Harry Klause, the president, operator and manager of Harry Klause Cars and Trucks Inc. in Ocean City, pleaded guilty in federal court Friday in a scheme to defraud customers and lenders.
Klause, 64, admitted to an information charging him with wire fraud, U.S. Attorney Paul Fishman said. He entered his guilty plea before U.S. District Judge Robert B. Kugler in Camden.
Officials said Klause purchased trade-in vehicles from customers of his auto dealership and applied the purchase price against the cost of vehicles those customers bought.
Although Klause agreed to pay off existing loans the customers had on the trade-in vehicles, he didn’t do so in a timely way, causing damage to the customers’ credit scores, Fishman said in a ststement. Klause then sold trade-in vehicles to other customers even though he had neither paid off the loans nor gotten the vehicle titles from the lenders, Fishman said.
Klause also allegedly steered the buyers of the trade-in vehicles to various lenders to finance their purchases but didn’t immediately — or ever — send the titles to those lenders.
“If a customer stopped paying a car loan, the lender would be without recourse to repossess the vehicle,” Fishman said.
Klause admitted Friday to specific acts of fraud concerning individual transactions.
The wire-fraud charge carries a maximum potential penalty of 20 years in prison and a $250,000 fine. Sentencing is scheduled for Nov. 15.
Matthew Reilly, spokesman for the U.S. Attorney’s Office, said Klause is free on $100,000 bail while he awaits sentencing. The dealership remains open.
FBI agents raided the Asbury Avenue dealership in September 2009, hauling away more than a dozen boxes of documents.
At the time, Klause told a reporter for The Press of Atlantic City, “It’s just a normal day.”
In 2009, the Better Business Bureau website showed it had processed five complaints against the dealership in the previous three years.
Two alleged failure to honor a contract or agreement; one alleged sales presentation misrepresented the service; another alleged a sales complaint issue; and another alleged a sales presentation that used dishonest sales practices. The company had resolved four of the complaints, according to the BBB website.
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