cineSOURCE magazine

Kerner Collapse: Hubris, Hustle or Outright Scam?
by Doniphan Blair

The glory days: the Kerner team, circa 1975, when they were working on 'Star Wars'. photo: courtesy R. Duignan

The end of August also brought the end of an august Bay Area film institution, Kerner Optical. Housed in four enormous hangar-like stages near the marsh in San Rafael, Marin County, the world famous model and effects house has become the center of a cinema scandal worthy of its own film noir a la “Who Framed Roger Rabbit?” (1988) on which, coincidentally, Kerner worked. It is a sordid tale replete with con men, noblemen and naives.

Of course, that was back when Kerner Company was a front for George Lucas's Industrial Light and Magic (ILM). They adopted the innocuous name so they could make magic in plain site without the infernal celebrity hounds. Kerner went on to fantastic productivity, creating the models (also called action miniatures), creatures, special effects and pyrotechnics for scores of Hollywood films including some of its greatest hits: the “Star Wars” sagas, the “Indiana Jones” series and the “Terminator” franchises, among them.

But, by 2006, there were rumors ILM would be selling the model shops and stages. Action miniatures were being overshadowed by a renewed focus on computer-generated imagery (CGI), even though models can still look more realistic, particularly for explosions. The bulk of ILM's over a thousand employees were in the CGI department and had already moved to the new Lucasfilms headquarters in the decommissioned Presidio Army Base in San Francisco.

In the face of this catastrophe arose a hero: Mark Anderson, a charismatic long-term employee who managed the model shop. He found investors and led a management buyout team to form what they were now calling Kerner Optical, a joyous solution for all, including ILM which continued to give them lots of model work.

Tiring of that aspect of the business, apparently, Anderson moved to an executive role and pushing Kerner's promising new 3D department. When it didn't take off and the miniature business slowed, Anderson occasionally met payroll by floating loans against his house.

(Lf-rt) Kerner CEO Eric Edmeades, indie director/writer Dean Yurke and associate Elise Crozier discuss 'Golden,' a thriller to be shot in 3D. photo: D. Blair

Eventually, even the ILM legacy became a liability, inspiring overweening ambition and attracting unsavory characters. Five years later, overwhelmed by debt, double-dealings and possible criminality, Kerner Optical filed for bankruptcy in February 2011 and shut its doors for good on September 1st.

In point of fact, Kerner was having its best year ever, according to Eric Edmeades, its CEO of the last two years. In its last months of operation, Kerner's stage was heavily booked, due to the prodigious efforts of Camille Cellucci, an Emmy-winning producer who came on board that year, as well as Edmeades. Meanwhile, KernerWorks, a separate company which Edmeades owns but claims employs Kerner workers, received a government contract to build animatronic dummies for medical training.

But the bankruptcy proceedings were frightening off action miniature clients—big money film producers are extremely risk adverse—and Kerner's chief creditor, Edmeades' estranged partner Kevin Duncan, who financed the Anderson buyout in 2006, nixed Edmeades' Chapter 11 restructuring plan.

This picture couldn't be more different than in June 2010 when I visited Kerner to interview Edmeades for CineSource. Despite his lack of film biz experience, he was heralded as a charismatic wunderkind who could lead the company back to greatness and solve the problems that plagued Anderson's first three years. Around that time, Edmeades was interviewed about 3D by Forbes Magazine (see 6/11/10 article) and a few months later he spoke at Variety's 3D Summit.

No wonder. Edmeades was fostering cutting edge research and development, including establishing a stereoscopic lab at the University of Art and Design in Vancouver, where he lived, and establishing Kerner 3D Technologies, also a separate company. The model shop and KernerWerks were cooking and they announced they were co-producing a high-quality modestly-budgeted 3D thriller, "Golden", by writer/director Dean Yurke, about some California kids stumbling into an abandoned gold mine.

"We are demonstrating that 3D production is viable at the independent producer level here in Northern California," Edmeades said at the time. "We are in the right place for achieving a studio, if you consider how well ILM did here."

With the talent, facilities and technology readily available to foster an indie incubater, CineSource titled the article: "Kerner Starts Studio System." As early as November 2007, CineSource author Tony Reveaux covered similar issues in "Kerner Optical Out in Front with 3D".

Unfortunately, Kerner was already broke—its landlord had filed suit for a million in back rent and damages—and it was entering a perfect storm. Miniature use was dropping, Asian competition was rising, the recession was daunting and 3D was turning into a bubble. It ballooned with "Avatar" and popped from not enough 3D projectors, headache-inducing 3D remakes and next-big-thing confidence men, one of whom attached himself to Kerner.

