Trucking company owner sentenced to 17 years for $40M Ponzi scheme
A Michigan man will be spending a significant amount of time in prison for his role in several fraud schemes involving his trucking company, including a $40 million Ponzi scheme and two COVID-19 loan fraud schemes.
On Tuesday, Nov. 28, a U.S. District Court for the Southern District of New York sentenced Franklin Ray to 212 months in prison for his role in multiple schemes involving his Michigan trucking company. In addition to the lengthy prison sentence, Ray also was ordered to forfeit more than $42 million.
According to court documents, Ray executed multiple fraud schemes involving his trucking company, including a multi-million dollar Ponzi scheme and two COVID-19 loan fraud schemes.
Ponzi scheme
The biggest scheme committed by Ray was a Ponzi scheme that cost hundreds of investors tens of millions of dollars.
According to court documents, Ray incorporated CSA Business Solutions in Michigan in December 2019. The company touted itself as a trucking and logistics company. However, the indictment states it engaged in “minimal actual trucking activity.”
From June 2021 to when the indictment was filed in April 2022, Ray offered investors an opportunity to invest in his trucking company. In exchange for $20,000, an investor could purchase the right to receive 77% of the net income of a truck operated by CSA Business Solutions.
Investors signed contracts to secure their investment. Per the contracts, a truck would be put into service within three weeks of the company receiving the $20,000. The agreement would last for seven years. Payments would be made by the company to investors on a weekly or bi-weekly basis.
After entering into the contracts, Ray told investors that specific trucks had been assigned to them. However, no such trucks had been assigned, because the company never had enough trucks to satisfy thousands of contracts. Despite the lack of trucks, investors received a spreadsheet falsely showing the performance of their trucks and the amount owed to them.
Some investors did receive payments reflected on those spreadsheets. In order to make those payments, Ray would use new investor funds to pay earlier investors.
Furthering his lies, Ray told investors that the trucks were doing business for a large, multinational e-commerce company, which was unnamed in the indictment. However, CSA Business Solutions had no formal relationship with the e-commerce company until November 2021. Even then, CSA Business Solutions received less than $100,000 in revenue from the e-commerce company.
Still not done defrauding investors, Ray told them that if they would forego one payment, they could switch their trucks’ business with the e-commerce company to an international shipping company, also unnamed. By doing so, Ray indicated, the investors could make more money. However, the trucking company never had a business relationship with the shipping company.
During the course of the Ponzi scheme, Ray fraudulently induced more than 270 investors to invest at least $40 million in at least 2,000 trucks.
Even after his arrest, Ray continued the Ponzi scheme. From his arrest in March 2022 up until his indictment in April 2022, Ray hid his arrest and seizure of the company bank account from investors. He also lied to investors about why he did not make expected payments after his arrest.
Not to be deterred, Ray opened new bank accounts on behalf of CSA Business Solutions after his arrest. He continued to solicit and accept investor funds for trucks that did not exist. Ray managed to defraud investors into paying another $2 million.
COVID-19 loan fraud scheme
The Ponzi scheme was not Ray’s first foray into business fraud.
In June 2020, he submitted an Economic Injury Disaster Loan application to the Small Business Administration. The application indicated that CSA Business Solutions was established in January 2019, had 65 employees and had gross revenues of more than $12.5 million for the 12 months prior to Jan. 31, 2020.
However, the company was not established until December 2019, had few employees and had limited revenues in the time period in question. In fact, CSA Business Solutions did not file a tax return with the IRS for the 2019 calendar year.
Based on the fraudulent information, the business received nearly $160,000 in COVID-19 relief funds.
In addition to the Economic Injury Disaster Loan, Ray also applied for Paycheck Protection Program loans. CSA Business Solutions ended up receiving more than $970,000 in PPP loans based on fraudulent information.
In total, Ray’s trucking business received nearly $2 million in government-guaranteed loans designed to provide relief to small businesses during the COVID-19 pandemic, according to the U.S. Attorney for the Southern District of New York.
Another fraud scheme
Ray also devised another scheme that took six figures from a real estate holding company.
In December 2020, Ray initiated discussions with a New York City-based real estate holding company about creating a joint venture between the holding company and CSA Business Solutions. Ray proposed that the joint venture would be in the logistics and trucking business.
During discussions with the holding company, Ray indicated that CSA Business Solutions was an established trucking business that had obtained significant revenues from a large, multinational e-commerce company. Again, the trucking company had no significant business operations of any kind, let alone a relationship with the e-commerce company.
Buying into Ray’s lies, the holding company wired $175,000 to CSA Business Solutions. However, that money was never spent on the joint venture. Rather, Ray used that money on personal expenses, including private plane flights for himself and his family.
The joint venture was never formed.
NASCAR fraud
Before establishing a trucking business in 2019, Ray was busted for a fraud scheme that involved NASCAR.
In 2002, Ray devised a scheme dealing with co-sponsoring NASCAR races. Specifically, Ray entered into an agreement to obtain music entertainment sponsors for NASCAR, including coordinating country and rock concerts to coincide with the weekend of races. As part of the sponsorships, Ray also entered into agreements with several companies to charter flights, helicopter and limousine services for clients purportedly sponsored by Ray.
According to court documents, Ray offered to co-sponsor six races for approximately $750,000. As part of the scheme, Ray represented himself as an agent for NASCAR and several country music musicians to charter three flights costing a total of $80,000.
Ray also represented himself as a potential buyer for a Gulfstream 4 airplane with one company and two different airplanes with another company.
All of the information Ray provided was fraudulent. He was indicted on bank and wire fraud charges in 2005 and sentenced to prison for two years in 2008. Court documents reveal restitution payments totaling more than $1.3 million in that case. LL More crime/courts stories: