An Omaha promoter of fraudulent commodities pools has been ordered to pay almost $400,000 to settle federal claims he operated a Ponzi scheme and used investor proceeds for travel and golf club memberships.
Michael Welke has agreed to pay $257,000 in restitution and $130,000 in civil penalties to settle claims filed in 2011 by the Commodities Futures Trading Commission, a federal agency that regulates the industry.
Attempts to reach Welke using a telephone number provided by his last lawyer of record, Omaha's David Domina, were unsuccessful. As part of the settlement, Welke is barred for life from the commodities industry.
Welke, the commission said in a statement about the settlement, operated companies called Elite Management Holdings Corp. and MJM Enterprises, working with two others to sweep up $4.7 million from about 130 investors, most from the Omaha area. The trio promised big returns and low risk from investing in commodities, metals and foreign currency, the commission said in 2011 filings in U.S. District Court in Omaha.
The commission says in the complaint that one of Welke's partners, Omaha lawyer Michael Kratville, told prospective investors “that he was friends with Warren Buffett and that Warren Buffett's children invested” with the group.
“These statements were false,” the complaint says, along with several others reported by investors who lost money.
High returns on commodities investments in recent years attracted scamsters, as prices for the fuel, food, fiber and other physical stuff of daily life skyrocketed. For the period involving Welke, about August 2005 to July 2008, the Standard & Poor's Goldman Sachs Commodity Index almost doubled on high global demand for fuel, raw materials and precious metals. During the same period, Standard & Poor's 500 Index of the most widely held stocks rose 2.59 percent.
Kratville was named in the 2011 complaint as a partner of Welke in the commodities scheme; the commission said in a statement last month that litigation is ongoing against him.
Citing the pending litigation, Kratville said Thursday that all he could say is that he is defending the allegations against him.
A third partner, according to the commission, was Jonathan Arrington. The agency said Arrington has failed to respond to court papers directing him to respond to the allegations. Court filings list no attorney of record for Arrington.
The heart of the case was the use of money from new investors to pay off previous ones, the definition of a Ponzi scheme, so named for one if its practitioners in the 1920s, Charles Ponzi.
The Omaha trio resorted to such subterfuge, the commision said, because investment returns were non-existent. Despite the enormous bull market in commodities, the group lost $3 million from trading. False claims made during investor solicitations, the commission filing said, included:
>> A long track record of successful trading, when none existed.
>> Year-to-date returns for some periods as high as 90 percent.
>> A trading desk staffed with “six of the top traders in the world” operated 24 hours a day.
>> Rivals had offered millions of dollars to buy the trio's trading system, but were rebuffed because the profit potential was so high.
About $700,000 of investor money, the commission said, was improperly used for country club memberships and personal, travel and family expenses by all three. About $850,000, the complaint says, was used to pay off early investors using money from new ones.
“Arrington, Kratville, and Welke did not have extensive, successful experience trading futures and forex, they did not have a program with a long successful track record or one that could greatly limit trading risks, and there were no offers to buy their nonexistent, proprietary trading program,” reads a commission filing.
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