Vista Bank: FirstCapital Bank 'sealed the demise' of Reagor-Dykes with fraudulent agreement
Vista Bank accused the Reagor-Dykes Auto Group co-owners of fraudulently transferring millions of dollars to FirstCapital Bank in exchange for more capital to keep the business running, according to court documents filed Thursday. Vista claimed Rick Dykes placed $7.5 million in a FirstCapital account in exchange for $2.1 million in capital; the court documents indicate Bart Reagor transferred an unknown amount of mutual fund assets for a similar agreement, but FirstCapital never extended any additional capital to the dealership.
Therefore, the transaction is voidable due to FirstCapital's failure to provide bargained for consideration under the circumstances, and under the Texas Uniform Fraudulent Transfer Act ("TUFTA"), Rick Dykes' and Bart Reagor's transfers to FirstCapital are fraudulent transfers because the transfers were made to an insider, an affiliate, or not in exchange for reasonably equivalent value.
In a statement released with the court documents, Vista Bank's attorneys claimed FirstCapital "demanded" that money "in extra collateral from Mr. Reagor and Mr. Dykes." The attorneys say Dykes called it an attempt to save the auto group "from financial ruin and preserve the jobs of hundreds of employees."
... FirstCapital Bank never provided the promised additional financing. Instead, FirstCapital put the pending acquisition of Fidelity Bank and its own profitability first by fraudulently taking the additional collateral in exchange for a false promise to provide additional help to Reagor-Dykes.
By doing so, FirstCapital sealed the demise of the Reagor-Dykes Auto Group and ensured that hundreds of West Texans would lose their jobs, and other creditors, like Vista Bank, would be deprived of recovering damages.
Dykes' testimony: "I never saw bank statements."
Vista Bank's new documents include the testimony it claims led to its fraud claims. It's a sworn statement from Rick Dykes, written sometime at the end of February (Vista claims it received the testimony Feb. 27).
Dykes's background with Reagor-Dykes, FirstCapital Bank
The winding testimony began with Dykes's ties to FirstCapital Bank; it described his time as a board member, his change to an advisory counsel, and how his work did not change despite the new title. Dykes said it's his understanding it was due to "Regulation O," a federal banking regulation that limits directors' financial transactions.
Dykes claimed he first learned of Reagor-Dykes's financial problems in March 2017, when it was publicized the auto group owed $25 million due to Ford Motor Credit immediately.
Bart exaggerated the amount due, because most of the deficit was paid through Reagor-Dykes simply catching up on the processing of inventory sales.
Dykes claimed he and Reagor raised and invested about $11.5 million in additional capital between March and May of that year, then undertook a second phase to raise more than $10 million in capital between June 20-17 and March 2018.
Dykes claimed he did not know about the July 2018 audit until Smith called him on July 26, 2018.
I was surprised because I knew that Ford Credit had recently completed one of its quarterly audits on the RDAG Ford Stores less than a month before, at the end of June, 2018. My understanding was that Ford Credit found no problems with that audit and had been complimentary of RDAG’s performance in the audit.
Dykes' statement claimed he learned one of Shane Smith's -- the auto group's chief financial officer at the time -- employees was having an affair with one of the outside auditors for Ford Credit, then Dykes said that employee received advance notice of upcoming audits from the Ford Credit employee.
Dykes claimed Brad Burgess -- the CEO at FirstCapital Bank -- told him "on a couple of occasions in 2017" Smith was allowing the auto group's accounts to overdraft; Smith told Dykes it was only temporary, according to Dykes' testimony, but the balances were cleared by deposits the next day. Dykes claimed Burgess told him later Smith was doing better, and Dykes understood that to mean the matter was resolved.
Dykes claimed he met Gary Byrd -- Ford Credit's regional manager -- four or five times before the surprise audit in July.
I knew Shane Smith and Byrd were very good friends. At this point, I have no evidence of embezzlement by Shane Smith from Reagor-Dykes, and so far, only minimal forensic accounting has been performed because the focus of the bankruptcy case of Reagor-Dykes has been to sell assets or recapitalize the dealerships for the benefit of creditors.
