Bess Eaton coffee cups had Bible verses printed on them.

WESTERLY, R.I. (AP) – Bess Eaton documents drafted several years ago forecast this would be a good year for the family-owned doughnut chain known for printing Bible verses on its coffee cups.

But instead the Westerly-based company that became a Rhode Island institution found itself in Bankruptcy Court, owing creditors some $17.6 million, while its born-again Christian head was accused of looting the chain to fund a lavish lifestyle.

The reasons for Bess Eaton’s demise depend on who tells the story.

Court documents depict a tale of fraud, mismanagement and family discord. A former chief executive – the only non-family member to lead the company – says owner Louis Gencarelli ran Bess Eaton into the ground while using it as a personal piggy bank. Gencarelli in turn blames that official, George Cioe, for sending the company into a downward spiral.

Tim Hortons, a Toronto-based coffee and doughnut chain, bought 42 of Bess Eaton’s 48 stores for $41.6 million on Friday. The sale ends 50 years of ownership by the Gencarelli family. Tim Hortons said it planned to keep the 42 stores open, but some loyal consumers said they were sorry to see Bess Eaton – and some of what made it unique – disappear.

“I’m going to miss Bess Eaton because of the Scripture on the cup,” said Bob O’Connor, of Westerly. “As a Christian, I liked that he was brave enough to put the Scripture on his cup.”

Gencarelli’s father, Angelo Gencarelli, started the Bess Eaton Donut Flour Co. Inc. in 1953 with one store in Westerly. The company’s name, according to Bess Eaton literature, came from its founder’s father, who called its coffee and doughnuts, the “bes’ eatin”‘ he ever had.

The company grew over the years, and by 1994, it had about 70 doughnut shops in Rhode Island, Massachusetts and Connecticut and employed about 750 people.

In 1993, Louis Gencarelli added Bible verses to the company’s packaging and mounted the words “Christ is the Answer” on company headquarters. In pamphlets distributed at the time, he explained he had found his faith after being hospitalized a third time for alcoholism.

Through his attorney, Louis Gencarelli declined to be interviewed for this story.

Several lawsuits have been filed against Gencarelli over the years. One, which was settled Friday for $1.3 million as part of the sale to Tim Hortons, was filed by Cioe, a family outsider who was appointed chief executive officer in 2002. He was ousted 14 months later because he refused to take illegal steps to help Gencarelli avoid income taxes, Cioe claimed.

Allan Shine, Gencarelli’s lawyer, would not discuss Cioe’s suit. But Gencarelli, who resumed as company head after Cioe’s dismissal, said in court documents that Cioe was the one providing misleading financial information and plunging the company into chaos.

In court documents, Gencarelli claimed the company suffered significant losses in 2002 and 2003 and said, “The company attributes these losses to failed expansion initiatives commenced by its former President and CEO George Cioe … the company has been unable to recover from the losses it sustained and the significant debt incurred.”

Gencarelli also claimed Cioe was fired because he provided “grossly inflated financial statements to potential lenders,” and misrepresented the company’s financial position, including to the board of directors.

But Cioe claimed Gencarelli fired him because Gencarelli didn’t want to transfer the stock that he’d promised to Cioe, and because Cioe wouldn’t help the company owner avoid income taxes and take other illegal actions.

“Gencarelli … was systematically looting the company in order to pay personal debts generated by his impulsive and exorbitant spending habits. In 2002, Gencarelli, Sr., took over three million dollars out of the company in the form of lease and other payments pertaining alleged corporate loans and expenses,” Cioe said in court papers.

Gencarelli owns a $7.8 million waterfront home in Westerly that, according to his own court filings, has a $2.6 million mortgage. His other obligations include hundreds of thousands of dollars in credit card debt, and a $13,000 bill for heating a sunroom. Gencarelli reported he donates about $10,000 per month to religious organizations and other charities.

The allegations Cioe levied against Gencarelli are strikingly similar to those lodged by two of Gencarelli’s siblings in 1994, when, using their positions as members of the company’s board of directors and minor stockholders, they tried to remove him from his leadership role.

They charged he had illegally transferred $205,000 of the corporation’s money into his personal accounts. At the time, Gencarelli’s lawyer said the money transfers were a legitimate loan.

“All those lawsuits were settled and he bought out his siblings,” Shine said recently. The terms of the settlement remain secret, but court documents show Gencarelli owes siblings Angelo Gencarelli III and Frances Kirchon more than a million dollars. A lawyer for the siblings did not return calls seeking comment.

Another lawsuit filed against Gencarelli in 1996 – this time by a trustee who managed stock for members of the Gencarelli family, including Louis Gencarelli himself – alleged Louis Gencarelli had misappropriated company funds for his personal use. That suit asked the company be placed in receivership, but it was dismissed. A lawyer for the trustee did not return calls seeking comment.

Meanwhile, Cioe also claims that another family conflict is at the root of the company’s problems.

In late 2002, Louis Gencarelli’s son Paul was dismissed from his post as Bess Eaton’s chief financial officer. Cioe claims that was because he discovered Paul Gencarelli was defrauding the company and lying to his father.

Shine would not discuss the dismissal in a recent interview with The Associated Press.

Bess Eaton is the second major homegrown chain to fail in recent years. Newport Creamery went into bankruptcy and the majority of its assets were sold in 2001. The bankruptcy trustee has asserted the company’s former owner hastened its demise by siphoning funds for his personal use.

William Sweeney, professor of economics at Bryant College, blamed Bess Eaton’s demise on mismanagement, saying family-owned businesses can be prone to such problems as decisions may be based on relationships instead of sound analysis.

“It’s particularly true when you have a small company that’s family-operated and you wonder about the business acumen of those that run it,” Sweeney said.

In an attempt to recover from its financial woes, the company in May 2003 moved its production to Connecticut. Then, in July, Bess Eaton announced it would stop making doughnuts altogether, and began buying frozen pastries from a New York wholesaler.

“It’s not what it used to be,” said Chipp Davis Wells, a Westerly artist who stopped eating Bess Eaton’s doughnuts after they stopped making them fresh. “I hope the new owners consider going back to the way it was.”

Beth Drennan Just, of South Kingstown, said the company’s loss is hard to take because Bess Eaton is a part of her childhood memories.

At Christ the King Church in Kingston, Bess Eaton doughnuts were always on the menu following Mass, she said. Kids could count on grabbing one on their way to catechism class.

“Seriously, if I get Bess Eaton doughnuts, I always think, Sunday School,” Just said. “Dunkin’ Donuts is not Sunday School.”

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