Shane Smith told jurors on Tuesday he was frustrated after receiving an email from his boss with instructions on how to distribute the money from a $ 10 million loan he was hoping to go to dealerships who badly needed it.
Instead, he said a third went to the owners of the business, Bart Reagor and Rick Dykes.
Smith, the former CFO of the Reagor Dykes Auto group, was the fourth witness to testify during the second day of Bart Reagor, Reagor’s federal fraud trial in Amarillo.
Reagor, former CEO and President of RDAG, is charged with two counts of bank fraud and one count of misrepresentation to a bank. If found guilty on all counts, he faces up to 90 years in prison.
Prosecutor Joshua Frausto told jurors in his opening statement that government evidence would show Reagor concealed his intentions to pocket part of a $ 10 million working capital loan when he applied for the loan.
He told jurors that an email Reagor sent to former RDAG CFO Shane Smith six weeks before the loan deal was finalized showed his intention. In the email, Reagor told Smith that the processing of IBC’s working capital loan was “100,000,000% confidential” between Reagor, Rick Dykes, the dealership’s co-founder, and Smith.
Meanwhile, defense attorney Dan Cogdell told jurors he expects the evidence to show that no crime has been committed.
He told jurors that the loan agreement allowed the loan to be disbursed to Reagor, who only repaid himself for the personal investment he made in his business.
He said his client relied on Smith’s expertise and guidance for what the loan deal with IBC allowed.
Prosecutors accuse Reagor, who is on bail, of misleading the International Bank of Commerce when he applied for a multi-million dollar loan for his business and used about $ 1.7 million of that money to its personal use and benefit.
Smith, who is out on bail, faces up to 20 years in prison after confessing to his role in a separate fraud scheme. He admitted to staging a large-scale fraud scheme involving dummy check kits and flooring designed to cheat the dealership’s creditor, Ford Motor Credit Company, over $ 50 million.
In his opening statement, defense attorney Dan Cogdell told jurors that Smith should not be trusted and that he is using his testimony to get prosecutors to seek a lighter sentence when he appears before the US District Judge Matthew J. Kacsmaryk, who is also presiding over Reagor’s trial. , in December for a sentencing hearing.
He said Smith lied to many people, including Reagor.
“Just as sure as today is Tuesday, he’s a liar,” he said.
“This is your one and only chance to reduce your sentence if you can,” Cogdell told Smith.
Before jurors heard from Smith, attorneys combed through the loan agreement with officials from the Oklahoma-based International Bank of Commerce who granted the loan to RDAG and the lawyer who drafted the loan. OK.
Thomas Hutchison, a lawyer for GableGotwals, told jurors that the loan agreement he drafted did not allow part of the loan, which was described as a working capital loan, to be distributed to the owners of the concession. for their personal use.
William Schonacher, president of IBC, told jurors that he first met Reagor, Smith, Rick Dykes and other RDAG members in April 2017, when he visited Lubbock with other representatives of the bank to discuss the loan. He said he left the meeting impressed with Reagor’s sales strategy and vision for the business and understood that the loan would be used as working capital to inject money into the business. in order to support its growth.
He described working capital as the money used in the day-to-day operations of a business.
However, defense attorneys said the term working capital only appeared once in the loan agreement and was undefined.
Cogdell also has current assets minus current liabilities.
The IBC deal also gave RDAG about $ 29 million to consolidate the company’s home loans.
He said he would not have approved the loan if he knew Reagor intended to use part of it for his personal use.
Schonacher said the loan between IBC and RDAG also included the restructuring of the auto group’s mortgage loans. In total, the loan was about $ 39 million.
The default cost the bank around $ 28 million and represents one of the biggest losses in the bank’s history, Schonacher said.
He said he took the loss personally.
“I am the guardian of our organization,” he said. “I failed. I didn’t know what was going to happen to us.”
As Schonacher was presented with an enthusiastic portrayal of RDAG’s future at the April 2017 meeting, Smith told jurors the reality was terrible.
He told jurors that when he started working for the dealer group in 2008, it had two stores and 50 employees. A decade later, the group had 20 locations, through dealer buyout, and over 600 employees whose bets were about 20-30% higher than typical dealers.
Before its collapse, the automotive group was the seventh largest private car dealership in the country.
Meanwhile, the co-owners of the business were also taking money from the business. In total, Smith said Reagor and Dykes withdrew around $ 25 million of the company’s funds into their personal accounts.
in the automotive group suffered from its rapid expansion. He said the owners of the business, Reagor and Rick Dykes, added to the financial stress on the business as they would divert around 50% of the loans RDAG received into their personal accounts.
“Part of it started before I got there,” he said.
Smith said he orchestrated the fraud schemes that ultimately led to convictions for him and 14 other employees to keep the company afloat.
He admitted to betraying Reagor’s trust by hiding his fraud schemes which provided Reagor with weekly bank statements that were inaccurate.
However, a March 2017 floor plan audit gave Reagor some insight into the company’s financial distress.
Smith said Reagor had a plan to alleviate the shortage: cut spending and raise capital.
“We have achieved one goal: to raise capital,” he said.
During Smith’s testimony, prosecutors aired portions of a taped sales meeting in which he bragged about using “OPM” money – other people’s money – to get rich. .
“I’m a hell of a salesman,” you could hear him say.
In another clip, Reagor could be heard bragging about his mansion and planes.
“Do you know how I got rich?” You could hear him say. “By making others rich.”
He could also hear that he was doing everything from the book.
“I’m so good, I don’t have to cheat,” Reagor could be heard saying.
Smith said he didn’t know Reagor’s instructions were illegal, but he knew they were wrong. He also told jurors he was unsure if Reagor had read the IBC loan agreement and knew his plans would violate him.
Smith read an email Reagor sent him that explained how he wanted the IBC working capital loan to be distributed with one-third of the money going to Reagor and Dykes for their personal use.
In the email, Reagor tells Smith that the plan for distributing the money was “100,000,000% confidential between us and is NOT ANYONE ELSE’S MATTER … NO BANKER OR ANYONE ELSE. ‘OTHER … OUR BUSINESS! GAME ON … “
The email was sent six weeks before they received the first payment of $ 5 million.
Smith said he was frustrated after reading the email.
“I wanted (the money) to go to the dealers’ checking accounts,” he said.
However, he said he did not try to dissuade Reagor from doing so. In fact, he sent a response that began with “Awesome. I’ll make sure it’s executed exactly as written.”
The next day he said Reagor called him into his office and asked him if he understood his instructions in the email and Smith said yes.
Smith told jurors he gave up on convincing Reagor to change course when it came to dipping into RDAG’s accounts. He said previous attempts did not end very well and Reagor was not always okay with what he wanted to do financially for the company.
“He wanted to do what he wanted to do,” he said.
The trial resumes on Wednesday and is expected to begin with testimony from Steven Reinhart, the former chief legal and compliance officer of RDAG, who pleaded guilty to his role in Smith’s fraud scheme.