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The Associated Press September 29, 2010, 5:24PM ET

NC estate, tourist site yanked in bankruptcy fight

An opulent estate popular with tourists was turned over to a trustee after a bankruptcy court examiner accused a tobacco executive of buying the Chinqua Penn Plantation with company money.

The 31,000-square-foot mansion, its grounds in Reidsville, and collection of art and artifacts are part of the assets involved in a bankruptcy battle involving Calvin Phelps and three companies he owns or controls.

U.S. marshals took control of the 1920s plantation and other properties Tuesday and placed them with the trustee in the bankruptcy case, Bill Stafford, the marshal for the Middle District of North Carolina, said Wednesday. He declined to describe the other properties, noting case documents were ordered sealed by a bankruptcy judge.

The marshals taking control of the plantation was first reported by The Winston-Salem Journal.

The estate was owned by North Carolina for nearly half a century before selling it to Phelps in 2006. A bankruptcy examiner for three Phelps-controlled companies in Chapter 11 reorganization said Phelps took cash for the estate's $4.1 million purchase out of one of the companies.

Phelps "put his own self-interests above the interests of debtors, squandered and wasted corporate assets and otherwise breached his fiduciary duties of loyalty" to the three companies, bankruptcy examiner Gene Tarr said in a court filing last week.

He urged a bankruptcy judge to force Phelps to give back at least $8.1 million he used to buy Chinqua-Penn, two corporate jets, cigar-manufacturing equipment, a $142,000 Maserati and other assets.

A message left at Phelps' office was not returned Wednesday. His attorney did not return messages seeking comment.

The complaint was filed against Phelps, his wife, and 13 limited liability companies, including Chinqua Penn, that Phelps owns or controls. The filing seeks to "recover fraudulent transfers" made by the three other Phelps companies, including Alternative Brands Inc., a Mocksville-based manufacturer of cigarettes and short cigars.

Tarr said Alternatives Brands provided the $1.83 million in cash to buy Chinqua Penn, then had the company guarantee a $2 million bank loan needed to complete the purchase. Phelps' companies also paid operating costs on the estate, Tarr said.

Tarr said the spending came at a time Alternative Brands was already falling behind in payments under a 1998 legal settlement with about a half-dozen states over the public costs of treating sick smokers. By the time the company filed for bankruptcy protection in January 2009, it owed the states $7.7 million, Tarr said.

Chinqua Penn was built in 1925 by former tobacco executive Jeff Penn and his wife Betsy. They filled the mansion with antique and reproduction furnishings from more than two dozen countries as a testament to their globe-trotting lifestyle.

The Penn family donated the property to the state in 1959. North Carolina State University most recently managed the property before the state sold it to Phelps. He reopened the house and grounds to visitors.

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