Yesterday, the Securities and Exchange Commission (“SEC”) announced its filing of an emergency action for a temporary restraining order and asset freeze against Neil Burkholz of Boca Raton, Florida, and Frank Bianco, of Pembroke Pines, Florida, and their companies Palm Financial Management LLC and Shore Management Systems LLC, for an alleged $6 million Ponzi  scheme. Many of the investor victims are senior citizens between the ages of 65 and 100, including several Florida small-business owners. At least some have liquidated their retirement savings and other assets to invest with Defendants.

According to the SEC’s complaint, the defendants falsely touted their proprietary options trading strategies as highly profitable. In reality, as alleged in the complaint, Defendants did not properly invest victim assets, nor where the invested assets profitable. Instead, Bianco and Burkholz knowingly channeled new money obtained from the investor victims 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.

Much of the money was not in fact invested and, as alleged in the Complaint,  the defendants misappropriated the remaining cash which was not invested by using it to repay other investors (a classic Ponzi scheme hallmark) and by transferring approximately $880,000 of investor funds to themselves and their spouses for personal use. According to the SEC’s complaint, the Defendants sent false reports to investors to conceal their fraudulent conduct and give the investors the false impression they were generating positive returns.

As stated in the Complaint, to perpetuate their scheme, Defendants employed a variety of methods to discourage withdrawals. These tactics included providing redemption payments funded from other investors’ money and sending false investment reports intended to reassure investors that their assets continued to grow.

The SEC’s complaint, filed in federal court in Miami on Nov. 14 and unsealed Monday, Nov. 18, charges 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 complaint also names Burkholz’s wife, Rhoda Burkholz, and Bianco’s wife, Suzanne Bianco, as relief defendants.

Former Wall Street Attorney Melanie S. Cherdack represents investors in the United States and the Caribbean in claims against brokers and brokerage firms for wrongdoing. If you believe you are the victim of a Ponzi scheme or other financial fraud you may have a claim for damages. For a free consultation, contact us by filling out our online contact form, or calling 305-349-2336.