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Regulation and Compliance > Federal Regulation > SEC

SEC Freezes Assets in $6M Ponzi Scheme

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The Securities and Exchange Commission filed an emergency action and obtained a temporary restraining order and asset freeze against two South Florida residents and two companies they control in connection with an alleged $6 million Ponzi scheme, the SEC said Tuesday.

Neil Burkholz, 82, of Boca Raton and Frank Bianco, 70, of Pembroke Pines, through their companies Palm Financial Management LLC and Shore Management Systems LLC, defrauded at least 55 investors, many of whom are senior citizens or small-business owners, according to the SEC’s complaint, filed in federal court in Miami on Thursday and unsealed Monday.

The complaint charged the defendants with securities fraud and seeks certain emergency relief as well as permanent injunctions, return of allegedly ill-gotten gains with prejudgment interest and civil penalties.

The accused scammers solicited investors by falsely representing that their proprietary options trading strategies were enormously profitable, the SEC said. In reality, as alleged in the complaint, the defendants invested less than 50% of investor funds and those investments resulted in almost total losses, it said.

The complaint alleged that the defendants misappropriated the remaining funds by using them to repay other investors and by transferring about $880,000 of investor funds to themselves and their spouses for personal use. The defendants sent false reports to investors to cover up their fraudulent conduct and provided investors with the false impression they were yielding positive returns, according to the SEC complaint.

Although the complaint only named Burkholz, Bianco, Palm Financial Management and Shore Management Systems, the complaint said the defendants misappropriated investor assets through “at least two investment management companies.”

The defendants’ “knowing misconduct is ongoing,” the complaint went on to say, adding: “They continue to seek investor funds on the basis of misrepresentations and deceptive acts, and they continue to divert investor assets to earlier investors and to their personal use. So far in 2019, they have raised over $1.49 million. In September, Defendants obtained $123,000 from a new 70-year old investor whose entire investment they promptly misappropriated.”

Investors victimized by the scam are from around the world, according to the complaint. Five of the eight investors noted in the complaint are from Florida, but the others are from Illinois, Maryland and Phuket, Thailand.

Burkholz is the founder and co-CEO of Palm Management, as well as co-founder and manager of Shore Management, while Bianco is co-CEO of Palm Management and co-founder and manager of Shore Management, according to the complaint. Palm and Shore are both active Florida limited liability companies located in Coconut Creek, Florida, the complaint noted, adding the defendants started Palm in January 2014 and Shore in May 2017. Neither firm is registered with the SEC in any capacity, the complaint said.

The complaint also named Burkholz’s wife, Rhoda Burkholz, 77, and Bianco’s wife, Suzanne Bianco, 69, as relief defendants.

A request for comment that ThinkAdvisor sent to Palm Financial Management using an email address at the firm’s website wasn’t immediately responded to. Frank Bianco, however, answered the phone when we called the phone number provided on the firm’s website. Asked to comment on the complaint, he told us only: “I haven’t seen it yet.” We sent a link to the SEC’s complaint to the email address he provided to us and were still awaiting further comment from him at our deadline.

“Palm Financial Management is backed by a team that has invested in volatile assets for over 27 years,” the company claims on its website, adding: “Our team has managed over $2 billion of assets. We create value by investing with strategies that benefit from change — change created by economic cycles. We capitalize on these opportunities due to our unique approach and value-added operating capabilities.”

At the site, the firm invites investors to sign up to attend its regular workshops in Coconut Creek and indicates it’s targeting “high net worth investors” especially.

“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,” according to Carolyn M. Welshhans, associate director in the SEC’s Division of Enforcement.

“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,” she said in a statement.

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