Federal prosecutors have charged ten former motorcycle dealers and employees operating in the state of Illinois with a $74 million (£47.4m) loan and fraud scam. Prosecutors say they milked banks of $56 million to fund several dealerships and a couple of motorcycle race teams.
According to Dealernews, the American motorcycle industry magazine, ten defendants were charged with at least one count each of bank fraud and eight were also charged with federal tax offences in an indictment returned by a federal grand jury on 28 August.
Pro-Source Motorsports is alleged to have fraudulently received more than $31.3m in direct financing through five lines of credit from Fifth Third Bank which lost more than $27.1m. Individual straw borrowers, fronting for the real borrowers, received 200 fraudulent loans of nearly $42.4m resulting in 18 financial institutions losing more than $29.5m. 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 offences 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, was the owner of Emily Inc, doing business as Pro Source Motorsports in Morris, Illinois. 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 other ownership interests. He was charged with one count each of bank fraud and tax evasion.
As part of the alleged scam, Ott, the prosecution claim, faxed false flooring requests with fictitious VINs for non-existent vehicles, or real VINs for actual RVs but with dramatically inflated values. It is also claimed Ott sometimes “double floored” vehicles by getting separate financing from Fifth Third and a different lender for the same vehicle.
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 the 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 property, vehicles and a light aircraft worth $5.4m.
All ten defendants were ordered to appear for arraignment on dates to be determined in US District Court.
Ten US dealers charged with $74m fraud
