1 year out: RDAG bankruptcy reveals 1 criminal charge, no reorganization plan
LUBBOCK, Texas (KCBD) - The flamboyant advertisements are no longer, the lots are empty and the name is scraped from most of the buildings. All this, the result of a massive lawsuit and bankruptcy case against the Reagor-Dykes Auto Group.
It has been one year since news spread that the Reagor-Dykes Auto Group, one of the largest group of car-selling dealerships in West Texas, filed for bankruptcy after a massive lawsuit was filed from a credit company.
Now, a bankruptcy reorganization plan is in the works but not finalized. That plan would mean two things: a bankruptcy sponsor can come in with new leadership and the auto group can continue operations or all assets will be liquidated.
The bankruptcy claim came after the Ford Motor Credit Company on July 31, 2018 slapped the auto group, and co-owners Bart Reagor and Rick Dykes, with the lawsuit saying it was owed more than $41 million. Because of this a handful of dealerships were shut down almost immediately.
Ford Credit said the dealerships sold vehicles without sending it payments and the dealership submitted false or inaccurate information.
Court documents show a regional manager with Ford Credit tried to discuss the results of a surprise audit, saying there were flooring and sales irregularities. The dealerships were also asked to pay a specific amount Ford Credit said was due.
Reagor, who that manager was in contact with, became enraged and made threats, which the manger took seriously.
“Mr. Reagor’s threat resulted in Ford Credit Sending its corporate security team from Dearborn, Michigan to Lubbock, Texas to meet with Mr. Reagor and Mr. Dykes on Monday, July 30, 2018,” court documents stated.
Hearing of the allegations, more than a week later leadership with another finance company, GM Financial, was granted a request to close a dealership in Floydada. GM also wanted a full accounting between parties and froze payments of dealer hold-back funds.
Around the same time, Ford Credit had time to dig through documents and noted the irregularities were more far-reaching than initially thought.
The company called it a “massive breach” and accused the auto group of misrepresenting sales-reporting data, saying the company was selling vehicles, then reporting the sale about 55 days later.
Ford Credit alleged the auto group “double-floored” at least 85 vehicles, which means it got floor-plan financing for one vehicle at a dealership and obtained the financing again for the same vehicle at a different dealership.
“Double flooring is more than just a contract breach,” Ford Credit said in court documents. “It is loan fraud and, if proven to be true, a crime punishable by years in prison.”
Ford Credit calculated about $41 million was C on the auto group’s watch, allegedly by mismanagement or fraud.
The credit company also made the case that this was the largest case of fraud in the history of the United States.
With little defense and continued silence, the auto group was hardly heard from. This was until an apology was issued to its customers.
On Aug. 15, the group formally issued that statement.
“The Reagor-Dykes Auto Group team would like to apologize to all of our customers, friends, and employees who have had to suffer any type of inconvenience during the last couple of week,” the statement read.
Ford Credit demanded a trial by jury in its lawsuit against the auto group, but had to wait until bankruptcy proceedings were resolved to move ahead. While those proceedings continued, Ford Credit listed out the dealerships in Amarillo, Floydada, Plainview and three others that owed money.
In total, the outstanding debt was estimated at more than $113 million with more than $40 million due at the time, according to court records.
About 700 employees were immediately affected by all of this, and with time permanently lost their jobs. By this point there was no reversing course, and the lawsuits kept piling on.
More than a month had passed and by Sept. 5, a civil lawsuit was filed against Reagor, Dykes and three of the Lubbock dealerships. Ford Credit still wanted its $40 million it said it was owed.
It was with that lawsuit allegations of criminal activity came forward.
Dykes told Ford Credit in a response to the lawsuits that the auto group’s former Chief Financial Officer, Shane Smith, was responsible for the whole scheme and provided the false information about the company’s finances.
Dykes alleged that admission from Smith came after Ford filed the initial lawsuit. Smith was fired and that disclosure was then turned over to the United States Attorney’s Office.
The day after that allegation was made, Reagor also issued a statement but did not pin any blame on anyone – specifically not saying Smith committed any criminal actions.
Restructuring plans were made, changed, then cancelled. More banks came out saying they were owed money. Attorneys came and went.
All the while some customers had no cars or could not get Tax, Title and License issues resolved. Nearly 1,000 employees were out of a job.
Ford Credit objected to behind-closed-doors negotiations and some restructuring plans.
Then the auto group was ordered to leave most of its locations.
A company that provides protection products for customers buying vehicles even sued Reagor’s wife, Annette Reagor, for breach of contract.
A spoonful of relief was dished out to customers who were caught up in all the confusion in late-April. A bankruptcy court judge ruled in favor of customers to eliminate sales tax for Reagor-Dykes Auto Group customers that were in the process of getting their vehicles registered.
That offer came about after an agreement was reached with the Lubbock County Tax Assessor’s Office that allowed vehicles in Lubbock County to be registered without the tax.
However, that agreement did not address liens that were on trade-in vehicles.
Then in early June, thousands of items that belonged to the auto group were auctioned off.
On Oct. 1, Smith will stand in court for a sentencing hearing.
The sentencing comes from a guilty plea Smith submitted on June 18 after he was charged with one count of conspiracy to commit wire fraud by getting money through false documents.
Just about everything Dykes accused Smith of in the past was verified by this plea.
Court documents showed Smith and co-conspirators with the auto group transmitted fraudulent wire information to Ford Credit, which was estimated to cost the company about $27 million.
“Specifically, RDAG accounting staff would falsify sales dates,” court records stated.
Smith was said to be the mastermind behind a fake floor-planning scheme in which staff from the auto group would get files from old vehicle deals and submit the vehicle identification numbers as if the vehicle was being bought again.
There is no known date for when that scheme began, but all of it stopped after a surprise audit on July 27, 2018 – which was just a few days before Ford Credit filed its lawsuit against the auto group.
So far, Smith’s guilty plea is the only criminal charge to come from the numerous lawsuits and bankruptcy filing.
Bart Reagor still stands by his claim that he knew nothing of this.
Now, company leadership has to wait for a reorganization plan to be finalized, which is anticipated to come in September. The plan has been submitted but there is no word, yet, on any further actions.
A hearing that would have approved that reorganization plan, and the finalized amount the auto group would have to pay was pushed back on July 11. A new date has not been set.
But there is no coming back from this, it seems. All the company logos are gone.
The best hope the auto group has is if its reorganization plan is approved, it would have access to $14 million, which will only allow it to pay back debts and cover attorney’s fees.
The outlook is bleak for the Reagor-Dykes Auto Group and it would take a miracle, and then some, for the group to return to even a fraction of its once domineering status in West Texas. For now, it seems, the Reagor-Dykes Auto Group is all but a memory.
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