After a failed first attempt, a Nebraska attorney successfully entered a guilty plea to charges that he operated a Ponzi scheme that duped approximately 100 victims out of $4 million. Michael Kratville, 53, entered a guilty plea to a single charge of wire fraud on Thursday that was accepted by U.S. District Judge Joseph Bataillon. The plea came two days after Kratville's first attempt to plead guilty failed after his responses during his plea colloquy failed to satisfy Judge Bataillon that he was indeed pleading guilty to criminal conduct. The wire fraud charges carries a maximum 20-year prison term, although federal sentencing guidelines will likely result in a much lower recommended sentence.
Kratville, along with co-conspirators Jon Arrington and Michael Welke, operated Elite Management Holdings Corp. ("Elite Holdings"), which promised potential investors significant returns through purported low-risk investments in commodities, precious metals, and foreign currencies. A variety of representations were made to investors, including that the program had a long and successful track record, that investors could expect monthly returns ranging from 4% to 6%, that Kratville had spent ten years developing the investment program, and that Warren Buffett's children invested in Elite Holdings as a result of Buffett's personal friendship with Kratville. Ultimately, the trio raised nearly $5 million from investors.
However, the trading program was not the phenomenal success it was marketed as to investors. Rather, from November 2006 to July 2007, Elite Holdings suffered trading losses of approximately $3 million trading futures, forex, and forex options. Additionally, the trio misappropriated approximately $1.5 million of investor funds to pay for golf club memberships, travel and dining, and other personal expenses. Kratville, Arrington, and Welke were each indicted on fourteen fraud charges in April 2013.
Early last week, Kratville appeared in court to admit to a single count of wire fraud. In what is known as a plea colloquy, Kratville was advised by Judge Bataillon of the nature of the charge, the potential penalties and prison sentence resulting from the plea, and Kratville's right to proceed to trial and contest the charges. In connection with that exchange, Kratville was also asked a series of questions to satisfy the court that he was making a knowing, intelligent, and voluntary guilty plea. Kratville's responses were increasingly non-committal and wavering, including that he "failed to correct" false statements contained on Elite Holdings' website and that he "assumed" that the wire transfer constituting the basis for the wire fraud charge had been consummated. Judge Bataillon refused to accept the guilty plea, observing that
“To plead guilty, he has to admit he violated the law. And I am not hearing that."
Both Arrington and Welke successfully (and on their first try) entered a guilty plea to a single wire fraud charge. Under the terms of Arrington's plea agreement, prosecutors agreed to recommend a maximum prison term of eight years. Each of the men is also the subject of civil proceedings brought by the Commodity Futures Trading Commission.