Ellett Brothers, a major firearm industry distributor, is being accused of significant fraud and is expected to file for bankruptcy tomorrow or Monday.
According to a lawsuit filed against Wellspring Capital Management and others, Ellett Brothers borrowed $160 million and then passed the money along (plus an additional $20 million from other lenders) as cash distributions to the defendants instead of using it for the company.
Wellspring Capital Management is the defendant in this lawsuit because it controls Ellett Brothers and its parent companies, SportCo and United Sporting, and it is alleged to have caused Ellett Brothers to make the distributions.
The lawsuit further claims,
“despite a historic industry-wide increase in sales, Ellett and its many subsidiaries have lost a substantial amount of their assets and business value. As a result, its liabilities, including those owed to [the Plaintiff], now far exceed its assets. . . .
. . .
[Ellet Brothers] (and United Sporting and SportCo (together, the “Guarantors”), each of which guaranteed [Ellet Brother’s] obligations under the loans) have failed to retain sufficient property to pay the indebtedness owed to [the Plaintiff].
Indeed, despite Ellett’s insolvency and financial struggles, neither Wellspring IV nor the other shareholders that received the Fraudulent Conveyances have made any capital contributions to the company to support the business. Instead, as described more fully below, Wellspring Capital and the D&O Defendants grossly and recklessly mismanaged the business and carried out their respective roles in a manner that was devoid of reasonable inquiry and diligence in dereliction of their fiduciary duties to [the Plaintiff] as a creditor of the increasingly insolvent enterprise.”
We are interested to see Ellett Brother’s response to this lawsuit and these claims.
Gun University has heard that bankruptcy filings are imminent. We have been told that companies have reached out to Ellett Brothers in an attempt to recover unpaid inventory but have been denied.
Unfortunately, Ellett Brothers may instead be attempting to dump their inventory to raise money and may use bankruptcy as a shield against the companies trying to get their product back (or at least get paid for it).
“Ellett and its predecessors built a venerable South Carolina company prior to Wellspring Capital’s greedy and disastrous management.”
According to another article, Ellett Brothers is being sued because it “broke its promise to cover more than $280,000 worth of transition costs” when it bought AcuSport.
If you’re up for it, the lawsuit is an interesting read – especially when it gets into the breakdown of some of the emails and messages between the parties. It looks VERY damning and paint a clear picture of fraud. Keep in mind, however, that this is just one side of the story.
UPDATE: On Friday June 7th, Ellett Brothers Giles for bankruptcy. As noted above, this was expected. However, we’ve received word that they also let most of their workforce go. This is obviously very sad to hear that the employees are paying the price for leadership’s choices.
Sad part is all of the employees, some of these people have been working with Ellett over 40 years! This place of business has been a staple in the small town for decades until wall street greed stepped in!
RIP
The only surprising thing here is that the lender actually agreed to loan them such a huge amount. This goes towards showing how relatively clueless the lender was regarding the state of the traditional firearm / ammo distribution market in 2017 – 2018. After Trump was elected there was a HUGE glut of inventory at every level of the market, and distributors, retailers, and manufacturers were getting rid of things at cost or even less sometimes to convert stagnant inventory into cash since there was no panic-buying which was to be be expected if Hillary had won. Instead of trying to figure out why USC did what they did in terms of it obviously being self-defeating, one has to be a bit more logical / cynical about it and realize that the USC management actually planned to do things this way in order to maximize the cash-out for ownership / corporate. They knew things were going down the toilet after 2016, and so they went and bought Accusport (which bit the dust in 2017) and puffed up the USC brand as much as they possibly could, and then borrowed huge sums of money against this hollow collateral to gift to themselves before letting USC sink as it was going to do anyway. The speed with which their multiple warehouses came & went was alarming. I would wager that they all knew that the Accusport acquisition had around a 95% failure potential, but this was fine since the plan was to cash-out the huge loan and sail off into the sunset with a bankruptcy veil protecting them. The real losers here are the several small to medium sized ammo manufacturers and various other vendors such as Liberty Ammunition who were owed money by Ellett. They will be far down the list of recipients when USC is liquidated unfortunately. Everything USC did is probably entirely legal, just very rotten.