Last week, Michael Morawski and Frank Constant were charged in federal court with operating an alleged $16 million Ponzi scheme that defrauded more than 300 investors. The two men (of Sleepy Hollow and West Dundee, respectively) ran Michael Franks LLC, a now defunct real estate investment company located in suburban Palatine, just outside of Chicago.
According to the charges, Morawski and Constant, through Michael Franks, offered the public two types of investments, one of which was a real estate-based "fund" that typically offered an annual interest rate of between 8 and 30 percent. The "funds" were executed using promissory notes. The charges also claim that Morawski and Constant "continually" made Ponzi-style payments to previous investors. Additional charges include: failure to disclose poor project performance, and the misuse of investor funds to pay wages, commissions, and various personal expenses.
The FBI asserts that, in November of 2010, "Morawski and Constant turned over Michael Franks, its real estate projects, and investment funds to a company called Commercial Recovery Assets to act as a private trustee/receiver." According to reports by federal agents, most of the properties held by Michael Franks have now gone into foreclosure. The FBI believes investors will lose "much, if not all, of the principal they invested in Michael Franks."
Morawski and Constant have each been charged with one count of mail fraud and one count of wire fraud. If convicted, they could each face up to 40 years in prison, plus mandatory restitution.