UPDATED: Former Reagor-Dykes CFO pleads to federal conspiracy ch

UPDATED: Former Reagor-Dykes CFO pleads to federal conspiracy charge

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LUBBOCK, Texas -

updated 9:37 a.m.- Shane Smith's sentencing will be held on October 1, 2019 at 9:00 a.m. The United States District Court for the Northern District of Texas Amarillo Division issued this order June 18, 2019.

updated 4:17 p.m. - Former Reagor-Dykes chief financial officer Shane Smith pleaded guilty to one count of conspiracy to commit wire fraud. He made an initial appearance Tuesday in Amarillo Federal Court. He was released after posting $20,000 bond.

He faces up to 20 years in prison and restitution of at least $50 million.

Included in the new court documents were e-mails between Smith and unnamed co-conspirators, discussing "fake flooring" and a check-kiting scheme, according to prosecutors. On March 20, 2017, according to this filing, Smith e-mailed instructions:

"Whatever it takes, we need to floor anything and everything we can even think of to cover payoffs each day...that is going to be the key!!!! That and having seriously huge CIT!!!! The deposits we do each do will most likely cover the checks we write each other!!"

The document then states on March 21, 2018, Smith e-mailed instructions:

"I want us to load up as much as we can on flooring funding and deposits today!!! Huge day. Don't care what you find to floor, just get it all in there!!!"

Prosecutors write other employees or "co-conspirators" would e-mail Smith and discuss fake flooring. On March 23, 2018 a Reagor-Dykes employee e-mailed Smith: "Are we fake flooring again on Monday?." Smith replied: "Just get them ready and we'll see how we do each day. First each day, enter everything normal/regular that you have and then we'll have some ready if we need to cover any. Your payoffs are not a ton, so maybe we can keep it low or to a minimal on the fluff." 

Several witnesses told the FBI Reagor-Dykes, according to plea documents, "was under-capitalized because of its aggressive growth and acquisitions of new dealerships, above-market employee compensation, and unnecessary overhead. As a result, RDAG did not have the necessary capital on hand to make those large payments to [Ford Motor Credit Corporation] after floor plan audits. To compensate, RDAG kited intercompany checks to falsely inflate its account balances."

The FBI claims, just before the collapse in June 26, 2018, Reagor-Dykes had an entire team at its headquarters designed to kite checks.

Below are the plea agreement documents:

 

 

 


posted 2:37 p.m. - Federal prosecutors charged Shane A. Smith, the former chief financial officer at the Reagor-Dykes Auto Group, with conspiracy to commit wire fraud June 12. A U.S. Attorney claims he facilitated a fraudulent floor-plan financing scheme by providing false information to the Ford Motor Credit Company and accepting its financing money or delayed paying amounts due to the credit agency.

This federal charge, "wire fraud," is also applied to cover telephone conversations and Internet exchanges -- such as e-mails -- which falls under the purview of the federal government, especially in instances of interstate commerce.

Court documents indicate the actual loss amount for the floor plan fraud is about $27 million.

The U.S. Attorney's office's charges are layered, including multiple subjects to support her accusations against Smith.

"Fake Flooring"

U.S. Attorney Erin Nealy Cox indicates there are an unspecified number of "co-conspirators" who were involved in passing fraudulent information to Ford Credit, as well as practices of "re-flooring," "fake flooring," and "dummy-flooring" vehicles. These are different from the practice of "double-flooring," which Ford Credit accused the dealerships of in its July 31, 2018, lawsuit.

Double-flooring refers to a practice of purchasing a vehicle, asking for financing, then moving that vehicle to another dealership and asking for a second round of financing as if that vehicle had just been purchased. 

"Re-flooring," "fake flooring," or "dummy flooring" refers to selling a vehicle but telling a creditor, using fraudulent information, the vehicle had instead been purchased and requires financing.

Cox reports FBI agents found examples of "dummy flooring" at Reagor-Dykes Amarillo during their investigation, specifically in July 2018, the same month Ford Credit agents reported a "massive fraud" and filed suit against Reagor-Dykes.

