A federal grand jury has indicted three Omaha men on charges they used a Ponzi scheme to swindle more than $4 million from about 130 Omaha-area investors.
Jon Arrington, 44; attorney Michael Kratville, 52; and Michael J. Welke, 38, each face 14 counts, including conspiracy, mail and wire fraud, U.S. Attorney Deb Gilg announced Wednesday. If convicted, the men would face up to 20 years in prison on each charge.
In the past few years, investors and federal regulators have taken the three to civil court over a scheme that ran from 2005 to 2008. Some investors have described losing life savings; others, all the equity in their homes.
Federal regulators allege Arrington, Kratville and Welke used more than $700,000 to pay themselves and to pay for golf club memberships, travel and dining. A federal lawsuit says they also used more than $850,000 to make Ponzi-style payments redirecting new investors’ money to previous investors to meet promised returns.
According to the U.S. Attorney’s Office and two previous lawsuits filed against the men:
The trio operated companies called Elite Management Holdings Corp. and MJM (Michael, Jon, Michael) Enterprises. They promised huge returns and low risk from investing in commodities, metals and foreign currency. Federal filings indicate the men made several fraudulent boasts.
Arrington told prospective investors that Elite Entities employed several of the top 10 commodities traders in the world. In turn, he said, the fund had met target returns of 4 percent, 5 percent or 6 percent a month for more than three years. That would have translated to 54 percent, 71 percent or 90 percent annual returns.
Kratville, a former law partner of U.S. Rep. Lee Terry, told one prospective investor that he was friends with Warren Buffett and that Buffett’s children invested with Elite Entities. “These statements were false,” one lawsuit says.
Kratville purportedly told several investors that the three had resisted offers from bigger companies to buy their system. The lawsuit says Kratville gave this reason: “The desire has been and still is to help the small guy get his children through school.”
Arrington and Kratville would refer some investors to Welke under the guise that he was a satisfied investor. Welke would not disclose that he was a partner but would speak glowingly of the funds’ performance and would “vouch for Arrington’s character.”
The deceit continued after the Nebraska Department of Banking and Finance began investigating the three, one lawsuit said.
That lawsuit contends that the three represented to the state that they had shut down Elite and failed to inform state regulators they had reorganized the business under the name MJM Enterprises.
Reached Wednesday, Kratville referred questions to his attorney. He did ask whether a fourth man [--] a Texas commodities trader had been indicted, saying the trader “ran off with the money.” That man has not been charged.
Kratville’s attorney, Stu Dornan, said Kratville will plead not guilty. Kratville has said he, too, lost all of his investments in the funds. He has said “any losses were the result of third parties over which he had no control.”
Welke recently agreed to pay $257,000 in restitution and $130,000 in penalties to settle civil claims filed by the Commodities Futures Trading Commission.
Arrington, who has been described as the scheme’s ringleader, has not responded to the lawsuits.
Contact the writer: 402-444-1275, firstname.lastname@example.org