The Securities and Exchange Commission today announced charges against a private fund manager and his Atlanta-based investment advisory firm for defrauding investors in a purported “fund-of-funds” and then trying to hide trading losses by creating new private funds to make money to pay back the original fund investors in Ponzi-like fashion.

The SEC is seeking an emergency court order to freeze the assets of Angelo A. Alleca and Summit Wealth Management Inc. and prevent further investor losses, which are estimated to be $17 million among approximately 200 clients.

“Alleca told Summit Wealth clients that he was investing their money in funds, but instead he was rolling the dice in the stock market without success,” said Bruce Karpati, Chief of the SEC Enforcement Division’s Asset Management Unit.  “Rather than fess up about his trading losses, Alleca tried a cover up by creating new funds. Instead of winning back the money, he just compounded his fraud by suffering further losses.”

After receiving a tip, the SEC initiated an examination of Summit Wealth. As SEC examiners noticed something was amiss at the firm, they immediately coordinated with SEC enforcement attorneys to gather and assess evidence.

“SEC examiners and attorneys acted swiftly after receiving a tip about possible wrongdoing at the firm, and have mounted an aggressive effort to put a stop to Alleca’s fraud before more investors are harmed,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office.

According to the SEC’s complaint filed late yesterday in federal court in Atlanta, Alleca and Summit Wealth Management offered and sold interests in Summit Fund, which they told their clients was operating as a fund-of-funds – meaning they were investing their money in other funds and investment products rather than directly in stocks and other securities. The fund-of-funds investment strategy is intended to diversify investor money and minimize exposure to risks. However, Alleca instead engaged in active securities trading with his clients’ money, and he incurred substantial losses. He concealed the Summit Fund trading losses from investors and provided them false account statements.

The SEC alleges that when it came time to meet redemption requests from Summit Fund investors, Alleca created at least two hedge funds to raise money from Summit Wealth clients – Private Credit Opportunities Fund LLC and Asset Class Diversification Fund LP. Alleca’s plan was to cover up the losses that he had incurred in Summit Fund by illegally transferring profits from the new funds in a Ponzi-like fashion in order to meet earlier redemption requests. However, Alleca’s plan backfired when those successive funds incurred further trading losses. Alleca continued to issue false account statements to investors in Summit Fund as well as the additional funds in order to hide the actual losses on their investments.

The SEC’s complaint charges Alleca, Summit Wealth Management, and the three funds with violations of the antifraud provisions of the federal securities laws.

The Securities and Exchange Commission today charged the co-founder of a Chicago-based investment firm with misleading investors in two private equity offerings, and charged the other co-founder with supervisory failures related to the offerings.

Advanced Equities Inc. — a broker-dealer and investment advisory firm – and co-founders Dwight O. Badger and Keith G. Daubenspeck were charged in connection with private offerings in 2009 and 2010 on behalf of an alternative energy company in Silicon Valley, Calif., which was not identified by name in the SEC’s administrative proceeding. Badger led the sales effort for the offerings and made misstatements about the energy company’s finances that Daubenspeck did not correct, thus failing to reasonably supervise Badger. Daubenspeck co-founded Advanced Equities with Badger and was the former chief executive of its parent company. Daubenspeck is the chairman of the parent company’s board.

Badger, Daubenspeck, and their firm agreed to settle the SEC’s charges.

According to the SEC’s order, Badger said in the 2009 offering that the energy company had more than $2 billion of order backlogs when the backlog never exceeded $42 million. He also said it had a $1 billion order from a national grocery store chain even though the store only had placed a $2 million order and signed a non-binding letter of intent for future purchases. Badger said that the company had been granted a U.S. Department of Energy loan exceeding $250 million when it had applied for a $96.8 million loan, and he again misstated the information about the loan application during the follow-up offering in 2010.

“Dwight Badger misled investors by embellishing key facts about the energy company’s sales orders and its loan application to the Department of Energy,” said Merri Jo Gillette, Director of the SEC’s Chicago Regional Office. “The SEC will continue to be vigilant in uncovering fraud in private securities offerings and holding registered securities professionals accountable.”

