Historic Black-Owned Firm Suspected of Fraud

Historic Black-Owned Firm Suspected of Fraud

Once the darling company of Roanoke, Alabama, Terry Manufacturing Co. Inc. (No. 74 on the BE INDUSTRIAL/SERVICE 100 list with $44.5 million in sales) is now under the scrutiny of bankruptcy lawyers and criminal investigators for bank fraud and the mishandling of company finances.

The apparel manufacturer is under federal review amid claims that more than $35 million in assets vanished from its books in a two-month period last year. Last summer, the company was forced to fold its operations, resulting from inquiries made by a Chapter 11 bankruptcy trustee, Les Alexander.

Two of Terry Manufacturing’s lenders hired Alexander to look into the missing assets, which were supposed to serve as collateral for various loans. Subsequently, Alexander says a police report was filed stating that intruders broke into the manufacturing plant, shredded bank statements, and stole key corporate documents.

Mobile, Alabama, FBI spokesperson Ray Zicarelli didn’t comment on the federal case. But Eric J. Breithaupt, a lawyer with Christian & Small L.L.P. in Birmingham, Alabama, who represents the creditor committee in the bankruptcy case, says investigators looking into the fraud allegations have already contacted him. “Terry’s records are so awful, [they] don’t know what’s owed to people,” Breithaupt says. “In my 20 years of being in business litigation, I’ve never seen anything quite like this.” The Terrys would not comment on the charges.

The company was started in 1963 by J.A. Terry and his wife, Velma, during the tumultuous Civil Rights era in Alabama. The company grew from five sewing machines in a plant made of scrap wood into one of the largest black-owned businesses providing uniforms for clients such as McDonald’s Corp., the National Hockey League, the 1996 Olympics, and federal agencies.

Approximately 300 workers lost their jobs, mostly black women who ran sewing machines on the manufacturing floor, when Terry Manufacturing shut it doors. The company’s principals, Roy and Rudolph Terry, blamed the shutdown on a cash-flow problem linked to its manufacture of camouflage fatigues for the military, according to court documents.

With outstanding loans of $18.3 million to SouthTrust Bank and First Bank, Terry Manufacturing was required to provide regular audited statements to bank lenders. Its accounts receivable and inventory plummeted from more than $37 million to only $2 million from March to May of last year, sending up red flags, according to bankruptcy case documents. The U.S. Department of Agriculture guaranteed as much as $16.5 million of the loans. Terry Manufacturing listed another $32.3 million in unsecured debt to 20 creditors, including $4.2 million each owed to Roy and Rudolph Terry.

In an 11-page motion, Alexander details the company’s problems, ranging from paying personal loans with company money to the absence of monthly financial statements. He also says that members of the Terry family “continue to impede” the investigation by refusing to provide basic corporate records. The company’s attorney, Von G. Memory of Memory & Day in Montgomery, Alabama, didn’t comment on the case.