Awash in $100M debt, VeroBlue files for Chapter 11, sues top management
By JANE CURTIS
WEBSTER CITY – VeroBlue Farms, which promised to make fish a leading commodity in this landlocked Hamilton County town, has filed for Chapter 11 in federal bankruptcy court, disclosing that it is drowning in more than $100 million debt, most of which is unsecured.
VBF, according to its bankruptcy petition, owes $98,943,246.22 in unsecured debt to its top 20 creditors.
It has another $6 million in secured debt, that being assigned to Broadmoor Financial LP, of Wichita, Kansas, VBF’s top creditor. VBF owes more than $53 million to that firm alone.
In a separate civil lawsuit, five of VeroBlue’s top management are accused of misappropriation of funds. The suit, filed in federal court, claims Leslie A. Wulf, Bruce A. Hall, James Rea, John E. (Ted) Rea, and Keith Driver “wasted VBF assets.”
The news leaves in its wake more than 80 creditors that run the gamut of large to small, local to national, all with one thing in common: They are left holding the bag.
The firm hasn’t paid its more than $279,000 in property taxes in both Hamilton and Hardin counties, according to online county treasurers’ records.
It owes the Internal Revenue Service an undisclosed sum.
And it’s on the hook for unpaid utility bills.
The city of Webster City is owed $135,997.96, according to bankruptcy documents. Interim City Manager Kent Harfst said that debt is money the company owes for sanitary sewer service and electricity provided by the municipal electric utility.
While the company has unpaid sanitary sewer bills, it does not owe the city government any money for water service because it gets its water from its own well.
Harfst said attorneys representing the city have been in contact with attorneys handling the bankruptcy proceedings.
“They’re hoping to come out of it,” he said of VeroBlue. “We’re hopeful something good will come out of it.”
In early 2015, Wulf outlined his vision for the firm in a story in Farm News.
“The long-term goal for the company is to perfect what we’re doing in Webster City,” he said, “a hub and a grower network.
“The urban farm is the hub and the grower network is the fingers off of that,” he said.
“Fast forward a couple years from now and we have this (system) perfected, we think that around the country, we could have five to seven other hubs. Wherever there is water and a vibrant farming community, we can do other hubs.”
The reality is anything but that vision.
The civil suit filed July 31, 2018, details what it calls “schemes consummated by the defendants” that it says continued for about three years.
Those accusations include the following:
- The defendants directed that 1.25 million shares of VBF stock be transferred from VBF’s Canadian affiliate to a separate company that was owned and controlled by some of the defendants. The stock was transferred at a rate of $1.25 per share at a time the same stock was offered elsewhere for 90 cents a share. The result, the suit claims, is that the defendants pocketed $1.125 million in stock at no cost. It claims that this action caused the resulting VBF stock to lose value. All of the defendants, with the exception of Hall, are Canadian citizens, according to the civil lawsuit filing.
- A $375,000 payment from VBF to a separate company, American Growth Funding LLC, was actually for two loans from AGF to BAJJEER II LLC, another Canadian company owned and controlled by some of the defendants.
- Wulf rebuilt a personal lake house using a VBF employee, Tracy Arbanas, as a construction overseer while her $97,500 annual salary was being paid by VBF. VBF also picked up the tab for Arbanas’ housing during that period and snacks for the work crew. Total bill to VBF: $107,490.51.
- Gregg Sedun loaned VBF $200,000 and $50,000 on separate occasions through his firm, Alcaron Capital Corp., in June 23, 2016, the suit says. The next month, on July 12, 2016, VBF paid Alcaron $326,056. That showed an interest payment of $76,000 for a less than one month period. On the same day, the suit claims, Wulf authorized VBF to issue 1,500,000 shares of VBF stock to Alcaron without requesting that it pay for the stock. At the time, the stock was worth 90 cents a share, or $1,350,000. Two days later, on July 14, Sedun loaned Wulf $225,000 for the Texas lake house, the suit says. Also, Wulf made Sedun a VBF director.
- The five defendants set their own compensation at $400,000 each annually, the suit says. The exception is Driver, who was paid $325,000 a year. The tab: $1.675 million a year.
- “None of you have ever seen me and you do not know who I am.” That is the statement the lawsuit claims was uttered by Christine Gagne, Wulf’s daughter, who worked for VBF occasionally, but under another name: Ronnie O’Brien. According to the suit, Gagne is a Canadian citizen “who would often drive from Canada allegedly to work at VBF in Webster City.” The suit alleges it was Wulf who directed that his daughter be paid as “O’Brien.” Total paid: $52,264.28.
- Because the delivery of live fish was ordinarily handled by the purchaser, the suit questions why VBF, under the direction of the defendants, bought six tractor trailers that sat dormant. Cost: $375,237.77.
- Instead of directly buying the specialized fish tanks needed from a supplier, the defendants set up another company, Opposing Flows Aquaculture Inc., in 2014, which became a “middleman” for tank purchases, according to the civil suit. Cost: That is what the suit would like to know.
The suit also alleges that VBF money was misused for personal expenses: a $310,000 house in Webster City, a fleet of 22 company vehicles, personal travel expenses out of state and out of the country, personal living expenses and use of a VBF comptroller for personal accounting.
Overall, the lawsuit claims, the defendants spent VBF into a $100 million hole.
The specialized tanks that VBF used, according to Wulf, were designed with multiple species of fish in mind. VBF decided to grow barramundi in them.
“Iowa’s First (another incorporation) perfected growing barramundi in these tanks, so we may get to a point of perfecting other fish species and we may get to the point where in Webster City, we’re growing two or three different species of fish.”
The goal was to produce 7.2 million pounds of fish when in full operation, VBF said when it announced in 2015 that it had contracted the purchase of 2,000 patented “opposing flows” technology land-based recirculating aquaculture tank systems, a three-year deal worth $100 million, according to Farm News archives.
The aquaculture business took over some buildings left empty when Webster City’s main employer left town in 2011. People hoped VBF would succeed where others had failed to fill the economic void left when Electrolux closed.
An example of that lack of success was the more than $700,000 in economic development funds Webster City lost when an electric car start-up company failed in 2012 and went into bankruptcy.
This time, it appears the damage cuts deeper, and has spread further.
An attorney for the debtors in the bankruptcy case did not respond to a request for information.
Although he did not have specific figures, Harfst said he believes the workforce at VeroBlue has been significantly reduced. But he added that some operations are apparently still underway at the company’s facility.
“It’s my understanding that they still have a couple tanks of fish going.”
Messenger City Editor Bill Shea contributed to this story.
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