was the threat of libel suits. Aside from alleged criminal conduct, we at CineSource worried about moral codes, indulging prurient interests and exposing the seamy underbelly of Northern California filmmaking which could frighten investors and hurt the overall media community.
After consulting some experts, we concluded there was a legitimate need to know but it was hard getting the facts when few would go on the record. Kerner CEO Edmeades spoke to CineSource on September 20th but only off the record, which provided good background, albeit from his perspective. Finally, on September 24th, Rose Duignan, Kerner's principal sales agent and producer until the end of 2010, sat for an on-the-record interview and offered a different view.
Then, when a draft of the interview was leaked Monday September 26, due to a glitch on the CineSource website, Edmeades contacted us to go on the record. In addition to addressing the immense complexity and possible subterfuge of the Kerner bankruptcy, which now listed creditors for over four million dollars, he wanted to respond to the personal critiques.
Our second phone interview was on September 28. Speaking rapidly for an hour and a half with no apparent breaks to consult notes, Edmeades appeared to have an astounding command of the narrative.
Edmeades doing a motivational speech in the tropics. photo: courtesy E. Edmeades
As such, CineSource thought it of interest to readers as well as to free speech to publish it, even though we lack the resources to corroborate accusations with a Woodward-Bernstein-style investigation. Instead, we examined a few documents; we relied on personal bona fides, which led us to find Edmeades credible; and we assumed he cleared with counsel whether statements will stand up under the scrutiny of a libel judge.
Moreover, we welcome insights from all parties AND, as with Ms. Duignan, we are publishing Edmeades' words in an interview format, to highlight that they are his and not this periodical's.
Alas, on September 30th, as we were about to go live with a brace of Kerner articles, including the Edmeades interview, he decided to makes those words even more his. He returned the transcript—emailed to him for fact check and courtesy statement review—completely rewritten.
Instead of endearing outbursts like " You say I don't have the Rolodex? I have the Rolodex!," "That is a complete and utter lie!," and "I am sorry, I am a little emotional about this stuff because it is just pissing me off," it was a cleaned-up account of deceit and betrayal with the addition of some, sometimes overwrought, character critiques, which grew it from 6000 to 8500 words, our longest interview/article to date.
Although Edmeades answered a few questions straight, 95% of the interviewer's words had been altered with the CineSource character often servings as a Sancho Panza foil in a quixotic quest for score evening. Like any reporter worth their salt, my initial response was the similarly salty: "There is supine journalism and then there are blowjobs."
But, on closer examination, CineSource staff concluded that Edmeades had improved the interview's continuity and coherence, if not verisimilitude; he made some astounding statements, sure to interest readers as well as libel threateners and their lawyers; and the interview abided a core CineSource credo, "A film magazine should be like a movie."
Hence, despite some reservations—including the first notices of possible libel suits, Edmeades against Rose Duignan and Lynn Leboe—here we have it, "Finally, The Eric Edmeades Interview", with only his most incendiary and the composite interviewer's most cloying remarks edited out.
For Kerner's first full feature coproduction 'Golden', about kids falling in an abandoned gold mine, CEO Eric Edmeades (left) meets with writer/director Dean Yurke and associate producer Elise Crozier. photo: D. Blair
CineSource Standin: You don’t come from the film production industry so how is it that you came to invest in Kerner Optical?
Eric Edmeades: No, I was not working full time in the film industry—I had done some writing and worked, on and off, with Gavin Wilding [the Canadian indie feature and doc producer and director] for about 15 years after wrangling Mark Hammil for Gavin’s directorial debut, 'The Raffle', in the early 90s. Anyway, I was working with Gavin on a production in LA and he invited me to come up to see the original home of ILM [by then a separate company Kerner Optical]. Well, you can’t really say no to that, can you?
CineSource Standin: No, I guess not.
Look, I was seven when Star Wars came out [making him 41]—it blew my mind. Like so many others, both in and out of our industry, the saga was a real inspiration to me. I was definitely caught up in the history of the place. So when Gavin introduced me to Mark Anderson and Joe Siuicki [the owners of Kerner], I was more than eager to help. They toured me around the place and asked me if I could help raise money for the development of 3D technologies and related products. I was in the market for a new business opportunity so I decided to help out.
Over the next few months I would learn that the company didn’t need funding for future projects—it needed funding to stay alive. It was on the rocks! The three partners, Joe, Mark and Kevin [Duncan] had steered the company to losses of around a million dollars a year.
CineSource Standin: And you still invested?
I know, it sounds stupid now but one of my skills is fixing broken companies. The way they pitched it, they were ‘this close’ to turning the corner and just needed some bridge capital.
Plus, they showed us some of the most mind-blowing 3D stuff we had ever seen. What I didn’t know at the time was that much of the stuff they were showing was either vapor-ware or belonged to other companies.
CineSource Standin: Like what?
For example, an iconic moment in the 3D demo was when they took standard video games and then—as if by magic—converted them to convincing stereoscopic 3D. Bear in mind that this is almost a year before the release of 'Avatar' [2009]. It was incredible—that was enough to whet my appetite. To be a leader in the world of 3D gaming by releasing a proprietary 3D conversion system: [That] was an attractive pitch.
