Tue, 31/05/2011 - 06:00
The US Commodity Futures Trading Commission (CFTC) has filed an enforcement action charging Jonathan W Arrington, Michael B Kratville, Michael J Welke and their companies, Elite Management Holdings Corp (EMHC) and MJM Enterprises LLC (MJM), all of Omaha, Neb, with defrauding more than 130 commodity pool participants, the majority of whom are from the greater Omaha area, of at least USD4.7 million.
The CFTC complaint, filed on May 23, 2011, in the US District Court for the District of Nebraska, charges the defendants with fraudulent solicitation, sending false statements, misappropriation, failure to register with the CFTC and failure to comply with disclosure and reporting requirements in violation of the Commodity Exchange Act and CFTC regulations. The fraudulent scheme allegedly lasted from approximately August 2005 to at least July 2008.
Through their fraudulent scheme, the defendants allegedly misappropriated more than USD1.5 million in pool participant funds for personal use. According to the complaint, the defendants, at a minimum, used more than USD700,000 in misappropriated funds to pay for golf club memberships, travel and dining for Arrington, Kratville and Welke and to pay themselves and their family members. Defendants also allegedly used more than USD850,000 in pool participant funds to make Ponzi payments to certain pool participants.
Defendants allegedly claimed that their commodity pools traded in commodity futures contracts and off-exchange foreign currency contracts. Defendants also touted their proprietary trading program in their solicitations, claiming that the program consistently earned monthly profits of up to six percent and never risked more than ten percent of participants’ principal at any one time, according to the complaint. Defendants allegedly boasted to participants that they had received many multi-million dollar offers to buy their system but had declined them “to help the small guy get his children through school and to remain entirely proprietary.” None of these statements was true, according to the complaint.
In reality, the complaint alleges, defendants’ trading, including trading by third parties on defendants’ behalf, resulted in nearly a total loss of traded funds. However, defendants allegedly failed to disclose the losses until late 2007 and continued to solicit new money and to send false statements to the current pool participants, maintaining a charade of intact principal, consistent gains and a minimal risk of loss.
When, in May 2006, the Nebraska Department of Banking and Finance inquired about the operations of the pools, Kratville, an Omaha attorney, and Welke allegedly lied about the identity of the commodity pools’ traders. When the Nebraska authorities ordered the EMHC-operated pools to be immediately shut down, Arrington, Kratville and Welke formed a new corporation, MJM, allegedly to continue their fraudulent scheme. They allegedly informed the Nebraska authorities that the EMHC pools were closed but failed to disclose that a new operation similar to the EMHC pools had begun.
In its continuing litigation, the CFTC seeks restitution to defrauded customers, a return of ill-gotten gains, civil monetary penalties, trading and registration bans and permanent injunctions against further violations of the federal commodities laws.
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