Editor's Note: Many who attended this year's Dealer Expo and the American V-Twin Dealer Show witnessed how a vehicle auction is conducted, courtesy National Powersport Auctions (NPA). And retailers were able to meet with other national and regional auction giants, such as Manheim, Eastern and others, on ways to boost their used-vehicle business by participating in the auction process.
But there is a more precarious side of the auction business, involving smaller houses who flit from state to state and dealers who say they were misled into believing they would make more from their consigned vehicles than they actually did.
The following is the latest in a series of investigative reports by contributing editor Holly J. Wagner on the perils of participating in vehicle auctions, especially when one has not done proper due diligence on the auction provider. It's a long read, but a worthwhile one, so get yourself a cup of coffee and settle in.
A powersports auctioneer who’s facing possible disciplinary action in Tennessee and criminal charges in Georgia has gone into bankruptcy. But take note: Some colleagues charged with him in the Georgia case are still doing business.
Furthermore, some powersports dealers say they are victims of business practices that are unethical, if not illegal.
The bankruptcy petition for John Vincent Trotter and his Trotter Auction Co., which did business under the shingles My Auction Connection (MAC), The Auction Connection and National Public Auction, show at least 21 powersports dealers and several marine and small engine dealers as unsecured creditors claiming they are owed money. Trotter is disputing most of the claims.
The bankruptcy comes as Trotter and a handful of his colleagues are facing criminal charges in Georgia, but the real scope of what authorities are calling theft and racketeering may stretch much further across time and jurisdictions than the government charges suggest.
Though a Georgia grand jury indicted four people – Trotter, Leon McGregor, Mary Mingle and Justin Wrenn – on theft, fraud and racketeering charges related to a single business deal, a trail of lawsuits and bankruptcies document the same conduct and overlapping personnel – including some of those named in the Georgia indictment – at several active and defunct powersports auction businesses.
The auctioneers say they’ve done nothing illegal and they plan to fight the charges.
The Tennessee Auctioneer Commission (TAC) summarily suspended Trotter’s auctioneer license and charged him with fraud early last year, but an administrative law judge threw the charges out on the eve of a June hearing. An attorney for TAC was able to get those charges reinstated, but Trotter appealed the decision, which is awaiting a hearing in Rutherford County Chancery Court.
Meanwhile the grand jury in Glynn County, Ga., returned its indictment on charges of theft by conversion, theft by deception and four racketeering counts on each of the named parties late last year. Those charges stem from an auction in which a Georgia marine dealer claims he lost $400,000, and another in which a powersports dealer claimed they were misled into a bad business deal.
Trotter and the other defendants could get 15 years for each of four racketeering counts and 10 years for each of two theft counts if they are convicted.
McGregor and Mingle pleaded not guilty Feb. 9; Wrenn has failed to appear in court and is subject to an arrest warrant as a result, according to Assistant District Attorney Jonathan Miller.
Trotter’s attorney, Joe East, has asked to withdraw from the case, delaying Trotter’s arraignment, but Trotter maintains his innocence.
“I feel like there is a misunderstanding. It’s totally about a contract issue. The disagreement came up because at the end of the auction [a marine dealer] felt we did not get enough money for his vehicles,” Trotter says. “The misunderstanding is over a reserve vs. absolute auction.”
In a reserve auction, the dealer consigning the vehicles may set a minimum price the item must bring, and the item is not sold unless that minimum is reached. In an absolute auction, the item sells for the highest bid, with no minimum.
Trotter says part of the issue may be with contract sales staff that solicited vehicles for auction. He acknowledged that McGregor was a contractor soliciting dealers.
“I’ve always used independent contractors, they are responsible for finding the inventory. They have lists of dealerships across the country. They contract them,” Trotter says. “Basically the way that relationship works, the [solicitors] would say they have this or that to sell, I would check the contracts and that was it.”
Mingle was the title clerk for MAC, and Trotter says he can’t fathom why she was named in the indictment.
In all the legal actions the pattern is the same: the auctioneers allegedly solicit powersports, RV and marine dealers to consign vehicles for auction. They often provide references and some version of an “asset security program.” Many dealers say they were promised the auctioneers would put reserve prices on their vehicles and instead, the vehicles were sold at absolute auction for well below their market values. Some say it took months and threats or legal action to get paid for their vehicles.
Trotter’s company, under the MAC name, and Midwest Public Auction, each provided references (See MAC’s here and Midwest’s here) to dealers who requested them. Each auction house sent a list of five references; three of which are common to both auction houses.