A sold out Edmeades speaking engagement, in England, where he did his first tech start-up in Bristol. photo: courtesy E. Edmeades
CineSource Standin: But it didn’t belong to Kerner?
No. I watched this demo in awe—and it was not the first time I had seen them do it. There was another group of investors in the room and one of them asked Mark outright if it was proprietary to Kerner. He said that it was. Of course, much later I would learn that this was just one of many tall tales told to me by the three partners.
CineSource Standin: So are you suggesting that Mark Anderson is also corrupt? I have heard lots of good things about him.
No, I don’t think he started out that way. I think he is a good guy at heart but that he was lured into Joe [Siuicki]’s world and just started doing whatever he could to survive, even if it was the wrong thing. Frankly, I think that happened to a few people, including Kevin Duncan.
CineSource Standin: Didn’t Mark stay on after you purchased his interest in the company?
I knew I was stepping into a relatively new industry for me and would not have agreed to do it but for both Mark and Joe agreeing to stay on with the company. Mark undertook to manage Kerner Optical, where his core skills lay, and I would work to develop the 3D technology with Joe. Of course, at this stage, I didn’t know who Joe was.
CineSource Standin: You are referring to his prior criminal convictions?
That and his real name [Sevitski]. While Mark, Kevin and Joe never told me about Joe, his real name or his criminal past, the company’s then CFO Sherry Wangenheim did. But all she told me is that he had a prior conviction for tax evasion.
While I don’t agree with Rose [Duignan's or Sherry Wangenheim's] assessment of [tax evasion] as an ‘acceptable’ crime, it certainly does not come close to the real truth: that Joe ran an extensive Ponzi scheme and, according to the LA Times, faced up to 485 years in prison if convicted.
What Sherry—or her employers—didn’t tell me was that Joe Siuicki was really Joe Sevitski, a convicted felon restricted from selling unregistered securities. They all knew. Duncan admitted to me personally that he didn’t tell me because he knew I would never have invested if I knew. They found out because Joe’s son came to the studio to do some work. When Marty [Brenneis] set up his security card he noticed that Joe’s son had a different last name. Because the name was uncommon, Marty checked Google to make sure that he had spelled it correctly—then the truth came out. The LA Times had done a series of stories about Joe including his prior bankruptcy, indictment, conviction and jail term.
Shortly after Edmeades bought the company, his supposed partner Kevin Duncan and the old owner Mark Anderson openly discuss emerging problems and fraud. photo: courtesy E. Edmeades
CineSource Standin: And they didn’t cut him loose?
Both Mark and Kevin told me that Kevin tried to cut Joe out of the deal at some stage—I don’t know if that happened before or after this revelation. But the important issue here is that they continued to allow him to court investors—including me.
CineSource Standin: In the end, you are painting Duncan and Andersen as accomplices—do you really feel that way, or were they just victims?
What is at issue here is whether or not Duncan and Anderson realized what Joe was up to. With that in mind, I would refer you to an email sent by Kevin Duncan to Mark Anderson in 2009.
The email quotes an article—from the LA Times, I think—that details Joe’s prior criminal business activities and his modus operandi. The article lists Joe’s real name and, and this is the telling part, Kevin marked the subject line 'HISTORY REPEATS.' He was well aware of not only who Joe was but what Joe was doing with their plethora of Kerner companies.
CineSource Standin: You stand by your claim that you had turned the company around?
Turning a company like this around is like turning a big ship—it takes time. What I can tell you is that Kerner Optical had lost money for four years in a row. This year, for the first time, it was on track to turn a profit.
Oh, I should point out that on paper, the company took a loss for that period. In truth, the company was profitable but we were forced to write off two bogus debts that had been loaded onto the company by Duncan and his cohorts.
One of their many Kerner companies, Kerner Technologies, owed Kevin about $150,000. When I bought the company, he suggested to me that things would be simpler if we consolidated all his debts into one note. His plan was that Kerner Technologies would transfer its liability to Kerner Optical and now Kerner Optical would owe the money to Kevin Duncan. CineSource Standin: So did Kerner Technologies ever pay Kerner Optical?
No, and it never will. Just like all the other Kerner companies they created, it folded like the deck of cards that it was. Kerner Optical was left with a bad debt to write off and a new liability to Kevin Duncan. I believe, at the Department of Justice, they call this debt loading—and this is not the only example.
CineSource Standin: In the recent Variety article, Kevin Duncan says that he still thinks Joe didn’t do anything wrong ['(H)e is sure no money was ever siphoned out of Kerner by Sevitski,' Variety, 9/30/11].
Yes, that is an important aspect of the way a good Ponzi scheme or fraud works. When early investors find out that they have been duped, they have a choice: Report the crook or help him bring in the next batch of investors in order to recover their own investment. The trouble with reporting the crook is that they then stand to lose their investment.
