Searcy businessman Steve Merritt stands accused of enlisting friends and his brother in a nearly $10 million Ponzi-like scheme involving his agricultural and construction equipment dealership.
Merritt’s lender, CNH Industrial Capital America LLC, alleges in a federal lawsuit that Meritt’s defunct dealership, Venture Equipment LLC, improperly sold equipment pledged as collateral for loans and never forwarded the proceeds to CNH.
In U.S. District Court in Little Rock, CNH further claims another fraud was occurring with more than 100 bogus Venture customer contracts that were used to finance pieces of equipment. Merritt allegedly would involve his friends in the fake contracts.
CNH also alleged that it provided financing for equipment that didn’t exist.
Venture Equipment, which sold New Holland tractors, haying equipment and other machines, shut down in 2022 after CNH discovered the scam, the lawsuit says.
The civil trial for Merritt and more than a dozen other defendants who are facing allegations that include fraudulent conduct and civil conspiracy is scheduled to start Aug. 26 in front of U.S. District Court Judge Brian Miller. CNH said it suffered millions of dollars in damages.
Meanwhile, there’s an ongoing criminal investigation into the accusations, according to documents filed in the lawsuit. But as of Tuesday morning, no charges had been filed.
Merritt has already lost some legal points to CNH.
On July 25, Miller affirmed CNH’s motion for a $9.46 million summary judgment against Venture Equipment for breach of contract involving the financing agreements. Merritt is liable for that amount because he personally guaranteed the agreements, the judge ruled. The judgment included $4.5 million for the outstanding amount owed on equipment pledged as collateral and $4.9 million in outstanding debt connected to the alleged bogus customer contracts.
One of Merritt’s attorneys, John Holleman of Holleman & Associates of Little Rock, didn’t return a call for comment. Merritt denied the allegations in court filings, but he was not willing to waive his right against self incrimination by providing testimony regarding the facts in the case, according to a Nov. 3 filing by another attorney for Merritt, Timothy Steadman of Little Rock.
CNH’s lawsuit alleges that some of Merritt’s friends and his brother, Damon, “acted in concert with and colluded with Merritt to conceal the fraudulent nature of the loans from CNH.”
One of the friends, Searcy farmer Rick Langston, “is a long-time associate of Steve Merritt” and a “principal participant in Merritt’s fraudulent retail financing scheme,” says the complaint, filed by attorneys at Wright Lindsey & Jennings’ Little Rock office.
Between 2017 and 2021, Langston received more than $2.7 million in payments from Venture Equipment “related to his cooperation in the fraudulent scheme,” according to the lawsuit. Langston wasn’t an employee of Venture Equipment.
Langston first tried to buy equipment from Venture but wasn’t approved for financing, the suit says. So he worked with Merritt to apply for loans in the names of Langston’s parents, son and other relatives, the complaint states.
CNH alleged that Langston worked with Merritt to hide the fraud, and said Langston was responsible for at least 50 fraudulent financing agreements.
Langston “admitted to purchasing and financing equipment in the names of several family members,” according to Miller’s order.
Langston’s attorney, Denny Petty of Searcy, didn’t respond to a request for comment. Langston denied wrongdoing in his court filing.
Randall Reed of Rison, a former friend of Merritt, is also named as a defendant in the case.
CNH alleges that Reed worked with Merritt to provide false retail financing documents to CNH and then conceal the nature of the loans.
Reed received $121,000 from Merritt or Venture Equipment, or both, the lawsuit said.
Reed’s attorney, R. Victor Harper of Star City, said Reed was taken advantage of “and had contracts issued in his name that he never signed for and never received any money.”
Harper said Reed bought some equipment from Merritt’s company and he became friends with Merritt.
Merritt and Reed are no longer friends. “It’s a lot of stress and strain on him, like it is on all these other people,” Harper said.
CNH Starts to Work
In 2011, CNH entered into financing agreements with Venture Equipment to pay for its inventory. CNH and Venture also entered into a retail financing agreement in 2011, in which CNH agreed to provide financing to Venture customers who wanted to buy or lease equipment from Venture.
CNH is the captive finance company for CNH Industrial America LLC and finances the purchases of agricultural and construction equipment fleets for sale or rental by New Holland dealerships in North America.
