MYRTLE BEACH — A group of investors who gave $365,000 to the Lavin Sales Inc. used car dealership when it was facing financial problems in the early 1990s is suing the now-defunct business and the brothers who operated it John and Howie Lavin claiming they violated state securities laws and let CresCom Bank repossess automobiles that were supposed to secure their investment agreements.
The investors also are suing CresCom Bank, which shut down the dealership in May after learning that Lavin Sales allegedly had engaged in a decade-long check-kiting scheme that could cost the bank as much as $4.5 million. CresCom took the dealerships inventory, including more than 100 automobiles, even though it knew the investors had security liens on the cars, according to the lawsuit filed last week in Conway.
Gene Connell, a lawyer who represents the investors, has asked a judge to issue a temporary injunction against CresCom Bank, requiring the bank to return the automobiles to the Lavin Sales car lot or give all of the revenue from the car sales to the clerk of court until the litigation is resolved. No court date has been set for that request.
David Morrow, chief executive of CresCom Bank, has said he cannot comment on any matter involving a bank customer. Scott Brandon, a member of the banks board of directors and the banks spokesman, said the bank has not yet been served with the lawsuit and cannot comment until after it has seen the allegations.
William Monckton, a lawyer who represents John Lavin, said he has not yet seen the lawsuit and cannot comment.
Tommy Brittain, a lawyer who represents Howie Lavin, could not be reached for comment.
There are 10 investors named in the lawsuit, but Connell said he expects more will be added as new information surfaces. Most of the investors are from Horry County, although two live in North Carolina and one lives in New York.
According to the lawsuit, dealership founder Harry Lavin who died in 2010 hosted a cookout in the early 1990s for some of his customers and advised them that he would no longer be able to purchase additional cars for resale. Lavin Sales was in the midst of a Chapter 11 bankruptcy reorganization at the time, according to court records, and banks were not willing to lend money to the dealership.
Harry Lavin told the cookout attendees that he would pay them 12 percent annual interest on their investments if they would give him money to purchase cars and keep the dealership operating, according to the lawsuit. Harry Lavin sold notes to the investors and agreed that all funds backing those notes would be used solely for the purchase of cars for resale.
The 10 investors gave Lavin Sales a total of $365,000 at various times throughout the 1990s and received annual interest payments until May, when they learned the dealership had been shut down.
The investors now claim that the Lavins violated state securities laws because they never registered an investment prospectus or the securities they issued as part of the investment program. The lawsuit also accuses Lavin Sales and CresCom Bank of violating the states S.C. Unfair Trade Practices Act. CresCom Bank is accused of converting the cars for its own use despite security liens held by investors.
Connell said CresCom Bank knew investors had security liens on the cars because the bank previously allowed at least one investor to use the security liens as collateral for an unrelated loan from the bank.
The investors are seeking triple actual damages allowed as part of the S.C. Unfair Trade Practices Act and unspecified punitive damages and attorneys fees.
The investors lawsuit is the latest legal problem for Howie and John Lavin, who also are facing a debt collection lawsuit filed by CresCom, which claims Lavin Sales has not repaid $3.1 million in loans. David Canipe, who owns a Myrtle Beach auto parts store, also has filed a lawsuit against Lavin Sales, its operators and CresCom Bank. Canipe says CresCom wrongfully seized paint equipment he loaned to Lavins body shop as part of an agreement in which Canipe was to supply paint and related products to the dealership for a five-year period. Both lawsuits are pending.
The most serious allegations against Howie Lavin involve a check-kiting scheme that took place at CresCom Bank and Carolina Trust Federal Credit Union. Bud Watts, board chairman for CresCom, told shareholders in a May 25 letter that the alleged fraud was discovered after March 31.
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.
CresCom Bank formerly Crescent Bank in Myrtle Beach and Community FirstBank in Charleston said the scheme could cost the bank as much as $4.5 million. Carolina Trust has not provided a dollar figure for its projected loss, if any. CresCom and Carolina Trust are conducting internal investigations and are cooperating with federal criminal investigators.
Contact DAVID WREN at 626-0281