We asked both Kevin and his father, Ray Duncan of Duncan Oil, under oath, if they knew about Joe’s past. Kevin admitted that he did. Ray said that he didn’t. You do the math. I am going to proceed in the belief that Ray did not lie under oath but that then means that Kevin must not have disclosed to his father—or presumably his brother who also invested—the truth about Joe. Now, with millions of dollars of his family’s money lost on his recommendation, I suppose that it must be hard to admit the truth.
More nefarious adventures outlined politely in inner office email by Edmeades. photo: courtesy E. Edmeades
More telling, however, is a September [2009] email that Andersen sent Duncan telling him that Joe is using ‘deception and fraud’ to support his family and specifically points out the damage that Joe’s ‘theft of technology‘ is doing to the company. Duncan replies, simply, 'I know,' and then goes on to explain that once he gets the $20,000 he loaned to Joe back, that he will 'let loose.' This whole conversation took place only weeks after they sold the company to me—they knew what Joe was doing—I can only imagine why they are now denying that.
CineSource Standin: How much money are we talking about? And where did it go?
Millions. I mean, the Duncan family themselves might be the biggest losers. Some smaller investors also accused them of scamming and I know of another investor who lost something close to $4.2 million dollars. The latter has received a small portion of his money back.
Just as I was purchasing the company, I learned that some of the technology that they had represented as belonging to Kerner Optical did not [belong to KO]. It turned out that the assets belonged to Kerner Optical Research and Development [KORD]—a dead company that they had created to, apparently, invent 3D television.
Mark Anderson convinced me to arrange to purchase the assets of KORD on the basis that there was a 3D camera system, included with the assets, that was paramount to our 3D production plans. In fact, they even had me convinced that Vince Pace [a renown cinematographer and 3D expert] was bidding on the system. By the way, we have never ever used that system.
They then took the money from the sale and settled a pending lawsuit from the investor—he got pennies on the dollar.
CineSource Standin: What about other investors?
Yes, there was another investor who sent money to Kerner Optical. It appears that they then transferred the money from Kerner Optical to KORD. Later, when that investor started making noise about getting his money back, Kerner Optical refunded money to him and raised a note from KORD to Kerner Optical—just one of the many bogus debts they loaded on Kerner Optical.
There have been others and at least two post-Kerner investors.
CineSource Standin: Post-Kerner?
When I first offered to invest in the company, I said that I would only do so if I could take a controlling interest—I had a lack of confidence in them as managers and only wanted to invest if I could be an active investor. My first offer was that each of the three equal partners part with half of their equity so they would still be equal partners.
Duncan refused. He indignantly told me that the other two never put any money into the venture and as such he was only prepared to do the deal if they parted with all of their equity so that he could retain all of his. He would only surrender his equity back to the company once his family’s loans had been repaid.
Edmeades discussing 'Golden', the 3D feature, with writer/director Dean Yurke: Was it a plausible bid to coproduce films in 2010 or was Kerner already in serious jeopardy? photo: D. Blair
Mark and Joe agreed and I entered into agreements with both to return their equity once we paid off Duncan and his equity was released back to the company. What I did not know is that they had already, even before my acquisition of Kerner was completed, set up a new company in Los Angeles called PLLX3. To make matters worse, they established the company with a fresh investor, Bart Woytowicz, a wealthy early Google employee, that Gavin had brought to Kerner.
CineSource Standin: So they took one of your potential investors?
Yes. And, they were representing themselves to the industry as Kerner! I am given to understand that they had Kerner Broadcasting Corporation painted on their parking stalls and I have proof that they were soliciting and attending meetings as Kerner. Of course, I only found this out after my money was invested.
CineSource Standin: Did Woytowicz get his money back? Did PLLX3 work out?
No. When I last spoke with Bart he was stressed out and bewildered—this is not his first bad investment. He told me that he was out by millions and millions. And that the other investor in PLLX3, a venture capital firm from Northern California, is also out by about a million dollars. To my knowledge, PLLX3 is no longer in business.
While I do have some sympathy for Bart, I should point out that he never called Kerner to find out if Joe’s story was accurate or who really owned the technology. Having said that, I don’t think he was heavily involved in early management of the company, having hired a local architect, Richard Hannum as the CEO. As I understand it, Hannum was let go from PLLX3 for lying to Bart and for paying his own rent with company funds.
Anyway, since then, Brad Nelson, a long time side-kick of Sevitski, has started another company—with Bart I believe—called Visitech. Also, Visitech’s website is more or less identical to the now defunct PLLX3 site [the sites are no longer similar].
CineSource Standin: It looks like Mark Anderson told Variety that Joe didn’t work for PLLX3.
Whatever. Look up PLLX3 at the Internet archives for the several months after April 2010 and you will see the Joe is listed right there with Bart, Mark Anderson and Sherry Wangenheim—the usual suspects. Oh, except that you will see that this time he is Yusuka Siuicki—another name. As I understand it, they took him off [the website] when an article appeared on the Internet that connected his multiple identities. CineSource Standin: So, with all this going on, why didn’t you sue them?