I am not aware if Gary Byrd was getting any kickbacks from Shane Smith, and I have not settled any claims with Shane Smith.
In his testimony, Dykes claimed Smith repeatedly told him the audit's problems were only due to his staff being on vacation and/or unavailable to help with the process.
"Y'all have some big problems."
Dykes's testimony included detailed accounts of the days leading up to Ford Credit's lawsuit July 31 and Reagor-Dykes's bankruptcy August 1.
Dykes said Byrd was working on Ford Credit's "surprise" audit July 28 when Byrd told Dykes there were red flags in the audit.
While Mr. Byrd was working in my office, Mr. Byrd stated to me, “Y’all have some big problems.” Mr. Byrd did not go into specifics initially but indicated to me for the first time that RDAG was seriously out of trust with regard to sales of inventory that secured Ford Credit’s floorplan financing.
Byrd told Dykes, according to the latter's testimony, Reagor-Dykes was reporting a disproportionately large number of sales in the week preceding each Ford Credit quarterly audit. Dykes said he asked Byrd why neither he nor Bart Reagor were notified of the red flags, but Byrd "looked at me with a blank expression on his face" then replied: "Well, I did tell Shane."
I just shook my head and did not say anything in response to the futility of Mr. Byrd notifying the person at RDAG who was responsible for creating the red flags that alerted Ford Credit of problems at RDAG. The tone of his voice indicated he knew how long the problem was going on.
Dykes said Smith's employee -- the one Dykes said was having an affair with a Ford Credit employee -- came into the office then and first reported "double-flooring" vehicles. Dykes said when asked why anyone would do such a thing, the employee said "I knew you didn't know about this," then began to cry.
Later that night, Dykes said he and Reagor met with the employee and she reiterated that Reagor-Dykes had pledged vehicles multiple times to obtain multiple advances on the same vehicles under the Ford Credit floor-plan financing facility.
The next day, Dykes retained outside counsel, and put together a settlement proposal for Ford Credit, including a $5 million down payment and substantial cash payments afterwards. Ford rejected it without a counter-offer.
Getting the banks involved
Without a counter-offer from FMCC, the prospect of bankruptcy came up Monday, July 30. The team prioritized putting Reagor Auto Mall into bankruptcy because Ford didn't finance it, and it was quite profitable. The team intended to use the profits from RAM to pay for the rest of the bankruptcy case.
Dykes said FirstCapital Bank and First State Bank & Trust provided most of that financing, and Dykes set up a meeting with Brad Burgess to ensure FirstCapital would continue to provide floor-plan financing for the Reagor Auto Mall.
At a meeting later that day, Dykes said Smith emotionally confessed.
Mr. Smith emotionally admitted to the group that he was responsible for the problems that Ford Credit had uncovered in the audit of the RDAG Ford Stores and that neither Mr. Reagor nor I knew anything about the nature of the problems.
On Tuesday, July 31, Dykes said Smith admitted the problems extended to other lenders and wasn't limited to the default with Ford Credit. Dykes said he was "stunned" at the extent of the problems Smith "had created and covered up."
At a meeting at FirstCapital's Indiana Ave. location, Dykes testified the dealership disclosed its plans for bankruptcy to Burgess and other FirstCapital representatives. Dykes emphasized the need for continued financing because allowing RAM to continue operations would let the dealership retain key personnel and generate profits. FirstCapital indicated it would review and make an appropriate decision the next morning.
I have known Brad Burgess since 1995, when he worked at American State Bank. We are friends and took two trips together. We also hunted and fished together occasionally.
The morning of August 1, the day after Ford Credit filed its $40 million lawsuit against Reagor-Dykes, Dykes said he met with FirstCapital to discuss a plan forward.
