Feds: Car dealer, CPA schemed to defraud banks of over $50M
Sun-Times Media August 29, 2013 4:04PM
Updated: October 1, 2013 6:33AM
The owner and accountant of a suburban motorcycle/RV dealership masterminded a scheme in which sham buyers from Indiana to Wisconsin were used in a $74 million fraud plan to run their businesses and fund lavish lifestyles, federal prosecutors charged Thursday.
In all, Russell S. Ott of Oswego and Brian McMahon of Naperville cost about 20 banks and lending institutions more than $56 million in the scheme, based at Pro Source Motorsports in Morris, according to a statement from the U.S. Attorney’s Office.
Ott, 50, was the owner of Emily Inc., which did business as Pro Source, selling motorcycles, luxury motor homes, RVs, ATVs, boats and jet skis from 1995-2008. In 2007 and 2008, he also was partial owner of Liberty Cycle and Huntley Chevrolet, both in Libertyville.
Ott was charged with one count each of bank fraud and tax evasion, while McMahon was charged with one count of bank fraud and two counts of filing false tax returns, according to federal prosecutors.
McMahon, 54, was Ott’s and Emily’s CPA, and also owned Triumph Suzuki in Naperville from 2001-04 before selling it to Ott.
A 36-count indictment returned by a federal grand jury on Wednesday alleges the scheme worked in two ways. The dealership fraudulently obtained more than $31.3 million in financing from Fifth Third Bank, which lost more than $27.1 million in the plot, the indictment alleges.
Ott used the money to operate Pro Source, which operated at a loss; to buy a home in Elburn for more than $679,00 and make more than $1.1 million in improvements; buy a $258,000 vacation home in Wisconsin; and buy a $350,000 rental home in South Elgin, prosecutors allege. He also bought a Sky Hawk 172 Cessna airplane and hanger for $200,000, pickups and other vehicles for family members and employees.
In the second part of the scheme, individual straw borrowers took out about 200 fraudulent loans totaling $42.4 million, costing another 18 banks more than $29.5 million. The straw buyers named in the indictment allegedly took out some 62 fraudulent loans.
They used the money to finance lavish lifestyles, operate businesses, and make other investments, creating what prosecutors called “the false appearance of personal wealth,” which induced lenders to advance even more funds.
It also charges eight of the defendants with tax evasion, failing to file income taxes, or filing false federal tax returns.
Others charged include:
F. Peter Mingin, 63, of Geneva, who owned and operated Schaumburg Honda and Liberty Cycle, which he sold to Ott in 2007; as well as Huntley Chevrolet. Mignin took out fraudulent loans for $3.8 million and kept more than $3.4 million, used to operate the dealerships and build a home for more than $450,000, prosecutors allege.
Andrew W. Stacy, 51, of Elburn, was parts manager at Pro Source from 1998-2000 and later bought TUF. He allegedly obtained loans for more than $2.5 million, using the money to operate TUF and for personal expenses, the indictment alleges.
Scott F. Darville, 48, of Racine, Wis., who owned and operated Pro Source of Woodstock in 1998 and 1999, and Racine MotorSports from 2001-09. Prosecutors allege he kept about $2 million of the fraudulently obtained loan funds for personal expenses.
Kevin D. Hanson, 43, of Louisville, Ky., and formerly of Chicago, who owned and operated Safety First Racing of Arlington Heights. He allegedly took out seven fraudulent loans for more than $2.8 million, keeping $2.4 million for personal and business expenses.
Jill A. Pluta, 55, of LaPorte, Ind., was Ott’s former sister-in-law, known as Jill Ott, who worked at Pro Source in 2005 and took out five fraudulent loans for about $1 million, keeping about $680,000 for personal expenses.
Owen A. Weichel, 48, of Huntington Beach, Calif., a former professional motorcycle racer, acted as straw borrower on five fraudulent loans totaling more than $2.1 million, and kept about $1.9 million, which he used for personal and business expenses, including foreign investments in Costa Rica, Italy and Canada, the indictment says.
John Materyn, 50, of Ypsilanti, Mich., who worked for Ott at Pro Source and later Liberty Cycle, and took out more than $2.3 million in fraudulent loans which went to the businesses and personal expenses, prosecutors allege.
Joan M. Quick, 52, of Walworth, Wis., was office manager for Pro Source and responsible for day-to-day bookkeeping and accounting. Prosecutors allege she acted as a straw borrower on seven loans, and kept more than $1 million for personal expenses, including a home, vehicles for three of her children and college tuition for two of them, and credit card payments of more than $550,000.
The borrowers would get loans but never purchase the very expensive RVs for which they were made, prosecutors allege, claiming many of the vehicles never existed. The funds were deposited into Emily, Inc.’s bank account, and Ott would transfer it to straw borrowers while making monthly payments on some loans.
All 10 will be arraigned at a later date in U.S. District Court in Chicago.