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Chapin-based gun distributor went bankrupt as executives lined pockets, lawsuit says

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A longtime Chapin-based firearms distributor filed for bankruptcy Monday after a lawsuit claimed the company’s corporate parent forced it to funnel hundreds of millions in loans into the pockets of executives and investors.

The lawsuit, filed in Lexington County on May 23, says Ellett Brothers went from being a homegrown sporting and hunting goods giant raking in $750 million in annual revenue to a financially collapsed company.

At one point, Ellett Brothers was the fifth largest private company in South Carolina, according to the lawsuit, and was the largest distributor of firearms in the United States. The company at one time employed 175 South Carolina workers, including a robust telemarketing team, in its 250,000-square-foot property in Chapin. It distributed its products to tens of thousands of retailers around the United States.

Through the ups and downs in the firearms industry — caused by recessions, gun control legislation efforts, mass shootings, presidential elections and other factors — Ellett Brothers survived.

Problems began a few years after Ellett Brothers was acquired by Wellspring Capital Management, a Delaware corporation, and placed under the control of Wellspring Capital Partners IV in 2008, according to the lawsuit. Wellspring formed SportCo and United Sporting to be parents to Ellett Brothers and its subsidiaries.

In September 2012, Ellett Brothers and its subsidiaries received a $280 million loan from Prospect Capital Corporation and other lenders, including Bank of America, Wells Fargo, Regions Bank and Summit Partners Credit Fund. Prospect gave $100 million of the total loan, according to the lawsuit.

Part of the loan was used to pay down existing debts, according to the lawsuit. But the remaining $134 million was redirected to Wellspring and its partnerships, executives, investors and shareholders. Ellett Brothers received no investment from the deal.

In 2013, a second loan was issued and a similar transfer of cash occurred, at the direction of Wellspring executives, according to the complaint. Of the $60 million Prospect loaned to Ellett Brothers, nearly $55 million was delivered, again, to people outside the business whose “primary concern was to keep the enterprise ostensibly afloat for as long as possible to continue collection fees,” the lawsuit says.

Altogether, the lawsuit alleges almost $189 million “lined” the pockets of:

F. Hewitt Grant, an equity-holder of SportCo, an indirect parent company to Ellett Brothers. Grant received $955,070 from the 2012 and 2013 payments

Charles E. Walker Jr., an equity-holder of SportCo. Walker Jr. received $95,423 from 2012 and 2013 payments

Todd Boehly, an equity-holder of SportCo who received $2.8 million from 2012 and 2013 payments

Bernard Ziomek, an equity-holder of SportCo who received $140,741 from 2012 and 2013 payments

Andrew Kupchik, an equity-holder of SportCo who received $1.7 million from 2012 and 2013 payments

Wellspring Capital Management and its partnerships — Wellspring Capital Partners IV, WCM GenPar IV and WCM GenPar IV GP — which received $183.2 million in 2012 and 2013. Wellspring IV later transferred that money to investors, shareholders, officers, directors, managers, executives or partners, according to the lawsuit.

And while the company turned over money, Wellspring Capital also collected $6 million in “management fees” from Ellett Brothers and its affiliates between 2009 and 2017, the lawsuit says.

Executives continued to “grossly and recklessly” steer the company in order to borrow more money, according to the lawsuit. Ellett Brothers and its subsidiaries were directed to buy large amounts of unsellable inventory in order to “artificially” inflate inventory valuations, according to the complaint.

“The manipulation of Ellett’s financial data concealed the true state of Ellett’s disastrous financial condition,” the lawsuit says.

Over time, Ellett Brothers’ business suffered and spiraled into insolvency, too far in debt and unable to pay interest on its loans, the lawsuit says.

In April 2018, Prospect, the lender, agreed to amend its loan for a second time in order to give Ellett Brothers more runway to make payments. That agreement came after Wellspring executives Alexander E. Carles and Bradley P. Johnson aggressively pursued Prospect’s approval on a plan to purchase assets from flailing competitor AcuSport.

For $14.8 million, Ellett Brothers would get a distribution center, office building, IT resources and AcuSport inventory, plus $7 million in immediate profit, the executives told Prospect, according to the lawsuit.

Carles was insistent, according to bits of expletive-laden emails sent to the managing director of Prospect, Rich Carratu, throughout spring 2018 and included in the complaint. When Prospect delayed jumping into the AcuSport purchase, Carles became increasingly frustrated.

In one message, Carles wrote that he was tempted to tell Carratu to perform an obscene act, according to the lawsuit. In a later email to Prospect, Carles was more frantic.

“What is the problem? There is no time for games ... THIS IS FOR YOUR BENEFIT — THIS WILL HELP YOUR RECOVERY — THIS WILL MAKE THE BUSINESS STRONGER — UNDERSTAND? You guys get your s--t together please — this is ridiculous and unprofessional that we cannot get an answer,” Carles wrote in April 2018, according to the lawsuit.

The deal was approved and Ellett spent all of its remaining cash to purchase AcuSport assets, “leaving it with insufficient borrowing capacity under its then-current revolving credit facility to cope with even a slight downturn in the market,” the lawsuit says.

However, none of the promises Carles and Johnson made to Prospect came true because the AcuSport facility contained just $139,000 worth of inventory, according to the lawsuit. In February, AcuSport lawyers sued Ellett Brothers for failing to pay transition costs, according to a Wall Street Journal report.

Prospect is seeking $160 million, all the money used as payouts. Also named in the suit are Wellspring CEO William F. Dawson Jr. and managing partner John E. Morningstar, as well as a hundred John Doe defendants.

In a bankruptcy filing submitted to the U.S. Bankruptcy Court in the District of Delaware — where Wellspring is registered — on June 10, Johnson lists Ellett Brothers as being up to $500 million in debt.

It is unclear what will happen to the Ellett Brothers Chapin facility and workers. When reached by phone, executive assistant Jo Ann Sligh said the company had no comment. An employee at the distribution center also declined to comment on whether workers had been informed of changes.

Attorneys for Ellett Brothers and for Wellspring could not immediately be reached for comment.

Update, 9:25 a.m., June 11, 2019: This story was updated to clarify how much money Wellspring Capital Management and its partnerships allegedly received from Ellett Brothers and where that money went.

Isabella Cueto is a bilingual multimedia journalist covering Lexington County, one of the fastest-growing areas of South Carolina. She previously worked as a reporter for the Medill Justice Project and WLRN, South Florida’s NPR station. She is a graduate of the University of Miami, where she studied journalism and theatre arts.
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