Playing With Numbers: Texas Dealer Accused of Major Fraud
The Reagor Dykes Auto Group was formed in 2006 after Bart Reagor, shown above, teamed up with a business partner to create a company that now eclipses half a billion dollars in annual sales. This is accomplished through a myriad of manufacturer franchises ranging from Ford to Chevy to Toyota, not to mention its dozen or so rooftops dealing solely in used cars.
Now, the company is facing allegations of major financial chicanery. In court documents filed last week, Ford Motor Company accuses Reagor Dykes of running one of the “largest floor-plan financing frauds in the history of the United States.”
Now, recognizing my legal training is assembled solely through the viewing of Night Court reruns, I will attempt to explain the allegations to the best of my ability. Feel free to click on the links to various sources throughout this post for more details.
In July of this year, Ford conducted a surprise audit. There’s a pair of words most people — whether they own a business or not — never want to see next to each other.
Ford claims Reagor Dykes Auto Group “breached their agreements with Ford Credit by, among other breaches, selling vehicles ‘out of trust,’ failing to make required payments to Ford Credit as and when due, and submitting false or inaccurate information to Ford Credit in order to delay paying amounts to Ford Credit and/or to obtain financing from Ford Credit under false pretenses.” That text is taken from a lawsuit filed last week.
Understanding the crux of this issue depends on a crash course in dealership terminology. In this instance, “out of trust” refers to the sale of a car that has been paid for with a loan but the sale proceeds have not been used to pay back the lender. This creates an unsecured debt the dealer then owes to the finance company. Allegedly, this was a big problem at Reagor Dykes.
Floorplanning is is a type of short-term loan used by dealer to purchase their high-cost inventory of cars. Most stores floorplan their vehicles and factor the cost of financing inventory into their sale price. You can imagine the manufacturer wants to get their money back as soon as possible. We’ll leave the definition of holdback for another day.
Back to the “out-of-trust” term. Let’s imagine Store A represents to Ford Credit it has purchased a Ford Explorer for $40,000. In response, Ford Credit advances $40,000 in acquisition financing to this store. Then, unbeknownst to Ford Credit, Store A transfers the Ford Explorer to Store B, another store in the same dealer group. Store B then fraudulently represents to Ford Credit that it has purchased a Ford Explorer for $40,000, which prompts Ford Credit to advance an additional $40,000 in financing to Store B. You see the problem.
It gets worse. Ford Motor Credit also claims other financiers advanced monies to the tune of $3.7 million to Reagor-Dykes for acquisition of 115 vehicles that were already floored by Ford Motor Credit. Phew. That’s a lot of cheddar.
In addition, it is alleged that a full 25 percent of Reagor Dykes inventory was listed as “Sold Not Due,” meaning those vehicles were sold days earlier and money was not yet due to Ford Motor Credit. Ford says this means Reagor Dykes either sold that inventory within the previous week, or they were falsifying their sales dates. Not cool, said Ford.
Investigators with Ford Motor Credit are said to have determined that Reagor Dykes falsified 147 out of 150 reported sales dates. Ford Motor Credit says on average, a discrepancy of 55 days existed between reported sales dates and Texas DMV records.
From Automotive News:
On July 28, Gary Byrd, Jr., Ford Credit’s regional manager for the Dallas area, met with Bart Reagor. It didn’t go well. Byrd told Reagor about the discrepancies, said Ford Credit was asking to be paid funds owed to them and that auditors would be returning next Tuesday.
“Bart Reagor became enraged, screamed at me, ‘No, you are not’, and threatened to ‘shoot my f—— ass’”, a threat he repeated in a later text, Byrd said.
If you can’t stand the heat, etc.
According to Automotive News, Ford Credit send in a corporate security team and sued Reagor Dykes on July 31st. One day later, several Reagor Dykes dealerships and related companies filed for Chapter 11 bankruptcy protection.
I always feel for the employees caught in the fallout. Reagor-Dykes employs hundreds of employees and, as of this writing, the dealerships are still open. One can’t imagine the floor traffic is too high this morning. This makes me sad for the folks who have toiled at this business but are now caught up in a mess of someone else’s creation. According to the Reagor Dykes dealer website, Bart Reagor is a former Texas Tech University football player, has over 27 years of experience in the retail automotive industry, and is “active in local charities.”
This puts your author in mind of a similar shituation befalling a well-known auto dealer named Tom Woodford Chrysler in the capital city of his home province. Long located in a two-story building at the base of Kenmount Road, it shuttered its doors in 2009 after the Canada Revenue Agency filed 31 separate counts of breaching the Excise Tax Act against both Tom Woodford Limited and Mr. Woodford himself. Accusations were flung about regarding $6.6 million in unpaid taxes.
The dealership quickly went dark after tow trucks appeared to whisk the inventory away. Its employee base, including Woodford’s three grown children (who themselves are wonderful people), was largely absorbed into Newfoundland’s tight-knit automotive community. Mr. Woodford passed away four months after the tax man came calling and, after serving as a temporary home for a myriad of other marques as they themselves constructed new dealerships, the building was demolished in 2015.
Don’t play with numbers, kids. Someone’s always watching. Fireworks, indeed.
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I remember in Ye Olden Days (the 1980s) that when a GM dealership was taken over by GMAC, the name on the dealership was temporarily changed to "PATLAN", the name Patlan supposedly being the last name of some executive at GMAC. I can remember it happening to at least a couple of dealerships in the Dallas area - the former Late Chevrolet in Richardson (now the home of Reliable Chevrolet), and the former Parkway Pontiac-GMC in Plano. In both cases, the dealerships were in trouble with the state for not forwarding state sales tax proceeds. There were stories on the news about customers unable to get license plates from the dealer, and instead getting a succession of paper dealer tags as each one expired (they were just 10-day tags at the time). I'll bet that if Reagor-Dykes was screwing Ford Credit, they were probably also screwing the state comptroller's office out of taxes due, and will be getting sued by the Attorney General's office. Not good. I might also be hearing some scuttlebutt about this soon, as my mother-in-law's next-door neighbor mentioned one time that one of her relatives (a brother, maybe?) knew Bart Reagor at Tech. The plot thickens.
Here's a pretty good rundown of the story in the Lubbock paper, and includes information for car buyers (about title transfers, mainly) and employees. There's a bankruptcy court hearing on Thursday to determine whether a court-appointed trustee will run the bankruptcy cases, or a CRO (corporate restructuring officer) hired by the company. http://www.lubbockonline.com/news/20180812/reagor-dykes-what-we-know-what-to-expect-and-impact-it-has