The Securities and Exchange Commission today charged a Denver-based company and two Colorado residents with conducting a $15.7 million Ponzi scheme that involved 120 investors nationwide. The SEC also requested an emergency asset freeze against the company and its two operators.
The SEC alleges that Michael J. Turnock of Denver and William P. Sullivan II of Highlands Ranch, Colo., sold promissory notes to investors through Denver-based Bridge Premium Finance LLC, which claimed to be in the business of insurance premium financing.
The SEC claims that Turnock and Sullivan promised investors annual returns of up to 12 percent, and said 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. The two men also 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.
In addition the SEC charges that 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, filed Tuesday in federal court in Denver, claims that 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.
The SEC alleges that in numerous in-person meetings and telephone conversations throughout the promissory-note offering process, Turnock consistently told investors considering additional investments that Bridge Premium was performing well. In meetings with investors as recently as this May, 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 of 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."
However, the SEC contends that the company was actually not profitable, had negative cash flow from operations, and its liabilities to existing noteholders far exceeded its total assets.