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
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.