Federal agents reported Reagor-Dykes "dummy-floored" six vehicles in that month. They indicate the vehicles were bought and sold months before -- between February 2017 and April 2018 -- they were "floored" with Ford Credit in July 2018. Agents reported registration information showed the Amarillo dealership owned the vehicles before their sale.

Federal prosecutors estimate the fraud scheme included 409 vehicles not in inventory, 352 vehicles sold and funded, and 37 vehicles "re-floored," for a total of more than $27 million in fraudulent financing.

Check kiting

Cox's charges also explain the process of "check kiting," another form of wire fraud that involves passing bad checks between banks to inflate accounts and allow checks to pass through the system without returning as insufficient. The U.S. Attorney claims Smith participated in such a scheme with several banks, knowing they'd been falsely informed to receive money or credit for the Reagor-Dykes Auto Group.

In her charges, Cox explains Reagor-Dykes used inside sources to find out when Ford Credit would perform "surprise" audits, and informed office managers at its dealerships. Agents report they would then, with the help of their office staff, falsify paperwork -- specifically sales dates -- to make vehicles sold out-of-trust appear as legitimate sales. The staff would then pass that falsified paperwork to auditors, according to court documents.

Cox claims this would lead to Reagor-Dykes owing Ford Credit larger-than-usual floor plan payment for a week after the audits, so court documents indicate Reagor-Dykes "kited" inter-company checks to inflate its accounts so it could make those big payments to Ford Credit.

Cox's charges do not name any other defendants or co-conspirators, but repeatedly refers to "RDAG accounting staff" as taking part in the conspiracy to commit wire fraud.

Her accusations against Shane Smith include explaining how Reagor-Dykes would make those pay-offs to Ford Credit to hide its double-flooring, then use post-audit revenue to cover the loss -- forming a perpetual "whole cycle of overt acts" that constituted more fraud.

Here is the court document filed in the U.S. District Court for the Northern District of Texas Amarillo Division:

 

