Omaha Men Sentenced for Investment Fraud Scheme
United States Attorney Deborah R. Gilg announced that on June 18, 2015, Senior United States District Court Judge Joseph Bataillon sentenced Jonathan Arrington of Omaha, Nebraska, age 45, to a 5 year term of imprisonment, following his conviction for wire fraud. After his release from prison, Arrington will begin a term of supervised release of 3 years. On that same day, Judge Bataillon also sentenced Michael Kratville, of Omaha, Nebraska, an attorney, age 53, to a 4 year term of imprisonment, following his conviction for wire fraud. After his release from prison, Kratville will begin a term of supervised release of 3 years. Lastly, on June 18, 2015, Judge Bataillon also sentenced Michael Welke of Omaha, Nebraska, age 40, to a 3 year term of imprisonment, following his conviction for wire fraud. After his release from prison, Welke will begin a term of supervised release of 3 years. All three defendants will be ordered to make restitution, the amounts to be determined by the court at a later date.
Begin in 2005 and continuing through 2008, Arrington, Kratville and Welke conducted an investment fraud scheme whereby they and their companies, Elite Management Holdings Corporation (EMHC) and MGM Enterprises, all operating out of Nebraska, defrauded at least 100 individuals out of approximately $4,000,000. The defendants solicited mostly friends and acquaintances to invest in "club-like" investment pools operated by EMHC and MGM. These pool funds were purportedly traded in commodity futures contracts (futures) and off-exchange foreign currency contracts (FOREX). To entice prospective pool participants and retain existing pool participants, the defendants pitched their supposed extensive skills and experience in market analysis and investment strategies and the supposedly extremely successful, historical performance of their futures and FOREX trading, models, and strategies. They also claimed to their investors that their trading returns had met or exceeded 3 percent every month from May, 2002 through at least 2007. They further advised their investors that they had sophisticated procedures in place to prevent losses, and that their losses would be limited, because no more than 10 percent of their investment principal (i.e., participating funds) would ever be at risk.
The truth of the matter was that the defendants never did successfully trade in futures, FOREX, or options. Not only did the defendants fail to generate returns of 3 percent or more each and every month from 2002 through June, 2007, the trading conducted on the defendants' behalf by various other traders resulted in nearly a total loss for every investor. Additionally, more than 10 percent of the investors' participating funds were at risk throughout the operation as part of the defendants' fraudulent scheme.
Instead of disclosing the actual trading performance of the pool funds, the defendants periodically provided pool participants with false account statements that provided false returns and false account balances over the course of the scheme. Additionally, the defendants' misappropriated a significant amount of the funds for their own personal use and to pay other pool participants in a Ponzi-like manner in furtherance of the defendants' fraudulent scheme. As a result of the defendants' scheme to defraud, investors suffered an ultimate loss of approximately $4,000,000.00.
This case was investigated by the United States Postal Inspection Service.