UPDATED: 10/3/12 2:50 pm ET
A former South Carolina dealer has been arraigned on charges he conspired with two finance managers and other employees to defraud customers, lenders and American Suzuki Motor Corp. through long-running illegal credit and marketing practices.
A federal grand jury on Sept. 12 had indicted Paul Michael (Joe) Gibson, president of two Joe Gibson's Suzuki dealerships in Spartanburg and Gaffney, S.C., as well as eight former Gibson employees and an ex-employee of American Suzuki.
The scheme allegedly began in 2006 and continued until August 2008, a month after the dealerships filed for bankruptcy protection. The stores closed shortly thereafter.
At the Sept. 27 arraignment, all 10 defendants pleaded not guilty and were released on $25,000 unsecured bond, Assistant U.S. Attorney David Stephens said. A pretrial conference is likely to be scheduled to take place in 30 to 60 days from the arraignment.
Gibson's lawyer, Jack Swerling of Columbia, S.C., told Automotive News: "We've read over the indictment, and he denies the allegations. We intend to meet the charges head-on."
According to the indictment: "The defendants used false, fraudulent and incomplete vehicle loan applications," including false job and income information, to induce financial intuitions to provide funding. They also allegedly processed loan applications in the name of customers' relatives without the relatives' knowledge, forged relatives' signatures and inflated vehicle sales prices to obtain financing for more than customers had agreed to pay.
The scheme included fraudulent retail delivery reports to American Suzuki in which the number of sales was inflated so that Gibson's dealerships could qualify for cash and other incentives that they weren't entitled to, the indictment charged. That practice is referred to as "dirty punching."
As for customers, the indictment described a variety of allegedly deceptive techniques used to sell vehicles. Hundreds of customers filed lawsuits and shared a multimillion-dollar settlement provided by American Suzuki, Gibson and participating lenders.
"The defendants, along with others, engaged in fraudulent and deceptive sales practices designed to induce consumers to purchase automobiles and other vehicles," the indictment said. Their techniques include promising small payments "for life" so customers could "lock in low monthly payments" of $47 to $99 with no down payments.
Radio, TV and newspaper ads falsely promised that eligible customers "could obtain a new vehicle for life or a new vehicle each six, nine or 12 months for a minimal payment each month," sometimes as low as $0, the indictment said.
However, it said, "customers were unable to realize the deals and terms promised, including the fact that no customers were able to refinance and/or exchange vehicles to the extent promised."
Sales contracts included base model prices significantly higher than actual market or sticker prices, according to the indictment, and customers were told to "totally disregard any numbers on the contracts because they would never be obligated to pay anything more than the agreed, low monthly promotional amounts."
Customers later discovered, however, that they couldn't continue those promotional amounts.
Arraigned alongside Gibson were two dealership finance managers; a general manager, a general sales manager; a sales manager; a head of business development; a funder, whose duties included putting together financing packages and forwarding them to lenders; and a biller, who entered data in the bookkeeping systems.
Also arraigned was Brian J. Sullivan, the former American Suzuki district sales manager responsible for the Joe Gibson stores.
Before the arraignment, a Suzuki spokeswoman said that Sullivan is no longer employed by Suzuki, though she did not know when Sullivan's employment ended. The spokeswoman declined to comment on the case, citing policy to not comment on pending litigation, and declined to provide contact information for Sullivan.
According to South Carolina media reports, Sullivan is a resident of Lawrenceville, Ga. Calls to a telephone listing under that name in Lawrenceville went unanswered, as did a fax sent to the same line.
Ryan Beene contributed to this report