Former financial officer for Reagor Dykes Auto Group takes the stand in Bart Reagor bank fraud trial
LUBBOCK, Texas (KCBD) - Bart Reagor was flanked by attorneys and backed by family as he sat at the end of the defense table for the first day of his criminal trial in an Amarillo federal courtroom Tuesday. Reagor faces two counts of bank fraud and a count for making a false statement to a bank.
The prosecution led the one hour of opening statements and began presenting its case, accusing Reagor of keeping secret his intention to divert $1.7 million from a $10 million working capital loan to the Reagor Dykes Auto Group from the International Bank of Commerce (IBC) to his personal banking account for personal reasons.
In opening statements, the prosecution presented one of its key exhibits, an email from Reagor to former RDAG Chief Financial Officer Shane Smith and RDAG co-owner Rick Dykes titled “handling capital.” The exhibit was brought up again when Smith was called to the stand as the government’s fourth witness.
After questioning Smith about Bart Reagor’s influence on his actions as CFO, the prosecution outlined for the jury Smith’s role in RDAG’s floor plan fraud and check-kiting scheme, in which he has pleaded guilty to conspiracy to commit wire fraud. Smith agreed he led the scheme, recruited other employees but did not tell Reagor or Dykes of his effort “to keep RDAG alive.” Reagor’s defense counsel spent much of the day pointing the finger at Smith for his criminal actions, saying he was what was “rotten” at RDAG and called him “Judas” for his betrayal of Bart Reagor. The defense told the courtroom Smith was only testifying to have his sentence reduced for his guilty plea.
The prosecution turned to the IBC loan and questioned Smith about the need for working capital after an audit in March of 2017 by Ford Motor Credit Company revealed the floor plan fraud. Smith said Reagor instructed the company to cut expenses and raise capital.
A meeting in April started the communication between RDAG and IBC for a loan. Smith said the meeting took place in Reagor’s Lubbock office with the pair and IBC representatives including its president and CEO William Schonacher. The prosecution asked Smith if in any conversation with the bank that it was said the money would be used for anything other than working capital. Smith said nothing other than use for working capital was stated.
Smith was told by Reagor how the loan would be used prior to the meeting, according to that email presented by the prosecution. It was sent before the loan was closed and Reagor outlined how the loan was to be dispersed to himself and Dykes, followed by his message to keep how the capital was managed confidential, that it was “not anyone’s business” including “no bankers or anyone else.” Defense attorneys in their opening statement said Reagor kept his business matters confidential and there was no criminal intent.
correction: In an earlier version of this article, KCBD mistakenly reported Rick Dykes sent the above-mentioned email when testimony showed Bart Reagor sent the email. The article has been corrected.
The defense added that the disbursement for Reagor and Dykes was for their own personal investment into the company. However, prosecutors presented personal financial statements showing Reagor owed RDAG more than $5 million.
Smith said he was frustrated by the email, hoping the money would be for RDAG and that he responded by saying he would ensure it’s executed as written with Reagor’s approval every step of the way. The defense pointed out Smith’s email response began with the word “awesome” and he went on to thank Reagor and apologize for his role in the need for the loan.
Both the prosecution and defense asked Smith about taking bonuses from the loan disbursements that came in two deposits. Those bonuses were in the amount of $25,000. Smith said the bonuses were accepted by him and other employees.
In cross-examination, the defense began by rebutting an audio and video clip played by the prosecution for Smith and the jury. Reagor is heard bragging about his planes, homes, work ethic, and getting rich by making other people rich. The audio clip includes Reagor saying he did things by the book and that he didn’t need to cheat or lie. The video, which Smith said was a meeting with sales staff, shows Reagor talking about “OPM” or “other people’s money.” He said when he didn’t have money he got others to increase his net worth and there’s “no comprehension of what he’s pulled off.” The defense argued there’s nothing “insidious” about that.
The defense also asked Smith if he still cared about Reagor. Smith said he considered them brothers and said he still loves him.
Defense asked Smith if Reagor trusted him on financial matters and Smith agreed. He went on to point out Smith’s agreement that he never told Reagor not to take part of the loan for his personal use and the defense questioned why as CFO he didn’t advise him of that. In the line of questioning Smith admitted to submitting inaccurate bank balances to Reagor in the last two to three years of the company’s existence.
The defense returned to the floor plan fraud and check-kiting, listing the other employees he involved in the scheme. Smith said he feels terrible about it.
Prosecutors followed up by asking Smith if Reagor had a firm grasp of the company’s finances, to which he agreed and said he did not provide legal advice to the company. Prosecutors finished questioning on redirect by saying his testimony could only reduce his sentence if it’s truthful.
Smith was on the stand for about three and a half hours.
Before he was called, the prosecution brought IBC Bank President and CEO William Schonacher, attorney Thomas Hutchison who drafted the IBC loan agreement, and William Woodring who was the VP at IBC Bank and loan officer for the RDAG group loan to the stand.
Prosecutors and the defense parsed through the agreement and loan memorandum disagreeing on the term “working capital.” The government argued it meant it was for business expenses and the defense said it was not defined in the agreement and only mentioned once. Reagor’s counsel maintains the language of the agreement did not prevent him from taking part of the loan and he always understood that to be possible and legal.
None of the three witnesses said they were aware the loan would be used for personal reasons and Schonacher told the courtroom he would not have allowed the loan to go through if that were the case. He said it was the single largest default and loss for IBC. The defense argued that Shane Smith was the point person on all matters relating to the loan agreement.
The jury was dismissed for the day after Smith’s testimony, which ended at 5:30. Prosecutors have three more witnesses on their list, including the legal and compliance director for RDAG Steven Reinhart, former FBI agent John Whitworth, and CPA Steven Dawson, before the defense will begin to present its case.
The trial resumes at 8 a.m. Wednesday.
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