Nearly a year after Ford Motor Credit sued Reagor-Dykes Auto Group for hiding one of the largest floorplan financing frauds in history, the captive is finally receiving closure.
The Texas-based dealership group’s Chief Financial Officer Shane Smith has pleaded guilty to defrauding the captive, shelling out $50 million in restitution to Ford Credit and other victim banks, the U.S. Attorney’s Office Northern District of Texas announced this week.
According to plea papers, Smith admitted to instructing Reagor-Dykes accountants to engage in two fraudulent practices called “dummy flooring” and would conceal that practice with check-kiting. Under Smith’s direction, the accounting staff would submit new loan applications to Ford Credit using VIN records of vehicles Reagor-Dykes had already sold to cover ballooning expenses at the dealership – falsely indicating that the company was seeking a loan to repurchase the vehicle for resale.
“Whatever it takes, we need to floor anything and everything we can even think of to cover payoffs each day,” Smith wrote in an email.
To disguise the “dummy flooring” scheme, Smith directed his employees to artificially inflate the company’s bank account balance by cross-depositing insufficient checks, a practice known as check kiting. Vendor and payroll checks that should have bounced were instead cleared during the time between the deposit in the recipient account and the deduction from the payer’s account.
Additionally, Smith admitted to routinely violating a clause in the dealership chain’s loan agreement with Ford Credit that required repaying the captive within seven days of selling the vehicle. To cover the violation, Reagor-Dykes accountants created false paperwork to make it appear as if cars were sold more recently than they truly were.
“From ‘dummy flooring’ to check-kiting, this was blatant, large-scale fraud,” said U.S. Attorney Nealy Cox in a press release. “We will hold Mr. Smith – and any other Reagor-Dykes executives involved in this behavior – accountable for this breach of trust. The investigation is ongoing.”
Smith faces up to 20 years in federal prison in addition to a plea agreement requiring he pay mandatory restitution of more than $50 million.
