U.S. Department of Justice says Judge should deny request after Reagor files motion to dismiss Bank Fraud charges
LUBBOCK, Texas (KCBD) - The U.S. Department of Justice has responded to Bart Reagor’s motion to dismiss fraud charges, saying the Court should deny the request.
Bart Reagor and his attorneys filed a motion Tuesday asking the court to dismiss a bank fraud indictment against the former owner of RDAG. Reagor was indicted in April on two counts of bank fraud. He is accused of diverting over $1.7 million in business bank loans to personal accounts. Reagor pleaded not guilty. The trial, originally scheduled for June 1, has been postponed to October 12, 2021.
In the motion, Reagor’s attorneys are seeking dismissal for “failure to state an offense.”
The government’s indictment alleges a single omission: that Mr. Reagor failed to disclose how he would use these “working capital” funds once disbursed. It does not allege any series of deceptive acts or transactions Mr. Reagor committed to “execute a scheme or artifice” to defraud IBC, within the definition of 18 U.S.C. 1344(2). The “indictment alleges omission as the scheme to misrepresent.” It also says, “The Fifth Circuit, while noting that half-truths and omissions can suffice for criminal fraud, nonetheless has only decided this issue in the context of a defendant’s multiple misrepresentations.”
Here, the government’s indictment accuses Mr. Reagor only of failing to disclose to IBC that he planned to divert some—but not all—of the loan’s proceeds into his personal account “for personal expenses.” It also alleges that the loan’s proceeds were for “working capital.” This working capital is alleged to have gone into the accounts of an entity in which Mr. Reagor was personally invested. The indictment does not allege that he made any affirmative misrepresentation regarding these funds, where they would go, or how they would be used. It instead alleges a single omission about how these funds would be used. In that respect, the term, “working capital,” is itself a nebulous, industry term that confers little meaning as to precisely how these funds were supposed to be used. Perhaps the government is aware of some other alleged misrepresentations on which they plan to rely at trial. If so, they needed to have alleged them. Instead, the indictment is silent as to: 1) what Mr. Reagor omitted about how he and his entity were going to use these funds; and 2) what prohibited Mr. Reagor from using the funds in the way in which it alleges he used them. This shifts the burden onto the defense to both guess as to the government’s allegations and put forth its own theories about what Mr. Reagor was required to disclose—if anything—but did not. The defense has no such constitutional obligation under either due process principles or the Fifth Amendment. These vague allegations do little to place Mr. Reagor on notice of the allegations against which he must defend. They do even less to meet the common law definition of fraud needed to allege a “scheme and artifice” pursuant to 18 U.S.C. 1344(2). The indictment thereby shifts the burden onto Mr. Reagor to prove his innocence, instead of forcing the government to be held to theirs. The defendant respectfully moves this Court to dismiss Counts One and Two of the government’s indictment, in accordance with the foregoing.
Reagor’s motion to dismiss argues that the indictment alleges only an omission, which cannot support a bank fraud charge.
According to a filed response from Prerak Shah with the U.S. Attorney’s Office for the Northern District of Texas, the court should deny the request in part saying “[Reagor’s] argument misunderstands the definition of a false representation” for the purposes of bank fraud rules.
The DOJ states the indictment “properly charged” the elements amounting to bank fraud, and Reagor was put on notice for “what conduct the government alleges was illegal.”
Judge Matthew J. Kacsmaryk has not made a decision on that motion. If denied, Reagor will stand trial next month and if convicted, faces up to 90 years in federal prison.
Last week Amarillo Judge Kacsmaryk ordered Reagor’s attorney’s to provide any records showing Reagor relied on his attorney’s advice when moving loan proceeds to personal accounts. That order came after Reagor’s defense attorney told local media Reagor was acting based on legal advice, which prosecutors say may be setting the stage for an advice-of-counsel defense in the criminal trial. The motion demanding records of that advice states bringing that up in trail would “detail the proceedings, require a lengthy recess, and inconvenience the court and the jury.” Prosecutors also claim that Reagor would waive attorney client privilege by claiming an advice-of-counsel defense. Reagor attorneys say asking for documents showing legal advice is excessive in this case and already involves more than 600,000 documents, according to the defense attorney’s response to the governments motion.
“What more discovery could the government possibly need in order to combat an advice-of-counsel defense when raised at trial? Much of the vast discovery already provided is comprised of years’ worth of emails between every member of the Reagor-Dykes Auto Group corporate entity, including its corporate counsel. The government has also already interviewed many, if not all, of these individuals. If the defense were to raise advice-of-counsel, we would not oppose a government request for a brief recess or continuance. But to suggest the government would require a ‘lengthy recess’ to address a ‘host of issues’ is belied by the vast discovery through which the government has already carefully culled.”
Judge Kacsmaryk granted the motion to compel stating Reagor’s attorneys placed protected information (attorney-client privilege) in issue through his media statements. Because he did this, “he implicitly waives its use protectively under that privilege.”
“Defendant may not simultaneously wield the privilege as a “sword” to combat the Government’s case while wielding the privilege as a “shield” to prevent disclosure of attorney-client communications.”
Reagor’s attorneys have until early next week to provide all communication Reagor intends to use in his advice-of-counsel defense.
Prior to Mr. Reagor’s indictment, 15 of his employees pleaded guilty to various crimes involving dummy flooring and check kitting at Reagor Dykes. Thirteen of the employees have been sentenced. Shane Andrew Smith, the former Chief Financial Officer for RDAG, and Steven Reinhart, the legal compliance director for RDAG, are expected to be sentenced in October.
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