More than a dozen used car salesmen and managers were arrested by federal authorities and charged with a multi-million-dollar fraud scheme that targeted American Indians and victimized lenders, including at least five area credit unions.
Authorities charged the employees, who all worked at now-defunct Florek Motors Inc., with using a variety of schemes to defraud members of the Hopi and Navajo Indian tribes, 15 auto lenders, two automotive warranty companies and wholesale auctions, out of as much as $15 million.
"This is the largest case of its nature in Arizona on file," said assistant U.S. Attorney Mark Aspey, who is prosecuting the case.
Among those charged are Jay Wigdore, 43, and Steven Florentino, 48, who bought the dealership from its founder and namesake, Joe Florek, in 1999. Florek was not involved in the scheme, Aspey said.
A 38-count federal indictment alleges the car dealers exploited the indirect lending programs of at least three credit unions-Arizona State Savings and CU, Arizona Central CU and Salt River Project CU-by bringing them hundreds of Navajos and Hopis who were unqualified borrowers and falsifying documents to get them credit union loans. At one point in 1999, the alleged scammers even opened a dealership, Gray Mountain Auto Connection, at Gray Mountain, Ariz., adjacent to the Navajo reservation, to facilitate the scheme.
The indictment charges the car dealers targeted the American Indians "who possessed little or no formal education, often spoke little or no English, and therefore, would be less likely to discover they had been defrauded."
Todd Pearson, chief operating officer for Arizona Central CU, who was president of Credit Union Advantage Program, Arizona's indirect lending program, during the time of the scheme, said some of the deals coming out of Florek raised flags early on so that they stopped funding sales through the dealership. The losses at Arizona Central CU were not significant. "We didn't get stung as much as some of the credit unions did," he said.
The biggest credit union victim was Arizona State Savings & CU, which is on the hook for hundreds of thousands of loans, according to authorities. Officials at the credit union did not return phone calls seeking comment.
A representative of Salt River Project CU said they knew nothing about the case.
The indictment charges the suspects with creating phony tax returns, credit scores and other documents; forging signatures; check kiting; making fictitious Blue Book forms to mislead borrowers; rolling back odometers; misrepresenting the condition of the cars; and a deposit floating scheme by which the dealers allegedly moved millions of dollars in funds between various institutions to hide overdrawn accounts. The dealership was also selling stolen or salvaged cars without disclosing their true condition, according to Aspey.
"These guys (the dealers) got pretty innovative," said Michael Atchison, who now heads the indirect loan program. "They were dummying up tax documents, W-2s, pay stubs."
The problems of the lenders were exacerbated when they went to repossess the cars but had to navigate a minefield of laws on the Indian reservations, which are sovereign nations, noted Atchison. A lot of the grief suffered by the lenders could have been avoided by greater due diligence, he said.
Other lenders victimized by the alleged fraud scheme include: Bank of America, Bank One, Wells Fargo, First Security Bank, Household Automotive Finance, Community First National Bank, AmeriCredit Financial Services, GE Auto Financial Services, and Triad International.