I don’t like litigation. It is expensive—in time and money—and stressful. At first, I thought I had simply been scammed and that might have been hard to prove. While I was still unaware of Joe’s true identity, I had lost all trust for him. Still, I threatened legal action in late 2009—less than six months after I bought the company.
Then Joe, Kevin and Mark presented me with a ‘new investor group’ that wanted to buy the company from me. The Duncan’s were even willing to subordinate their debt to mine to get the deal done. Ray Duncan himself got on the phone and pressured me to sell the company. So I agreed to.
Actually, the final thing that pushed me over the edge was when both Mark Anderson, then our President, and Sherry Wangenheim, our CFO, quit without notice a day apart from each other. Now I was left running the company without a President or a CFO. It was a good ploy, so I agreed to sell.
They took over control of the company in January 2010—a term of our negotiations—but then failed to show up for meetings or, even, to produce the closing documents. While they were running the company they gutted it of trade secrets and allowed Joe to access his old Kerner email account so that he could write to investors and clients once again posing as a principle of Kerner!
Oh, this buying group was none other than PLLX3!
CineSource Standin: Those are pretty serious claims.
Yes, they are. And we have proof. I have the emails that Joe sent to people diverting them to his other email address and apologizing for taking so long to respond. Melanie Illich Toay, Joe’s 3D camera expert, even wrote to Mark suggesting that the close examination they were conducting of our Kernercam designs amounted to stealing trade secrets—something they should not be doing until they had completed their acquisition. CineSource Standin: And still you didn’t sue?
I am not from California. I understand that litigation is par for the course here, but in my pragmatic view of the world I had two choices; I could focus on turning the company around or I could sue. Both would take years and cost a great deal of money but only one would result in the [immediate] loss of everyone’s jobs.
And then there is the larger issue. As we all know, justice can sometimes be bought. The Duncans have piles of money from their oil and their wine businesses and have, I feel, demonstrated the will to use it to file disingenuous and vexatious actions just to frustrate our progress.
CineSource Standin: You are referring to their petition to appoint a trustee in the bankruptcy case.
Yes. Let's back up. When I got the company back from PLLX3 it was on the rocks. We had no money. We had lost our President.
CineSource Standin: And your CFO?
No. Mark and Sherry’s ploy was predicated on staying on with the company once PLLX3 completed their purchase. When the sale fell through, they were both left without jobs. It was at this point that I made a tragic mistake—I let Sherry stay on. I had compassion for the awkward position she found herself in and I was mindful of the impact our health-care plan had on her family.
A few weeks later a representative of the staff came into my office and told me that the employees wanted her removed from the building immediately for fear that she was trying to damage the company from the inside. They were devastated—and so was I.
Despite this, we continued to employee Mark [Anderson]’s son long after Mark’s departure from the building. He is hardworking, the crew liked him and we trusted him and have no regrets about that [ditto Sevitski's son].
Anyway, now I was in real trouble, and I had to get down to work. We set about cutting overheads, improving marketing and trying to save the company. Perhaps I would have been better off to sue them but I didn’t think I could sue them and still devote the significant effort that would be required to turn the company around.
CineSource Standin: Rose Duignan told us in her interview that you didn’t cut overhead enough.
Perhaps not—perhaps I should have started with her. I am kidding—the fact is that on paper, overhead is an easy thing to cut but in reality it often means people’s jobs. In fact, Rose’s niece worked for us for a while. She came up in several meetings about cutting salaries and we decided to keep her on.
CineSource Standin: It seems as though you and Rose didn’t see eye to eye?
She said it herself in her interview, she never gave me a chance. I was an outsider with different ideas. I am an entrepreneur, she is an employee—it is a different mindset.
Long before I ever stood on a stage to [do motivational speaking] I was an entrepreneur. I started a small business in my living-room selling data capture and wireless networking equipment. Soon I was hiring people, and then more people. Nine years later, I sold the business to private buyers and kind of retired.
It was as a result of this success that I was invited to speak at business conferences and became a professional speaker—in the three years after selling my company I flew around the world six times speaking and consulting for companies in over 15 countries.
I mistakenly thought that if [Rose and I] could combine her extensive Rolodex and industry knowledge with some of my ideas about marketing and business systemization, we could kick some serious butt. I was wrong—she was not one to learn new tricks. She would sit, nod her head disingenuously, agree and then completely fail to take action.
I am surprised at Rose, really, about the list [of Kerner subsidiaries and shell companies] she gave you in her interview. One never existed; two were created by Joe [Siuicki]; and Kerner Canada, the only one of her list that I did create, was created for her own venture.
I was completely behind {Duignan's] drive to move us into a hybrid CGi/Practical VFX house [ie they would do effects with miniatures and computers]. We established Kerner Canada as part of a possible joint venture partnership with a company that Rose had introduced us to. Kerner Canada is still operating as our agent in Canada for the rental of Kernercam systems through Panavision Canada.
CineSource Standin: Still, she’s not wrong, the company did fail in the end, right?
The company did not fail—it was forced into failure. Before I get to that, please consider what Einstein told us—you can’t solve a problem from the same level of thinking that it was created.
