MYRTLE BEACH — Howie Lavin and the family-run Lavin Sales Inc. automobile dealership he helped operate are the focus of a federal investigation into an alleged long-running check kiting scheme that could cost one area bank as much as $4.5 million, according to the lawyer representing Lavin.
Conway lawyer Tommy Brittain said he is representing Lavin against any civil and criminal charges that might be filed in the case.
“It’s too early at this point to make any other comments,” Brittain told The Sun News on Monday. “There is an ongoing investigation and he intends to fully cooperate.”
CresCom Bank – formerly Crescent Bank – announced to its shareholders last month that it had been the victim of a check kiting scheme that took place for nearly a decade. The bank did not specify which business customer was responsible for the alleged fraud, but Brittain confirmed that it was the Lavin Sales dealership at 911 Jason Blvd. in Myrtle Beach.
David Morrow, chief executive officer of CresCom Bank, said he cannot comment on any matter involving a bank customer.
Charleston-based Carolina Financial Corp., parent company to CresCom Bank, said in its May 25 shareholders’ letter – which was written by board Chairman Claudius Watts – that the alleged fraud was discovered after March 31 and that “experienced banking counsel and litigation counsel” have been hired. The matter is still being investigated, according to the letter.
“We believe that, while a significant amount of potential loss is likely related to this item, the company, after reflecting this loss, if any, will not have a material impact on our regulatory capital,” Watts stated in the letter.
Scott Brandon, a member of CresCom’s board of directors and a spokesman for the bank, said CresCom is “probably in the best financial shape we’ve ever been in.”
“This is not great,” Brandon said, “but we’ll be fine.”
Brittain identified Carolina Trust Federal Credit Union as another financial institution that was a victim of the alleged fraud. It is not clear if there are any other banks involved.
Carolina Trust “was the victim of a check-kiting scheme perpetrated by one of our account holders,” said Angelia Johnson, the credit union’s vice president of marketing. “We recently discovered the matter, which involved one account opened less than five years, and the issue has been contained. The credit union has acted swiftly and diligently to minimize any potential loss, and the fraudulent activity will not have a major impact on the financial health and well-being of our credit union.”
Johnson did not say how much money, if any, the credit union might lose from the alleged scheme. She said the credit union continues to review the matter and is cooperating with federal investigators.
“In light of the ongoing investigation and our practice not to disclose non-public account holder information, we cannot comment further at this time,” she said.
Check kiting is an illegal scheme in which a person tries to take advantage of the lag time between when a check is deposited and when it clears. That lag time allows the person to create a false line of credit that is based on non-existent money. Check kiting schemes require at least two bank accounts and two or more banks, with worthless checks circulating back and forth between the accounts.
Most banks have computer software to detect such schemes. The shareholders’ letter did not say why it took CresCom so long to uncover the alleged fraud.
Meanwhile, Surfside Beach lawyer Gene Connell said he intends to file a lawsuit this week on behalf of seven or eight people who invested in Car Group Inc., a corporation run by Howie Lavin purportedly to raise money for automobile purchases. Connell said his clients have not been repaid for their investments. Connell did not have an estimate for how much money his clients have lost, but one client told The Sun News last month that he had not been repaid for his $150,000 investment.
Car Group Inc. was formed as Lavin Sales emerged from Chapter 11 bankruptcy protection in 1993. Investors were offered annual returns of 12 percent – about six points less than the interest rates banks wanted to charge the dealership because of its financial problems.
In addition to the check kiting allegations, CresCom has filed a civil lawsuit in state court seeking to collect on nearly $3.1 million in loans Lavin Sales had taken out in recent years.
CresCom Bank seized Lavin Sales’ automobiles and equipment last month as part of a financing agreement it had with Howie and John Lavin – the two brothers who have operated the dealership their father, Harry Lavin, founded in 1987. That agreement gives the bank all rights to property and equipment owned by the dealership in the event of a loan default. In addition, John and Howie Lavin signed personal guarantees for the loans.
CresCom sold the dealership’s inventory of vehicles to recoup some of the bad debt, but more than $1.9 million in principal and interest remains due, with interest accruing at $324 per day, according to the lawsuit.
Another business owned by Howie Lavin – the Barefoot Resort Bar & Grill in North Myrtle Beach – was shut down last month. It is not clear whether the bank has seized any assets from that business.
CresCom Bank also has frozen the bank account associated with Lavin Sales.
The bank’s debt collection lawsuit states that Lavin Sales borrowed about $1.1 million from CresCom in October 2006, with monthly payments scheduled and a balloon payment of remaining principal and interest due in five years. The Lavins modified that loan agreement twice during a three-month period starting in November before defaulting on the loan in February.
CresCom also gave Lavin Sales a $2 million loan in January, the lawsuit states. That loan called for monthly payments before a final balloon payment to be made early next year.
Another lawsuit was filed last week against the Lavin Sales dealership and CresCom by David Canipe, who owns a Napa auto parts store in Myrtle Beach. Canipe says CresCom has wrongfully seized paint equipment he loaned to Lavin’s body shop as part of an agreement in which Canipe was to be the sole provider of paint and related products to the dealership for a five-year period. The paint equipment was supposed to be returned to Canipe if the agreement was dissolved, according to the lawsuit, but CresCom seized it along with the dealership’s other equipment last month.
Lavin Sales was an independent dealership that sold only used vehicles. Harry Lavin, who had sold automobiles for others for more than 25 years before opening his own dealership, died in 2010.
Contact DAVID WREN at 626-0281.