Couple of Kerner employees in front of the main enterance. photo: D. Blair

Kerner's closure throws out of work two dozen full-timers and four score freelancers. It terminates a noble brand, unless it can resurrect through another employee effort (with investors) or as a guerilla team (without investors—they would rent facilities and hire freelancers on a gig-by-gig basis). And it deals a nasty blow to the local film industry. Kerner Optical was last of Marin's Hollywood North players, after ImageMovers Digital, with over four hundred employees, was shuttered by Disney in 2010.

"The Bay Area has been robbed of a legacy and a bunch of jobs and I am crushed about that," Edmeades told me the other week. "It breaks my heart because you only have to look at the court documents and the financials to find that this company lost a million every single year until this year. Through a lot of hard work, we finally turned the corner into profitability."

He was also weighed down by the film noir imbroglio, the twists and turns of which he characterized as a John Grisham novel. But, after I heard Edmeades claims of criminality and conspiracy, which he recently went on the record with (see interview), it sounded more like a Greek tragedy. The question is: Who is the doomed hero?

There are critiques of Edmeades. Lynn Leboe, a tech/art hybrider from Montreal whom Edmeades made head of Kerner R & D in 2009, went on the record in the Marin Independent article comments section to state Duncan's " brief is accurate... [it] accuses Edmeades of transferring a valuable contract from Kerner Optical to another company that Edmeades owned... [refering to Kerner 3D Technologies and Kerner Works] causing Kerner Optical to make more then $660,000 in payments to 'insider companies owned by Mr. Edmeades'."

"[Duncan's] trying to allege we embezzled $660,000 out of the company," Edmeades countered. "He knows he's lying. He's had our full financial records." According to Edmeades, those funds were a series of smaller loans he obtained to get Kerner through payroll, standard Kerner CEO practice and easily uncovered by a bankruptcy court. Leboe is upset, Edmeades claimed, because he refused to pay the $80,000 invoice she submitted, even though, according to him, her contract called only for a finders fee for obtaining investors.

Rose Duignan, an old-time ILM employee, who headed sales and executive produced miniatures until late 2010 and is beloved by the Kerner crew, questioned Edmeades style and business plan but never his observance of the law (see interview).

Mark Anderson, a respected oldtimer, engineered the buyout from ILM, in front of the 'Pirates of the Caribbean' model. photo: courtesy Kerner

CineSource lacks the resources to do the investigation this story merits but I contacted Duncan—he declined to comment on the advise of his attorney; I sniffed around the Marin County Hall of Records; I interviewed Edmeades on three occasions, and I heard, through half-a-dozen off-the-record interviews and two on-the-record, the analysis of co-workers and acquaintances. For another perspective see the Variety article of 9/30/11.

In the end, I tend to believe Edmeades. His resume is much better, by multiple factors, then his principal accuser Kevin Duncan. He has led successful business startups—his mobile device company sold for millions; he has done philanthropic work in Indonesia and Africa; he was brought to Kerner by his old friend Gavin Wilding, a Canadian filmmaker who produced the indie features "Wild Cherry" (2009) and "Battle of Seattle" (2007); he worked hard at Kerner, particularly the last year; and he has a genuine interest in film and talent in photography and writing.

Duncan, on the other hand, is the scion of an oil and gas dynasty out of Denver, which also bought a Napa winery, Silver Oaks, a few years back; he is not particularly film obsessed; he was an absentee owner almost never seen at Kerner; and he came to buy the company in 2006 through a known con man.

The closing of Kerner Optical will not effect Kerner 3D Technologies, which builds the Kernercam 3D capture system, or KernerWorks, which does the medical dummies, which are separate companies, according to Edmeades' August 31 letter. But elsewhere, it is a sad the end of an era.

The story was covered briefly in the Wall Street Journal and Variety and more fully in the Marin Independent Journal. Alas, only the latter article started to scratch its sordid surface, outing Duncan as the "creditor," who nixed Edmeade's restructuring plan, and detailing their mutual allegations of malfeasance.

Unmentioned in any current coverage is Yuska (or Yusuka) Siuicki, Kerner's CEO from 2006 to 2009, from whom Edmeades bought one third of Kerner, along with a third from Anderson. Another oil and gas man, who dabbled in film and claimed to be a 3D expert, Siuicki enabled Anderson to finance the Kerner buyout by bringing in Duncan. Supposedly, Siuicki approached Duncan in a Marin County restaurant after he overheard him discussing business.

