Federal Court in Nebraska Imposes More than $10 Million in Sanctions Against Michael B. Kratville, Jonathan W. Arrington, Elite Management Holdings Corp., and MJM Enterprises LLC for Commodity Pool Fraud
WASHINGTON, Feb. 11 -- The Commodity Futures Trading Commission issued the following enforcement news release:
The U.S. Commodity Futures Trading Commission (CFTC) today announced that Chief Judge Laurie Smith Camp of the U.S. District Court for the District of Nebraska entered a summary judgment Order against Defendant Michael B. Kratville, a licensed attorney, and a default judgment Order against Defendants Jonathan W. Arrington, Elite Management Holdings Corp. (Elite), and MJM Enterprises LLC (MJM), all of Omaha, Nebraska, in a CFTC enforcement action charging the Defendants with commodity pool fraud in violation of the Commodity Exchange Act (CEA) and CFTC Regulations (see CFTC Press Release 6045-11, May 26, 2011).
The court's Orders impose $4,368,368.71 in restitution and require that Kratville, Arrington, Elite, and MJM pay a total of $5,729,142.87 in civil monetary penalties. The Orders further impose permanent trading and registration bans on Kratville, Arrington, Elite, and MJM and prohibit them from violating the anti-fraud and disclosure provisions of the CEA and CFTC Regulations, as charged.
More than $700,000 of Pool Participant Funds Were Misappropriated for Country Club Memberships and Travel to Europe
Specifically, the default judgment Order finds that, from at least August 2005 until at least July 2008, Arrington, Elite, and MJM, through a variety of commodity pools, defrauded at least 130 pool participants of more than $4.7 million, of which they misappropriated more than $700,000 to, among other things, pay for country club memberships and travel to Europe. In soliciting for their pools that purported to trade in commodity futures contracts and off-exchange foreign currency contracts, Arrington, Elite, and MJM made fraudulent statements that their proprietary trading program consistently earned gains of up to six percent monthly and never risked more than 10 percent of principal at any one time. According to the summary judgment Order, Kratville made similar fraudulent statements. Both the default judgment and summary judgment Orders also find that Kratville, Arrington, Elite, and MJM fraudulently boasted to investors that they had received many multi-million dollar offers to buy their system.
In addition, the summary judgment Order finds that Kratville, personally and through his involvement with Elite and MJM, defrauded pool participants through fraudulent solicitations, false statements, efforts to hide investor losses, and his involvement with Elite and MJM. The court found that Kratville had "an intent to keep the scheme in place as long as possible and avoid detection as long possible." For example, the court cited Kratville's own email that stated, "Someone will find out we have been acting illegally too. If this thing blows up, I will lose by bar license . . . My other fear is . . . [the] state and feds finding out what we were doing."
The court's Orders also noted that when the Nebraska Department of Banking and Finance (NDBF) inquired about the operations of the pools, Kratville and Elite lied about the identity of the pools' traders. Also, when the NDBF ordered the pools operated by Elite to be immediately shut down, Arrington and Kratville formed a new corporation, MJM, to continue their fraudulent scheme, told the NDBF that Elite was closed, and failed to disclose that a new operation similar to the Elite had begun, according to the Orders.
The court also found that because Kratville and Arrington controlled Elite and MJM and actively participated in Elite's and MJM's unlawful conduct, they were liable for all of Elite's and MJM's violations. Kratville, Arrington, Elite, and MJM were also liable for failing to register with the CFTC, as required.
A Related Criminal Action
In a related criminal action, on April 16, 2013, a federal grand jury in the District of Nebraska indicted Kratville, Arrington, and Defendant Michael J. Welke, with whom the CFTC previously settled (see CFTC Press Release 6516-13, February 13, 2013) on 14 counts arising from this fraud.
The CFTC thanks the NDBF for its assistance.
CFTC Division of Enforcement staff members responsible for this case are Christopher Reed, Margaret Aisenbrey, Stephen Turley, Charles Marvine, Rick Glaser, and Richard Wagner.
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