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Photo by Dave Flessner / Rahim and Karim Sadruddin talk with Bledsoe County officials in December 2018 about their plans for Textile Corp. of America

Two brothers at the center of a failed textile mill fraud were sentenced Friday to 50 months in federal prison, 18 months after pleading guilty to charges of wire fraud and money laundering in the sweeping financial scheme.

"The nature and circumstances of the actions these defendants have taken are very disturbing," said Travis McDonough, chief U.S. District Judge for the Eastern District of Tennessee. "This was no accident. It was an intentional, deliberate, methodical theft from taxpayers and the community."

Twin brothers Karim and Rahim Sadruddin, 34, executed a complex series of financial frauds worth more than $30 million against federal, state and regional agencies. The financial crimes that began in the spring of 2017 were connected to a range of plans, from the unfulfilled promise of the new textile plant expected to bring 1,000 jobs to Pikeville, Tennessee, to substandard tarps delivered to hurricane victims in Puerto Rico through a Federal Emergency Management Agency contract.

During the sentencing hearing in Chattanooga, attorneys for the brothers asked that the judge consider home confinement for the men, who live with their families in the Atlanta area. The Sadruddins have made a good-faith effort to make restitution, and would be able to continue to do that if they were sentenced to home confinement, said Gene Shiles, who represented Karim Sadruddin.

"They have promised to continue to do this until the state is made whole," Shiles said, adding that the men anticipated being able to pay $5,000 a month raised through "legitimate business practices." The brothers have raised about $1 million in restitution in the past 18 months through the sale of personal assets, as well as the tarps at the center of the federal fraud charges.

Karim Sadruddin told the judge during the hearing that he wants the opportunity to raise his young son and newborn baby to know right from wrong.

"I just want a chance to make it right," said Sadruddin, whose wife and sister-in-law also attended the hearing. "I plead for a chance to do that."

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Staff Photo by Dave Flessner / 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 in July 2019. Standing in the foreground on the left are attorney Lance Pope and his client, Karim Sadruddin, the CEO of Textile Corp. of America.

Attorney Lee Davis, who represented Rahim Sadruddin, pointed to the brothers' business partner in the textile mill deal, developer Ed Cagle, as the mastermind behind the financial fraud. Textile Corporation of America, a company formed in 2017 by the Sadruddins, along with Cagle and former Alabama Attorney General Troy King, received a $3 million grant from the state to build the textile mill.

"The idea definitely, clearly, unequivocally was Mr. Cagle's," Davis said. "They were the vehicle for Cagle."

Cagle, who attended the sentencing hearing, said he bears no responsibility for the Sadruddins' actions.

"Why would they plead guilty if they wasn't?" Cage said after the hearing. "I build manufacturing plants and they wanted to know could I build them a manufacturing plant? I don't know anything about grants."

In handing down the sentence, McDonough said the brothers owe more than $7 million to the state of Tennessee, FEMA and TVA collectively.

During an impact statement as part of the sentencing hearing, Bledsoe County Mayor Gregg Ridley said the people who had hoped the promised mill would deliver much-needed jobs to the region were also victims. The brothers had promised to bring jobs to a shuttered, 186,000-square-foot manufacturing plant in Pikeville. In July 2019, 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 plant.

"That building has been stolen from the community," Ridley said. "The real victim here is Bledsoe County citizens."

Assistant U.S. Attorney Steve Neff, who led the multi-agency investigation of the Sadruddins, said there was no indication the brothers ever intended to deliver the promised jobs, and that five to 10 sewing machines in the manufacturing facility were the only evidence of their work there.

"The scheme was basically soaked with fraud throughout," Neff said. "The defendants benefited personally from this fraud."

He also objected to the idea that the Sadruddins should be considered for leniency because they had made an effort at restitution.

"They shouldn't get extra credit for doing what they're already supposed to do," Neff said.

The brothers are expected to report for incarceration Aug. 16. Between now and then, the state will pursue additional charges, said Mike Taylor, district attorney for Tennessee's 12th Judicial District.

"We will hopefully get the state case resolved in that time," he said.

Contact Mary Fortune at mfortune@timesfreepress.com. Follow her on Twitter at @maryfortune.

Troubled textile timeline

April 2017: Karim and Rahim Sadruddin meet with officials from state and federal entities, promising to invest $27 million in a new textile plant in Pikeville, Tennessee.

July 2017: The Tennessee Department of Economic and Community Development approves a $3 million grant to the Sadruddins’ Textile Corp. of America for the purchase and renovation of a building for the plant.

September-October 2017: Hurricanes Irma and Maria strike Puerto Rico.

September 2017: The Sadruddins’ Master Group USA submits a bid to FEMA to provide tarps for hurricane relief, which they amend in November to meet the requirement that the tarps not be manufactured in China.

October 2017: Karim Sadruddin emails the Southeast Tennessee Development District a fraudulent wire transfer record and invoice reflecting work done on the building in Pikeville.

November 2017: FEMA awards the Sadruddins a $30.7 million contract to provide tarps for hurricane relief.

November 2017-January 2018: The Sadruddins deliver 58,000 tarps and collect $3.7 million before FEMA issues a stop-work order.

May 2018: Rahim Sadruddin emails TVA and falsely reports that the textile plant is operating.

July 2018: TVA sends the Sadruddins a $230,000 performance grant for the Pikeville textile plant.

November 2019: The Sadruddins each plead guilty in federal court in Chattanooga to two counts of wire fraud and one count of money laundering. Sentencing is set for March 2020. They return to Atlanta on a $30,000 bond.

February 2020-December 2020: Sentencing is reset four times while the brothers sell assets to make partial restitution. They have raised about $1 million by December 2020. Sentencing is set for March 2021.

February 2021: Sentencing is reset for May 2021.

May 2021: Karim and Rahim Sadruddin are sentenced to 50 months in prison by a federal judge on two counts of wire fraud and one count of money laundering.

 

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