The Prebul Auto Group filed for Chapter 7 bankruptcy protection Wednesday, one day after owner Joe Prebul was arrested and charged with 11 counts of federal wire fraud.
“Unfortunately, the family dispute over repayment of a loan, which is the subject matter of yesterday’s events involving Joe Prebul, has prevented the sale of the dealerships to other parties who agreed to continue their operation,” said Tom Ray, a bankruptcy lawyer representing Prebul Auto Group. “Because of this, 250 jobs will be lost in Chattanooga.”
All of Mr. Prebul’s dealerships were closed Wednesday. Larry Manley, an official with the Prebul Auto Group, said all the dealerships will be “temporarily closed,” but he declined to say who ordered them closed or when they are expected to reopen.
“That is all I am allowed to say,” Mr. Manley said.
Earlier in the day Wednesday, some officials at Prebul Auto Group said they expected to reopen Friday.
Staff Photo by Angela Lewis Joe Prebul heads for a waiting car after an initial appearance in the Joel W. Solomon Federal Building and Courthouse in Chattanooga, Tenn., on Tuesday, February 10, 2009. Mr. Prebul, who has operated 11 car dealerships, was charged with defrauding a New York relative of $6.8 million plus promised interest from investing the money. He was released on a $2 million promise to appear bond pending a hearing in the southern district of New York.
Mr. Manley referred all questions to Mr. Prebul’s attorneys, Wayne Peters and Charles Gearhiser, but neither Mr. Peters nor Mr. Gearhiser returned multiple calls Wednesday seeking comment.
Assistant U.S. Attorney Gary Humble declined to comment and referred questions to the U.S. attorney’s office in the Southern District of New York, where the case is being prosecuted.
Officials at that office also declined comment.
An official at Prebul Chrysler Dodge Jeep, who declined to give his name, said the dealerships were not ordered to be closed by federal authorities.
“I don’t know what is causing the problem,” he said. “Obviously we have problems, but we haven’t been shut down.”
Mr. Prebul was arrested Tuesday and charged in federal court with 11 counts of wire fraud for allegedly swindling a relative out of about $7 million.
Conditions of Mr. Prebul’s bond stipulate that he cannot add new debt or liquidate his assets, U.S. Magistrate Judge William Carter said Tuesday during Mr. Prebul’s initial appearance in federal court.
In Chapter 7 bankruptcy, a court trustee can gather the filer’s assets and sell them to pay creditors. In Chapter 13 bankruptcy, a reorganization plan, approved by the court, tries to pay back at least some of the debt.
Mr. Prebul can spend money in his accounts to travel to New York for the case and to pay for counsel there, but he cannot sell personal property for profit, U.S. Attorney Gary Humble said.
“That would be restitution money that’s really not his to be spending,” Mr. Humble said Tuesday, adding that Merrill Lynch had frozen Mr. Prebul’s account.
Mr. Prebul also is prevented from using a twin-engine plane leased by Carolex Air LLC or the powered glider he personally owns.
Mr. Ray said Mr. Prebul had long-standing plans in place to protect employees and to ensure his dealerships continued to operate.
“He simply had no choice in this matter and was forced to make a very difficult decision,” Mr. Ray said.
David Morton bought a Volvo about a year ago from one of Mr. Prebul’s dealerships, but he is unsure who he will get to work on it now that the Prebul dealerships are closed.
Mr. Morton said his car is about 1,000 miles overdue for an oil change, and he was told the dealerships are closed but may reopen Friday.
“If they are going to be open, I will take it in on Saturday morning,” Mr. Morton said. “Otherwise, I’ll just start asking around for someone who works on Volvos, or I will just take it to Wal-Mart to have the oil changed.”
According to the federal indictment against Mr. Prebul, a relative gave Mr. Prebul about $6.8 million between October 2005 and July 2008 to invest. Mr. Prebul deposited the money in a non-interest bearing account with Chrysler and used it to pay business loans and for personal expenses, according to the indictment.
Mr. Prebul paid himself about $1 million a year from the account and used the money for “expenses related to Prebul Auto Group, Prebul’s real estate properties and Prebul’s airplanes,” the indictment says.
Federal authorities said Prebul Auto Group lost about $1.6 million from 2005 to 2008.
According to a Prebul Auto Group profile at Manta.com, the business has about 230 employees and about $75 million in annual sales.
Mr. Prebul owns Prebul Kia, Prebul Chrysler Dodge Jeep, Prebul Volvo and Prebul Infinity in Chattanooga. In Dalton, Ga., Mr. Prebul owns Prebul Motors, which sells Buick, Cadillac, GMC, Kia, Mazda and Pontiac brands.
In December, he closed his Dayton-based Prebul Chrysler Dodge Jeep, and last month he closed Prebul Ford in Ringgold, Ga.
Staff writer Jacqueline Koch contributed to this story.