Mug Shot Monday – Auto Dealer Sentenced for Inventory Conversion

July 14, 2014

By Bob Coleman
Editor, Coleman Report

autodealershipA Chicago auto dealer has been sentenced to six months of home confinement and six months in a halfway house for ripping off $340,000 from a community bank.

Tariq Khan, as owner of Urban Motors, purchased used vehicles at auction and from other dealerships and resold the vehicles in retail and wholesale markets.

In order to finance the purchase of vehicle inventory, Khan secured a line of credit for Urban Motors from TARP recipient Old Second National Bank, and the line of credit was secured by the dealership’s subsequent inventory.

Under the loan agreement, when Urban Motors sold a vehicle acquired and financed by the line of credit, the dealership was required to notify the bank and to apply the sales proceeds toward Urban Motors’ loan balance at the bank. Khan was also required to provide the bank with financial reports, including information about dealership inventory and the status of cars purchased using the line of credit, and to permit the bank to conduct on-site inspections.

Beginning in December 2008 and continuing until at least November 2009, when Urban Motors sold cars that had been purchased using the line of credit from Old Second, Khan falsely represented to the bank that the vehicles were still in Urban Motors’ possession, when in fact, the vehicles were not. Instead of applying proceeds from these vehicle sales toward the loan balance at the bank, Khan retained the proceeds and used the proceeds for operational and other purposes.

When an auditor asked Khan about the location of certain vehicles financed through the line of credit, Khan falsely stated that the vehicles were located at an automotive auction, at repair shops, with employees, and at another dealership location. Khan then attempted to conceal the scheme by promising to provide the bank with documentation establishing proof of vehicle locations, such as auction listings and billings for repair, knowing that no such documentation existed for the vehicles because they had been sold.

Says Tarp’s Inspector General, “Khan’s attempt to save his car dealership during the financial crisis by committing fraud on a bank funded with taxpayer TARP money is criminal and unconscionable. Rather than apply proceeds from car sales to pay down his line of credit at TARP recipient Old Second Bank as required under his loan agreement, he kept the bank’s money and the sales proceeds. He caused losses to a TARP bank that ultimately was unable to repay its TARP investment or make required dividend payments. Taxpayers did not make the Herculean effort to bailout banks so that business owners could defraud those banks. SIGTARP will bring justice to criminals who put taxpayers’ TARP investments at risk.”