After [Duignan] left us in late 2010, we commenced our most successful trading period in the company’s history. January through July 2011, the company turned a profit for the first time. I want to be clear, I am not suggesting that we were successful because Rose left, I am saying that Rose’s departure allowed us to implement some of the things she was resistant to.
Also—and this is really important—I am truly grateful to Rose for the professional way she handled her departure. One, she introduced us to some excellent replacement candidates, one of which joined us and created magic during her time with us. Two, she was very professional in her handover of projects and her assistance with the transition.
CineSource Standin: So despite it all you wish her luck in her new venture?
Sort of. To be fair, it is a bit of a sore point for me. When she left, she walked out the door with one of Kerner Optical’s biggest opportunities.
Some time ago we were approached by Disney to discuss projects that they might be interested in subcontracting to Kerner Optical and some of the other companies in the Bay Area. So we all got together and put together a killer presentation that displayed Kerner’s extensive skill-set and displayed the unbelievable resources available in the Bay Area. In fact, as I designed the Keynote presentation, I was struck by the geographic layout of the companies we were plugging—Kerner was at the rough center of the map and all these other companies were scattered around in a not-very round wheel.
It reminded me of the Fedex business model, the ‘hub-and-spoke’ method of distribution. That fit because we were pitching ourselves to Disney as the 'hub' of their activities in the Bay Area. We flew our team down—a major expense when you consider the condition of the company at the time.
Now Rose has her own business—Hub Project Management—basically doing the same thing. Although I read recently that she is now diverting that business to Louisiana, rather than Northern California.
I am also disconcerted that she is perpetuating the idea that Mark and Kevin didn’t really know who Joe was. They did and I believe that she did. She was at the 'hub' of all Kerner’s gossip—there is no way that she didn’t know about it within minutes of Marty’s discovery.
On the other hand, I totally understand why she, and other employees, didn’t tell me about Joe’s real name: job preservation. Kerner closed down for two weeks [in the summer of 2009] and had I not invested when I did, the company would have come to a grinding halt. They would have lost their jobs two years earlier.
In the end, we cut costs and increased our marketing and PR efforts—the results were good. We started to see real results when we landed some nice contracts in January 2010—we ended up posting the company’s best-ever quarter—perhaps even the company’s first ever profitable quarter.
Also, to be fair, if you add up the salaries paid to me, our president and our new CFO—the latter two infinitely more qualified than those they replaced—the total is still less, I believe, than the salary Mark Anderson drew by himself, a salary he drew while almost entirely focused on his other Kerner companies and not on the company that was paying him—at least that is what his employees have told me.
CineSource Standin: If you were doing so well, why did you file chapter 11?
Lets put ‘doing well’ into perspective. We were doing well in terms of turning it around but breaking even is only half the battle. The company still had a negative net worth of three million dollars and was being harassed by its creditors.
That is the funny part—they were not chasing payment. Instead, they were playing a strange set of financial games that appear to have been designed to push me out of the company.
CineSource Standin: How?
Okay, Kerner Optical had a legitimate loan, a secured loan, with Bank of America. We were current with that loan when we tried to negotiate an early pay-out settlement with them. Then, weeks later, our loan was paid off!
CineSource Standin: How did that happen?
Well, at the time, we had been speaking to an investor in Canada. He expressed an interest in buying or investing in the company. Then, out of the blue, he bought our note from the bank!
That is where it takes a turn for the weird—then this Canadian guy—Dan Anderson—buys Duncan’s note, apparently at par. Duncan sends me an email telling me that he has sold the note to Anderson and that all rights passed to Anderson.
CineSource Standin: So now this Anderson became your creditor?
Yes, but the strangest twist of all is still to come: When Anderson bought our debt from Bank of America, he used money borrowed from Bart Wotoywicz, the CEO of PLLX3!
Anyway, as if things could not get any more strange, Dan never tries to collect payments from us. We write him to ask where payments should be made, he never replies. Suddenly, our debt is owned by some guy that won’t even let us make payments!
CineSource Standin: So if he is not pushing you for payments, why file for Chapter 11?
Those were not the company’s only liabilities—the hole was simply too deep to dig out. Look, I knew about the debts when I bought the company. But these guys made very specific claims about 3D technologies that we were going to develop—any one of which could have lead to the company’s recovery if they had not been fiction.
But wait, there is something else about that debt that is fascinating. Anderson never paid Duncan for the note. When we filed Chapter 11, Anderson told me that Duncan called him in a panic, asking for the note to be reassigned back to him—so he did. Then Duncan filed papers in court indicating that the debt had been reassigned several weeks earlier. CineSource Standin: That can’t be right. Are you saying that they back-dated the documents?
I am saying that Anderson told me that after we filed, Kevin asked him to transfer the debt back—which he then did. I am also saying that Duncan apparently filed documents indicating that the debt had been transferred back long before we filed. My experience of Kevin Duncan’s bankruptcy lawyer is that he will do anything to win. I feel that he misrepresented things to the judge in our case time and time again.
