AMARILLO, Texas (KAMR/KCIT) — For more than three hours Tuesday afternoon, officials from the prosecution and the defense questioned former Reagor Dykes Auto Group Chief Financial Officer Shane Smith as a witness on day two of the jury trial of Bart Reagor in Amarillo Federal Court.
According to previous reports by MyHighPlains.com, Reagor is facing two counts of bank fraud and one count of making false statements to a bank. Reagor pleaded not guilty to the counts in an Amarillo Federal Court appearance in April.
After a lengthy jury selection day on Monday, the second day of the trial began with opening statements from both the prosecution and the defense, each outlining their prospective sides to the case. A total of four witnesses were then brought forward by the prosecution and were questioned by the prosecution and the defense.
Smith, according to previous reports, was charged with fraud in Amarillo federal court in June 2019. Smith then accepted a plea deal that could land him in prison for approximately 20 years. Smith was the organizer of the check kiting and floor plan fraud schemes which helped cause 13 former auto group employees to plead guilty in Amarillo Federal Court.
Smith’s appearance in court
During the questioning of Smith, officials with the prosecution brought back an email highlighted to the jury during opening statements. At that time, U.S. Attorney Joshua Frausto referenced an email from Reagor in May 2017 sent to Smith and Reagor Dykes Auto Group co-owner Rick Dykes which stated that the way the auto group was going to manage a $10 million working capital loan from IBC Bank was planned to be “100,000,000% confidential,” and not anyone’s business, including the bank’s.
In the email, Reagor outlined his intentions to take out a 33.3% cut of all the loan proceeds to both Reagor and Dykes’ personal bank accounts as a “personal equity offset reserve,” another use than the day to day funds a working capital loan is used for.
Because the $10 million loan was split into two $5 million increments, approximately $2 million went to Dykes and Reagor, as well as bonuses for the auto group’s “Deal Team,” which helped the auto group secure the working capital loan from IBC.
During his testimony, Smith said he was frustrated when he got the email, saying he was “really hoping we could use the money for the Reagor Dykes entities who needed it.” Smith stated that working capital was not sufficient for the decade Smith worked for the auto group.
Even though he was frustrated initially, Smith said he did not raise his concerns to Reagor regarding the use of the funds, responding to the initial email by saying “Awesome. I will ensure it is executed exactly as written, reviewing and getting approval from you each step along the way…”
Officials with the defense questioned Smith’s credibility numerous times, stating that he was only testifying because of the potential of a shorter prison sentence. They also stressed that Smith violated Reagor’s trust because he knew that Reagor trusted him on financial matters.
The defense claimed that because Smith did not raise his suspicions or discouraged Reagor about using the IBC Bank working capital loan for personal use, Reagor had no idea it was illegal. The defense also highlighted that Smith was one of the ones who received numerous bonuses from the IBC Bank working capital loan, not returning any of the money he received from the loan.
When asked why Smith did not approach Reagor discouraging him about using the IBC loan funds in this manner, Smith said that in his experience, Reagor did not want to talk about the auto group’s financial situation if it was not positive. He said he decided to ultimately give up on talking with him about financials, believing that Reagor himself had a firm grasp on the company’s financials.
When asked by the defense if he continues to care about Reagor, Smith stated “Yes, I do.”
Other Prosecution Witnesses
Prior to Smith being called as a witness Tuesday afternoon, the prosecution called three other witnesses to the stand, all being involved in some way, shape or form with the International Bank of Commerce (IBC).
First, the jury heard from William Schonacher, the president and chief executive officer for IBC Bank in Oklahoma, the entity which extended the $10 million working capital loan to the auto group.
While Schonacher was on the stand, he stated that Reagor did not tell him, or IBC Bank in general, that the portion of the $10 million working capital loan was going to go to personal use. He stressed numerous times that he would not have approved the loan, and it would not have gone through multiple rounds of review, if that was the case, stating he “would not have allowed it to get that far.”
According to previous reports by MyHighPlains.com, the auto group filed for Chapter 11 bankruptcy on Aug. 1, 2018. During Tuesday’s proceedings, Schonacher stated that an event occurred which would impact the auto group paying the loan back, causing the bank to lose more than $28 million. The fact the bankruptcy occurred on that date was not mentioned explicitly during Tuesday’s proceedings.
Schonacher said that Smith was the point person for the auto group for IBC, stating that Reagor was focused solely on the sales portion of the auto group when he met with officials from the auto group during an April 2017 meeting.
Thomas Hutchison, an attorney out of Oklahoma who drafted the initial loan agreement, was then called to the stand as the prosecution’s next witness.
As he recollected memories of putting together the agreement, Hutchison said there was never any other purpose of the loan agreement other than working capital, including personal use. He expressed that the loan agreement would have explicitly stated that the loan could be used for personal use.
Hutchison also stated that he worked primarily with Smith as a representative from the auto group. After questions were posed by officials with the defense, Hutchison said Reagor was not included on emails about the loan agreement to his recollection.
Prior to Smith’s appearance in court, the jury also heard from William Woodring, a former vice president of commercial banking and commercial lending at IBC Bank.
During his questioning, Woodring stated that he was the first IBC representative to meet with Reagor, which occurred in October 2016 at a Texas Tech University football game. Woodring was then present at the April 2017 meeting with Reagor Dykes Auto Group officials.
As numerous other witnesses stated Tuesday, Woodring stated the working capital loan was aimed to help the auto group’s exponential growth, injecting funds into the numerous entities under the Reagor Dykes Auto Group umbrella. A potential of personal use was not communicated to Woodring, he said.
Woodring said the first time he heard about the funds being used for personal use by Reagor and Dykes was when he was interviewed for the ongoing case. If Reagor had told him about this intention prior, Woodring stressed he would not have approved the loan.
Officials with the defense stressed once again that Smith was the point of contact for Woodring during the loan agreement process, stating that Reagor was “not focused on financials, but on sales.”
What is in store for Wednesday?
Officials with the prosecution stated at the end of the day that they have three witnesses left to question on their side:
- Steven Reinhart, the auto group’s former legal compliance director;
- John Whitworth, former Federal Bureau of Investigations agent;
- Steven Dawson, certified public accountant and certified fraud examiner.
The prosecution stated that their intention is to rest their portion of the case by lunchtime Wednesday. The defense is expected to begin their portion of the case Wednesday afternoon.
This story is developing. Check with MyHighPlains.com for updates