Ford Motor Credit filed additional documents with the bankruptcy court Friday morning, claiming this may be one of the largest floor-plan financing frauds in the history of the United States.
The documents said Reagor-Dykes Auto Group hid the "massive breach" from Ford Credit by fraudulently misrepresenting sales-reporting data to Ford Credit. The company believed Reagor-Dykes was timely paying off cars it sold to the public, however, Ford Credit said the company was selling vehicles on average of 55 days before reporting it to Ford Credit.
They call it a scheme similar to check-kiting.
The document also said Reagor-Dykes fraudulently secured double-flooring from Ford Credit. Double-flooring means automobile dealers receive funding twice for the same vehicle; it is an illegal practice where a single vehicle is used as collateral for more than one loan.
Ford Credit also claims Reagor-Dykes obtained inventory financing for cars it had already sold, representing to Ford Credit they still had the car as inventory and then obtained additional financing.
"(Reagor-Dykes Auto Group) have already squandered more than $41 million on the current management's watch -- through either their own fraud or gross mismanagement," stated Ford Credit in the court documents.
The documents reference Ford Credit's June 2018 audit of the dealerships where Reagor-Dykes Auto Group said it not only had a clean bill of health, but were praised on the performance RDAG was experiencing at the dealerships. Ford Credit inspected the audit report and say they noticed "significant red flags."
Ford Credit said typically about five percent of a dealership's inventory to be sold within a few days and payment to Ford Credit is not yet due. However, an average of 25 percent of the Reagor-Dykes inventory was listed as "sold not due." This means Reagor-Dykes either sold 25 percent of their total inventory within a week or they were falsifying their sales dates.
During Ford Credit's investigation, they found out of 150 reported sales, 147 of them did not have a correct sales date - by an average of 55 days. Ford Credit says for nearly every vehicle sold leading up to the June 2018 audit, Reagor-Dykes fraudulently concealed the sale date from Ford Credit so they could retain the sales proceeds without having to repay Ford Credit.
Ford Credit also stated Reagor-Dykes double-floored at least 85 vehicles; which means they obtained floor plan financing for a vehicle at one of their six dealerships, but then did so again for the same vehicle at a different dealership.
"Ford Credit estimates external financers advanced $3.7 million to Reagor-Dykes Auto Group for acquisition of the 115 vehicles which were already floored by Ford Credit."
Ford Credit also said Reagor-Dykes sought and obtained floor plan financing for several vehicles it had already sold. Ford Credit has not determined how much it advanced to Reagor-Dykes.
The company claims the current management has also engaged in fraudulent double-flooring of vehicles. Ford Credit says this is more than just a contract breach, it is loan fraud. If proven to be true, it is a crime punishable by years in prison.
The documents said, "(Reagor-Dykes) may have caused one of the largest floor-plan-financing defaults in the history of the United States. And while the size of the default is certainly significant, the fact that it occurred during the years of unprecedented car-sale growth is just as telling. Since its (lowest point) in 2009, the automotive market for new and used cars has exploded. Annual U.S. car and truck sales topped 17 million for the third straight year in 2017. But despite the sustained market growth, (Reagor-Dykes') business has cratered. Indeed the current management has run (Reagor-Dykes') operations into the ground, causing a $41 million default. Simply put, a trustee is necessary to take over (Reagor-Dykes') operations and turnaround the business."
Ford Credit filed the documents asking the court to appoint a trustee to recover and preserve assets for the orderly liquidation of Reagor-Dykes and provide payment to creditors.
Ford Credit requested the motion be heard on an expedited basis in conjunction with the hearing on use of cash collateral scheduled for August 16, 2018.
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