To understand them properly, you need some background. Lets remember that by the end of Q1 2011 Kerner Optical is safely in Chapter 11 and having its best year ever. Then Duncan’s lawyer files a petition with the court, alleging severe mismanagement of the company—he does this in the knowledge that the company has just completed its best ever quarter. That is his first misrepresentation—that the company is being mismanaged.
Frankly, I think [the lawyer] did so to up the billing on his now-favorite client. As a debtor, all we wanted was the chance to get Kevin, Mark and Joe on the stand but in Chapter 11 there is no way for the Debtor to make that happen.
In a master stroke, Duncan’s lawyer petitions the court to appoint a trustee. I cannot believe that he did so with so much hubris as to believe that the judge was going to appoint a trustee in a summary judgment. He couldn’t be so naive as to believe that the judge would do that, in which case he had to know that he was exposing his client to an Evidentiary Hearing—a mini-trial. This means two things. One, that we could now subpoena and depose the Duncan’s! Two, that his billing just went through the roof.
CineSource Standin: Okay, but surely he had some basis to file his motion?
Not really. And when the judge questioned the whole thing he insisted that there were ‘dozens’ of smoking guns. In the end, he brought up only three things. He claimed that I had fraudulently transferred out the company’s name and logo. He claimed that I had transferred $660,000 out of Kerner Optical to companies in my control. [And] he claimed that I had usurped a corporate opportunity of the company and transferred it to my other company, Kernerworks.
CineSource Standin: So, did you?
We never ever transferred the name or logo from the company. The company’s name was Kerner Optical. Some time after buying the company, I successfully registered a trademark for the word KERNER. This was something the previous owners had tried to do and failed.
I did so so that we could create a group of companies that lived on Kerner Blvd and used the name Kerner. Kerner Optical’s rights to its own name and logo were not impacted in any way and, further, Kerner Optical was paid $20,000 for the brand.
CineSource Standin: Is that a fair price for the mark?
Trademarks are difficult to value but so far, the name had been used to dupe millions of dollars from investors—and word was now on the street— and the primary company to use the name, Kerner Optical, was losing around a million dollars a year—so how do you value the mark?
Oh, and let's not forget that Mark, Joe and Kevin had created several other companies, or permitted them to be created, using Kerner’s reputation, name and logo: Kerner Optical Research and Development, Kerner Japan, Kerner Mobile Technologies, Kerner Motionwerx, Kerner New York, Kerner Technologies, Kerner Camara Holdings, and countless others. Most of my advisors suggested abandoning the name altogether. But I felt that if we could right the wrongs of the past that people would remember our accomplishments instead.
CineSource Standin: What about the $660,000?
That is a gem. Duncan’s lawyer stood there in court and told the judge that I needed to be urgently replaced because I had transferred $660,000 out of the company to a company in my own control. This is what I call lying through omission and I am pretty sure, from the Judge’s reaction, that he saw right through it.
In February 2010, when I got the company back from Andersen/Siuicki, it was once again on the rocks and had no cash. And we had payroll to cover. Duncan was not prepared to put in any money and my investors were not prepared to go anywhere near Kerner Optical.
In the end, we persuaded the board of one of my companies to provide small-short term loans to Kerner Optical so that it could cover its payroll for the week. About a week later, when Kerner Optical got some money in, it repaid the loan. Over the next several weeks—we were working on 'Red Tails' at the time and Lucasfilm was a little late paying us—we had to repeat this process a number of times.
The total monies loaned over time? $660,000. So rather than being the large single and unjustified embezzlement that Duncan’s lawyer had implied, this was the quick repayment of life-saving short-term loans to the company.
CineSource Standin: And the business opportunity? Is this the trauma trainers for the army?
Yes. This was a project originally taken on by Kerner Optical. In fact, if I remember correctly, the contract came in just as I purchased the company. Well, contrary to Mark Andersen’s recently sworn document, the transaction was not lucrative—it lost Kerner Optical money—something that Kerner Optical was very good at already.
When the client came back and asked us to make more of [highly realistic animatronic dummies] but at half the price, we felt that we could not [afford to]. While we were excited by the longer term opportunity, we did not have the funding to proceed. This was all taking place in the months after PLLX3 [briefly] took over the company.
In the end, I spoke to the board of one of my other companies. I explained the risks and the opportunity and we decided to take it on. But, I only agreed to do so on the basis that Kerner Optical would be the company’s primary source of labor and services.
This meant that Kerner Optical would benefit from the opportunity but would not be exposed to the risks. [Moreover,] the client would not be exposed to the risk of doing business with an insolvent company with a negative net worth of three million dollars.
In the end, Kernerworks turned a small profit while Kerner Optical received over $750,000 of high margin revenue. It is very safe to say that without this transaction, Kerner Optical would not have survived 2010. It is also really important to remember that Duncan twice refused to put money into this venture or into Kerner Optical so that Kerner Optical could pursue the venture.
CineSource Standin: How did it go when you explained this to the judge?
We never got the chance. Duncan’s lawyer delayed the hearing and, despite their legal obligation, they never provided a single scrap of paper under discovery. They just ran the clock out on us.