As it happens, Siuicki appears to be a certain Joseph T. Sevitski of Santa Barbara, who did three years in federal prison in the 1990s for an oil and gas investment Ponzi scheme. In the 2000s, Sevitski versed himself in 3D, an obvious boom market, and started a company in Las Vegas, Technology Applications Specialist Inc. (an innocuous name, if there ever was one) which supposedly specialized in 3D.

Kerner's four main enterprises listed on their website: the 3D camera department; KernerWorks which makes sophisticated dummies and models; Kerner Studios, the model shope and stage; and the film production, Kerner Pictures. photo: courtesy Kerner

"Joe Sevitski (AKA Siuicki) conned me, and others, out of millions of dollars," claims "Judy" of Oklahoma on RipOffReport.com on 9/21/2010. She is corroborated on sites A and B, and in a Los Angeles Times article of 4/30/1996. More speculatively, Judy added, "'Joe' has since continued his investment scam business by moving... into the 3D technology sector through his involvement with Kurner [sic], PLLX3 [Parallax 3] and Visual Impressions."

But the anonymous "Judy Oklahoma" provides the Internet's only victim testimony and the Los Angeles Times its only incriminating report. Both Joseph Sevitski and Yuksa Siuicki are spectacularly Internet dark, only 179 mentions of former and 392 of the latter (does Technology Applications has some serious Internet scrubbing apps?). Perhaps he was simply reverting to the traditional spelling of his name and has been staying at home, being a model citizen and not Facebooking anyone.

Then there are the eyewitness accounts:

"[Sevitski/Siuicki] was entirely unfocused and his train of thought was wacky, twenty directions at once," Duignan told me. "But he was amazing at bringing people through the facility. The man had connections, unbelievable. And he’d spin everything. It was all about the spin. After spending three days with Joe [Sevitski/Siuicki], I said to Mark [Anderson], 'I want nothing to do with Joe, or the 3D stereo business. You need me to help you keep solvent the action miniature division.'

Sevitski/ Siuicki's past was not unknown at Kerner, where he earned the moniker "Smoking Joe" for his constant puffing. Marty Brenneis, the oldest ILM-days employee, known as "Droid" for running Kerner IT and security (he could unlock doors or email accounts from overseas), discovered Joe's alias immediately after he joined the company.

"When someone has a weirdly spelled name I google it to make sure I spelled it right for his security badge," Brenneis told me. "When I googled Yuksa Siuicki, I got nothing. When his son Sean Sevitski came onboard to do HVAC [heating, ventilation and air conditioning], and I was doing the same thing, I asked him, 'If this is your dad, how come your name is spelled different?' He said, ‘Dad changed his name.’ I liked [Sean], he was a good egg," and he has not been linked to any wrong doing.

No one at Kerner informed Edmeades of Sevitski/Siuicki's past but, even before he learned it on his own, he began noticing odd behavior. Edmeades' allegations include Sevitski/Siuicki carting off 3D technology already sold to Edmeades; providing 3D technology downloaded from another company; representing himself as Kerner's CEO after Edmeades took over; siphoning off potential investors to form the 3D company Parallax3 in LA; and starting an absurd number of shell companies, some replete with signage like Kerner Broadcasting in the parking lot, the only apparent logic for which would be grafting the Kerner magic to grift new marks.

A Kerner craftsman works on weapons for 'Star Wars: The Phantom Menace'. photo: courtesy of Kerner

Just one brief in Marin's Hall of Records lists Kerner Holdings, Kerner Group, KG Financial Inc, Kerner FX, Kerner Graphics Inc., Kerner Funding Inc, KG Investments, Kerner Technologies, Kerner Camera Holdings, and Kerner Dimensions, all registered with the state (go here for complete list).

It seems hard to believe that the team headed by the beloved Mark Anderson, which took over Kerner in 2006, intended to drain its accounts. Yes, Anderson was in bed with Sevitski/Siuicki as his partner and financial consultant and in taking the company towards 3D—and he joined again with him in Parallax3—but could the latter gut or pimp the company Anderson knew like the back of his hand under his very nose?

The general facts suggest that Anderson was desperate for investors to acquire the company and then keep alive. Then he jumped from model making into 3D. Involved in a nasty divorce around that time, he would have had a lot on his mind, a need for cash and new social ambitions, any of which could compel someone to overlook inconsistencies and hitch their wagon to a new ride racing forward.

The perfect Ponzi scheme is where the payoff seems plausible and the victims promote themselves into sales, a la Bernie Madoff. Movie financing has long been a haven for hucksters and 3D, with its reputation as the next big thing and impenetrable shop speak, is a match made in heaven for them. It was only a matter of time before it attracted the Phds of Ponzi.