JUNE 18: July 11 hearing set on amount Reagor owes Ford Credit
JUNE 17: Reagor: Ford Credit must show its work on how much it's owed
JUNE 3: Ford Credit: Bart Reagor owes $46 million plus interest
MAY 24: Ford Credit wins; court orders Reagor to pay
MAY 22: Progress reported in resolving Reagor-Dykes registration issues
MAY 9: Oklahoma bank sues Reagor, Dykes, offshore financial companies for $26 million
MAY 6: State of Texas sues Reagor, Dykes for more than $50,000 in sales taxes
APRIL 24: Reagor-Dykes registration issues may soon be resolved
APRIL 16: Bart, Annette Reagor deny breaching insurance corporation contracts in $2.4 million suit
APRIL 10: Progress but no agreement, just yet, on Reagor-Dykes TT&L plan
APRIL 8: Multiple objections filed to Reagor-Dykes' registration solution proposal
APRIL 2: Filing: Rick Dykes agrees to $58.7 million judgment to Ford Credit
MARCH 23: Universal Underwriters sues Reagors, claims Auto Group defaulted on contracts
MARCH 21: Vista Bank: FirstCapital Bank 'sealed the demise' of Reagor-Dykes with fraudulent agreement
MARCH 20: 700 Reagor-Dykes customers still have unresolved TT&L, trade-in
MARCH 19: Proposal could resolve many Reagor-Dykes registration, title issues
MARCH 19: Landlord: Reagor-Dykes Plainview abandoned in 'extreme disrepair'
FEB. 23: Dykes, Reagor response claims Ford Credit should have seen problems
FEB. 19: UPDATED: Reagor-Dykes mediation next week in Dallas
FEB. 15: Read order directing global mediation in Reagor-Dykes bankruptcy
FEB. 14: Judge orders Ford Credit to participate in Reagor-Dykes 'global mediation'
FEB. 11: Judge approves AmeriCredit's request for hearing on Reagor-Dykes Snyder
FEB. 8: Judge orders TT&L lists turned over to creditor, others request info
FEB. 8: GM Financial, citing 'little opportunity' for meaningful progress, requests access to relief
FEB. 8: Judge denies Reagor-Dykes request to delay summary judgment
FEB. 7: Landlord orders Reagor-Dykes out, another phone hearing next week
FEB. 7: Ford Credit objects to Reagor-Dykes' attempt at 'global mediation'
FEB. 6: First Bank & Trust opposes 'global mediation' for Reagor-Dykes
FEB. 6: Reagor-Dykes requests global mediation in bankruptcy
FEB. 6: Reagor and Dykes argue if Ford Credit was complicit in fraud, two men not responsible for $109 million+
JAN. 31: Reagor-Dykes seeks appeal of Bankruptcy Judge's order
JAN. 31: McDougal no longer involved in Reagor-Dykes re-organization effort
JAN. 28: Nearly 6 months later, hundreds of Reagor-Dykes customers still in limbo
JAN. 23: FirstCapital Bank allows Reagor-Dykes to use cash collateral
JAN. 18: Future uncertain for Reagor-Dykes Auto Group after recent ruling
JAN. 17: Judge: Ford Credit may repossess Reagor-Dykes vehicles
JAN. 9: Court approves Reagor-Dykes interim funding
JAN. 8: Reagor-Dykes, Ford Credit argue future of Auto Group in bankruptcy court
JAN. 8: Citing possible criminal investigation, former Reagor-Dykes CFO requests stay on discovery
JAN. 8: Ford Credit: Reagor, Dykes signed guaranties, should pay $112 million+ in relief
JAN. 7: Reagor-Dykes files reorganization plan
JAN. 7: 'Reagor-Dykes is not dead', Auto Group files response to Ford Credit's demands
JAN. 4: With no reorganization plan yet filed, Ford Credit seeks to take possession of Reagor-Dykes vehicles
JAN. 3: Lender asks bankruptcy court to force Reagor-Dykes legal team to produce documents
DEC. 26: UPDATE: Court allows Ford Credit lawsuit to proceed against Bart Reagor, Rick Dykes
DEC. 12: Slow progress reported on Reagor-Dykes customers' TT&L, trade-ins
NOV. 29: McDougal, Ewing and Dykes lead group to purchase Reagor-Dykes assets
NOV. 21 Former Reagor-Dykes CFO requests change of venue in lawsuit
NOV. 20: Toyota, GM file objections in Reagor-Dykes bid process
NOV. 14: State may extend titles for some Reagor-Dykes customers
NOV. 2: Five more Reagor-Dykes entities petition for bankruptcy
OCT. 29: Reagor-Dykes TT&L, trade-in issues remain unresolved; progress reported with some lenders
OCT. 29: Bart Reagor, Reagor Auto Mall claim First Bank & Trust party at fault
OCT. 29: Vista Bank asks to recoup funds in Reagor-Dykes accounts
