More than a year after they pleaded guilty in federal court to wire fraud and money laundering, the men who failed to bring a promised textile mill to Bledsoe County, Tennessee, have raised about $1 million in restitution and still await sentencing.
"The feds have been extremely interested in trying to get as much restitution as possible back to the state — the primary victim is the state," said Mike Taylor, district attorney for Tennessee's 12th Judicial District. "Bledsoe County was really just the conduit."
Twin brothers Karim and Rahim Sadruddin executed a complex series of financial frauds worth more than $30 million against federal, state and regional agencies. They each pleaded guilty in federal court in November 2019 in Chattanooga to two counts of wire fraud and one count of money laundering.
"A million [dollars] doesn't get close to what they scammed this county, state and federal government out of," said Bledsoe County Mayor Gregg Ridley, whose community expected the Sadruddins' business, Textile Corporation of America, to create jobs in the economically distressed county. "We're a strong community and we have overcome and will continue to overcome any obstacle, but yes it was disappointing that we were looking for 1,000 jobs for our community and were lied to."
The men face maximum penalties of 30 years in prison and a $1 million fine for wire fraud, and 10 years in prison and fines equal to twice the value of the property they gained through criminal means for money laundering. Their sentencing was originally scheduled for March 2020, but is now scheduled for March 2021.
The financial crimes that began in the spring of 2017 were connected to a range of schemes, from the unfulfilled promise of the new textile plant to substandard tarps delivered to hurricane victims in Puerto Rico through a Federal Emergency Management Agency contract worth more than $30 million.
After they pleaded guilty, the brothers were released on $30,000 bond to return to their homes in Atlanta, with orders to forfeit their passports and check in with a probation officer. Their sentencing was set for March 2020, but in February 2020, attorneys for the Sadruddins asked for an extension of that date of 60 to 90 days.
"To date, the United States has recovered $680,453.40 from the defendants," Lee Davis and Gene Shiles wrote in the joint Feb. 25 court filing.
The recovered money included $132,897.44 from the brothers' bank accounts, $456,049.76 from the sale of one brother's residence in Johns Creek, Georgia, and $45,000 credit for a forfeited vehicle. The brothers also sold the tarps at the center of the federal fraud charges for $46,506.20, according to court records.
"The defendants need an additional 60-90 days to further complete restitution already begun, which includes the sale of the other brothers' house and additional tarp sales," the attorneys wrote.
The sentencing was moved to June 2020, then delayed again to September 2020, then again to December 2020, and was most recently set for March 2021. In those months, the brothers sold another house for $180,000 and received another $154,971.80 for the tarps.
In all the filings requesting a delay in sentencing, continued efforts to make restitution were given as the reason for rescheduling. In the most recent filing in December, the worsening COVID-19 pandemic was also cited as a reason for the delay.
"Defendants are both married with small children and they are concerned to leave one area with a high rate of positive COVID-19 cases to travel to another area with a high rate of positive COVID-19 cases," the Sadruddins' attorneys wrote. "This could potentially expose the defendants, their families, and possibly others to the COVID-19 virus."
While the brothers have raised money for restitution, it's not clear who will get the money or how it will be divided. Lee Davis, who represents Rahim Sadruddin, said the state will have priority in the distribution of the money.
"I am working with the U.S. Attorney's office, District Attorney Mike Taylor and the FBI to have restitution paid on behalf of Sadruddin brothers and for the benefit of the state of Tennessee," Davis wrote in an email.
The Tennessee Department of Community and Economic Development gave a $3 million grant to the Sadruddins' business for the purchase and renovation of a building for the plant. Bob Rolfe, commissioner of the department, said he's not sure how the money the Sadruddins raise will be distributed.
"I can tell you what made it complicated was there was federal fraud and the feds got in the middle of it and I don't know how the flow of funds will go back to the state and federal government," Rolfe said.
Rolfe, who was appointed in January 2019 by Gov. Bill Lee to lead the department, said the team has experience with "clawing back" funds when companies don't live up to their agreements, but fraud of this magnitude is new territory.
"This was fraud like we've never seen," he said. "I can't tell you what the waterfall of restitution funds may look like."
Sharon Kolb, general counsel for the department, also said she is uncertain how the money might sort out.
"It may take some time for the courts to determine how to distribute the available assets," she wrote in an email.
The parties with a claim to the money are TVA, the state, and the federal government, according to court documents. In addition to the $3 million grant from the state, the brothers received $3.7 million from FEMA for the tarps and $230,000 from TVA for operations at the promised textile plant.
Once the men have been sentenced on the federal charges, Taylor will have state charges ready to go, he said.
"I can't go into details, but the way the feds operate they don't run stuff concurrent with the state — we have to run everything concurrent with them," he said. "I'm stuck until they get through."
In the meantime, Ridley just hopes Bledsoe County can reclaim the building that was expected to become a textile plant and, instead, was foreclosed by a lender.
In July 2019, the company that financed the plant sale to the Sadruddins, Whoriskey Inc., reclaimed the property when no bidder was willing to pay more than the $1.4 million debt owed by the brothers' business on the 186,000-square-foot plant.
"What we want to recoup is our only vacant and available industrial building that has now been foreclosed on by some out-of-state entity with a federal lien against it," Ridley said.
Contact Mary Fortune at email@example.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.