Mocksville businessman and convicted felon Calvin Phelps was sentenced Monday to a little more than three years in prison and ordered to pay $5.1 million in restitution during his sentencing hearing a U.S. District Court judge in Mississippi.
The sentencing came 21 months after Phelps pleaded guilty to federal charges of committing fraud, making false statements and unlawful financial transactions.
Judge Sharion Aycock of the Northern District of Mississippi allowed Phelps to surrender for his prison term on May 19.
Phelps once owned Alternative Brands Inc., Renegade Holdings Inc., Renegade Tobacco Co. and Cutting Edge Enterprises Inc. All are now defunct.
In September 2010, Phelps was accused of making a fraudulent transfer of $8.1 million in assets from his companies over time. He used the money acquired from promissory notes to help buy Chinqua Penn Plantation in Rockingham County, two corporate jets, cigar-manufacturing equipment and a 2008 Maserati Quattroporte.
Aycock ordered Phelps to pay $5.1 in restitution. She sentenced Phelps to 40 months for two counts and 36 months for one count, with the terms to run concurrently. He also was given three years of supervisory release.
During a January hearing, Phelps pleaded for leniency and a prison term of no more than two years.
Aycock said she took into consideration Phelps’ cooperation with federal officials in other investigations, as well as 15 letters of support written by Phelps’ friends and fellow church members. Phelps’ wife, Lisa, and several supporters were present at the hearing.
According to the Northeast Mississippi Daily Journal, Phelps showed signs of remorse as he read from a prepared statement. He apologized for the impact of his actions.
“It’s just something I find unbearable for something that was done for such a foolish reason,” Phelps said,
Phelps was the subject of a federal Bureau of Alcohol, Tobacco, Firearms and Explosives undercover operation in Guntown, Miss. He was convicted in connection with a cigarette export scheme to avoid tobacco settlement payments of about $4.98 million.
The Master Settlement Agreement, reached in 1998 between the largest U.S. tobacco manufacturers and 46 state attorneys general, sets marketing limits on the companies and requires annual payments to states, primarily to help pay for tobacco-cessation and prevention programs.
Phelps’ companies initially benefited from a loophole in the MSA that did not require smaller nonparticipant manufacturers to make payments, thus allowing them to sell their cigarettes at a significant discount compared with the MSA participants.
The states closed the loophole by passing laws forcing the smaller companies to put money into escrow in case they are sued by the states. As Renegade lost its competitive advantage, it opted to join the MSA in 2008 to sell its cigarette brands nationally.
Yet, Phelps acknowledged he felt that the states’ intervention with Renegade was improper, which led him to seek ways to get around the excise tax requirements.
“The only thing, and a very small thing, that I can say in my defense – and I know ignorance is no excuse for the law – but in my own childish selfish way, what I was doing was trying to exact revenge, retaliation against a group that had not allowed me to operate my companies in a way I had been informed was totally legal and acceptable,” Phelps said.
Phelps said he felt he was violating “an agreement and contract” rather than laws.
“In the state of mind I was in, I was not doing a criminal act,” Phelps said. “I was breaking a contract that in my eyes had already been broken by the other party.
However, U.S. Attorney Felicia Adams said Phelps acted “all in order to obtain money by means of false and fraudulent pretenses, representations and promises.”
Before the January hearing, Phelps submitted a 21-page memo as part of his plea for leniency.
The memo did not contain an apology from Phelps for his spending sprees, including the $4.12 million purchase of the historic Chinqua Penn Plantation.
The spending contributed significantly to the companies being forced into bankruptcy and the plantation’s artifacts being auctioned in 2012 to help pay creditors.