According to the SEC’s order, Daubenspeck participated in at least two internal sales calls with Advanced Equities brokers during the 2009 offering and remained silent after he heard Badger make misstatements about the company’s order backlog, grocery store order, and Department of Energy loan application. Despite the red flags raised by the misstatements and the obvious risk that false information would be repeated to investors, Daubenspeck did not take reasonable steps to correct the misstatements and thus failed reasonably to supervise Badger.

Advanced Equities agreed to pay a $1 million penalty, and agreed to be censured and to cease and desist from committing or causing any future violations of the securities laws it was found to have violated. The firm also agreed to numerous undertakings including hiring an independent consultant to review its sales policies and procedures. Badger agreed to pay a $100,000 penalty and be barred for one year from association with any broker, dealer, investment adviser, municipal securities dealer or transfer agent. Daubenspeck agreed to pay a $50,000 penalty and a one-year supervisory suspension. Advanced Equities, Badger, and Daubenspeck consented to the entry of the cease-and-desist order without admitting or denying the SEC’s charges.

The Securities and Exchange Commission today announced that New York-based investment advisory firm ICP Asset Management and its founder and president Thomas C. Priore have agreed to settle the agency’s charges that they defrauded several collateralized debt obligations (CDOs) they managed.

ICP, Priore, and related entities have agreed to a final judgment ordering them to pay more than $23 million to settle the case the SEC filed against them in June 2010 in federal court in Manhattan. The SEC alleged they engaged in fraudulent practices and misrepresentations that caused the CDOs to overpay for securities and lose millions of dollars. Priore and the ICP companies also improperly obtained fees and undisclosed profits at the expense of the CDOs and their investors.

“The settlement with Priore and ICP sends a clear message that investment advisers must always act in the best interests of their advisory clients, even if those clients are sophisticated investors,” said George S. Canellos, Deputy Director of the SEC’s Division of Enforcement. “When advisers put their own interests ahead of their clients’ interests, the SEC will seek to hold them accountable.”

The court approved the settlement terms on September 6. The final judgment orders Priore to pay disgorgement of $797,337, prejudgment interest of $215,045, and a penalty of $487,618. ICP and its holding company Institutional Credit Partners LLC are ordered, on a joint and several basis, to pay disgorgement of $13,916,005 and prejudgment interest of $3,709,028. ICP also is ordered to pay a penalty of $650,000. An affiliated broker-dealer ICP Securities LLC is ordered to pay disgorgement of $1,637,581, prejudgment interest of $301,893, and a penalty of $1,939,474. Priore also agreed to settle an administrative proceeding against him and be barred from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock. He has a right to reapply for association or participation after a period of five years.

Priore and the ICP companies also consented, without admitting or denying the SEC’s allegations, to permanent injunctions enjoining them from future violations of the securities laws that they were alleged to have violated, which include Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1)(A) of the Securities Exchange Act of 1934 and Rules 10b-3 and 10b-5, and Sections 206(1), (2), (3), and (4) of the Investment Advisers Act of 1940 and Rules 204-2, 206(4)-7 and 206(4)-8.

The Securities and Exchange Commission today announced that New York-based investment advisory firm ICP Asset Management and its founder and president Thomas C. Priore have agreed to settle the agency’s charges that they defrauded several collateralized debt obligations (CDOs) they managed.

ICP, Priore, and related entities have agreed to a final judgment ordering them to pay more than $23 million to settle the case the SEC filed against them in June 2010 in federal court in Manhattan. The SEC alleged they engaged in fraudulent practices and misrepresentations that caused the CDOs to overpay for securities and lose millions of dollars. Priore and the ICP companies also improperly obtained fees and undisclosed profits at the expense of the CDOs and their investors.

