Reagor Dykes CFO Pleads Guilty to Wire Fraud Conspiracy
Reagor Dykes Auto Group’s Chief Financial Officer, Shane Andrew Smith, pleaded guilty today to conspiracy to commit wire fraud, announced U.S. Attorney for the Northern District of Texas Erin Nealy Cox.
“From ‘dummy flooring’ to check-kiting, this was blatant, large-scale fraud,” said U.S. Attorney Nealy Cox. “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.”
“One of the goals of the FBI is to protect the financial services industry, and by extension, the economy. To that end, the FBI will continue to target those with an intent to defraud businesses and erode the public’s confidence,” said Matthew DeSarno, Special Agent in Charge of FBI’s Dallas Division.
In plea papers, Mr. Smith, 45, outlined the $50 million scheme, which involved defrauding the auto group’s main lender, Ford Motor Credit Company (FMCC), and concealing the fraud by cross-depositing checks across several banks, a ploy known as check-kiting.
In order to cover ballooning expenses, Mr. Smith admitted, he instructed Reagor Dykes accountants to engage in a practice they dubbed “dummy flooring.”
At his direction, accounting staff dug through records for vehicle identification numbers (VIN) of cars Reagor Dykes had already sold, then submitted new loan applications to FMCC using the old VINs – falsely indicating that the company was seeking a loan in order to repurchase the vehicle for resale. Instead of re-buying the car, however, Reagor Dykes used the ensuing loan to cover other expenses.
“Whatever it takes, we need to floor anything and everything we can even think of to cover payoffs each day,” Mr. Smith wrote in an email quoted in his factual resume.
To disguise the shortfall from the dummy flooring scheme, Mr. Smith and his employees engaged in check-kiting, artificially inflating the company’s bank account balances by cross-depositing insufficient checks.
Vendor and payroll checks that should have bounced were instead cleared during banks’ float time, the period between the deposit in the recipient account and the deduction from the payer’s account.
“The deposits we do each do [sic] will most likely cover the checks we write each other,” Mr. Smith wrote in an email.
Reagor Dykes also routinely violated a clause in its loan agreements that required them to repay FMCC within seven days of selling the vehicle for which the loan was issued, Mr. Smith admits.
Rather than cop to the delay, Reagor Dykes accountants created false paperwork, which they referred to as “dummy shucks,” in order to make it appear that the car had been sold more recently.
Mr. Smith now faces up to 20 years in federal prison. His plea agreement requires he pay a mandatory restitution of more than $50 million, equal to the total amount of loss suffered by FMCC and victim banks, and testify truthfully in any court proceedings.
The Federal Bureau of Investigation and Internal Revenue Service - Criminal Investigation Division conducted the investigation. Magistrate Judge Lee Ann Reno presided over the plea. Assistant U.S. Attorneys Joshua Frausto, Jeffrey Haag, and Sean Taylor are prosecuting the case.