Feds charge two men in Palatine-based Ponzi scheme

Federal prosecutors have charged two men with fraud following an investigation into the operations of their now-defunct Palatine-based real estate investment company.

The indictments allege the men bilked more than 300 investors out of nearly $16 million starting in 2006.

The indictments against Michael Morawski, 53, of Sleepy Hollow, and Frank Constant, 57, of West Dundee, were announced Tuesday, and the two were scheduled to be in federal court for arraignment today, according to federal officials.

According to the indictment, FBI agents began investigating the men’s firm, Michael Franks LLC, in 2010 when control of the operation was turned over to another company.

Prosecutors allege the two men offered investors “passive ownership” of several multifamily residential properties in Illinois, Texas and Alabama. The two men told investors they could expect a return of between 7 percent and 9 percent or between 8 percent and 30 percent, depending on the type of investment, authorities allege.

Authorities say the investigation revealed the men paid returns to early investors from funds paid by new investors. At the same time, the men used investor funds to pay employees, make commission payments to individuals who raised new funds and pay themselves, authorities said. The money was also used to make payments for Constant’s company car, country club dues and extend loans for Morawski’s friends, prosecutors said.

The indictment includes information obtained from interviews with Constant, but not Morawski. Information obtained through interviews by the FBI with other Michael Franks employees and investors was also included in the indictments.

Morawski’s attorney did not return calls seeking comment, while Constant’s attorney said she had no immediate comment about the allegations. The men face up to 40 years in prison and $500,000 in fines if convicted.