Neither McGregor nor Smotherman, nor McGregor’s attorney in the Georgia case, returned numerous calls seeking comment. Calls to Midwest Public auction were either hung up on or went unreturned.
A Kentucky-based dealer who asked that his name be withheld says he got stung doing business with Midwest Public Auction, and that the “invoice protection plan” touted on Midwest’s website was part of what drew him in.
“They guarantee up to $40,000 in dealer protection. We sent 28 bikes. If the total sum [at auction] did not make the number we expected, they would make up the difference up to 40 grand,” the dealer says. “They approved $284,600 [as the anticipated selling price]. They sold them for $151,500.” Beyond that he had to pay $13,635 in auction commissions.
Ultimately the company did add $10,000 under the protection program to the auction proceeds it paid, he says, but, “What we had in the bikes, we lost almost $95,000.”
He even recorded a conference call when he was setting up the auction.
“When I play that back, I sound like an idiot,” says the dealer. “I fell for it hook, line and sinker.”
In his case, he says, the auction was held last Sept. 11. Another selling point, he thought then, was the billing the auction got from the marketers who contacted him.
“[The telemarketer] told me that this was a Twin Towers memorial auction, and that part of the proceeds were going to the orphans of 9/11 victims,” he says.
Dave Bak, owner of Bak BMW/Victory in Sioux City, Iowa, says he was paid timely after his units were auctioned in September, but he still lost $24,000 on the deal. He’s taking his lumps, and admits he should have done more checking into the business before signing a contract.
“I thought I did my due diligence, but I just didn’t dig hard enough,” he says. “I knew I was going to lose some money on these, but I didn’t think I was going to get cleaned out. They got about 25 cents on the dollar. A 2008 Yamaha 1900cc Roadliner got $3,000.”
Jeff Eby at Lake Land Auto Sales in Adair, Okla., took legal action that led to a settlement that limits what he can say about Midwest. But he says the promise of a “dealer protection guarantee” and a minimum price for his 10 units persuaded him to consign them.
“They sold $120,000 worth of motorcycles for $58,000,” he says. “I had a few choice words for them.”
He hired a lawyer and got half of his lot back, but that was expensive, too. “I got five of the 10 bikes back, but it still cost me $36,000 to get those five back,” he says.
Settles is awaiting sentencing on unrelated charges in a federal drug case in Tennessee, and could not be reached for comment. But his legal status didn’t stop him from starting another auction business in Madera, Calif. Settles and wife Tina opened West Coast Public Auction in California’s Central Valley last June, but news reports say they “disappeared” in December without paying some customers who consigned merchandise.
The Better Business Bureau (BBB) gave the short-lived venture a grade of ‘F’ because of five complaints, one for advertising/sales issues, one for billing/collection issues and three for problems with a product or service. The BBB indicates that the customer wasn’t satisfied with the resolution of one complaint, and the business didn’t respond to the other four.
Settles was a licensed auctioneer in Tennessee when the TAC suspended his license for six months and revoked the license of his business at the time, Nashville Powersport Auction, in August 2009. He was fined $4,000 for misrepresentation and making false promises in that action.
A 2008 lawsuit against Nashville Powersport Auction, filed on behalf of Shaheen Cycle Sales of Montgomery, Penn., accused Settles and McGregor (who was named in the Georgia indictment with Trotter) along with two others, of breach of contract and fraudulent misrepresentation, but the case was thrown out.
In addition to jurisdiction issues, the judge’s analysis of that case lays out the hurdle most dealers have run into when they try to recover damages: the auctions provide a contract or a separate document, often referred to as an “asset protection program,” a rebate program or “invoice protection program,” that looks convincing to laypersons, but is steeped in double-talk that protects the auction companies, not dealers. According to the judge’s ruling, this is what the contract laid out:
“The property is to be sold on the following terms: absolute no reserve.” Provision (16) of the agreement states: ‘Seller acknowledges that they have not relied upon any statements made by auctioneer or auctioneer’s associates relating to the value or selling price of any property.’ The very nature of an auction with no reserve is that seller takes the risk that a buyer who is willing to pay seller’s top price does not exist. If the defendant could guarantee a price for plaintiff’s bikes, there would be no need for an auction in the first place.”
The judge went on to say that Shaheen had the chance to read and evaluate the contract before signing it, and that the written contract had more force than any sales pitch that led to its signing.
