SEC Stops Ponzi Scheme Targeting Seniors, Small Businesses

Alleged fraudsters invested funds in ‘calamitous trading strategy.’

The Securities and Exchange Commission (SEC ) has obtained a temporary restraining order and an asset freeze against two companies and their principals over an alleged $6 million Ponzi scheme that defrauded at least 55 investors. The victims included senior citizens and small business owners.

The SEC’s complaint said Neil Burkholz and Frank Bianco of Florida allegedly solicited investors through their companies Palm Financial Management and Shore Management Systems. They are accused of falsely representing that their proprietary options trading strategies were highly profitable. The SEC said, however, that they invested less than half of investor funds, and that those investments resulted in near-total losses.

“To create the appearance of legitimacy, Bianco and Burkholz give prospective investors elaborate private placement memoranda, subscription agreements, and operating agreements,” said the complaint. “Bianco and Burkholz knowingly channeled new money in three ways: to pay other investors purported profits or redemptions; to pay themselves; and to invest the money in a calamitous trading strategy that has incurred years of material, undisclosed losses.”

Many victims are senior citizens between the ages of 65 and 100, including several Florida small-business owners. The regulator said that at least some of the victims had liquidated their retirement savings and other assets to invest with Burkholz and Bianco. It added that most of the $6 million Burkholz and Bianco obtained from investors is now gone.

The complaint alleges that the two misappropriated the remaining funds by using them to repay other investors and by transferring approximately $880,000 of investor funds to themselves and their wives for personal use. They also allegedly sent false reports to investors to conceal their fraud, and to give investors the false impression they were generating positive returns.

The defendants are charged with securities fraud and the complaint seeks certain emergency relief as well as permanent injunctions, return of allegedly ill-gotten gains with prejudgment interest, and civil penalties. It also names Burkholz’s and Bianco’s wives, Rhoda Burkholz and Suzanne Bianco, as relief defendants. It alleges that Rhoda Burkholz received at least $157,564 in investor proceeds, while Suzanne Bianco took in at least $55,727 in investor proceeds from the fraud.

The SEC said Burkholz and Bianco continue to seek investor funds through “misrepresentations and deceptive acts,” and continue to divert investor assets to earlier investors and to their personal use. It said that so far this year, they have raised over $1.49 million, and in September obtained $123,000 from a new 70-year old investor whose entire investment they promptly misappropriated.

“The SEC’s emergency action is intended to protect prospective investors from future harm by halting what we allege is a brazen ongoing fraud that targeted many senior citizens and small business owners,” Carolyn Welshhans, associate director in the SEC’s Division of Enforcement, said in a release. “Among other things, this emergency relief prohibits the defendants from soliciting new investors, freezes their assets, and orders them to provide a sworn accounting of their assets.”

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