Reagor Dykes estate sues Ford Credit for $315 million

The bankruptcy court docket estate for Reagor Dykes, the Texas dealership group toppled by claims it defrauded loan providers in an elaborate Ponzi-like scheme, is suing Ford Motor Credit rating Co. for $315 million, alleging that the captive loan provider knowingly turned a blind eye to its unlawful dealings.

The estate submitted the match in federal court docket in Lubbock, Texas, on Wednesday, alleging that Ford’s captive arm could not have acted in superior religion, as the loan provider “unquestionably knew or should have recognized” about the fraud strategies.

The $315 million sought in the match is the identical sum in curiosity payments the dealership group produced to Ford Credit rating from August 2016 to August 2018. Throughout the scheme, Ford Credit rating “racked up millions in income from curiosity” that the dealership and its prospects paid out on car deals originated at the retailers, the match also claims.

The Lubbock group imploded in 2018 just after Ford Credit rating and other loan providers sued it for floorplan fraud. Ford Credit rating in unique said Reagor Dykes, which submitted for Chapter eleven bankruptcy the day just after the initial match, bought far more than 1,one hundred cars with out repaying $41 million to fund their acquisition.

At the time, the group had 12 used-only rooftops in addition to its nine franchised dealerships selling Buick, Cadillac, Chevrolet, Ford, GMC, Lincoln, Mitsubishi and Toyota cars. The loan provider has said it is owed far more than $112 million.

‘Obvious crimson flags’

Reagor Dykes could hardly ever offer adequate vehicles to fork out its debts simply because of its out-of-regulate cost composition, according to the lawsuit, as it was crushed by financial debt stemming from an “intense expansion system, earlier mentioned-sector personnel compensation, and avoidable overhead.”

Extensive ahead of the group submitted for bankruptcy in 2018, “noticeable crimson flags” should have appeared in Ford Credit’s quarterly audits of Reagor-Dykes’ stock and financials, the match claims. An illustration of egregious fraud features a declare that a single Reagor-Dykes keep bought 45 % of its stock in a single 7 days.

By continuing to accept payments from the group, Ford Credit rating facilitated the “Ponzi or Ponzi-like” scheme of faux floorplanning financial loans and kited checks, which consists of checks cross-deposited between two or far more accounts to artificially inflate account balances.

The FBI investigated previous Reagor Dykes CFO Shane Smith, who pleaded responsible last June to conspiracy to dedicate wire fraud and posted $20,000 bond. Smith, who faces up to 20 decades in jail and a fine of up to $250,000, nevertheless has not been sentenced.

“Reagor-Dykes knew that its creditors would eventually be left holding the bag when its scheme finally collapsed,” the match said. “FMCC knew or should have recognized the identical detail.”

The group ranked No. 131 on Automotive News’ 2017 checklist of the top rated one hundred fifty dealership teams based mostly in the U.S.