CineSource Standin: You mean that Duncan would not approve your chapter 11 reorganization plan.
That’s right. After July, our most successful stage rental month ever, we implored him to rescind his objection. We pointed out that we had enough votes in two creditor classes—we only needed one—to have our plan approved by the court. We demonstrated that the company was being well managed and was turning a profit for the first time. But he would not budge.
We asked him, outright, what he wanted, and he said he didn’t know. I phoned his father [Ray Duncan] in Italy, and asked him what they wanted. He said that he didn’t know and would get back to me. He never did. It seemed like they just wanted to kill off the company—my first theory was that they figured that without a body, there would be no crime. The laws in Delaware, where they formed the company, are pretty strict about fiduciary duty, etc. I thought perhaps they were trying to escape those liabilities.
CineSource Standin: You said 'thought,' do you have a different opinion now?
Yes. To my shock, I found that Kevin was apparently courting a new investor group that might want to submit their own Chapter 11 plan. This would explain why they were working so hard to run the clock out on the period of exclusivity provided to us by law. In fact, Duncan’s lawyer even tried to get the judge to prematurely end that period of exclusivity and was rebuffed by the judge.
CineSource Standin: So if they could end exclusivity, they could submit their own reorganization plan to the creditors?
Yes. And when he mentioned this to us, we asked him directly if this new group involved either Mark or Joe. 'No,' he told us, in no uncertain terms. I told my team that I was convinced that his new ‘group‘ involved Joe and that we could not surrender the company to a group involving Joe or Mark. We had finally turned the corner and we were not about to let those two back in again.
Last week [around September 28th], when [Duncan] was pointedly asked, yet again, about Mark and Joe’s involvement with the new group, he admitted that he had lied and that they were in fact involved.
I also heard, recently, that Mark has been wandering around the [Kerner] buildings assuring people that he would be moving back in soon. When asked, however, if Joe was involved, he answered that he was, but ‘only at an arms length.’
As far as I know, Kevin has been telling people that his new group would be coming through with their offer any day now. He has been saying this for months and this was precisely the same story when PLLX3 tried to buy Kerner Optical. Frankly, it is the same story Sevitski used in his last scam—a new group of investors is always just around the corner. Whatever!?!
CineSource Standin: Why do you think Lynn Leboe affirmed Duncan’s claims in the comments section of Marin Independent Journal?
Leboe, I don't know what the deal is with her. We thought she was this R & D guru who was going to help us get tax credits in Canada. She came down on a pure finder fee basis; she would turn up money and take a percentage, something to do with the Emily Carr Center [3D lab at the University of Art and Design in Vancouver]. It wasn't going to make us any money, she explained, but it would open the door to her raising a lot [of money], because she would get a lot of press for it.
So we did the deal and she sent us an invoice for something like $94,000. I personally emailed her back and asked her for an accounting or justification of the amount, and she never supplied it because there wasn’t one. In the end, the Emily Carr project was the only one she ever landed for us.
Oh, and we had heard through the grapevine that she had raised significantly more money relative to that project than she disclosed to us—we decided that we didn’t want to work with her and terminated her agreement. It then took legal threats to get her to stop using the [Kerner] name.
CineSource Standin: Leboe, and others say you transferred technology out of Kerner Optical.
All told, she spent less than a week at Kerner and never had any idea about the inner workings of the company. Even if Duncan’s claims were true, she would not be in a position of knowledge to back them up. After she made those comments, Gavin Wilding who is also based in Vancouver, called her to demand a retraction. She demanded payment in order to do so.
Anyway, Kevin, Mark and Joe are well aware that the only transfer of technology out of Kerner Optical was done by them. They transferred technology and corporate opportunities to Kerner Optical Research and Development, Kerner Technologies and Kerner Labs long before I ever arrived on the scene. There are piles of evidence to back what I am saying but perhaps the most damaging is an email from Mark Andersen to Joe asking where all the equipment is. He specifically expresses his disappointment in Joe, cites my acquisition of the equipment and demands that he return it. He sent this email to Joe before [Anderson] went to the dark side.
CineSource Standin: And after all that, they still tried to buy the company back from you?
Well, I am not certain that they really were trying to buy the company. I know this is amazing, but consider this. Just after buying the company, I spoke at the Variety 3D summit.
Peter Lude of Sony comes up to me and says, 'Eric, great talk I am looking forward to meeting with you next week.' I said, 'Peter I don't know of any meeting.' He whips out his Blackberry or whatever and on the email stream he shows me an email. He is meeting with the CEO, CTO, COO of Kerner—Joe Siuicki, Brad Nelson and Melanie Illych—the three amigos who made this whole scam possible.
[Sevitski] was no longer even affiliated with Kerner [but] he was representing himself as the CEO of Kerner. The scamming continued.
CineSource Standin: At this point, assuming this is all true, you must be considering legal action.
I don’t really want to comment on that right now—obviously, yes, it is something I am considering. Duncan continues to harass us with rumors and threats—even calling Kernerworks clients and causing them concern about our viability. In the end, it appears that he is leaving me with little choice.
