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Regulation and Compliance > Federal Regulation > SEC

SEC Orders Ponzi Schemers to Pay $2.8M

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The South Florida residents who operated an alleged $6 million Ponzi scheme that targeted elderly investors and small-business owners have been ordered to pay a total of $2.8 million in disgorgement and penalties, according the Securities and Exchange Commission.

On Monday, the U.S. District Court for the Southern District of Florida entered final judgments against Neil Burkholz of Boca Raton, Florida, and Frank Bianco of Pembroke Pines, Florida, the SEC said Tuesday.

The SEC previously charged Burkholz, Bianco and others in an emergency action where it obtained a temporary restraining order and subsequently a preliminary injunction against the defendants for conducting an alleged Ponzi scheme that defrauded at least 55 investors.

The SEC’s complaint, filed Nov. 14, alleged that Burkholz, Bianco and their companies Palm Financial Management and Shore Management Systems solicited investors by falsely representing that their proprietary options trading strategies were enormously profitable. However, in reality, as claimed in the complaint, the defendants invested less than 50% of investor funds and those investments resulted in almost-total losses.

The SEC 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 Burkholz, Bianco and their spouses for personal use. The defendants sent false reports to investors to cover up their fraudulent conduct and give the investors the false impression they were generating positive returns, according to the complaint.

The judgment against Burkholz, entered on the basis of default, found that he violated the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, the SEC said Tuesday. The judgment permanently enjoined Burkholz from violating those provisions and ordered him to pay disgorgement and prejudgment interest totaling $429,580, plus a $920,825 civil penalty, according to the SEC.

Without admitting or denying the allegations in the SEC’s complaint, Bianco consented to the entry of a final judgment permanently enjoining him from violating the antifraud provisions of the Securities Exchange Act of 1934 and Rule 10b-5, the SEC said.

Bianco also agreed to pay $443,997 in disgorgement and prejudgment interest, along with a $920,825 civil penalty, according to the SEC. Meanwhile, Bianco’s wife, Suzanne Bianco, who the SEC named as a relief defendant, consented to the entry of a final judgment ordering her to disgorge with Bianco $49,751, representing the amount of investor funds Bianco paid her, plus prejudgment interest, the SEC said.

The court in February ordered more than $1.2 million in disgorgement and prejudgment interest against Palm Management and Shore Management, the SEC pointed out.

The SEC plans to seek approval from the court to establish a fair fund to distribute money received from defendants to harmed investors, it said Tuesday.

The SEC is conducting ongoing litigation against relief defendant Rhoda Burkholz, the wife of Neil Burkholz, it said.

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