Merritt told Ozarks Farm & Neighbor in 2017 that his father opened a Case dealership in Searcy in 1973. Merritt told the newspaper that he opened Venture Equipment because he and his father wanted to add a tractor line to sell.
“New Holland approached us because they needed a dealership here to make their tractors a viable option for local customers,” Merritt said in 2017.
In 2007 Merritt bought 7.5 acres and built a 16,000-SF building for his dealership. The dealership grew through the years, and by 2017, it had 25 employees.
“The heart of our business philosophy is that saving our customers money brings them back,” Merritt told Ozarks Farm & Neighbor.
Merritt also served as president of New Holland’s Dealer advisory board, an esteemed position.
Before March 2022, network development managers who worked the region had planned for Merritt to expand and were proceeding with those plans. That’s according to a January deposition in the lawsuit filed by Matt Lawson, the field risk manager for CNH Industrial Capital America.
CNH chose Venture Equipment for a special audit in October 2021 after CNH received some insufficient funds payments.
Missing Equipment
Because of scheduling conflicts with CNH, the audit didn’t begin until March 7, 2022. Once the audit started, however, Lawson said he was “told there was a potential for extremely large loss” at Venture.
CNH discovered that 204 pieces of equipment that it had security interest in were missing. The total number of missing units later grew to 225.
Lawson quizzed Merritt about the missing equipment. “Mr. Merritt said on multiple occasions that he had over 100 items that he could not find,” said Lawson, who arrived at the dealership in April 2022.
Lawson also asked Merritt if there were cases in which customers brought in a unit for him to sell on consignment that were then sold, but he didn’t pay off the customer’s lien.
“And Mr. Merritt said that would be very bad. I would not do that,” Lawson said. “That’s not a direct quote.”
But it turned out there were problems with the financing agreements, CNH says in the lawsuit.
When Venture received a lump sum payment for an item, Venture and Merritt allegedly would pocket the money and “then prepare false financing documents including forged promissory notes and security agreements for the same Secured Asset,” Lawson said in an October filing in the case.
Venture and Merritt then would transfer the fake documents to CNH and receive payments for those financing agreements, Lawson wrote.
CNH said in court documents that Merritt made payments on the forged retail financing contracts to keep the alleged fraud hidden, but he wasn’t able to keep up the payments, resulting in the loans falling into default.
In an April 4, 2022, meeting with Lawson, Merritt said “he wanted to do everything he could do to make us whole,” Lawson said in January, “… and he said he was embarrassed.”
Short on Cash
Lawson began tracking down Venture’s customers to ask about the contracts and what equipment they had.
One customer told Lawson that he only had one or two real contracts with CNH. “He stated the rest of the equipment in his possession was loans that Mr. Merritt had put in his name because Mr. Merritt was short on cash,” Lawson said. “He stated Steve was responsible to make the payments.”
Lawson said that a majority of the customers knew about the fake contracts. “In addition to that, there were some of them that were benefiting from those contracts,” Lawson said.
“My firm belief is initially maybe with the first contract, they were surprised. Then they talked to Steve, he said he would take care of it.”
Merritt kept a notebook detailing the list of all the customers and fraudulent retail contracts and payments made by Venture and Merritt, Lawson said.
Merritt also said that he was in a “very bad place after the death” of his son-in-law in 2018 and his son at the age of 34 in 2019.
Merritt told Lawson that he “had been absent from the dealership, not paying attention,” Lawson said.
Merritt “wanted to make clear that none of his employees were involved in fraudulent transactions or fraudulent contracts,” Lawson said.
“He apologized there, he said he was going to continue to do everything he could to make CNH whole, find as much equipment as he could, which turned out to be very little, if any,” Lawson said.
Lawson asked Merritt where the millions of dollars went. Merritt told him that the money was put back into the dealership to keep it running. Lawson, though, said he didn’t believe that.
The operating expenses at the peak of Venture Equipment totaled about $1.5 million to $2 million a year, Lawson said. The total of missing collateral was more than $8 million, he said.
“So, by that logic, it would mean that Mr. Merritt never received a dime from the quote unquote legitimate operations of Venture Equipment to run the business with, which doesn’t compute,” Lawson said. “So … he was not forthcoming or straightforward with what he did with the proceeds of all these transactions.”
The trial in federal court is scheduled to last up to three weeks.
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