Defense changes plans, does not call Rick Dykes on day 2 of Reagor fraud trial
AMARILLO, Texas (KCBD) - During the second day of testimony in the bank fraud trial for Bart Reagor, the defense announced to U.S. District Judge Matthew J. Kacsmaryk they will not call Rick Dykes as a witness, with no explanation given.
Dykes was listed as a witness to testify on behalf of Bart Reagor. He was expected to testify that he believed that receiving the distributions was lawful under the loan agreement. He was also expected to say that in applying for the loan, he did not intend to commit bank fraud, according to the witness list filed in federal court.
In April 2019, Rick Dykes agreed to a $58 million settlement involving the RDAG bankruptcy case.
Reagor charged with fraud over IBC bank loan
Bart Reagor is on trial for charges including bank fraud. Specifically, illegally keeping part of a business loan for himself. Federal prosecutors claim Reagor violated the loan agreement when he moved nearly $2 million out of a $10 million note into his personal account.
Reagor’s attorneys claim Reagor and co-owner Rick Dykes Dykes were using the loan to pay themselves back for their investments into the company.
U.S. District Judge Matthew J. Kacsmaryk said in court on Monday he expects the trial to go through the end of the week. The hope is for the jury to have a verdict at the end of the week.
Opening statements, testimony from Shane Smith on Tuesday
On Monday, the jury was selected and testimony began on Tuesday with opening statements. Later in the day, Shane Smith, the former financial officer for Reagor Dykes Auto Group took the stand. Smith was on the stand for about three and a half hours.
The jury was dismissed for the day after Smith’s testimony, which ended at 5:30 p.m. 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.
Steven Reinhart on Wednesday morning
On Wednesday morning, the jury entered the room and the prosecution then continued its case presentation after it was announced Dykes would not testify.
Steven Reinhart was called to the stand in his capacity as the former legal and compliance director for RDAG. He is the first cousin of Dykes and said he asked him to join the company due to growth in March of 2014.
He was not an attorney for RDAG and was not licensed in Texas. He was previously in New Mexico.
The prosecution outlined his own current criminal plea to misprision of a felony in the floor plan fraud. Prosecutors then questioned him about his role in reviewing documents for the IBC loan.
He says he was never aware Reagor would use the loan for personal expenses and says he would have told him he couldn’t divert it for his personal account.
On cross-examination by the defense, he was pressed on the fact he never gave legal advice to anyone at RDAG and the point person on the loan agreement was Shane Smith.
He said he was reviewing loan documents regarding the IBC loan for any possible errors and didn’t recall working capital being defined in the agreement.
Investigator John Whitworth
The prosecution then called John Whitworth, former FBI agent, and investigator on this case.
They outlined his review of financial records and how he traced the loan proceeds from IBC to Reagor’s personal account. The court was shown checks and statements of how he spent the money for personal use like payments to family, for house renovations, and investments.
Defense attorneys tried to press him on how those expenses would not be wrong if they were “legal” funds. They also pointed out he made payments to charity.
The court then recessed.
Cross-examination of Steven Dawson
The defense then cross-examined the prosecution’s last witness, Steven Dawson, a financial forensic investigator who was asked by the government to work this case.
Dawson agreed with the prosecution that he found RDAG was in a weak cash position and that working capital was needed. He agrees working capital is for business expenses and not personal use. He doesn’t know what Reagor would have meant by the distribution to him and Dykes being a “personal equity offset.” That was his statement in an email about the IBC loan and the defense argument that the personal distribution would be a reimbursement for owner investment into RDAG.
The defense in cross-examination of Dawson questioned him about his work for the government on the case and the payments he and his firm received for the work. They also again asked if working capital was defined in the loan agreement and Dawson said it wasn’t.
Prosecution rests Wednesday morning
The prosecution then rested its case at 10:50 a.m.
After the jury left the room the court took up a motion by the defense for acquittal. Reagor’s attorney argued that Shane Smith was the lead on negotiation for the loan and communications with IBC. The defense said Smith testified that he never asked Reagor to submit false documents to IBC and there was no evidence that anyone other than Smith misled IBC.