For now, I have restricted myself to a personal boycott of Silver Oak wine, which isn’t saying much since I don’t drink anyway. Oh, and I have asked they Attorney General [of California] to look into the matter.
Specifically, I am puzzled how Joe could go from a maximum possible sentence of 485 years down to only 3 years in prison. Had he served a reasonable sentence for his crimes, he would not have been out in time to scam me, Kevin, Kevin’s family, Bart or any of the others that have been hurt in this fiasco.
CineSource Standin: This is quite a story—maybe you can make some of your money back by selling it as a screenplay.
Funny you should say that—I have already been approached by a publisher interested in a book—but no, my primary interest now is to move on. We have managed, now, to hire a significant number of the Kerner team at Kernerworks—I feel good about that. We are working hard to make that business work—if we can salvage something from all this mess, I will feel better about it.
It is a sad thing to have worked so hard and come so far only have the company brought down by silliness. Our team—each and every one—worked so hard this last year to turn Kerner Optical around. I congratulate them for their hard work, quality productions and for achieving the goal we set—we succeeded in making Kerner Optical viable.
CineSource Standin: Doesn't the involvement Jon Goetze, who does some company dismantling, suggest you were going to split up and sell Kerner eventually?
No. First, Jon was not involved in my original acquisition of the company. He has been a long-time friend of mine and, as I began to realize the hot water I was in, I called him for advice. He dropped everything and came out to California to help me turn the company around. I can very safely say that Jon played a major role in turning the company around and moving it to profitability before it was closed.
When I bought Kerner Optical I saw it as a ten-year decision. I did not relocate to the United States for a short-term gig—I was and continue to be in for the long haul.
CineSource Standin: Does Duncan have some claim to KernerWorks since his initial investment in Kerner Optical helped generate the product?
No. And he hasn’t expressed any. This is probably because he twice declined to provide any share of the funding required to pursue those opportunities. He has suggested that Kerner Optical has a claim but it is now pretty clear to anyone who understands even basic accounting that Kerner Optical was in no position to pursue those opportunities without additional funding—funding that Duncan twice declined to provide or participate in.
CineSource Standin: What happened with Shanghai Miracle Pictures and what went wrong with 'Golden' and 'The Art of War'?
Our agent in China introduced us to the backers behind SMP [Shanghai Miracle Pictures] and we really liked them. They provided the initial funding of the project so that we could commence pre-production. And then something happened—I don’t think it had anything to do with Kerner—perhaps something changed in the market conditions in China but when the balance of the funding was suppose to arrive, it didn’t. I have heard since that it has something to do with Chinese censorship—that they didn’t like the idea of kids partying, drinking, etc., on a camping trip.
It's too bad because it is a great story and Dean is an outstanding storyteller. I really hope he gets to make the movie and I will always offer my support to him.
I should point out too, that to my knowledge, ILM did not ‘slap him down’ as you commented in your interview with Rose. To the contrary, they were very supportive of him and our tour to China. If I remember, correctly, there was something they didn’t like about the story you guys did at the time, I really don’t think they ever had a problem with Dean or his project.
CineSource Standin: If you could do it all over again, aside from just not buying Kerner, what would you have done different? What was the corner where you went astray?
That is a tough one. I mean, I was like the frog in the steadily warming pot of hot water. Each week would bring new revelations about the company and the activities of the prior owners—more messes to clean up. New ‘Kerner’ companies that we didn’t know about and legal threats from prior investors. It was a mess.
So what would I have done differently—I suppose I should have sued them straight away. My normally pragmatic approach of trying to work things out fairly did not work in this case—they just kept stringing me along. In terms of the business itself, I wish that I had stepped in more firmly and earlier. [I wish] that I had not trusted the management of the company to the old world, the Duignan/Wangeheim/Andersen way of running the company. Frankly, once we moved away from that, things really turned around.
CineSource Standin: Do you think you could have improved performance significantly if you made more of connection with staff, had one as your President, as Duncan had Anderson?
The short answer is yes. I should have gotten stuck in much earlier. Had I known that the 3D tech I was chasing was fiction, and focused in on the core business [action miniatures], I think we could have achieved more and faster. And, having said that, I was working incredible hours just cleaning up messes from the past; closing down old ‘Kerner’ companies, smoothing over relationships with annoyed investors, suppliers, clients and employees, etc. It was hard to be proactive when there was so much legacy stuff to deal with.
I think it is also worth pointing out that Duncan didn’t really have Andersen for that. Andersen may have drawn a nice salary from Duncan’s business but, the way I heard it from his own staff, he spent his time focus on Joe’s business, Kerner Optical Research and Development [KORD] and basically ignored Kerner Optical.
CineSource Standin: What do you think of Dale Carnegie's book 'How to Make Friends and Influence People' which suggests apologizing quickly, smiling a lot and not being negative?
I am a major fan—I think the book should be required reading in school. I try to live by the principles outlined in that book and attribute much of the success I have had in my life to them.