Monday, May 20, 2013
Prison time for Real Estate Ponzi Scheme man
Michael Morawski, 56, Sleepy Hollow, Illinois, and Frank Constant, 59, West Dundee, Illinois, whom swindled investors out of millions of dollars in a Ponzi fraud scheme, were sentenced to federal prison and ordered to pay full restitution to their victims. Morawski was sentenced to 10 years in prison, and his co-defendant, Constant was sentenced to 7½ years in prison, and both were ordered to pay more than $18 million in restitution for defrauding 267 victims. Morawski pleaded guilty to two counts of mail fraud in September 2012 and was sentenced to 10 years in prison by U.S. District Judge Gary Feinerman. Constant pleaded guilty to one count of wire fraud and was sentenced to 90 months in prison by Judge Feinerman. Both men were ordered to pay $18,211,547 in restitution and to begin serving their sentences on July 15, 2013. “Mr. Morawski must be punished for the lies and fraud he perpetrated and the way in which he conducted business when it became clear that things were not going well. At the time when people get into situations when businesses go south, it is at that time there has to be the most deterrence,” Judge Feinerman said. In sentencing Constant, the judge said: “The sentence should send a signal to people in positions of trust that truth has to be told in good time and bad. It’s important to investors to know when thing go well, but what Constant did was deprive the investors of full information to make an informed choice.” Between 2006 and 2010, Morawski and Constant fraudulently obtained approximately $21 million and caused 267 investors to lose more than $18 million. After forming a real estate investment company, Michael Franks, LLC, Palatine, Illinois, and several related businesses, they misused the money they raised for their own benefit and to make Ponzi-type payments to earlier investors. Michael Franks offered investors passive ownership in multi-family residential properties, including apartment buildings in Illinois, Texas and Alabama. Morawski and Constant offered two types of investments to the public: one was an investment in acquiring, improving and operating specific apartment complexes for a period of three to five years, and investors were typically told they would earn between seven and nine percent interest annually, and potentially more upon the sale of the property; the second was an investment in real estate-based “funds” that would provide an interest in various properties backed by promissory notes, often offering an annual interest payment of between 8 and 30 percent per year. Certain real estate projects undertaken by Michael Franks performed poorly and failed to generate enough revenue to meet operating expenses. The defendants began transferring funds from various investments to support poorly-performing projects and to pay earlier investors, without disclosing this information. At the same time, they misused investor funds to pay employees, to make commission payments to individuals who raised new funds, and to pay themselves, as well as to make payments for Constant’s company car and country club payments, and to extend loans to friends of Morawski, who pocketed nearly $1 million for himself. The government was represented by Assistant U.S. Attorney Sunil Harjani. The investigation was conducted by the FBI. The sentences were announced by Gary S. Shapiro, United States Attorney for the Northern District of Illinois; Cory B. Nelson, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation; and Pete Zegarac, Inspector-in-Charge of the U.S. Postal Inspection Service in Chicago.