Hecker, firms are accused of fraud

A U.S. bankruptcy trustee filed a complaint Tuesday accusing six of Denny Hecker's companies of civil conspiracy, theft and fraud in the bankruptcy case involving his Advantage Rent A Car businesses.

The lawsuit says Hecker engaged in a convoluted scheme to divert at least $148 million from his Advantage and Southwest-Tex Leasing companies into Hecker's other businesses in the year leading up to the Advantage Rent A Car bankruptcy petition.

It is the first lawsuit against Hecker, whose crumbling auto empire once reported $6.8 billion in annual revenue, alleging fraud. The allegations are part of bankruptcy court civil proceedings and not part of a criminal investigation. In an unrelated matter last week, law enforcement agencies raided Hecker's home and businesses as part of an investigation that he failed to pay state sales taxes on cars sold at his dealerships.

Hecker's attorneys said they were "surprised" by Tuesday's lawsuit, noting any money transferred between companies was part of normal business operations.

According to the lawsuit, Hecker's ARC Venture Holdings bought Southwest-Tex in 2006 and kept it essentially as an underfunded and unprofitable shell company to feed money to Hecker's other businesses. Southwest-Tex operated as Advantage Rent A Car in 14 states, including Minnesota. At its peak, it had about 6,000 vehicles.

As Hecker's businesses careened toward bankruptcy last year, he and his affiliates "conspired" to have Southwest-Tex make excessive payments to them, said the lawsuit, filed by bankruptcy trustee Brian Leonard. But it says that Southwest-Tex was already insolvent by then, and the company got little or no value for the money it paid to Hecker's other enterprises.

"The Payments were made with the actual intent to hinder, delay, or defraud creditors," the suit says.

Clint Cutler, who represents Hecker in his personal bankruptcy filing, denied the allegations and said that the lawsuit takes into account only those payments made to Hecker and six of his businesses but says nothing about what payments were made from Hecker back to his companies, Advantage, ARC Venture Holdings and Southwest-Tex.

"I am told by Mr. Hecker that there were monies he loaned to Advantage and there were payments made back to him on account of those loans," Cutler said, adding that the trustee's lawsuit "ignored that side of the ledger."

Hecker's business attorney Bill Mohrman said Southwest and Advantage's lease and financing obligations to Hecker's six other companies "totaled over $10 million per month. As a result, it is neither surprising or unusual that [Southwest and] Advantage paid these companies millions of dollars in the one year prior to Advantage filing for bankruptcy. In fact Advantage still owes these Hecker companies over $60 million for missed lease payments."

Cutler said that while the lawsuit uses words such as fraud and conspiracy, such terms are commonly used by bankruptcy trustees who try to "recover preferential transfers against insiders or related parties ... That happens all the time in bankruptcy cases."

Detailing payments

In one example, Leonard says that Southwest-Tex made 114 separate payments to Hecker's Rosedale Dodge operation. Of those, 87 were not allocated to any particular lease or purported business obligation. Between April 13, 2006 and Dec. 4, 2008, Southwest-Tex paid Rosedale Dodge $99.66 million -- $82.4 million of which was paid in 2008 alone, the suit says.

The suit also alleges that Hecker and his affiliates conspired to have his Southwest-Tex, ARC Venture Holding or Advantage entities pay:

• $636,833.90 to Hecker between June 18, 2008 and Oct. 30 of 2008.

• At least $2.4 million to Hecker Automotive Group between May 31, 2008, and Dec. 2, 2008.

• $476,745 to Eagle Travel Systems between Dec. 26, 2007, and Oct. 31, 2008.

• Nearly $3.62 million to Walden Investment between Feb. 27, 2008, and Aug. 31, 2008.

In addition, the complaint says that "Hecker and his affiliates also conspired to cause [Southwest-Tex and Advantage] to make payments and duplicate payments to various third parties with whom Hecker and his affiliates had business relationships in unknown amounts."

The suit was filed against Denny Hecker Automotive Group and Hecker's Eagle Travel Systems, Rosedale Fleet, Rosedale Dodge, Walden Fleet Services and Walden Investment. Hecker controls each of the businesses either directly or indirectly, the suit says.

Litany of troubles

Hecker filed for bankruptcy protection for Advantage and 14 affiliated businesses in December listing scores of banks and finance companies among his lenders. Advantage listed liabilities that ranged from $100,000 to $50 million each.

Last month, the IRS placed liens on all Hecker properties across the country for failure to pay $2.6 million in income taxes in 2003 and 2005.

Last week, the State Patrol and agents from the IRS and Drug Enforcement Administration raided six Hecker properties searching for evidence that he failed to pay sales taxes and title transfer fees on more than 100 vehicles that were sold to customers. A hot line set up by the state last week has received more than 500 complaints from customers who say they are still waiting for titles, license plates and warranty work promised by Hecker employees.