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Feds say trucking scheme investors lost $40M to fraudster

A previously convicted fraudster ran a Ponzi scheme and bilked investors out of $40 million in a truck investment venture, then used the money to pay personal expenses, according to federal prosecutors.

Prosecutors claim that over a 10-month period — June 2021 until April — Franklin Ray, 50, of Canton, Michigan, defrauded 275 investors in CSA Business Solutions LLC, headquartered in Imlay City, Michigan, and that he set up a separate bank account and collected another $1.9 million from investors after his arrest in early March.

In fact, Ray has been indicted on seven charges related to four fraud schemes. 

Besides the alleged truck investment fraud in CSA Business Solutions — in which he claimed to have 4,704 trucks and 4,909 drivers when he only had two trucks and four drivers — feds claim Ray obtained nearly $2 million in funds meant to help struggling small businesses stay afloat during the pandemic through the U.S. Small Business Administration’s Paycheck Protection Program (PPP) and Economic Injury Disaster Loan Program.

He was also indicted in a scheme to fraudulently induce a Manhattan-based real estate holding company to pay a $175,000 deposit to cover startup costs for a joint venture between CSA Business and the unnamed holding company, according to court documents.

“We allege Ray used his purported trucking companies as vehicles for fraud, including by submitting fraudulent applications for small business loans during the Covid-19 pandemic, and by fleecing investors into giving him tens of millions of dollars to participate in a business that was a scam,” Damian Williams, U.S. Attorney for the Southern District of New York, said in a statement about the indictment. “Ray knew that his actions were illegal, having been convicted of similar crimes more than a decade ago.”

In a letter to Magistrate Judge James L. Cott in the U.S. District Court for the Southern District of New York this week, Williams is seeking a bail review hearing, urging the court to revoke Ray’s bond and order him detained until trial.

Since Ray’s March 2 arrest, Williams states that Ray “has hidden the fact of his arrest and the seizure of a key bank account, the CSA Business Bank Account from investors in the Truck Investment Fraud, lied to those investors about the reason that CSA Business was unable to make expected payments in March, opened and used new bank accounts to continue his scheme and attempt to hide assets and submitted false information to a regulatory authority, the Federal Motor Carrier Safety Administration (FMCSA), and most critically, continued to solicit and accept purported ‘investments’ in his fraudulent company.”

How it worked

According to court filings, Ray induced individuals to enter into contracts with CSA Business Solutions by stating that for every $20,000 contributed by an investor, the company “would procure and operate a truck for the investor in the course of its purported trucking business.”

Investors were told the money was going toward trucks for a large, multinational e-commerce company, but Ray later told investors they could switch from the e-commerce company to have the trucks work for a multinational shipping company “if they were willing to forgo one expected payment.”

In exchange for the $20,000 investment, Ray told investors they would receive 77% of the net income derived by that truck over a seven-year period. Investigators say the truck reports sent to investors were fabricated and that the company never operated more than a few trucks.

In an exclusive interview with the FMCSA, agency officials speaking on condition of anonymity told FreightWaves that while CSA Business indicated on its initial Motor Carrier Identification Report Form (MCS-150) in November that it had two trucks, it ramped up its data drastically in April to show the company had 4,707 power units and 4,909 drivers. The addition of thousands of trucks and drivers came more than a month after Ray’s arrest but before the grand jury’s seven-count indictment in mid-April.

FMCSA told FreightWaves the drastic uptick in the purported trucking company’s number of trucks and drivers wouldn’t necessarily raise a red flag since the company is a new entrant and wasn’t due for a new-entrant audit until it hit the 12-month mark. 

“FMCSA might not have any information about the indictment and the fact that they changed their number as they can change their numbers at any time, wouldn’t raise a red flag. There’s over 600,000 motor carriers registered with us, and so anytime one of them makes a change to their information, we may not take notice of it,” one of the officials said on a Zoom call with FreightWaves.

Typically, a safety event triggers a closer look at a carrier when it’s a new entrant, FMCSA said.

According to FMCSA data, 80% of new-entrant audits were completed after the first 12 months of a company’s operations as of December 2021.

In business filings, the headquarters for CSA Business, which purportedly had more than 4,000 trucks, was owned by Joseph Winget, 70, of Imlay City. He has been charged with conspiracy to commit wire fraud, one count of wire fraud and one count of aggravated identity theft. 

While Winget is listed as the owner of the trucking company, prosecutors claim Ray “exercised actual control over the company and its bank and other accounts,” according to court filings.

What’s next?

Citing Ray’s “brazen” behavior, prosecutors say he should be behind bars pending trial.

Ray was convicted of wire fraud and bank fraud in 2008 in the U.S. District Court for the Eastern District of Michigan and released from prison in 2010. Ray, who owned Marlin Transport and MNR Productions, was ordered to pay more than $1.3 million in restitution to his victims. 

However, prosecutors say Ray has access to private airplanes and failed to self-surrender in 2008 following his guilty plea, and that a bench warrant was issued for his arrest.

Ray’s attorney, David Malcom Burgess, did not respond to FreightWaves’ request seeking comment.

“Ray’s conduct since his arrest has betrayed a shocking disrespect for the law and his conditions of release, to say nothing of his callous disregard for his victims,” recent court documents state. “He has demonstrated that there are no set of conditions that will reasonably assure his appearance as required and the safety of any other person and the community. He must be detained pending trial.”

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