Shuttered Toy Company Files for Bankruptcy

The owner-operators of a Laguna Hills toy company, shut down last fall after the state accused it of violating labor laws in making pink tiaras and wands for the Disney Store chain, have filed a bankruptcy petition to liquidate their assets.

Carol A. and David M. Schelin, who operated KTBA Inc., listed $2.5 million in debts and $586,646 in assets in a petition filed last week in U.S. Bankruptcy Court in Santa Ana.

For David Schelin, who served a prison term for embezzling $1.1million from nearly 300 fellow Mormon Church members a decade ago, the petition marks his second appearance in Bankruptcy Court. He filed to liquidate his personal assets in October 1992, when he pleaded guilty to grand theft charges.

The latest filing stems from the closing of KTBA, which had made an assortment of toys and gifts for such Walt Disney Co. units as the retail stores and theme parks.

Disney, which accounted for most of the company’s revenue, pulled the plug on KTBA after state labor officials accused the company of violating minimum-wage, overtime, industrial home-work and child-labor laws in making items for the Disney shops.

Typically, in small, closely held companies, the owners personally guarantee loans and other credit, and the weight of those guarantees after the business closed proved to be too much of a burden, said the couple’s bankruptcy attorney, J. Scott Williams of Irvine. “The business just came to a screeching halt,” Williams said.

Last fall, the state Division of Labor Standards Enforcement found that KTBA employees assembled goods at home without proper permits, typically worked 48 hours a week and earned 60 cents apiece for tiaras and 40 cents for wands. The time it took to assemble the products amounted to earnings of $1.35 an hour, far below the $6.25-an-hour minimum wage at the time, the state said.

Disney was selling the tiaras for $9.95 to $15.95 and the wands for $2.65.

Though not accused of any wrongdoing, Disney agreed to put $902,778 into a special account run by the agency to pay workers and to destroy the tiaras and wands, which had been removed from store shelves. The state sued to collect the remaining $600,000 from KTBA and Carol Schelin, the owner. Her husband was an employee, Williams said.