“The settlement with Priore and ICP sends a clear message that investment advisers must always act in the best interests of their advisory clients, even if those clients are sophisticated investors,” said George S. Canellos, Deputy Director of the SEC’s Division of Enforcement. “When advisers put their own interests ahead of their clients’ interests, the SEC will seek to hold them accountable.”

The court approved the settlement terms on September 6. The final judgment orders Priore to pay disgorgement of $797,337, prejudgment interest of $215,045, and a penalty of $487,618. ICP and its holding company Institutional Credit Partners LLC are ordered, on a joint and several basis, to pay disgorgement of $13,916,005 and prejudgment interest of $3,709,028. ICP also is ordered to pay a penalty of $650,000. An affiliated broker-dealer ICP Securities LLC is ordered to pay disgorgement of $1,637,581, prejudgment interest of $301,893, and a penalty of $1,939,474. Priore also agreed to settle an administrative proceeding against him and be barred from association with any broker, dealer, investment adviser, municipal securities dealer, or transfer agent, and from participating in any offering of a penny stock. He has a right to reapply for association or participation after a period of five years.

Priore and the ICP companies also consented, without admitting or denying the SEC’s allegations, to permanent injunctions enjoining them from future violations of the securities laws that they were alleged to have violated, which include Section 17(a) of the Securities Act of 1933, Sections 10(b) and 15(c)(1)(A) of the Securities Exchange Act of 1934 and Rules 10b-3 and 10b-5, and Sections 206(1), (2), (3), and (4) of the Investment Advisers Act of 1940 and Rules 204-2, 206(4)-7 and 206(4)-8.

The Securities and Exchange Commission today charged an attorney and two others living in South Florida for their roles in a $27.5 million investment scheme that led investors to believe they were purchasing securities consisting of “pre-sold” commodities contracts with a pre-determined profit. However, the supposed profits actually distributed to investors were largely taken from other investors’ funds.

The SEC halted the scheme last year when it obtained an asset freeze and a court-appointed receiver over the companies involved: Commodities Online LLC and Commodities Online Management LLC. The SEC’s follow-up charges are against the founder and former president of the company, James C. Howard III, as well as the company’s vice president Louis N. Gallo III and outside counsel Michael R. Casey, who later became the president.

“This trio teamed up to employ all the hallmarks of an investment scheme,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Howard met with prospective investors at a luxury hotel to emanate a false sense of wealth and security, Gallo oversaw an in-house boiler room that drummed up investor interest, and Casey was the company’s purported legal counsel who acted anything but lawyerly.”

In a parallel action, the U.S. Attorney’s Office for the Southern District of Florida today announced criminal charges against Howard, Gallo, and Casey.

According to the SEC’s complaint filed in federal court in Miami, Commodities Online offered investors the chance to participate in its purportedly profitable brokering of physical commodities via pre-sold contracts – for example, the purchase and sale of large amounts of seafood or iron ore. Investors were sold participation units in unregistered private placement offerings, each supposedly tied to a commodities transaction in which Commodities Online had already secured a buyer and a seller of the commodity. These participation units would purportedly generate predetermined profits for investors.

The SEC alleges that in reality, Commodities Online performed only a limited percentage of the commodities transactions that were promised to investors. The majority of “profits” allocated or distributed to investors were not profits from completed commodities transactions, but instead taken from the funds of other investors. Meanwhile, Howard and Gallo were dissipating millions of dollars in investor funds to largely sham companies. Through these companies, Howard and Gallo stole investor funds for their own use. For example, Howard met with prospective investors at a luxury hotel in Fort Lauderdale and offered Commodities Online membership interests. He told investors that the funds raised from the offering would be used for the company’s start-up costs such as salaries, marketing, and advertising. However, within weeks of receiving $2 million in investor funds for the purchase of the membership units, Howard siphoned $1.45 million to another entity he controlled. Furthermore, Howard failed to disclose to prospective investors that he’s a convicted felon.