"There is a small part of [Sevitski/Siuicki] that always believes in what he is doing," Edmeades concludes. "I don't think you can be that convincing and be lying all the time. I think you have to believe it a little. [But] there were definitely times they lied out right."

"There was an investor meeting, before I even invested. They put this wicked demo together that really made Kerner look the shit, all this miniature stuff, all the 3D stuff. Of course, they made it all look like one company, they didn't tell us that it was a million companies. They showed us a 3D thing that was mind blowing. They are putting up Halo and Rock Band—you put your glasses on and the game is the best you have ever seen. This is three-four years ago, before 'Avatar' was even released, that is how novel it is."

Edmeades on a nature and photography adventure in his home continent of Africa. photo: courtesy of Kerner

"One of the [potential] investors goes, 'Wow, just this alone makes this investment a good deal. Does Kerner own it outright as protected IP [intellectual property]?'" Edmeades continues. "Mark Anderson said, 'Yes,' [but] it was never owned by Kerner. It was not even developed at Kerner."

Edmeades claims to have documentation on how Sevitski/Siuicki was eviscerating Kerner and dunning investors much as "Judy Oklahoma" alleges. "[Sevitski's] current strategy is no different from the $50,000 he got from me," she wrote. "Attach himself to an apparently great investment opportunity, bilk some money out of you and then approach your friends. His accomplices in his current endeavors include Mr. Kevin Duncan, of Duncan Oil and Mr. Mark Anderson of PLLX3 [Parallax3]."

When Edmeades protested nefarious behavior in late 2009, the previous owners offered to buy the company back to avoid problems. Edmeades agreed but only if he could abide his belief in transparency and tell the new investors what he knew. They agreed and sent reps to do due diligence but it was more like industrial espionage, and when they missed meetings and failed to draw up closing papers, he concluded it was just more scam.

How did a savvy investor and world-travelling entrepreneur buy a company from Sevitski/Siuicki? "I was the frog in warming pot," Edmeades explains. By the time he found out about the full extent of Kerner's debt, the diversion of funds into related-named companies, and possible illegality, he was in too deep.

Fearing that going public or to the police would cost time and money with little recompense, he must have decided that the only way out was up, pour on the steam, ie hustle. With his connections, confidence and charm, Edmeades seemed well positioned to turn the company around, despite its debt load.

"Everyone had high hopes for what Eric could do," Duignan said. " I never did. I believed Eric was not the right person to lead the company."

The records show Kerner was in deep doo-doo before the recession. To house their expanding subsidiaries and acquire the small but useful George Lucas Theatre, Kerner rented the two large warehouses, Building C and D, on Kerner Street (though the main gate was at 90 Windward Street). It was too much space for what was, technically, a small business doing mostly action miniatures. The landlord Bon Air sued them for $411,029 in rent, $567,271 clean up and $168,300 repairs.

Edmeades knew about this after doing his own due diligence before buying the company, he told me. But in the summer of 2009, the company was working on "Avatar," it had a bunch of projects in bid, and was developing promising new technologies. Moreover, the recession and writer's strike were depressing value, making it seem like a better buy—not to mention the ILM legacy. "I felt like a kid in a candy store," he said. "Certainly, with better management and marketing, it could be turned around."

On set in front of a model of an oil rig, Edmeades meets with Jay Randy Gordon, a possible collaborator to help Kerner connect to advertising agencies doing 3D spots. photo: M. Backhauss

Edmeades seemed dedicated to the company and cinema dreams but his efforts to diversify and mount a protracted PR campaign were somewhat similar to Sevitski/Siuicki's biz plan, minus the highway robbery. Although he ditched the 3D fantasies to focus on action miniatures within months of taking the helm, his running around and high media profile, as well as his formation of a couple of Kerner companies—for legitimate structural reasons not cons or so he claims—dissipated Kerner's energy and his own.

Edmeades had no film industry experience and worked mostly as a motivational speaker since selling his mobile device company in Bristol, England. Although he speaks unaccented American, he is originally South African and has lived most recently in the Caribbean, enjoying eco-expeditions and nature photography. This led some to consider him a jet-setting dilettante who didn't apply himself enough to makings his cinema bones.

Edmeades put a lot of effort into public relations and involved Kerner in a slew of conferences, awards and meetings, including doing Marin's first TEDx (Technology Entertainment and Design) conference. While he undoubtedly has a great Rolodex, they didn't include the big players who could make film bank. He got a lot of little projects, booking his stage and keeping his dummy builders busy, but he was unable to attract major investors or projects.

