Real estate investor John Kralik is currently at the center of a federal criminal investigation after he is accused by the Securities and Exchange Commission of misusing funds designated for fix-and-flip transactions.
According to court records, the U.S. Attorney's Office is conducting a federal criminal investigation related to the same conduct alleged by the SEC.
“Mr. Kralik now faces both this civil lawsuit and the threat of looming criminal prosecution,” his lawyers said in a memo this week.
The SEC last month accused Newport Beach-based Kralik and his company, JKV Capital, of lying to investors and misappropriating their funds. The SEC alleges in its complaint that between 2017 and this year, Kralik misappropriated more than $1.6 million in cash from investors into a Mercedes-Benz, a mortgage and vacations in Mexico.
The funds were to be used to buy distressed homes, renovate them and resell them for a profit, a goal Kralik told potential investors in prospectuses and memoranda, the SEC said.
As the criminal investigation continues, Kralik and lawyers from his firm have asked the federal judge who oversees the SEC's civil lawsuits for a 120-day stay.
Kralik's lawyer did not respond to a request for comment. A representative for the U.S. Attorney's Office declined to comment.
After learning of “potential criminal charges” in February, Kralik declined to testify before the SEC.
Kralik raised the money through Regulation D, a securities rule that allows investors to raise capital without regulatory oversight. But the SEC punished him for not delivering on promises he made to investors.
Instead, his money was allegedly used on mortgages, waterfront social clubs, vacations in Cabo San Lucas, and nannies for his children.