SEC Stops Ponzi Scheme Targeting Seniors, Small Businesses

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.

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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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Tags: Frank Bianco, Neil Burkholz, Palm Financial Management, Ponzi Scheme, SEC, Shore Management Systems

With investing to meet environmental, social, and governance (ESG) goals, it pays to know the differing political, legal, and institutional risks in each country. This can be a daunting task.

Investec, for example, takes a candidly different approach to sub-Saharan Africa and Indonesia when engaging in each region, IPE recently reported. In Africa, Investec assumes a more supportive client-type role, while Indonesia’s societal differences mandate a different strategy. “Indonesia is making a lot of social progress but there is a lot of infrastructure planned, which leads to issues around land expropriation and loss of biodiversity,” Peter Eerdmans, co-head of EMD at Investec Asset Management, told IPE.

The CFA Society recently explored critical elements that make the Middle East unique when considering ESG mandates. One thing to “understand about the integration of ESG in the Middle East is that it is subordinate to Islamic Finance in which capital is raised and invested in accordance with shariah law,” said Matt Orsagh, director of capital market policy at the CFA Institute.

Investors can find opportunities for alpha generation if they come to grips with different institutional frameworks in any given society, Cathy Hepworth, co-head of EMD at PGIM Fixed Income, said in IPE’s report. “Venezuela is a strong example where a poor social and governance outlook caused us to be underweight sovereign paper versus collateralized quasi-sovereign debt. Ukraine was a more positive story, where improvements in social and governance conditions led us to increase our weighting in that country prior to its 2019 rally.”

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Acclimating to such structural differences among the regions causes individuals to determine how they’ll learn about them. There are different intelligence providers to choose from, and many times firms rely on their own research. IPE reports that Rob Drijkoningen, Neuberger Berman’s co-head of emerging markets debt, uses a combination of third-party ESG indicators and internally generated ones.

Assets managed in ESG are soaring around the world, with the largest 500 asset managers increasing their positions by 23.3% in 2018 compared to their overall assets, according to a report by Willis Towers Watson’s Thinking Ahead Institute.

Other countries are ramping up with regards to their ESG programs. The Asset recently reported that the “Monetary Authority of Singapore (MAS) announced during the Singapore Fintech Festival that it has established a US$2 billion green investments program (GIP) to invest in public market investment strategies with a strong green focus.”

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Tags: Africa, concerns, Emerging Markets, ESG, Indonesia, Investors