According to the SEC’s complaint, Howard stepped down as the company’s president in 2010 after he was arrested for an unrelated investment fraud. He was replaced by Casey, who misled investors about Howard’s continuing control over Commodities Online while also misrepresenting the profitability, structure, and existence of the purported commodities contracts to investors. Casey also failed to tell at least one investor that the funds raised from the purchase of membership interests had previously been misappropriated by Howard.

The SEC alleges that Gallo ran an in-house “boiler room” of telephone sales agents and a network of approximately 20 regional and international sales offices. He failed to disclose to investors that he previously pled guilty to federal bank fraud and other felonies and was serving a term of supervised release while employed at Commodities Online. Gallo also misled investors about Howard’s role at Commodities Online.

The SEC’s complaint charges Howard, Gallo and Casey with violations of 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. They’re also charged with aiding and abetting violations by Commodities Online and Commodities Online Management of Section 10(b) of the Exchange Act and Rule 10b-5. Howard is further charged with a violation of Section 20(a) of the Exchange Act as a control person of Commodities Online, and the complaint alleges he is therefore jointly and severally liable for Commodities Online’s violations of Section 10(b) of the Exchange Act and Rules 10b-5. The SEC is seeking disgorgement of ill-gotten gains plus prejudgment interest, financial penalties, and permanent injunctions against Howard, Gallo, and Casey. The SEC’s complaint also names several relief defendants for the purposes of recovering investor money steered to those entities in the scheme: Sutton Capital LLC, J&W Trading LLC, American Financial Solutions LLC, and Minjo Corporation.

The SEC’s investigation was conducted by Senior Investigations Counsel Robert H. Murphy, Senior Counsel Melissa J. Mitchell, and Staff Accountant Timothy J. Galdencio under the supervision of Assistant Regional Director Eric R. Busto in the Miami Regional Office. James M. Carlson will lead the SEC’s litigation efforts.

The Securities and Exchange Commission today charged two former brokers in Miami with fraud for overcharging customers approximately $36 million by using hidden markup fees on structured notes transactions.

The SEC alleges that Fabrizio Neves conducted the scheme while working at LatAm Investments LLC, a broker-dealer that is no longer in business. He was assisted by Jose Luna. The pair defrauded two Brazilian public pension funds and a Colombian institutional investor that purchased from LatAm the structured notes issued by major commercial banks. To conceal the excessive markups that Neves charged customers, Neves directed Luna to alter the banks’ structured note term sheets in half of the transactions by either whiting out or electronically cutting and pasting the markup amounts over the actual price and trade information, and then sending the forged documents to customers. Neves and Luna further concealed the egregious markups in most transactions by first purchasing the notes into accounts in the name of nominee entities they controlled in the British Virgin Islands.

“Neves lined his pockets with millions of dollars by charging customers exorbitant, fraudulent markups,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “Neves and Luna thought they could hide their scheme and evade regulators by using offshore nominee companies and forged documents, but they thought wrong.”

The SEC also instituted an administrative proceeding against LatAm’s former president Angelica Aguilera, who was the direct supervisor over Neves and Luna. The SEC’s Enforcement Division alleges that Aguilera failed reasonably to supervise Neves and Luna and effectively follow or implement LatAm’s supervisory policies and procedures to ensure the fairness of markups and markdowns they charged to LatAm customers. As a result, Neves and Luna were able to carry out the fraudulent markup scheme undetected.

According to the SEC’s complaint against Neves and Luna filed in U.S. District Court for the Southern District of Florida, Neves negotiated with several U.S. and European commercial banks to structure 12 notes on his customers’ behalf from 2006 to 2009. But instead of purchasing the notes for his customers’ accounts for prices around the banks’ issuance amounts – which totaled approximately $70 million – in most transactions Neves first traded the notes with one or more accounts in the name of offshore nominee entities that he and Luna controlled. Neves then sold the notes to his customers with undisclosed markups as high as 67 percent. Neves had no reasonable basis to mark up the prices that significantly.