Instead, he tried to enlist collaborators, who were asked to pay their own way or invest in their portion of the business. Bernie Stolar, a gaming legend once the president of Sega of America, came to him to discuss starting Kerner Games. Stolar was taken aback by Edmeades' profit-sharing rather than pay-a-retainer approach, even though participatory investing is a standard Hollywood practice. As he saw Kerner coming apart, Edmeades probably had to accelerate the extracting of favors and phone lists, and the self-regard that some "little people" complained about.

Unfortunately, the hole was already too big because he himself had been hustled, if not by full Ponzi criminality than by Sevitski/Siuicki's spin and borderline ethics. As of now, there are no suits or charges being filed, although Edmeades couldn't do so earlier due to prohibitions against prejudicing a bankruptcy court. Although he is considering it now, and recently sent a letter to the California Attorney General, the possibility recompense is low and he would rather get on with his life, Edmeades says.

Ultimately, Duncan's crime may just be his proclivity for hardball business, learned at the knee of his family members and their lawyers. His termination of Edmeades' Chapter 11 reorganization may turn out to be another ruse to get Kerner back.

Indeed, Mark Anderson was walking around Kerner, the week of September 21st, saying "Don't pack up, we are coming back." When asked, "Will that also include Sevitski/Siuicki?" he said, "No," but later admitted, "Only at arm's length." They kept packing.

Although Edmeades was not an inside player, he is a quick read and has learned a lot, according to those still developing projects with him, like local writer and producer James Dalessandro. He probably won't let this turn of events get him down or effect his meeting and speaking schedule, although he cancelled his speech on "How Much Is Your Idea Worth?" at the September 30th Palo Alto Film Festival. Instead, he went to Florida.

At one of the many conferences hosted by Kerner in 2010, indie producer Debbie Brubaker, foreground, the plane from 'Terminator, Salvation', 2009, burned by explosions, in the background. photo: D. Blair

Certainly his experience as a motivational speaker and CEO of Kerner for two years are good prep for a producer's portfolio. Plus, he has written unproduced screenplays and two published books, "The Human Diet – Discover Your True Way of Life" (2003) and "Intombi: A Dog's Life" (2010, still available on Amazon), a dog's-eye-view of life in the Africa bush. He would do well to write about what just transpired at Kerner, to help others obtain better information before they go in.

Economic information is critical to all businesses but even more so to film/video, which is highly susceptible to budget-padders and con men. Unfortunately, it's hard to get film folks to go on the record, even about their own film's budget, not to mention film family misdeeds. They fear the wrath of future employers or celebs. But transparency is needed to inspire investors to plunk down tens or hundreds of thousands of dollars on ventures that are risky enough without criminality.

The IRS runs an outsized department in Los Angeles but, judging from the lack of lines at its Hall of Records, Marin County gets little scrutiny, despite some notorious investment scams. Its always advisable for communities to police themselves, either through public opinion, shunning or the fourth estate, than by bring the blunderbuss of the actual cops to bear—although that too can be necessary.

The big questions are: Did Siuicki con his co-owners? Did he bring Anderson and Duncan to the dark side? And what did Edmeades know or do? Or was it just the questionable behavior of cinema dreamers who became desperados when they realized they're in way over their heads but still want more.

Once you get in the grifter habit, there are few 12 Step programs to help you get out. Even if he wasn't scamming wholesale, Sevitski/Siuicki may not have been able to stop himself from pocketing the occasional item, telling the periodic untruth and hustling hyperbolically—especially since the latter is so appreciated in the film industry, and especially when the going got tough. Hopefully, he will go back to oil and gas, where people lust for just money not dreams.

Glimmers of hope for Kerner remained on its Facebook page until the assets started being seized September 21st. There is talk of another employee reorganization and Duignan is happy to bid on projects and assemble the team if a project is greenlit. KernerWorks and Kerner 3D Technologies will keep going and something may emerge from one of the similarly-named subsidiaries, notably Kerner Canada run by filmmaker friend Wilding. Nevertheless, last week, Marty "Droid" Brenneis did the final lock up and turned over the keys to the court trustee.

"I just put 600 kilos of 3D equipment onto a trailer up to take up to Panavision in Vancouver," Brenneis said. "I am going up to get them up to speed and [from now on] I will go out as 3D technician. But first, my wife and I are going on a cruise to Mexico. After being on call 24/7 for 30 years, I won’t be contactable."

"When everything is done, we will throw a wake for Kerner—that good Irish tradition—but not until the coffin is in the ground. The whole deal has been like a centipede taking his shoes off, just when you think he is done, another one drops."

Posted on Sep 27, 2011 - 07:25 PM