CHICAGO, Ill. – Federal prosecutors have charged 10 former powersports dealers and employees in a $74 million loan fraud scam. Prosecutors say the parties bilked banks of $56 million while funding several dealerships and a couple of motorcycle race teams.
Ten defendants were charged with at least one count each of bank fraud and eight of them were also charged with federal tax offenses in a 36-count indictment returned by a federal grand jury Aug. 28.
The alleged bank fraud scheme involved two prongs:
- Authorities say Pro Source Motorsports fraudulently received more than $31.3 million in direct financing through five lines of credit from Fifth Third Bank, which lost more than $27.1 million.
- Individual straw borrowers received 200 fraudulent loans totaling nearly $42.4 million, which resulted in 18 financial institutions losing more than $29.5 million. At least 62 of the individual loans were made to the eight defendants who allegedly acted as straw buyers.
The defendants allegedly used the funds for their own purposes and to create the appearance of personal wealth that gained the confidence of lenders, according to authorities. 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.
Lead defendant Russell S. Ott, 50, of Oswego, Ill., was the owner of Emily Inc., doing business as Pro Source Motorsports, last in Morris, Ill. Between 1995 and October 2008, Pro Source sold new and used motorcycles, ATVs, boats, PWC, luxury motor homes and recreational vehicles. 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.
Defendant Brian McMahon, 54, of Naperville, was Ott and Emily Inc.’s certified public accountant, and owned Triumph Suzuki in Naperville between 2001 and 2004 before then selling the dealership to Ott. McMahon was charged with one count of bank fraud and two counts of filing false tax returns.
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 about $31.4 million through five different credit lines that funded traditional floor plan loans.
As part of the scheme, Ott allegedly faxed false flooring requests with fictitious VINs for nonexistent vehicles, or real VINs for actual RVs but with dramatically inflated values. Ott sometimes “double floored” vehicles by getting separate financing from Fifth Third and a different lender for the same vehicle, according to authorities.
Also, according to the indictment, Ott enlisted the other eight defendants as straw borrowers so they could obtain fraudulent loans to share with Ott, even though they did not actually buy the vehicles – usually high-end RVs – for which the loans were made and the vehicles generally did not exist. The lenders who financed the loans deposited the funds into Emily Inc.’s bank account; Ott then periodically disbursed the proceeds to alleged 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, authorities contend.
Ott allegedly made personal use of the fraudulently obtained funds to operate Pro Source, which operated at a loss from about 2001 through 2008; to buy and renovate a $1.1 million house for himself. He also allegedly used the funds to purchase a $258,000 vacation home in Butternut, Wis.; a $350,000 rental home in South Elgin, Ill.; a Sky Hawk 172 Cessna airplane and hangar for about $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 buy other vehicle dealerships, including more than $3.6 million in Huntley Chevrolet, and more than $1 million in Liberty Cycle. (continued)