The SEC alleges that as a result of the markup scheme, the Brazilian funds overpaid by approximately $24 million and the Colombian institutional investor overpaid by approximately $12 million due to the undisclosed, excessive fees. Neves enjoyed a financial boon from the scheme as LatAm paid him millions of dollars in inflated sales commissions for the structured note transactions that he made at inflated prices. Luna received hundreds of thousands of dollars in inflated salary and commissions from LatAm and tens of thousands of dollars in additional compensation from a company that Neves controlled.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Neves to enjoin him from future violations of the federal securities laws.

Luna has agreed to the entry of a judgment ordering him to pay disgorgement of $923,704.85, prejudgment interest of $241,643.51, and a penalty amount to be determined. The judgment permanently enjoins him from violations of the antifraud provisions of the federal securities laws. Luna neither admitted nor denied the allegations in the SEC’s complaint. Luna also agreed to settle a related SEC administrative proceeding by agreeing to be barred from association with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agent, or credit rating agency.

The SEC’s investigation was conducted in the Miami Regional Office by Senior Counsel Laura R. Smith and Senior Regional Accountant Fernando Torres under the supervision of Assistant Regional Director Jason R. Berkowitz. Senior Trial Counsel Edward D. McCutcheon will lead the SEC’s litigation.

The Securities and Exchange Commission today charged a New York-based firm and its owner with conducting a penny stock scheme in which they bought billions of stock shares from small companies and illegally resold those shares in the public market.

The SEC alleges that Edward Bronson and E-Lionheart Associates LLC reaped more than $10 million in unlawful profits from selling shares they bought at deep discounts from approximately 100 penny stock companies. On average, Bronson and E-Lionheart were able to generate sales proceeds that were approximately double the price at which they had acquired the shares. No registration statement was filed or in effect for any of the securities that Bronson and E-Lionheart resold to the investing public, and no valid exemption from the registration requirements of the federal securities laws was available.

“By violating the registration provisions of the securities laws and dumping billions of unregistered shares into the over-the-counter market, Bronson deprived investors of important information about the companies in which they were investing,” said Andrew M. Calamari, Acting Director of the SEC’s New York Regional Office.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of New York, Bronson lives in Ossining, N.Y. E-Lionheart, which also does business under the name Fairhills Capital, is located in White Plains. Acting at Bronson’s direction, E-Lionheart personnel systematically “cold called” penny stock companies quoted on the OTC Link to ask if they were interested in obtaining capital. If the company was interested, E-Lionheart personnel would offer to buy stock in the company at a rate that was deeply discounted from the trading price of the company’s stock at that time. Typically, Bronson and E-Lionheart immediately began reselling the shares to the investing public through a broker within days of receiving the shares from the company.

Bronson and E-Lionheart purported to rely on an exemption from registration under Rule 504(b)(1)(iii) of Regulation D, which exempts transactions that are in compliance with certain types of state law exemptions. However, no such state law exemptions were applicable to these transactions. Bronson and E-Lionheart claimed to rely on a Delaware state law registration exemption, but the transactions in fact had little or no connection to the state of Delaware. The particular Delaware state law exemption claimed by Bronson and E-Lionheart is not an exemption that meets the specific requirements of Rule 504(b)(1)(iii). As a result, investors purchasing these shares did not have access to all of the information that a registration statement would have provided, including in many instances important information concerning the issuance of millions of new shares by the company to Bronson and E-Lionheart.

The SEC’s complaint charges E-Lionheart and Bronson with violations of the registration provisions of the federal securities laws, and seeks disgorgement of more than $10 million in ill-gotten gains, penalties. The SEC also seeks penny stock bars against E-Lionheart and Bronson. The complaint also names another entity owned and controlled by Bronson – Fairhills Capital Inc. – as a relief defendant for the purpose of recovering the illegal proceeds it received.

The Securities and Exchange Commission today charged a Puerto Rico resident and his company with conducting a Ponzi scheme that targeted evangelical Christians and factory workers in Puerto Rico.