Tom Shaheen says it may have been legal, but he lost at least $35,000 on the units he sent to Nashville Powersports Auction.
Settles was the owner and auctioneer at Nashville Powersport Auction; court papers say McGregor was the sales manager.
“Leon is the one that sold me the bill of BS goods,” Shaheen says. “I was reluctant to send them because there was no reserve, but they talked me into it. They sold every one of them for 50 cents on the dollar.”
When he sued, the judge ruled he had no legal recourse because of the contract. “The court finds that the defendant’s aggressive salesmanship and questionable ‘puffery’ may have misled plaintiff into believing that he would get a better price for his motorcycles than reality would dictate,” the judge wrote, “However, there is nothing extra legal about salesmanship or puffing, no matter how misleading or fraudulent, that doesn’t result in injury to one of the parties.”
Most recently, Trotter filed bankruptcy in Tennessee Jan. 24. The petition lists 21 powersports dealers plus several marine and small engine dealers among the unsecured creditors, though the petition makes it clear that Trotter is disputing many of the claims.
A few of the creditors have won civil cases against Trotter and his business, and at least one of the creditors, Victory Lane Powersports formerly of Swansea, Ill., went out of business because, former GM David Freed says, doing business with MAC put Victory Lane into a cash squeeze it couldn’t survive.
Attorney Kristin Fecteau has several clients who have sued Trotter, including two who won judgments against him. The judgments haven’t been paid, and for Trotter to appeal them he would have to deposit a percentage of each judgment amount with the court until the matters were resolved. He filed bankruptcy instead, and is seeking to have debts discharged, a position she plans to challenge.
“I don’t believe that Vince is a debtor in the traditional sense of the term, because they were holding my clients’ property,” she says. “What my clients can possibly do is show that the items were obtained by embezzlement, larceny or fraud. If you show that, they are not dischargeable. It’s possible that these are not traditional debts under the law.”
Trotter bought Elite Auction Sales in Murfreesboro, Tenn., out of bankruptcy in late 2009. Bankruptcy filings for Elite indicate that at least 25 dealers made creditor claims against the company and its owner, Anthony Scott Hitt, and a handful of those filed lawsuits. At least 25 of the unsecured creditors claim they were owed for powersports vehicles sent to auction, for a total of $854,746. By far the biggest single loser was Zepka Harley-Davidson, at $269,718. Owner Brad Zepka declined to comment except to say the loss had hurt the business.
Elite was primarly in the business of auctioning jewelry and furniture until Leon McGregor got involved in 2008, Hitt says.
“I think where the discrepancy comes in, you’ve got dealers that have new noncurrent inventory. They have floorplans and are paying interest on them. Salesmen from auctions call them and say ‘we will do our best for you and this is what we can get for you.’ They get enticed to send them to the auction, then sign a contract for an absolute auction,” Hitt says.
“Leon ran a sales office for me. Come to find out after my company went bankrupt, that he had not been honest with me about the number of employees and how much he was paying. Now, knowing what I know, I think he is not the most honest person.”
The Elite bankruptcy is still open, though Hitt says he went back to selling furniture and jewelry after filing bankruptcy, and paid $250,000 into the bankruptcy to settle the company’s debts.
An attorney for Erie Insurance is trying to recover money because the company had to pay a claim to Big Tom’s Customs of Pittsburgh, Penn. In that case, the dealer sent four Titan motorcycles to Elite for auction. Two were sold but for much less than expected, and the dealer wasn’t paid for them. The other two were returned, but according to court papers, “Elite and/or Mr. Hitt lost the keys, allowed the other two motorcycles to be ridden hard and rendered significantly less valuable.”
That complaint says Big Tom’s lost $59,000 and that Erie Insurance paid the dealer $25,000 on a claim. Hitt has been released from personal liability for the debt, but Eric Nahmias, attorney for Erie, is still pursuing the case against Elite.
Tennessee business license records show that Elite got its auction license in July 2002, and the license would have remained in effect until July 2010 had it not been revoked. Hitt got a license as a public auto auctioneer Aug. 17, 2009, that was delinquent as of Aug. 16, 2011.
Elite got a grade of ‘F’ from the BBB, which cited 16 complaints during 2009 alone. Of those, BBB records show nine were sales or advertising issues, six were problems with a product or service, and one was a delivery issue. BBB says Elite tried to resolve two complaints but the customer still wasn’t satisfied. BBB didn’t get responses to five complaints and could not locate the business for at least one more. Prior to 2008, Elite had virtually no complaints.