When I arrived, I learned that FirstCapital had frozen all of my personal bank accounts and some FirstCapital stock that I owned. I immediately hand-wrote and turned in my letter of resignation as an advisory board member of FirstCapital. On that day, FCB would not let me cash a check from an insurance company for a hail claim. The FirstCapital representatives advised me and the others that the bank had not yet decided whether it would provide floor-plan financing to RAM going forward.
Reagor-Dykes filed for bankruptcy later that day. On Aug. 3, Dykes claimed Reagor-Dykes's in-house accountant explained Smith's practice of "rotating negative balances at various banks -- sometimes dozens of times a month -- to generate short-term credit for RDAG." This constitutes check-kiting, and the accountant noted he suspected Smith's problems, but Smith had persuaded him it was typical business.
Millions of dollars in investment
Between Aug. 2 and Aug. 7, Dykes claimed he pledged $7.5 million in collateral to FirstCapital Bank, $2.75 million in cash and $4.7 million in FirstCapital stock.
In return, FirstCapital agreed to provide an additional $2.1 million in floor-plan financing for RAM in addition to the approximate $9.5 million that it had advanced under its existing floorplan financing facility with RAM
On August 6, 2018, a letter from Mr. Massouh, an attorney for FCB was sent to Mr. Langston to set forth a proposed pledge on additional assets for Mr. Reagor and me in exchange for $2.1 million in additional floor plan financing. FCB stopped floor plan financing Reagor-Dykes on Monday, July 30.
FirstCapital has not advanced any Reagor-Dykes entity any of the additional $2.1 million in floor-plan financing, despite our additional pledge of collateral. August 4, 2018.
"Attempting to buy their silence."
Vista's filing claimed FirstCapital Bank paid Reagor and Shane Smith, Reagor-Dykes' former chief financial officer, millions of dollars in loan funding after the public disclosure of a check kiting scheme after the initial bankruptcy filings in early August.
... the Defendants gave Reagor and Smith millions of dollars in home equity financing, even though Defendants knew the Reagor-Dykes empire was collapsing, and Smith was recently fired and accused of helping to mastermind the fraud.
These loans defied all common sense and safe and sound banking practices, unless the current Defendants were rewarding Reagor and Smith for past services rendered in their business relationships, and/or attempting to buy their silence. Reagor and Smith have already pleaded their Fifth Amendment rights when interrogated under oath.
The new filing indicates the suit will drop a couple defendants, reducing Vista Bank's targets to FirstCapital Bank of Texas and Brad Burgess. It also drops a couple claims for relief: conspiracy to commit fraud and aiding and abetting fraud.
FirstCapital Bank: "It is easy to make allegations; it is hard to prove them. Vista Bank is finding that out."
In a statement from FirstCapital Bank's chief marketing officer immediately after the filing, the bank claims Vista Bank is backtracking on many of its initial allegations made in August.
Contrary to Vista Bank’s most recent allegations, in the weeks following the Reagor-Dykes bankruptcy filings, Rick Dykes agreed to pledge additional collateral to FirstCapital because of uncertainties regarding the various Reagor-Dykes debts owed to FirstCapital that he guarantied and in consideration for the release of millions of dollars of cash to Rick Dykes out of his account at FirstCapital in which the bank had a lien.
In addition, FirstCapital agreed to loan Reagor Auto Mall $2.1 million dollars as a part of the existing floorplan line of credit to help fund the operations of Reagor Auto Mall, but FirstCapital was instructed by counsel for Reagor Auto Mall to not fund the additional money. FirstCapital honored Reagor Auto Mall’s request.
None of this is new information to Vista Bank and Vista Bank has known the details of all of this since early August from the depositions taken early in the bankruptcy proceeding. Notwithstanding this knowledge, Vista Bank distorts the facts in a desperate attempt to keep alive a failing lawsuit against FirstCapital.
In regard to the home equity financing, in one instance FirstCapital advanced additional funds to complete construction of a house in order to protect FirstCapital’s collateral position. In another instance, it combined two existing loans into one and did not advance additional funds.
Instead of relying on the court of law to decide the facts, Vista Bank wishes to try this case in the court of public opinion.
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