The CFTC announced late yesterday that they have charged two Omaha, Nebraska-based companies—Elite Management Holdings Corp. (EMHC) and MJM Enterprises (MJM)—and their owners—Jonathan Arrington, Michael Kratville, Michael Welke—with fraud. The complaint alleges the defendants defrauded 130 of commodity pool participants of at least $4.7 million.
According to the CFTC, between August 2005 and July 2008 the defendants told their customers that the pool traded commodities futures and off-exchange foreign exchange contracts, and claimed that the pool consistently earned 6%, while never risking more than 10% of the participants’ money. To appeal to their local, Omaha-based audience, the defendants told investors that they had turned down offers to sell their business in order to “help the small guy get his children through school.”
Instead, the defendants’ trading practices resulted in the near-complete loss of participants’ investments. Instead of disclosing those losses, they sent false account statements, solicited more money, and made Ponzi payments to a few investors. The defendants also used commodity pool funds to pay for golf club memberships, travel, and dining for themselves and family members.
When the Nebraska Department of Banking and Finance noticed something was amiss, Kratville and Welke lied about the traders’ identities, so that when EMHC was shut down, they were able to open MJM undetected and continue their scheme.
The CFTC has charged the defendants with fraudulent solicitation, sending false statements, misappropriation, failure to register with the CFTC, and failure to comply with disclosure and reporting requirements of the CEA. Litigators are seeking restitution, return of ill-gotten gains, civil monetary penalty, and trading and registration bans.