Two Florida men defrauded more than 50 investors in a scheme that raised approximately $6 million, according to a complaint filed by the Securities and Exchange Commission in federal court in Miami. The SEC argued that Neil Burkholz and Frank Bianco pocketed investors’ funds without investing them, and during the course of the scheme transferred about $880,000 to their own accounts for personal use.
“Defendants have invested less than half of the funds that they solicited, investments that have resulted in near-total losses caused by risky options trading. To conceal their misappropriation, Defendants deliver false reports to their investors showing that their assets have been fully and properly invested,” the complaint read. “In short, Defendants are operating a Ponzi scheme.”
There were eight unnamed victims cited in the complaint, including one 77-year-old retiree who invested about $1.1 million (most of her life savings) in January 2016. Using their companies Palm Financial Management and Shore Management Systems (neither of which was registered with the SEC), Burkholz and Bianco purportedly promised this client and others that their money was properly and profitably invested, though most of the money raised between 2014 and now is gone. According to the complaint, Burkholz and Bianco used “elaborate private placement memorabilia, subscription agreements and operating agreements” that pledged that the two would primarily invest in funds using securities options and hedging strategies. But according to the complaint, Bianco and Burkholz used the money they raised to pay off other investors and themselves. But when they did try investing, they were unsuccessful, according to the SEC.
“To the extent that Defendants have performed any actual trading at all on behalf of investors, they routinely incur huge trading losses,” the report read.
For example, between May 1, 2018, and June 30, 2019, Bianco and Burkholz deposited $664,480 in their Shore Fund brokerage account; during that time, they lost about $239,439. Other accounts they managed dropped more than 50% of their value, while they allegedly continued to send investors falsified reports detailing positive (and imagined) earnings. Burkholz and Bianco have continued to deceive investors, according to the complaint, raising more than $1.4 million this year, with one 70-year-old small-business owner investing more than $123,000 as recently as September. In addition to paying themselves, the two defendants paid parts of these funds to their spouses.
The commission asked the courts to issue a temporary restraining order, a preliminary injunction and a permanent injunction on the defendants, as well as a freeze on assets. Additionally, the SEC asked for the court to consider civil penalties and disgorgement, and also asked for a jury trial.