Russell S. Ott, 50 — who was indicted along with nine others, including another Geneva resident — lived a lavish lifestyle that eventually led to the FBI investigation that uncovered the criminal activity.
According to a news release on FBI.com from the Chicago Civil Division, Ott, now of Oswego, was the owner of Emily Inc., which did business as Pro Source Motorsports, last located in Morris. Elburn neighbors told Patch that Ott also once owned a motorcycle shop on Kirk Road in Geneva, although there is no mention of that location in the FBI release.
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 jet skis. 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 and was indicted along with nine other defendants, eight of whom allegedly acted as straw buyers in sham vehicle sales.
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 in August, federal law enforcement officials said.
The alleged bank fraud scheme involved two prongs: in one, the dealership 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; and, 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 FBI said.
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.
One of the Ott's neighbors told Patch there was a time when Ott "couldn't spend the money fast enough," spending heavily on home improvements and vehicles, including a Porsche sports car.
Ott allegedly made personal use of the fraudulently obtained funds to buy a house in Elburn for approximately $679,491 and make subsequent improvements which increased the home’s cost to more than $1.1 million.
He also bought a $258,000 vacation home in Butternut, WI; a $350,000 rental home in South Elgin; a Sky Hawk 172 Cessna airplane and hanger for approximately $200,000; and pick-up trucks and other vehicles for family members and employees of Pro Source.
According to the FBI, Ott 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 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.
Defendant Brian McMahon, 54, of Naperville, 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.
Stacy acted as a straw borrower on six fraudulent loans totaling more than $2.5 million, and after making certain periodic payments, used a portion of the funds to operate TUF Powersports and for personal expenses.
The other eight defendants, who allegedly acted as straw buyers, and details of their charges and alleged personal use of the funds are as follows:
Andrew W. Stacy, 51, of Elburn, a parts manager at Pro Source between 1998 and 2000. In late 2005, with financial assistant from Ott, Stacy acquired TUF Powersports, a motorcycle dealership in DeKalb, which he operated until it closed in late 2008.
Scott F. Darville, 48, of Racine, WI, who owned and operated Pro Source of Woodstock, in 1998 and 1999. In 2000, Darville became the owner of Racine MotorSports Ltd., a motorcycle dealership he operated until it closed in 2009. Darville acted as a straw borrower on nine fraudulent loans totaling nearly $2.5 million, and after making certain periodic payments, retained more than $2 million, which he used to operate Racine Motorsports and for personal expenses.
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. Mignin also owned RPM Management LLC, doing business as Liberty Cycle, which he agreed to sell to Ott in 2007, and Mignin held an ownership interest with Ott in 2007 and 2008 in Huntley Chevrolet.
Mignin acted as a straw borrower on 10 fraudulent loans totaling more than $3.8 million, and after making certain periodic payments, retained more than $3.4 million, which he used to operate Schaumburg Honda, Liberty Cycle, and for personal investments and expenses, including $450,000 toward the construction of his home, residence, and an $863,000 investment in Huntley Chevrolet.
Kevin D. Hanson, 43, of Louisville, KY, and formerly of Chicago, who owned and operated Safety First Racing LLC, of Arlington Heights, a professional motorcycle racing team that competed at events throughout the United States between 2003 and 2008.
Hanson acted as a straw borrower on seven fraudulent loans totaling more than $2.8 million, and after making certain periodic payments, retained more than $2.4 million, which he used to operate Safety First Racing and for personal expenses.
Owen A. Weichel, 48, of Huntington Beach, CA, a former professional motorcycle racer who owned and operated Center of Gravity LLC, which imported motorcycle parts from Japan and resold them in the United States. Weichel acted as a straw borrower on five fraudulent loans totaling more than $2.1 million, and after making certain periodic payments, retained more than $1.9 million, which he used to operate Center of Gravity and for personal expenses, including foreign investments in Costa Rica, Italy, and Canada of approximately $1,261,200.
John Materyn, 50, of Ypsilanti, MI, who worked for Ott at Pro Source in 1998 and later at Liberty Cycle. Materyn acted as a straw borrower on seven fraudulent loans totaling more than $2.3 million, and after making certain periodic payments, he used a portion of the funds to operate Pro Source Motorsports in Michigan and for personal expenses.
Jill A. Pluta, 55, of LaPorte, IN, Ott’s former sister-in-law who was formerly known as Jill Ott and who worked at Pro Source in 2005. She acted as a straw borrower on five fraudulent loans totaling nearly $1 million, and after making certain periodic payments, retained approximately $680,334, which she used for personal expenses.
Joan M. Quick, 52, of Walworth, WI, the office manager for Pro Source who was responsible for Pro Source’s day-to-day bookkeeping and accounting. Quick acted as a straw borrower on seven fraudulent loans, and she later wrote checks and directed electronic transfers from Emily Inc. accounts totaling more than $1 million, which she used for personal expenses, including her residence, automobiles for at least three of her children and college tuition for at least two of them, and credit card payments totaling approximately $550,125.
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.
In addition, defendants convicted of tax offenses face mandatory costs of prosecution and remain civilly liable to the government for any and all back taxes, as well as a potential civil fraud penalty of up to 75 percent of the underpayment plus interest. If convicted, the court must determine a reasonable sentence to be imposed under federal statutes and the advisory United States Sentencing Guidelines.
Patch reports on law enforcement activity, using information provided by official agencies. Persons charged with a crime, or issued a citation for violation of a local ordinance, are presumed innocent until proven guilty in a court of law. If you or a family member are charged with a crime or cited for a violation, and the charge or citation is subsequently adjudicated, we encourage you to notify Patch editor Rick Nagel at email@example.com and we will do follow-up reporting on the case.