Two brothers have pleaded guilty to defrauding Tennessee out of $3 million in economic development grants to start a textile operation in Pikeville. But state auditors have also found failures with government oversight.
The Tennessee Comptroller’s Office released its investigative report on Tuesday, following the signing of plea deals for state charges. Karim and Rahim Sadruddin also took a plea deal on federal charges and are scheduled to begin serving eight-year sentences in August.
The Sadruddins came to local officials in Bledsoe County with a proposal to buy a hollowed-out warehouse in Pikeville and fill it with 300 industrial sewing machines, creating nearly 1,000 textile jobs in a community that has few economic opportunities. The company was called Textile Corporation of American, and its website claimed to be “bringing back textile manufacturing to the United States.”
The $27 million deal would have been the largest private investment ever in the county. Tennessee, under then-Gov. Bill Haslam, was desperate to help rural areas. So state officials jumped at the opportunity, despite TCA incorporating only a month before the jobs announcement in July 2017.
“Did we bend over backwards to accommodate and work with the county to help them here? We sure did,” says Economic and Community Development Commissioner Bob Rolfe.
The brothers, who lived in Georgia, said their company was a subsidiary of a Pakistani firm looking to do business in the U.S. They now admit in court documents that this was a lie.
Rolfe says he first reported the potential fraud after meeting with the men about why it was taking so long to start hiring.
Now, he says the state has a new policy before dishing out economic development incentives.
“The only way we would have been able to detect this is a trip to Pakistan,” he says. “So since that project, I and/or our deputy commissioner, we visit these companies onsite.”
However, the comptroller found some deficiencies that could have stopped the fraud sooner or kept it from happening at all.
Rolfe’s department bent its rules requiring a bank letter. Instead, the brothers offered a 2016 audit of the Pakistani company.
State investigators also say the department should have been suspicious of the invoices and checks presented for reimbursement. They misspelled “Chattanooga” and said Pikeville is in Georgia.
Federal claims
Textile Corporation of America won a $30 million contract with FEMA in the wake of Hurricane Maria, which struck Puerto Rico in September 2017. The U.S. couldn’t buy tarps from China, so it sought an American manufacturer. TCA won the contract.
But instead of making tarps, the Saddrudins simply purchased Chinese tarps and sent them to Puerto Rico.
The contract called for 475,000 tarps. TCA delivered 58,000 before FEMA shut them down. As part of the restitution, the brothers also owe FEMA $3.7 million.
Their attorney, Lee Davis, has not responded to a request for comment.
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