The former co-owner of Tracy Chevrolet pleaded not guilty in federal court on Monday to charges of scamming a bank out of $2.5 million, the U.S. Attorney’s Office in Sacramento announced.

Stephen Kraut, 46, of Discovery Bay could spend as many as 30 years in federal prison, five years of supervised release and get fined $1 million if convicted of all 15 charges. Kraut is out of custody until his next court appearance on June 5.

A federal grand jury on April 30 handed down a 15-count indictment charging Kraut with using his position as general manager of Tracy Chevrolet to secure an $11 million line of credit in early 2005 through First Hawaiian Bank to pay for outside business ventures, among other things, when he agreed to use the money to buy and resell cars for the Tracy dealership. Kraut took out a second $12.1 million line of credit in 2006. He used $2.5 million from those accounts for his alleged scheme.

The case came after an extensive investigation by the Federal Bureau of Investigation, according to the office of the attorney general.

The grand jury accused Kraut of altering invoices and faxing to the bank vehicle identification numbers of cars he lied about buying to make the bank believe that he was living up to his end of the agreement. Kraus is further accused of giving the bank “copies” of fake checks to wholesale car dealers for hundreds of thousands of dollars, when in fact, “the checks were not sent to the third party vendors and were not negotiated.”

The indictment says Kraut also gave false financial statements to the bank to make it look like the dealership was making money, when in fact it was operating at a loss.

Kraut “knowingly and with intent to defraud, caused Tracy Chevrolet to become ‘out of trust’ with First Hawaiian Bank,” according to the indictment. Kraut allegedly used some of the defrauded money “to make lulling payments” to the bank “in order to continue the fraud scheme.” He allegedly used the rest to keep the dealership open, pay himself monthly bonuses and as interest-free loans to finance his personal business ventures.

Kraut began his alleged scheme in February 2005 and kept it up through August 2007. The dealership changed ownership in March 2008 and Kraut went on to become president and part-owner of a Peewee Muldoon’s bar and the Brentwood Auto Plaza. He lives in an upscale neighborhood in Discovery Bay with his wife.

Calls to Kraut’s home went unanswered and management at the New Tracy Chevrolet, Peewee Muldoon’s and the Brentwood Auto Plaza declined to comment.

Contact a Tracy Press reporter or editor at 835-3030 or tpnews@tracypress.com.