Ford Motor Credit Company LLC (“Ford Credit”) filed additional court documents with the Northern District of Texas last week, claiming Reagor-Dykes Motors, LP and other related Debtors entities ran “the largest floor-plan-financing frauds in the history of the United States.”
Ford Credit is asking the U.S. Bankruptcy Court to appoint a trustee to manage the Chapter 11 filing, claiming Reagor-Dykes committed multiple acts of fraud and gross mismanagement.
The documents revealed that Reagor-Dykes stole over $41 million previously advanced by Ford Credit.
On July 31, Ford Credit sued numerous companies related to Reagor-Dykes Motors, LP. Shortly after that, those businesses filed for Chapter 11 reorganizational bankruptcy.
Ford Credit specified in the court documents that Reagor-Dykes engaged in the form of fraud known as “check kiting”.
This is how it worked: Vehicles financed by Ford Credit were sold to customers, and Reagor-Dykes would keep the money without reporting the sale to Ford. By not immediately reporting the transaction, the fraudulent company would not have to reimburse Ford immediately.
In a July audit, Ford lawyers discovered “an average discrepancy of 55 days” on about 150 vehicle sales. Ford’s policy is only seven days.
The documents also said, “Ford Credit has also determined that Debtors [Reagor-Dykes] double-floored at least 85 vehicles.”
“Double-floored means that one dealership took possession of a new vehicle and requested financing from Ford Credit. Then, having received financing from Ford, the same vehicle was transferred to another dealership. The second dealership would then apply for financing on the same vehicle,” said NBC Amarillo.
“As the foregoing shows, Reagor-Dykes committed multiple acts constituting fraud, dishonesty, and gross mismanagement…” Ford Credit said in the court documents.
In another bankruptcy document, Ford Credit said it has $46 million in uncollateralized obligations with the dealership; as the total debt was reported to be around $116 million.
Bankruptcy documents relating to Reagor-Dykes indicated that an external investigation “in the name of transparency” is welcomed.
The dealership said even its owners, Bart Reagor and Rick Dykes, should be subject to investigation. Ford Credit states the contract breach is loan fraud, and if proven in court, could be punishable by years in prison.
Ford Credit requested the motion for a bankruptcy trustee to be heard on an expedited basis in conjunction with the hearing on the use of cash collateral scheduled for August 16, 2018.
While fraud is usually minimized or concealed during an economic boom cycle, it seems as Bart Reagor and Rick Dykes could not continue their fraudulent scheme of check kiting and double-flooring, as it has become apparent the auto industry is heading into a slowdown. At the end of an economic expansion, that is when fraud usually comes out of the woodwork.
So we ask one question: How many other dealerships around the country are committing similar frauds?