The bankruptcy filings indicate McGregor was a director at Elite Auction Sales, and the BBB profile lists McGregor as the GM of Elite and Settles as a company officer.
Hitt says he had a good reputation until hiring McGregor as a contractor in mid-2008. Trotter also worked for Hitt on a spot basis, calling auctions for Hitt when he was short of auctioneers. Trotter says most of the auctions he called for Hitt involved jewelry or furniture.
Hitt and Trotter say Trotter was negotiating to buy Elite before it went into bankruptcy. Trotter says that’s when he met McGregor.
“I met him through Elite Auction when I was discussing purchasing the business. I was introduced to Leon McGregor and he said if I bought the auction, he wanted to stay on,” Trotter says.
Hitt says they were negotiating a deal for Trotter to buy the company for $250,000, with a $50,000 down payment and $10,000 a month payments until the business was paid off. Instead Hitt was forced into bankruptcy, and the trustee sold the business to Trotter for $12,500 late in 2009.
After buying Elite out of bankruptcy, Trotter began running the business from the same address in Murfreesboro, Tenn., first as Trotter Auction Co., then as National Public Auction, then as My Auction Connection and The Auction Connection, according to state business records. Trotter says the property was leased and that all he bought out of the bankruptcy was some auction equipment and call lists.
Both men say McGregor worked for them under contract to solicit consignors; McGregor lists himself as the owner of My Auction Connection on his LinkedIn page. Wrenn worked for McGregor, soliciting dealer inventory, Trotter says.
The BBB gave Trotter’s business, under the name National Public Auction a grade of ‘F’, based on four complaints it received. One was for advertising issues, and the other three were problems with a product or service. Two of the problems are listed as resolved with BBB assistance. In one of the others BBB found that the business didn’t make a good faith effort to resolve the complaint, and for the last one, filed in June 2011, BBB got no response from the business.
Trotter says his business got a bad reputation from dealers who posted negative comments on Internet complaint boards, and that ultimately drove him out of business.
“I’ve lived my life a long time without getting into trouble,” he says. “I love the auction business and it killed me to have the name and reputation that my auction business got.”
Settles’ bankruptcy lists him as owner of Nashville Powersport Auction and a former co-owner of America’s Powersport Auction, both in Mt. Juliet, Tenn. America’s Powersports Auction also faced a handful of similar claims in its bankruptcy, filed June 29, 2010.
Settles’ filings say he sold his interest in that company -- which did business from the same address as Nashville Powersport Auction -- in June of 2009. When it went under, a handful of powersports dealers made claims.
Settles also had an interest in Kansas City Power Sport Auction from May 2008 to October 2009, according to his bankruptcy filing. That petition also showed he had a $1.45 million interest in the Raytown, Mo., property where KC Power Sport Auction did business. He also had a Georgia auctioneer license for some time, but a state database indicates it lapsed in 2008.
BBB does not show a grade or complaint history for Nashville Powersport Auction, but has an alert that the business is closed. It shows one complaint against America’s Powersport Auction for advertising issues and that BBB could not locate the business, now bankrupt, to intervene.
The same attorney, Steven L. Lefkovitz, handled bankruptcies for Hitt, Settles and Vastola. He did not return calls seeking comments.
While the rest of the cases play out, anyone who believes they have a monetary claim against Trotter’s company has until March 28 to file a claim with the bankruptcy court. They can do that by requesting a Proof of Claim form from the Tennessee Eastern Bankruptcy Court CM/ECF, 701 Broadway Room 170, Nashville, TN, 37203.
Dealers listed as creditors in Elite’s bankruptcy
Action Powersports, $32,500
Adrenalin Powersports, $21,602.50
Big Tom’s Custom Cycles, $14,000
Chase Motorsports, $4,702.50
DB City Marine, $37,900
Dawson Marine, $19,250
Delmarva Speed & Sport, $33,925
DGY Motorsports, $15,740
Gulf Coast Chopper, $8,143.50
Iron City Polaris, $43,789
Mark’s Trailer & Marine, $25,800
Mosito’s Motorsports, $59,494
Moto Scoot Coupe, $21,181
Power Works of Georgia, $22,799
Rock Point Marine, $30,180
S&S Kawasaki, $16,638
Spencer Marine, $4,992
Steel Dreams, $17,023.50
Sun & Sport Cycle, $17,075.50
TNT Cycles, $2,400
Touchdown ATV Plus, $1,875
Zepka Harley-Davidson, $269,718.60