The owners of defunct used-car dealership Metro Auto Center defrauded their inventory lender by selling dozens of vehicles they knew they weren't going to pay for, documents filed in U.S. Bankruptcy Court allege.
A complaint filed by attorneys for the lender, Manheim Automotive Financial Services Inc., says the owners shouldn't be able to cancel the debt on those vehicles, despite their filing for Chapter 7 bankruptcy protection.
The owners, Tony-Khalid Salem and Amira Salem, filed for liquidation bankruptcy protection June 22. They filed individually, not through their company, Metro Auto Wholesalers LLC, which did business as Metro Auto Center, because they had personally guaranteed much of the debt.
Manheim employees began noticing missing vehicles during lot audits in May, said Matt Derstine, the finance company's Phoenix bankruptcy attorney.
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"There were a large number of vehicles that had been sold, but Metro Auto had not paid Manheim," Derstine said.
When a car dealer sells a vehicle, it has to pay its inventory lender within a specific time, but Metro Auto hadn't done that, Der-stine said.
"It certainly raises the question: Where did the money go?" Derstine said.
The Salems' bankruptcy attorney, Scott Gibson, said he would try to settle the complaint quickly. As for the money, it went into operating the company, he said.
The Manheim complaint says Metro Auto sold 46 of its vehicles "out of trust" - in other words, without paying for them.
Manheim suffered damages of more than $360,000, not including interest, because of these "out of trust" sales, the complaint says.
In May, Manheim auditors went to a Metro Auto lot and realized 10 vehicles were missing and unaccounted for, the complaint says. Tony-Khalid Salem talked with Manheim representatives and discussed the vehicles, and Salem indicated Manheim had not received payment because of delays with the bank, the suit says.
The complaint contends those statements were false and "Salem knew they were false."
During a June 3 lot audit, Manheim discovered that of 66 vehicles it loaned Metro Auto, 36 more, in addition to the 10 previously noticed, had been sold out of trust.
The complaint also says that on June 2, Manheim released title on five vehicles upon receiving checks totaling $65,052 from the Salems. Once the Salems had sold those five vehicles at auction, they stopped payment on the checks, according to the complaint.
The Salems' acts were committed with the intent to defraud Manheim in an effort to liquidate the finance company's collateral and use the money for their own personal use, the suit argues.
Metro Auto, which had used-car lots at 4901 N. Oracle Road and 3901 E. Speedway, shut down and removed cars from its lots early this summer.