SEC Halts Denver-Based Ponzi Scheme
The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against a Denver-based company and two Colorado residents carrying out a $15.7 million Ponzi scheme harming more than 120 investors nationwide.
The SEC alleges that Michael J. Turnock of Denver and William P. Sullivan II of Highlands Ranch, Colo., sold promissory notes to investors through Bridge Premium Finance LLC, which purports to be in the business of insurance premium financing. They promised investors annual returns of up to 12 percent, and represented that investor funds would be used to make short-term loans to small businesses to enable them to pay their up-front commercial insurance premiums. Turnock and Sullivan assured investors that Bridge Premium’s business was performing well and that investor funds were “100% Protected” through various forms of collateral on the underlying loans.
However, according to the SEC’s complaint filed yesterday in federal court in Denver, Bridge Premium has been paying investor returns with funds from other investors since 2002. Bridge Premium’s business has been unprofitable and its obligations to noteholders have far exceeded its total assets. Because most funds were diverted for Ponzi payments, any collateral available on Bridge Premium’s underlying loan portfolio will only protect a small fraction of its promissory note investors. Furthermore, Bridge Premium’s offering was not registered with the SEC as required under the federal securities laws.
The court granted the SEC’s request for a temporary restraining order to freeze the assets that Bridge Premium, Turnock, and Sullivan derived from the scheme.
“Turnock and Sullivan raised millions from investors by claiming they could pay high interest rates through Bridge Premium's safe and unique business model,” said Julie Lutz, Associate Director of the SEC’s Denver Regional Office. “They hid the fact that Bridge Premium’s purported business lost money every year for more than a decade and had devolved into a Ponzi scheme long ago.”
The SEC alleges that in numerous in-person meetings and telephone conversations throughout the promissory note offering process, Turnock consistently told investors contemplating additional investments that Bridge Premium was performing well. In meetings with investors as recently as May 2012, Turnock said that the company was “doing great” and that it “had more business than cash.” Turnock also claimed that Bridge Premium could pay the promised annual interest rates as high as 12 percent because it received annual interest rates exceeding 30 percent from its insurance premium borrowers. Sullivan similarly told investors that Bridge Premium was “doing well” and that if the company “had more money, it could make more loans.”
According to the SEC’s complaint, in stark contrast to the continually positive portrayal of Bridge Premium’s financial condition, the company was actually not profitable, had negative cash flow from operations, and its liabilities to existing noteholders far exceeded its total assets. Turnock and Sullivan specifically withheld from investors that Bridge Premium has not been profitable in any year since at least 1998, and has lost more than $3 million during the past five years. In May 2012 after more than a decade of Ponzi payments and operational losses, Bridge Premium owed investors more than $6.2 million, yet its insurance premium loan portfolio totaled less than $250,000 and its assets totaled less than $500,000.
The SEC’s complaint alleges that based on their misconduct, Bridge Premium and Turnock violated Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In the alternative, Turnock is liable as a control person under Section 20(a) of the Exchange Act for Bridge Premium’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The SEC’s complaint alleges that Sullivan violated Section 17(a)(1) and (3) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5(a) and (c) thereunder, or in the alternative he is liable for aiding and abetting Turnock’s and Bridge Premium’s violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.
The SEC’s investigation was conducted by Richard M. Bayus II, Tracy W. Bowen, and Kurt L. Gottschall in the Denver Regional Office. Thomas J. Krysa and Gregory A. Kasper are handling the litigation.