Litigation Releases (John J. Kralik V, JKV Capital, LLC, and JKV LLC)

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 26043 / July 2, 2024

Securities and Exchange Commission v. John J. Kralik V, JKV Capital, LLC, and JKV LLC, No. 8:24-cv-01460 (C.D. Cal. filed July 2, 2024)

SEC Charges Newport Beach Real Estate Investment Companies and CEO with Fraud for Misappropriating Investor Assets

On July 2, 2024, the Securities and Exchange Commission charged Newport Beach, California-based John J. Kralik V and his companies JKV Capital, LLC (JKV Capital) and JKV LLC for making false statements to investors and misappropriating investor money from five real estate investment funds for Kralik's personal benefit, including for his wholly-owned entity, Relief Defendant JKV Homes, LLC (JKV Homes).

The SEC's complaint, filed in the U.S. District Court for the Central District of California, alleges that from late 2017 through early 2024, Kralik, JKV Capital, and JKV LLC raised over $16.9 million from about 35 investors for five funds, promising investors to both preserve the value of their investments and pay them profits from "flipping" or renting residential real estate. Instead, as the complaint alleges, Kralik misappropriated more than $1.6 million from the funds, including to pay for his home mortgage, a Mercedes-Benz, a vacation to Mexico and other personal expenses, to fund his personal brokerage account, and to use for unrelated personal investments through JKV Homes. The complaint further alleges Kralik improperly used investor money to pay operating expenses of the entity managing the real estate funds, JKV Capital, and made improper transfers between the five purportedly separate real estate funds, including to make Ponzi-like distribution payments to investors. Additionally, the complaint alleges that Kralik, JKV Capital, and JKV LLC misled investors about the use of fund money, the preservation of capital, and safeguarding investor contributions in a segregated escrow account that in reality never existed.

The SEC's complaint charges Kralik, JKV Capital, and JKV LLC with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and names JKV Homes as a relief defendant. The complaint also charges Kralik with control person liability under Section 20(a) of the Exchange Act for JKV Capital's and JKV LLC's violations of the Exchange Act provisions. The complaint seeks injunctions and civil penalties against Kralik, JKV Capital, and JKV LLC, disgorgement with prejudgment interest against Kralik, JKV Capital, JKV LLC, and JKV Homes, and an officer-and-director bar against Kralik.

The SEC's investigation was conducted by John McNulty, Sarah Routh, and Jeffrey Anderson, and supervised by Lisa Deitch, Peter Rosario, and Stacy Bogert. The case will be litigated by P. Davis Oliver and John McNulty, and supervised by Christopher Bruckmann.

• SEC Complaint