CHICAGO – A former Morris motorcycle and recreational vehicle dealer and his accountant were indicted on federal charges alleging a nearly $74 million fraudulent financing scheme that resulted in approximately 20 lenders losing more than $56 million.
Russell S. Ott, 50, of Oswego, and Brian McMahon, 54, of Naperville were indicted along with eight other defendants who allegedly acted as straw buyers in a vehicle sales sham.
All 10 defendants were charged with at least one count of bank fraud, and eight of them were also charged with federal tax offenses in a 36-count indictment that was returned by a federal grand jury Wednesday, federal law enforcement officials announced Thursday.
The alleged bank fraud scheme involved two prongs. In one, the dealership – Pro Source Motorsports – fraudulently obtained more than $31.3 million in direct financing through five lines of credit from Fifth Third Bank, which lost more than $27.1 million.
In the second, individual straw borrowers obtained some 200 fraudulent loans totaling nearly $42.4 million, which resulted in some 18 financial institutions losing more than $29.5 million. At least 62 of these individual loans were made to the eight defendants who allegedly acted as straw buyers.
The charges allege that all 10 defendants fraudulently obtained money for their personal uses and benefit, enabling them to maintain lavish lifestyles, operate various businesses and/or make investments. The money they obtained created the false appearance of personal wealth and helped induce the lenders to advance funds more readily due to their misplaced confidence that the defendants had sufficient personal wealth to repay the loans.
The tax offenses against eight of the defendants include one or more counts each of tax evasion, failing to file an income tax return or filing a false federal tax return.
Ott was the owner of Emily Inc., which was a Pro Source Motorsports business, which was last located in Morris. Between 1995 and October 2008, Pro Source, the dealership at the center of the scheme, sold new and used motorcycles, luxury motor homes, recreational vehicles, all-terrain vehicles, boats and personal watercraft.
In 2007 and 2008, Ott also had ownership interests in Liberty Cycle in Libertyville and Huntley Chevrolet in Libertyville. Ott was charged with one count each of bank fraud and tax evasion.
McMahon was Ott and Emily Inc.’s certified public accountant, who also owned Triumph Suzuki in Naperville between 2001 and 2004, when he sold it to Ott. McMahon was charged with one count of bank fraud and two counts of filing false tax returns.
All 10 defendants will be ordered to appear for arraignment on dates to be determined in U.S. District Court.
Direct Lending Fraud
According to the indictment, Ott and McMahon fabricated false personal and business tax documents and financial statements and provided them to Fifth Third Bank, which between May 2007 and October 2008 extended Pro Source approximately $31,368,457 through five different credit lines, which funded traditional “floor plan loans.”
As part of the scheme, Ott faxed false flooring requests with fictitious vehicle identification numbers for non-existent recreational vehicles or real VINs for actual RVs, but with dramatically inflated values. Ott sometimes “double floored” vehicles by obtaining separate financing from Fifth Third and a different lender for the same vehicle.
Straw Borrower Fraud
According to the indictment, Ott enlisted the other eight defendants as straw borrowers so they could obtain fraudulent loan proceeds to share with Ott even though they did not actually purchase the vehicles – usually very expensive RVs – for which the loans were made and the vehicles generally did not exist.
The lenders who financed these loans generally deposited the funds into Emily Inc.’s bank account, and then Ott periodically disbursed the proceeds to straw borrowers to operate and support their own businesses and lifestyles, make investments, and make monthly payments on some of the loans to perpetuate the scheme.
Ott allegedly made personal use of the fraudulently obtained funds to operate Pro Source, which operated at a loss from approximately 2001 through 2008; and to make the following purchases – a house in Elburn for approximately $679,491, and make subsequent improvements, which increased the home’s cost to more than $1.1 million; a $258,000 vacation home in Butternut, Wis.; a $350,000 rental home in South Elgin; a Sky Hawk 172 Cessna airplane and hangar for approximately $200,000; and pickup trucks and other vehicles for family members and employees of Pro Source.
He also used the money to invest in and purchase other vehicle dealerships, including more than $3.6 million in Huntley Chevrolet and more than $1 million in Liberty Cycle.
The other eight defendants, who allegedly acted as straw buyers are as follows:
Andrew W. Stacy, 51, of Elburn, a parts manager at Pro Source between 1998 and 2000.
Scott F. Darville, 48, of Racine, Wis., who owned and operated Pro Source of Woodstock, in 1998 and 1999.
F. Peter Mignin, 63, of Geneva, who owned and operated Northwest Investment Company Inc., which formerly did business as Schaumburg Honda, a new and used motorcycle dealership.
Kevin D. Hanson, 43, of Louisville, Ky., and formerly of Chicago, who owned and operated Safety First Racing of Arlington Heights, a professional motorcycle racing team that competed at events throughout the United States between 2003 and 2008.
Owen A. Weichel, 48, of Huntington Beach, Calif., a former professional motorcycle racer who owned and operated Center of Gravity, which imported motorcycle parts from Japan and resold them in the United States.
John Materyn, 50, of Ypsilanti, Mich., who worked for Ott at Pro Source in 1998 and later at Liberty Cycle.
Jill A. Pluta, 55, of LaPorte, Ind., Ott’s former sister-in-law who was formerly known as Jill Ott and who worked at Pro Source in 2005.
Joan M. Quick, 52, of Walworth, Wis., the office manager for Pro Source who was responsible for Pro Source’s day-to-day bookkeeping and accounting.
The charges were announced by Gary S. Shapiro, United States attorney for the Northern District of Illinois; Robert J. Shields Jr., acting special agent in charge of the Chicago office of the Federal Bureau of Investigation; and James C. Lee, special agent in charge of the Internal Revenue Service Criminal Investigation Division in Chicago.
The government is being represented by Assistant U.S. Attorney William Hogan.
Each count of bank fraud carries a maximum penalty of 30 years in prison and a $1 million fine, or an alternative fine totaling twice the gross gain or twice the loss, whichever is greater, and restitution is mandatory.
Tax evasion carries a maximum penalty of five years in prison and filing a false tax return carries a maximum of three years in prison, and both carry a maximum fine of $250,000, while failure to file a tax return carries a maximum of a year in prison and a $100,000 fine.