Barrel #company manager #faced #bankruptcy, #fraud #allegations before #EDA loan

The state Economic Development Authority gave preliminary approval of a $6 million loan to a whiskey barrel company whose partial owner and general manager recently filed personal and corporate bankruptcy, and has been the subject of multiple fraud allegations in bankruptcy court.

The allegations made against James Philip Cornett — which were never proven — range from producing false financial statements to obtain loans and making false statements under oath during bankruptcy proceedings.

It is unclear to what degree the EDA accounted for those bankruptcies and allegations of fraud when approving a loan to the West Virginia Great Barrel Company, which could bring dozens of jobs into Greenbrier County.

The Charleston Gazette-Mail submitted a Freedom of Information Act request for the company’s loan application and supplemental documentation, but the EDA denied the request.

Citing an exemption for disclosure in state code, the EDA wrote it does not need to release information consisting of “trade secrets or commercial or financial information regarding the financial position or business operation of such business.”

Elizabeth Benedetto, an attorney with Spilman, Thomas & Battle, who represents the EDA, also turned down a subsequent request for the loan application with the company’s trade secrets redacted. The company’s proprietors also would not provide a copy of the loan.

According to a news release shared by Gov. Jim Justice and Commerce Secretary Woody Thrasher, the loan would go toward the purchase of equipment for a manufacturing facility that will bring 113 jobs. The company will also create another 25 jobs at a related stave mill and log yard, the release said.

However, a fact sheet the EDA released said the company’s manufacturing facility will bring in 45 jobs after one year, with 14 more in coming years.

Troubled financial history

Cornett, a managing partner of West Virginia Great Barrel and the EDA’s point of contact, previously ran Cornett Hospitality LLC, a Virginia company that owned restaurants in Virginia, West Virginia and Pennsylvania.

In November 2012, that company filed Chapter 11 bankruptcy in U.S. Bankruptcy Court in the Eastern District of Virginia. It owed between 200 and 999 creditors somewhere between $1 million and $10 million, according to the filing.

Its largest creditors included Spirit Financial Acquisitions ($3 million), the Bank of Virginia ($1.38 million) and U.S. Foods Inc. ($490,861).

More than $8.5 million in claims were discharged without payment, according to a May 2016 filing that wrapped up the matter.

In October 2013, Cornett went on to file a personal bankruptcy in the same court. In that filing, he listed owing between one and 49 creditors anywhere between $10 million and $50 million.

While bankruptcies can absolve debtors from requirements to pay off their creditors, creditors can file adversarial complaints in bankruptcy court to object to the discharge of debt owed to them.

In October 2015, Judy A. Robbins, a U.S. trustee overseeing the case, filed an adversarial proceeding in Cornett’s personal bankruptcy case.

She alleged that 21 months before Cornett filed for personal bankruptcy, he deeded his 41.8 percent interest in Chesterfield Land, LLC — his employer at the the time of the filing — to his niece, valued at almost $215,000. He was already engaged in a dispute with his creditors and Cornett Hospitality’s creditors at the time.

Chesterfield Land was entitled to receive royalty payments at the time of the transfer from a landfill, and owned real estate located at The Greenbrier resort with an approximate value of $2.25 million.

Chesterfield Land acquired the property from Cornett in 2010.

Though Gov. Jim Justice was president of The Greenbrier resort at the time, his spokesman said in a statement the two had not met until the EDA press conference announcing the new jobs. Justice was elected to office last year.

“While I met the gentleman and shook his hand at the press conference, I do not know him and do not have a relationship with him,” Justice said in a statement.

The trustee’s suit alleges that, despite gifting the asset, Cornett continued to operate its accounts.

“After the January 2012 transfer of the defendant’s interest in Chesterfield Land, the defendant continued to control it and use it to fund his lifestyle,” the suit states. “He continued to transfer substantial funds from the bank account of Chesterfield Land into his personal bank account.”

The trustee’s suit alleges Cornett gave false information under oath that did not accurately disclose required, material information, including the property transfer. It goes on to allege Cornett’s actions demonstrate, at minimum, a “reckless indifference to truth sufficient to create a presumption of intent to hinder, delay or defraud.”

The trustee and Cornett went on to settle the case. Cornett disputed the allegations made against him. A judge approved the settlement in March 2016.

Along with the trustee’s case, a private investor made similar allegations against Cornett.

In a separate adversarial proceeding filed in March 2014, the Bank of Virginia alleged that it made an $850,000 loan to Virginia Motorsports, LLC — another of Cornett’s companies — as well as a $1.79 million loan to Cornett Hospitality under false pretenses.

The bank alleged the companies provided false financial information while requesting the loan to project financial strength. Like in the trustee’s case, the allegations were disputed and ended in a settlement.

In an interview, Cornett said the lawsuits were just scare tactics. He denied the allegations made against him and emphasized that they were never proven.

He said at first he did not disclose the bankruptcies to the EDA, but he went on to walk that claim back and said he did. He also said it didn’t matter either way.

“I don’t think that’s relevant,” he said. “I’ve had multiple companies in my past, some tremendous successes, a couple of failures, just like anybody who has been in business for a couple of years.”

While he declined to disclose how much equity he holds in the whiskey barrel company, he said it is less than 20 percent. He is one of three founding members and said he will run day-to-day operations.

Following the EDA’s board of directors meeting earlier this month, Executive Director David Warner said his organization did not request further information regarding Cornett or fellow founding member Tom Crabtree’s financial history outside of what the company had already submitted.

Warner said this was because neither of the two had “anything resembling majority or controlling stakes in the company.”

Conflicting information

None of the involved parties offered much by way of explanation of what led to the governor announcing the company would bring in more than twice the number of jobs the EDA projected when granting the loan.

Warner said the job numbers it released came from company officials, not from the EDA itself. A spokesman for the governor said the same of the higher numbers.

Cornett said the EDA projection (45 jobs after one year and 14 more in the following years) was a conservative estimate, and the plant requires a minimum of 58 people to run any given shift. The mill will require 14 people initially, and should increase to roughly 36 by April or May.

The EDA’s numbers also undercut not only the governor’s numbers, but another estimate from a Marshall University report on the prospective company’s economic impact to the state. The report estimates the main plant would hire 100 people and the stave mill and log yard would hire 38.

At the time of the press conference announcing the loan, a company official said in an email that Marshall’s numbers were correct.

Adding to the confusion, the EDA’s fact sheet states the purpose of the loan is to purchase equipment and land in Caldwell. A news release from the governor’s office states the land is located in White Sulphur Springs.

Though he declined to be interviewed, co-founder Tom Crabtree emailed a statement for this report. He wrote that many “highly-qualified people” are working to make the business a success for White Sulphur Springs, a community still recovering from the June 2016 flood.

“[Cornett] is only one of many working to make this exciting project a reality,” Crabtree wrote. “We are proud of the state of West Virginia’s interest in this project and we will continue to work with the state and local governments to make this a successful, job producing project for West Virginia.”

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