A pair of local financial institutions has lost an estimated $7.8 million in a long-running check kiting scheme investigators say was perpetrated by Howie Lavin, co-owner of the once-popular Lavin Cars used automobile dealership that suddenly shut its doors in early May.
Since the dealership – which was founded in 1989 – closed its doors, the FBI has initiated a criminal investigation and at least five civil lawsuits have been filed against Lavin, some of them also naming his brother, dealership co-owner John Lavin.
The FBI would not confirm the investigation but Tommy Brittain, Howie Lavin’s lawyer, has said his client is cooperating with the criminal probe, which is in its early stages.
CresCom Bank, which first discovered the scheme last spring, said in a letter to shareholders that its losses could top $4.5 million. CresCom said in the letter that the check kiting had been taking place for as long as a decade.
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Scott Brandon, a spokesman for the bank, said the bank’s legal counsel has advised not commenting on an internal investigation until the criminal investigation is completed.
Carolina Trust Financial Credit Union, the other financial institution victimized by the scheme, has lost $3.3 million, according to Angelia Johnson, the credit union’s vice president of marketing. Johnson said the check kiting scheme took place over a less-than-five year period at the credit union.
“To date, we are unaware of any new public information regarding the results of the FBI’s investigation or the Grand Jury hearing related to Lavin Cars.” Johnson said. “No doubt the FBI is being extremely thorough in this investigation, looking at all involved parties.’
Although Johnson said $3.3 million is a “sizable loss to absorb,” she said the fraudulent activity “will not have a major impact on the overall financial health and well-being of this credit union,” adding that Carolina Trust “remains fiscally sound.”
CresCom officials also have said the check kiting scheme will not have a material impact on the bank’s finances or its soundness.
Questions have been raised over how a check kiting scheme could have lasted for so long. Most financial institutions have computer software in place that can detect check kiting patterns within days. 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 a person to create a false line of credit that is based on non-existent money. Check kiting schemes require at least two checking accounts and two or more banks, with worthless checks circulating back and forth between the banks.
Johnson and Brandon have said the credit union and bank cannot comment on specific account holders.
However, Howie Lavin’s long-standing business stature could have been a factor in the scheme.
“Unfortunately, willful acts of fraud perpetrated by trusted individuals make it more difficult to extend traditional banking courtesies to known account holders,” Johnson said. “We will continue cooperating with federal investigators and look forward to learning the details revealed by their investigation.”
It is not clear how long that investigation will take or what charges might result.
When Lavin Cars suddenly shut its doors in early May, dealership employees told curious customers that the business was simply in a “transition phase.” But as the days wore on and cars started disappearing from the lot, news started leaking of a financial scandal at the Jason Boulevard dealership. It turned out the dealership had not shut down voluntarily but its assets had been seized by CresCom in the bank’s attempt to help recover some of its losses.
The civil lawsuits that have followed include allegations that Howie and John Lavin owe CresCom Bank more than $1.9 million in unpaid loans, that the two men cheated investors in their dealership out of at least $365,000 and that the dealership’s body shop wrongfully kept about $20,000 worth of painting equipment loaned to it by a Myrtle Beach auto parts store. That store’s owner also filed criminal charges against Howie Lavin over a $20,000 worthless check he wrote to the store. That check bounced after CresCom froze the Lavin Cars’ bank account.
Howie Lavin also is facing the foreclosure of his home and a condominium and his restaurant – the Barefoot Resort Bar & Grill – was shut down just days after the dealership closed its doors.