An Illinois man will serve two years in federal prison after illegally tapping millions of dollars in loans with a shell game involving bogus coating industry companies named after real businesses.
U.S. District Judge Philip G. Reinhard sentenced Jon C. Shain on Monday (May 14) to two years in prison for four counts of bank fraud and money laundering. Shain was also ordered to pay restitution to the bank he defrauded and to serve three years on supervised release after his prison term. He will not be eligible for parole.
McHenry County Blog
|Jon C. Shain funded his enterprises through Amcore Bank, which went bankrupt in 2010.|
Authorities say Shain, 50, of Woodstock, IL, preyed on the good names of legitimate industry businesses when he cooked up his own phony coatings company and suppliers in order to draw on the proceeds of an $884,000 loan from Amcore Bank, of Rockford, IL.
Shain, who originally was indicted on 19 counts, had faced up 60 years in prison and $1.75 million in fines after pleading guilty to the scheme in August 2011.
Phony Coating Business
Court documents say the elaborate scam began in mid-2004, when Shain sought an $884,000 loan from Amcore to buy a building and equipment to start a business coating metal parts.
In October 2004, Shain incorporated a Rockford-based company called Coating Technologies Inc.
The name is the same as that of a major supplier of precision engineered coatings based in Phoenix, AZ, and similar to those of numerous other legitimate companies nationwide.
But Shain’s phony company was a one-man show and the company evidently provided no services, according to court documents.
During the loan process, Shain learned from the bank that it could pay out loan proceeds directly to third-party vendors after settlement. His plan then expanded.
Three times in 2005, authorities said, Shain submitted bogus invoices to the bank for payouts to vendors he called Industrial Equipment Supply Corp. and Industrial Equipment Supply Co. Both were fictitious entities at fictitious addresses in Elgin, IL. Amcore paid the invoices, and Shain pocketed the money, authorities said.
In September 2005, Shain took the additional step of incorporating Industrial Supply Equipment Corp. at the false address. He hid his connection to the company from the bank.
|Shain will serve two years in federal prison. He will not be eligible for parole.|
Later, documents said, Shain created another phony vendor. He began to submit invoices to the bank for purchases of equipment and services from a company that he called Qualified Industrial Services, of Patrick, SC.
“Qualified had no business of any kind,” court papers note. “Qualified was a sham device used by the defendant to execute his scheme to defraud Amcore.”
Worse, papers say, Shain chose the “Qualified” name and address because they were “deceptively similar” to that of a legitimate business he knew in that area.
And Still More
In February 2006, Shain’s Coating Technologies business and an unrelated business teamed up to form another company called Barron Finishing Technologies Inc. Shain was president.
Barron Finishing then obtained Amcore loans of more than $2 million, supposedly to buy real estate and equipment.
Again, Shain submitted phony invoices and documents to Amcore to draw on the loan proceeds. This time, authorities said, he bought some equipment but wildly inflated the claims by hundreds of thousands of dollars beyond the actual cost. He also illegally used part of the loan to buy real estate through another business, Rock River Realty, that he controlled.
Shain’s partner in Barron Finishing was innocent of—and, in fact, “badly victimized” by—Shain’s activities conducted under the company’s name, emphasized Assistant U.S. Attorney Michael D. Love, who prosecuted the case.
In 2010, Amcore Bank failed and was taken over by BMO Harris Bank.
Eventually, Shain was charged with 19 counts of bank fraud, making false statements to a financial institution, and money laundering. Typically, the counts involved shell-game activity: Shain drawing on the bank loan with a check written on one sham company to pay another sham company.
In the end, Shain pleaded guilty to one count of bank fraud and three counts of money laundering.
Those four counts carried up to 60 years in prison, more than $1.75 million in fines, and $400 in special assessments.
Under federal sentencing guidelines, however, Shain was given credit for admitting responsibility for the crimes, for quickly agreeing to a plea agreement and for having no criminal history. That reduced his recommended sentencing range to 37 to 46 months.
Shain will also pay the $400 in assessments and forfeit three properties bought with the illegal proceeds, court documents showed.