CHICAGO (CBS) – Federal authorities have charged two suburban businessmen with defrauding investors out more than $16 million in a Ponzi scheme.
The U.S. Attorney’s office charged Michael Morawski and Frank Constant with one count each of mail fraud and wire fraud.
The men, who operated the Palatine-based real estate investment firm Michael Franks LLC, allegedly took money raised from their investors and spent it on themselves, and on Ponzi-type payments to earlier investors.
Morawski, 53, of Sleepy Hollow; and Constant, 57, of West Dundee, are scheduled to appear at 11 a.m. Wednesday before U.S. Magistrate Judge Sheila Finnegan in U.S. District Court in Chicago.
According to the charges, Michael Franks offered investors passive ownership in multifamily residential properties, including apartment complexes in Illinois, Texas and Alabama.
Morawski and Constant offered two kinds of investments. In one, investors would buy, upgrade and act as landlords for apartment complexes, earning 7 to 9 percent a year and more after selling them. In the other, the investors would buy real estate-based “funds” using promissory notes, which promised interest of 8 to 30 percent a year.
But these investments were used for no such purpose, prosecutors alleged. Instead, they were used to pay earlier investors their purported returns as part of the Ponzi scheme, and also to pay employees and make commission payments, prosecutors said.
They also used the investors’ money to buy company cars, pay country club dues, and give loans to friends, prosecutors said.
Federal agents came after Morawski and Constant after the men turned over Michael Franks to Commercial Recovery Assets as a receiver. The feds found out many of the investment properties involved in the scheme had gone into foreclosure, and the investors had lost most, if not all, of their money.
Each count of mail fraud and wire fraud carries up to 20 years in prison and a fine of up to $250,000 upon conviction.
The Sun-Times Media Wire contributed to this report.