RDAG Trust files suit, claims AimBank helped facilitate check kiting scheme

((Source: KCBD))
Updated: Aug. 4, 2020 at 5:47 PM CDT
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LUBBOCK, Texas (KCBD) - More than two years after the first claims against the Reagor-Dykes Auto Group, legal action continues as the creditor’s trust for the bankrupt company filed a lawsuit claiming AimBank ignored warning signs of fraud.

The Trustee, established with the approval of the Chapter 11 Plan of Liquidation for RDAG, filed the lawsuit on July 31.

MORE: Claims in most recent Liquidation Plan provide new hope of compensation for victims of Reagor-Dykes fraud

This suit seeks to recover just shy of $9.4 million from AimBank. This legal action alleges the bank of ignoring warning signs and furthering the fraudulent schemes of former Reagor-Dykes Chief Financial Officer Shane Smith, and 13 others still awaiting sentencing after pleading guilty to federal charges.

The suit filed by Reagor-Dykes opens with allegations against current and former members of AimBank staff, including President and CEO Scott Wade, who they say should have been aware of a check kiting scheme “within the first few checks,” thanks to data analytics software employed by the bank that they claim would’ve informed Wade and others.

The lawsuit claims that with the sheer volume of inter-company transactions occurring daily between the RDAG companies, “AimBank’s Analytic Software would have been lit up like a Christmas tree.”

According to this document, for the Snyder and Lamesa dealerships alone, more than $449 million passed through the two business checking accounts in the year preceding bankruptcy, adding: “the aggregate deposits approached nearly one-third (1/3) of AimBank’s asset size and were in excess of 300% of the bank’s Total Equity Capital as of the Third Quarter of 2018.”

During the months of February, March and April 2018, a combined $206 million dollars went in and out of the Lamesa and Snyder checking accounts, the lawsuit states, which caught the attention of former AimBank Senior Vice President Mike Tibbit. Smith and Tibbit arranged a meeting on April 23, 2018, and over the following month, checks going in and out of the Lamesa dealership’s account fell 400%.

In that time, the lawsuit says Tibbit’s employment with AimBank was terminated.

The suit against AimBank also outlines the recovery of $5.2 million in payments that were made to the bank “in furtherance of [Shane] Smith’s fraudulent sight-draft scheme,” claiming that this allowed Smith to “create and control millions of dollars of ‘float’ to fuel his financial schemes by creating ‘sales’ of vehicles between the various Reagor-Dykes dealerships,” using a form of payment known as a “sight draft.”

Sight drafts are a bill of exchange used in international trade where a buyer accepts shipped goods and agrees to pay the seller immediately upon delivery.

Normal situations involving a sight draft would take place between a dealership and another third-party dealership, where a car would be purchased and the selling dealership would deposit the draft with the title to their bank. This bank would then communicate with the bank of the buying dealership to present the title and payment instructions. The buyer’s bank would inspect the title and issue a cashier’s check for payment while deducting that money from the buyer’s bank account.

The lawsuit states this entire process is useless when dealing with related companies, unless the intent is to create “float” cash: “the sheer volume of intercompany checks that were already being deposited between the dealerships would seem to moot any need for the use of this process at all.”

By this method the lawsuit claims Shane Smith and AimBank worked together knowingly since January 2017, to “deploy a perverted version of the drafting process,” and create additional “float,” which they say served as an unsecured lending facility for RDAG, while avoiding AimBank’s loan underwriting processes and review.

The final claim from this lawsuit stems from what RDAG refers to as a breach of contract between RDAG Snyder, AimBank and GM Financial in January of 2018. The suit claims the three groups entered into a “Deposit Account Control Agreement (“DACA”),” in which AimBank agreed to hold funds in trust from the RDAG Snyder account for GM Financial, but the suit states the bank allowed the dealership “to continue pursuing its fraudulent financial schemes by facilitating the dealership’s pattern of paying GM Financial only a small fraction of the account balance each month.”

The suit is seeking to recover $3,131,482.69 as the total lost by GM Financial.

AimBank has not yet filed a legal response to these claims.

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