LUBBOCK, Texas (KCBD) - Two former employees with the Reagor-Dykes Auto Group pleaded guilty for their role in a $23 million check kiting scheme, allegedly under the direction of the auto group’s former Chief Financial Officer, Shane Smith.
Sheila Evans Miller, 52, and Diana Herrera Urias, 53, pleaded guilty to conspiracy to commit bank fraud on Friday, Sept. 20.
Plea papers show Miller, who was an RDAG group controller, and Urias, who was an office manager, admitted the auto group engaged in a plot that concealed fraud by cross-depositing checks across several banks — also known as check kiting. The auto group is also said to have had an entire headquarters designed to kite checks.
“Due to the kiting, RDAG checks that should have bounced instead cleared during banks’ float time, the period between the deposit in the recipient account and the deduction from the payer’s account, according to their plea papers,” stated a U.S. Department of Justice news release.
Documents also show the auto group was struggling with expenses because of its growth, above-market compensation and unnecessary overhead, according to U.S. Attorney Earin Nealy Cox’s Office.
According to the federal documents, in February 2018 the Amarillo office of the FBI received information that RDAG was engaged in fraudulent activity. The FBI learned Shane Smith and other co-conspirators were involved with an extensive check-kiting scheme involving at least 19 accounts located at several banks.
The FBI interviewed several witnesses who said because RDAG was under-capitalized, RDAG kited intercompany checks to falsely inflate its account balances. The scheme grew over time. Just prior to the collapse on June 26, 2018, RDAG had an entire team at its headquarters designated to kite checks, according to court documents.
Two of the 19 accounts used to kite checks belonged to Reagor Auto Mall. Witnesses said checks went back and forth between the two RAM accounts at FirstBank & Trust and FirstCapital Bank of Texas. The FirstBank & Trust account had blue check stock, while FirstCapital had red check stock. The bank accounts usually had negative balances in the morning, sometimes as low as $900,000.
The documents said after Smith was notified of the anticipated legitimate deposits for that day, he would instruct Urias, Miller and other co-conspirators the total amount to cut from one account to the other by the end of the day. He would send an email saying “put 550k of blue” (referring to the color of the checks). Urias and Miller made up random amounts for each check to total the amount provided by Smith. The bank accounts usually showed positive balances again by the end of each day due to those checks.
A specific email from October 2017 was reference in the court documents saying an RDAG employee emailed Smith: “$298090.59. How much in blue checks today?” Smith replied, “$280k or more.” Urias and Miller were copied on these emails.
Another email from December 2017: RDAG employee emailed Smith $215." Smith replied, “Time to change up what we have been doing!! $450 blue checks.”
Once the kite collapsed, 33 intercompany checks totaling $1,639,799.00, which were all drawn on FirstCapital Bank, and all of which had been deposited into FirstBank & Trust in the latter days of July 2018, were returned to FirstBank & Trust by FirstCapital Bank due to “uncollected funds hold.” The 33 returned checks were dated between July 26, 2018 and July 30, 2018.
As of April 17, 2019, the actual loss due to the check-kiting scheme for the 19 accounts is as follows:
Miller and Urias face up to five years in federal prison and could be required to pay at least $23 million in restitution. Smith also faces up to 20 years in federal prison and will be required to pay a mandatory restitution of more than $50 million. Smith with be sentenced on Oct. 1, 2019 at 9 a.m.