Prosecutors allege Smith and co-conspirators also kited checks, which involves checks cross-deposited between two or more accounts to artificially inflate account balances. Nine Reagor Dykes entities were involved, using 19 accounts at several banks, the court document signed by Smith said. The loss to banks holding those 19 accounts totaled $23.1 million.
In the court document, the FBI said it interviewed several witnesses who said Reagor Dykes was "under-capitalized due to its aggressive growth and acquisitions of new dealerships, above-market employee compensation, and unnecessary overhead."
The group ranked No. 131 on Automotive News' 2017 list of the top 150 dealership groups based in the U.S.
Reagor Dykes had seven business days to repay Ford Credit after a vehicle sale but "Smith and the [Reagor Dykes] accounting staff routinely and intentionally failed to make those payoffs," prosecutors said in the court document in Smith's case.
Reagor Dykes staff allegedly pulled VINs from previous sales and submitted them to Ford Credit as though the dealerships had just bought the vehicles, even though they hadn't, court records said. Federal agents examined six vehicles floorplanned with Ford Credit for Reagor Dykes Amarillo last July and found the same six vehicles had been bought and sold by the Amarillo dealership months earlier; registered owners bought the vehicles from the dealership between February 2017 and April 2018.
Although Ford Credit conducted what were supposed to be surprise audits, Reagor Dykes personnel learned audit dates in advance and warned controllers or office managers in the dealerships, the court document said. The controllers and office managers then created false paperwork, sometimes called "dummy shucks," on vehicles sold out of trust, making it look as though they had recently sold, the document alleges.
Reagor Dykes staff also fraudulently acquired new floorplan loans from Ford Credit to pay off large amounts to Ford Credit after an audit, the document said. They then focused on paying off the "dummy flooring" with revenue from regular dealership operations. But there wasn't enough to cover floorplan advances in the required seven-day window.
"Consequently, those vehicles were out of trust, and the whole cycle of overt acts started all over again," the document said.
A list of vehicles floored with one lender was sometimes sent to another store within the group to be floored with Ford Credit, so the same vehicle was pledged as collateral to both lenders, the document said. That's known as double-flooring, and Reagor Dykes staff allegedly referred to it as such.
Dykes agreed in April to a $58.7 million consent judgment in Ford Credit's civil suit. Dykes' lawyer told Automotive News then that details were confidential, but if Dykes follows terms of the agreement, the $58.7 million would be returned. Ford Credit confirmed a confidential agreement but declined to say whether Dykes could recover the money.
Ford Credit is seeking a $45.3 million judgment from Bart Reagor, but Reagor has objected to that amount. A hearing to settle the dispute is set for July 11.
Local media reports have said that with the tax, titling and licensing mess left in the wake of the group's collapse resolved, a plan has been drafted to conclude the bankruptcy. Reagor Dykes lawyer C. Ashley Ellis reportedly told the Texas bankruptcy court that four entities could sponsor reorganization efforts but require Rick Dykes to be an investor in the emerging entity. Ellis noted the group could liquidate assets or restructure to allow the group to continue business in a nontraditional manner, setting aside 10 percent of equity in a trust for lenders, KCBD-TV in Lubbock, Texas, reported. Ellis couldn't be reached for comment late last week.
