2 female employees plead guilty to conspiracy to commit fraud in RDAG case

(Jason Norton KCBD (custom credit) | (Source: KCBD))
Updated: Oct. 7, 2019 at 5:38 PM CDT
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LUBBOCK, Texas (KCBD) - Two more Reagor-Dykes Auto Group employees have pleaded guilty to fraud 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.

Previous story: 2 Reagor-Dykes employees plead guilty to bank fraud conspiracy

According to court documents, Lindsay Clare Williams says on or about July 27, 2018, she did knowingly and willfully combine, conspire, confederate, or agree with others, to commit bank fraud.

Williams was hired by RDAG in 2013 and later became a group accounting manager.

Williams admitted to investigators she and her co-conspirators kited checks through 19 bank accounts to falsely inflate the daily balances of RDAG’s accounts.

The documents said after Smith was notified of the anticipated legitimate deposits for that day, he would instruct the 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.

Some of the emails the FBI recovered show Williams and co-conspirators discussing the check-kiting scheme. For example, on March 24, 2019, Williams emailed the following instructions to the Amarillo location:

“Good morning! Shane wanted me to email you and ask if you could please cut about $320k in checks to RDAC and $320k to RDT and send them with a runner early this morning. We will be depositing checks for Amarillo today to offset. I know it’s short notice, but if your runner could leave by 11 or 11:15, we would really appreciate it. Thank you so much!”

Many emails like this one were discovered during the investigation.

After many RDAG entities filed for bankruptcy, BlackBriar Advisors LLC became the Chief Restructuring Officer for the RDAG bankruptcy cases. According to D. Lyndon James, the Acting Chief Financial Officer, the factual statement says, “Williams has been instrumental in helping BlackBriar understand the automobile dealership business, the operations of the various Reagor Dykes dealerships, and the complex administrative process of the industry.” James also said on record Williams has assisted RDAG customers with “obtaining or regaining legal rights to the vehicles they purchased or the ones they traded in.” He goes on to say “Williams has been the key contact within the team with retail automotive lenders concerning vehicles they have funded.”

Paige Anna Johnston has pleaded guilty to conspiracy to commit wire fraud. The plea documentation says she did knowingly and with intent to defraud, devise, intend to devise, and participate in a scheme to unlawfully enrich Reagor-Dykes Auto Group, herself, and others, by deceiving Ford Motor Credit Company and fraudulently inducing it to send money to RDAG.

Johnston was hired in 2015 to be the RDAG’s office manager for the Floydada, Texas store.

Court documents show Johnston and her co-conspirators received funds for RDAG from Ford Motor Credit by means of wire communications in interstate or foreign commerce.

In June 2018, Ford Motor Credit conducted an audit of the inventory at the RDAG dealerships. Ford Motor Credit reviewed the sales information for 150 vehicles and determined the sales dates reported to Ford by RDAG for 147 of 150 vehicles did not match the sales and/or registration dates reported by the Texas DMC and/or other publicly-available sources.

On average, those 147 vehicles actually sold 55 days before RDAG paid Ford Motor Credit, which is not in compliance with its floor plan agreement.

“In 15 instances, Ford Motor Credit found where RDAG sold a vehicle then, after it was sold, floor planned that vehicle with Ford Motor Credit again, even though it was no longer in inventory, thus obtaining financing payments from Ford Motor Credit under false pretenses.”

The documents say Ford Motor Credit conducted what were supposed to be surprise audits. However, RDAG would learn in advance when Ford Motor Credit’s quarterly floor plan audits were going to take place, and would disseminate that information to the RDAG’s controllers or office managers in the dealerships.

The documents says Johnston and other office managers would prepare for the floor plan audits by creating false paperwork, sometimes referred to as “dummy shucks,” on vehicles that were sold out of trust, in order to make it appear as tho the vehicles had just been recently sold and were not out of trust. Specifically, RDAG’s accounting staff would falsify sales dates.

The court documents say RDAG’s accounting staff would submit false information by interstate wire communication to Ford Motor Credit in order to acquire new floor plan funding, which was then applied toward the large payoffs to Ford Motor Credit after each audit. RDAG’s accounting staff would submit requests to Ford Motor Credit for new floor plan funding for vehicles that had already passed through the dealerships months or years before.

RDAG’s staff would retrieve files from old car deals and submit the VIN, via interstate wire communication, to Ford Motor Credit as though RDAG were buying the vehicles again, when in fact was not. RDAG’s accounting staff referred to this practice as “re-flooring,” “fake flooring,” or “dummy flooring.”

FBI agents learned that by the time of the March 2018 and June 2018 audits, and possibly as early as January 2018, RDAG’s accounting staff in at least one dealership ran out of vehicles to re-floor. The Snyder dealership, which floored with GM Financial, sent a list of its Chevrolet inventory to the Floydada dealership to be floored with Ford Motor Credit. In other words, RDAG obtained a loan from Ford Motor Credit for the same vehicle that was pledged to GM Financial as collateral for the floor plan loan on that vehicle. RDAG’s office staff referred to this practice as “double flooring.”

The FBI recovered emails showing that Shane Smith, RDAG’s Chief Financial Officer, and his co-conspirators discussed fake flooring. Specifically on March 20, 2017, Smith emailed instructions to submit fake flooring:

"Whatever it takes, we need to floor anything and everything we can even think of to cover payoffs each day...that is going to be the key!!!! That and having seriously huge CIT!!!! The deposits we do each do will most likely cover the checks we write each other!!

On March 21, 2018, Smith emailed these instructions:

“I want us to load up as much as we can on flooring funding and deposits today!! Huge day. Don’t care what you find to floor, just get it all in there!!!”

Other employees or co-conspirators would email Smith and discuss fake flooring. Specifically on March 23, 2018, an RDAG employee emailed Smith and asked, “Are we fake flooring again on Monday?” Shake replied the same day, “Just get them ready and we’ll see how we do each day. First each day, enter everything normal/regular that you have and then we’ll have some ready if we need to cover any. Your payoffs are not a ton, so maybe we can keep it low or to a minimal on the fluff.”

The sentencing hearing for both Johnston and Williams is set for Feb. 19, 2020 at 10 a.m. in Amarillo.

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