The prosecution in response said the April 2017 meeting is the evidence there was an omission of material fact that Reagor was intending to use part of the loan for his personal use. The prosecution pointed to testimony from the IBC president that in that meeting with Reagor the loan was requested for working capital.
The judge denied the motion and reminded the defense it could renew the motion when it closes its case.
Law professor Frank Snyder defends Reagor’s use of loan
The defense presented their case for about an hour and a half on Wednesday afternoon, standing on the presumption of innocence.
The defense began by calling Frank Snyder, a professor of law at Texas A&M University specializing in contract law and contracts for loans such as the one in question in this case.
The defense pointed out he has been present throughout the trial and reviewed all exhibits and testimony, including the loan agreement and prior versions of it.
Snyder said he doesn’t believe there was anything wrong with the disbursement to Reagor’s private account. He said any representations or agreements made before the final contract are irrelevant and negotiations commonly change. The only thing that matters is what the contract says, according to Snyder.
Snyder agreed with the defense that “working capital” is only mentioned once in the loan agreement. In his opinion, Reagor’s use of the portion of the loan is legitimate as working capital and allowable as a reimbursement from an investment by the owner in the company.
The prosecution began its cross examination by questioning Snyder about the ability of bank accounts from members of an LLC to comingle with the company’s bank accounts. There was much disagreement over this.
Prosecutors questioned Snyder about when he was hired by the defense as an expert witness, which he says was probably three weeks ago and asked about his payment.
The government ended questioning with questions about fraud and breach of contract. They ended by pointing out he never gave advice to Reagor before the loan agreement was made.
Upon redirect the defense asked if he would advised Reagor that he could have taken a distribution and Snyder said he would have.
Banking expert Steve Fried testifies on terms of loan agreement
The defense then called Steve Fried, an expert witness in banking.
Fried was asked about measures a bank could take to protect itself in a loan agreement such as the one between IBC and RDAG.
Fried said there were two provisions that he believes should have been in the agreement such as one about debt to net worth ratios and requiring a certain ration of working capital in the company.
He believes the distributions were proper and at the discretion of the management of the company.
On cross examination the prosecution also asked him about when he was hired by the defense, which Fried said was three weeks ago, and his pay.
Prosecutors asked if Reagor could have taken the loan to gamble in Las Vegas and Fried said he could have.
Defense attorneys pointed out he didn’t do such with the portion of the loan. Fried was then asked if there would be any issued with how a loan was spent if it was being paid back. Fried said there would not be an issue.
Former Reagor CPA Charles Darter testifies for defense
The third and final witness for the defense was called next. It was Charles Darter, CPA for Bart Reagor since Reagor was 22 or 23 years old, according to Darter.
Darter said Reagor was an excellent car salesman but “not great” at financial matters. Reagor relied on Darter and trusted him to take care of that, according to questioning.
Defense asked about his role in RDAG and Darter said he took part in its structuring. He first found out about the need for working capital during meetings with Shane Smith as well as Reagor and occasionally Rick Dykes. Darter said it was needed to make RDAG “financially healthy.”
Smith, according to Darter, told him of the bad audit from Ford Motor Credit, took responsibility but never said exactly what happened. Darter said Reagor and Dykes were never implicated by Smith.
Darter told the courtroom that Reagor and Dykes were taking 40 percent of profits monthly and they agreed to reduce that to 30 percent.
The defense questioned him about Reagor’s tax payments, which Darter said he always paid in full on a timely basis.
The defense ended its initial questioning of Darter by pointing out Reagor and Dykes injected capital into RDAG and that Shane Smith was delegated 100 percent of financial matters.
Prosecutors asked Darter on cross examination if Reagor was a friend and Darter agreed.
He said he only handled taxes for Bart and RDAG.
Prosecutors turned to the IBC loan to which Darter said he had no knowledge of and did not see the loan agreement. He did say the $1.7 million Reagor obtained from the loan in disbursement was treated as capital for tax purposes.
Closing arguments begin Thursday
The defense then rested after calling those three witnesses. Seven were on the defense list filed in September.
There was no rebuttal by the prosecution and both cases were closed.
The defense moved for acquittal again, but the judge denied it, saying there is enough evidence to proceed.
The jury was dismissed for the day, closing arguments will begin at 8 a.m. Thursday.
MORE: REAGOR DYKES COVERAGE
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