Job promises unravel in Pikeville: Shuttered mill reclaimed at auction as FBI probes how government money was spent

Job promises unravel in Pikeville: Shuttered mill reclaimed at auction as FBI probes how government money was spent

July 29th, 2019 by Dave Flessner in Business Around the Region

Dunlap, Tennessee, attorney Thomas Austin leads the foreclosure sale of the shuttered Textile Corp. of America plant in Pikeville at the entrance of the Bledsoe County Courthouse. Standing in the foreground on the left are attorney Lance Pope and his client, Karim Sadruddin, the CEO of Textile Corp. of America.

Photo by Dave Flessner /Times Free Press.

PIKEVILLE, Tenn. — Former Gov. Bill Haslam was greeted with cheers and applause here in July 2017 when he announced plans for the biggest business project in Bledsoe County, one that promised to bring 1,000 new jobs to an abandoned automotive supply factory.

But two years later — after the business hired only a handful of employees and failed to pay its debts — there was only silence Monday afternoon when bids were requested at a foreclosure auction to recover more than $1.4 million in debt on the abandoned plant.

Textile Corp. of America, which had promised to invest more than $27 million of its own money to build a major American sewing mill to make apparel, bedding and linens for the medical, educational and hospitality industries, never produced any product at the Pikeville plant it took over in 2017.

The company received a $3 million grant from the Tennessee Department of Economic and Community Development and $230,000 in incentives from the Tennessee Valley Authority. But court records show the business had to turn to high-interest lenders to secure money to buy the former Dura Automotive plant on Ferro Road, which shut down in 2005.

Document: Search warrant against Textile Corp. of America

Read the affidavit for the search warrant against Textile Corp. of America by FBI Agent David Kukura.

On Monday, the company that financed the plant sale to Textile Corp. of America, Whoriskey Inc., reclaimed the property when no bidder was willing to pay more than the $1.4 million debt owed by TCA on the 186,000-square-foot plant.

Federal and state authorities are now investigating how the government assistance provided to TCA was spent.

Karim and Rahim Sadruddin, the CEO and chief operating officer of the company, said they are fourth-generation textile industry veterans with ties to major Pakistani textile producers. The brothers had promised in 2017 and again last year that they would soon begin hiring hundreds of workers for orders they claimed were about to come to the company. But those plans never materialized.

Bledsoe County Mayor Gregg Ridley said Monday he is "deeply disappointed" by the failed venture but eager to find a new industry for the plant.

Ridley said,"Pikeville and Bledsoe County are still eager to develop this property and we have the workforce and the facilities for another business to use this plant and that's what we're hoping will happen."

The Pikeville plant was chosen, in part, because Bledsoe is one of 15 economically distressed counties in Tennessee and qualifies for extra state and federal aid. Last month, the jobless rate in Bledsoe County was 6.4%, the fourth highest among Tennessee's 95 counties and nearly double the statewide rate of 3.4%.

Last year, company CEO Karim Sadruddin testified in court that TCA used the state grant in 2017 to buy equipment and renovate the Pikeville plant. But one of his partners in TCA, Chattanooga builder Ed Cagle, said he was paid $850,000 for his work on the plant — only about half of the more than $1.4 million Sadruddin said he paid Cagle. The purchase of the plant was financed with debt, not funded by the state grant, and there appears to be little, if any, sewing equipment at the mill.

In February, the FBI executed a search warrant of the business and the plant was padlocked for what FBI Special Agent David Kukura said in an affidavit constituted wire fraud, mail fraud and money laundering.

"There is reasonable cause to believe that the Sadruddins have perpetuated grant fraud against a department of the state of Tennessee, as well as grant and contract fraud against agencies of the federal government," Kukura said in a court affidavit that was initially sealed in federal court when it was first delivered. "In order to gain the state grant funds, the Sadruddins submitted false invoices and a false wire transfer record as purported proof that they had incurred costs associated with the renovation of the manufacturing facility."

The Textile Corp. of American mill on Ferro Road in Pikeville, which was originally built for the Dura Automotive supply plant, is padlocked and shut down. The plant was acquired Monday in a foreclosure auction by Whoriskey Inc., for the unpaid $1.4 million debt on the building.

The Textile Corp. of American mill on Ferro...

Photo by Dave Flessner /Times Free Press.

While no new textile products were stitched together at the Pikeville mill, the facility was used to store tarps which an affiliate company of the owners of Textile Corp. of America — Master Group USA LLC — imported from Asia and sold to the Federal Emergency Management Agency to aid victims of the 2017 Hurricane Maria in Puerto Rico.

But last July, FEMA suspended the contract and disbarred Master Group and its affiliates from supplying more tarps or doing any business with FEMA for three years, claiming the company illegally procured the tarps from the People's Republic of China in violation of the Trade Adjustment Act. Kukura said "the Sadruddins fraudulently obtained an approximately $30 million contract from FEMA to supply tarps" and "included fraudulent documents" to misrepresent where the tarps were originally made.

The FBI also charged that Sadruddin "obtained TVA grant funds by falsely representing that the Pikeville facility had become commercially operational" when the mill never produced any goods.

Court records indicate that the FBI, the Tennessee Bureau of Investigation and the Tennessee Comptroller of the Currency have been investigating fraud claims against the Sadruddins since June 2018.

But the Sadruddins have not been charged with any crimes and Raine Palmer, a spokesman for the U.S. Attorney's Office in Knoxville, declined Monday to discuss the status of the federal probe.

"It is the policy of the U.S. Attorney's Office to neither confirm or deny the existence of or status of investigation," she said.

TVA spokesman Scott Fiedler said the federal utility does not reveal what incentives it provides to private businesses through its Valley Advantage and other incentive programs.

The failed Textile Corp. of America mill in Pikeville is sold at a foreclosure auction on the steps of the Bledsoe County Courthouse.

The failed Textile Corp. of America mill in...

Photo by Dave Flessner /Times Free Press.

"TVA does not discuss economic development incentives, they are business sensitive and confidential," he said. "If any funds are owed to TVA, we will exhaust our resources to recover those funds."

Karim Sadruddin and his attorney, Lance Pope, were at Monday's foreclosure auction. But Sadruddin declined to answer any questions about the future of Textile Corp. of America.

In a statement issued Monday night, Pope said, "Textile Corporation of America has expended significant time and resources to prepare the Pikeville plant for a full-scale textile manufacturing operation" and he blamed the financing woes for the plant on Cagle, one of the minority partners in TCA.

"TCA made significant strides in readying the plant for employment and production," Pope said in a statement.

He said Cagle entered into a side loan agreement with Whoriskey, Inc. which the Sadruddins "always completely disputed." The brothers ultimately sued Cagle and challenged the Whoriskey loan in Bledsoe County Chancery Court, but the court ultimately allowed the foreclosure sale to proceed on Monday.

"Today, Whoriskey was unfortunately able to foreclose on that unauthorized promissory note with TCA's lawsuit still pending," Pope said. "TCA truly regrets that the foreclosure on this invalid and unauthorized promissory note will likely prevent the Pikeville plant from reaching its full potential for the community."

Pope said the company "will continue to pursue all available legal remedies against Cagle and Whoriskey to correct the foreclosure."

Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.


This story was updated at 11:14 a.m. on Thursday, August 1, 2019, to correct the spelling of Gregg Ridley.


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