OCT. 18: No resolution yet on Reagor-Dykes customers' unpaid TT&L, trade-in liens
OCT. 17: More lenders object to Reagor-Dykes' request for TT&L, trade-in payment
OCT. 16: U.S. Bank objects to Reagor-Dykes request for lenders to pay TT&L, trade-ins
OCT. 15: Compromise on vehicles in First Bank & Trust lawsuit v. Reagor Auto Mall
OCT. 15: Judge approves sale of Reagor-Dykes plane; Wells Fargo objects to portion of TT&L motion
OCT. 12: Ford Credit supports part of Reagor-Dykes' request for lenders to pay TT&L, trade-ins
OCT. 12: FirstCapital files counterclaim, motion to dismiss
OCT. 10: Reagor-Dykes aircraft to be sold, pending court approval
OCT. 10: Several filings in Reagor-Dykes bankruptcy case
OCT. 1: KamKad, Reagor-Dykes execute purchase agreement
SEPT. 24: FirstCapital Bank requests First Bank & Trust lawsuit against it, Reagor-Dykes, others move to federal court
SEPT. 21: Judge sets schedule, trial date in Vista Bank v FirstCapital Bank lawsuit
SEPT. 21: Former Reagor-Dykes CFO denies late payments, says Vista Bank attacked him, his family
SEPT. 20: Vista Bank sues former Reagor-Dykes CFO, claims loan default
SEPT. 19: Texas DMV: Reagor-Dykes should promptly resolve title issues
SEPT. 19: Brad, Kenneth Burgess file motion to dismiss Vista Bank lawsuit
SEPT. 18: First Capital Bank files motion to dismiss lawsuit
SEPT. 18: Court approves bid process for Reagor-Dykes Auto Group, extends use of cash collateral
SEPT. 17: Ford Credit, GM object to certain aspects of proposed Reagor-Dykes sale
SEPT. 14: Judge sets trial date in Ford Credit lawsuit vs. Reagor-Dykes
SEPT. 14: Reagor denies Ford Credit's claim vehicles sold out of trust
SEPT. 13: Dykes: Former Reagor-Dykes CFO admits he provided false info to Ford Credit
SEPT. 11: Reagor-Dykes Auto Group requests court to allow sale of company
SEPT. 4: Reagor-Dykes Auto Group establishes process to resolve customer problems
AUG. 31: International Bank of Commerce asks for court to allow it to foreclose on Reagor-Dykes dealerships
AUG. 31: More Reagor-Dykes companies, co-owners may soon file for chapter 11
AUG. 30: Court extends Reagor-Dykes employment of CRO; officer discusses potential dealership buyers
AUG. 29 : International Bank of Commerce asks for loan payment in Reagor-Dykes case
AUG. 29: Ford Credit objects to Reagor-Dykes earlier legal team
AUG. 27: Vista Bank doubles relief request in new federal suit against FirstCapital Bank
AUG. 25: Reagor-Dykes chief restructuring officer hires new legal team
AUG. 25: GM proceeding with termination of Reagor-Dykes Floydada
AUG. 23: Landlords demand rent for Reagor-Dykes dealerships in Lubbock, Plainview
AUG. 20: Ford Credit moves ahead with suit against Reagor, Dykes, some R-D companies
AUG. 18: Reagor-Dykes bankruptcy case: Read court order following Aug. 16 hearing
AUG. 17: Auto dealer claims Reagor-Dykes owes $513,000, vehicles may be in consumers' possession
AUG. 16: Vista Bank sues FirstCapital for $6 million, claims Dykes helped perpetrate check kiting scheme
AUG. 16: Bankruptcy court allows Reagor-Dykes continued use of cash collateral, hiring of CRO
AUG. 15: Reagor-Dykes Auto Group issues written apology
AUG. 14: Loss of Reagor-Dykes Chevrolet in Floydada a potential financial pitfall for city
AUG. 14: Vehicle auction company claims Reagor-Dykes owes it $687,000
AUG. 14: Ford Credit claims Reagor-Dykes is not following court orders; court grants extension to file docs
AUG. 13: U.S. Trustee opposes Reagor-Dykes request to hire chief restructuring officer
AUG. 10: Ford Credit: Reagor-Dykes fraud may be among largest of its type in U.S. history; GM files to terminate Floydada dealership
AUG. 9: Reagor-Dykes questions former CFO’s actions; Contractor claims $700,000 due now
AUG. 7: Former Reagor-Dykes employees claim they were not paid
AUG. 6: Customers concerned over Reagor-Dykes 'unwinding' process
AUG. 6: Ford suit against Reagor-Dykes on hold while bankruptcy case proceeds
AUG. 3: Judge approves Reagor-Dykes employee pay
AUG. 2: Mayor: Downtown Lubbock growth to remain strong regardless of Reagor-Dykes future
INITIAL STORY: Ford Motor Credit sues Reagor-Dykes; R-D files for chapter 11 bankruptcy 

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