The SEC alleges that Ricardo Bonilla Rojas and his firm Shadai Yire raised at least $7 million from as many as 200 investors living primarily in Puerto Rico but also on the U.S. mainland in such states as Florida, New York, and North Carolina. Rojas actively solicited investors through personal discussions with individuals both over the phone and in person, and he also marketed the investment opportunity in presentations to evangelical Christian groups and factory workers who were often inexperienced investors. Rojas falsely assured investors that their principal contributions were “100% guaranteed” and promised returns up to 50 percent, telling them he’d be investing their money in commodities. But Rojas never actually invested any money in commodities and instead used new contributions to repay earlier investors in classic Ponzi scheme fashion. He stole $700,000 for himself.

In a parallel action, the U.S. Attorney’s Office for the District of Puerto Rico today announced criminal charges against Rojas.

“Rojas targeted novice investors who were often evangelical Christians, and he touted a long history of successful trading in commodities,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office. “In reality, he was fleecing the flock.”

According to the SEC’s complaint filed in U.S. District Court for the District of Puerto Rico, Rojas and Shadai Yire conducted the scheme from at least August 2005 to February 2009. Rojas, who resides in Arecibo, Puerto Rico, and his company Shadai Yire have never been registered with the SEC to offer securities.

The SEC alleges that Rojas hired some sales agents to help him solicit investors, and paid commissions based on a percentage of the investor funds they raised. Rojas and his sales agents pitched the investment opportunity to individuals as a risk-free way to earn high returns in a short period of time. Rojas also created phony account statements that were sent to investors to hide his misuse of investor money and lead them to believe their investments were growing.

The SEC’s complaint seeks disgorgement of ill-gotten gains, financial penalties, and injunctive relief against Rojas and Shadai Yire to enjoin them from future violations of the federal securities laws.

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze to halt a $600 million Ponzi scheme on the verge of collapse. The emergency action assures that victims can recoup more of their money and potentially avoid devastating losses.

The SEC alleges that online marketer Paul Burks of Lexington, N.C. and his company Rex Venture Group have raised money from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com, which they began in January 2011.

According to the SEC’s complaint filed in federal court in Charlotte, N.C., customers were offered several ways to earn money through the ZeekRewards program, two of which involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.

The SEC alleges that investors were collectively promised up to 50 percent of the company’s daily net profits through a profit sharing system in which they accumulate rewards points that they can use for cash payouts. However, the website fraudulently conveyed the false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. Most of ZeekRewards’ total revenues and the “net profits” paid to investors have been comprised of funds received from new investors in classic Ponzi scheme fashion.

“The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors,” said Stephen Cohen, an Associate Director in the SEC’s Division of Enforcement. “ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor.”

The SEC’s complaint alleges that the scheme is teetering on collapse with investor funds at risk of dissipation without its emergency enforcement action. Last month, ZeekRewards brought in approximately $162 million while total investor cash payouts were approximately $160 million. If customers continue to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, ZeekRewards’ cash outflows would eventually exceed its total revenue.

Burks has agreed to settle the SEC’s charges against him without admitting or denying the allegations, and agreed to cooperate with a court-appointed receiver.

According to the SEC’s complaint, ZeekRewards has paid out nearly $375 million to investors to date and holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions. Those funds will be frozen under the emergency asset freeze granted by the court at the SEC’s request. Meanwhile, Burks has personally siphoned several million dollars of investors’ funds while operating Rex Venture and ZeekRewards, and he distributed at least $1 million to family members. Burks has agreed to relinquish his interest in the company and its assets plus pay a $4 million penalty. Additionally, the court has appointed a receiver to collect, marshal, manage and distribute remaining assets for return to harmed investors.

The Securities and Exchange Commission today announced fraud charges against a former college football coach who teamed with an Ohio man to conduct an $80 million Ponzi scheme that included other college coaches and former players among its victims.

The SEC alleges that Jim Donnan, a College Football Hall of Fame inductee who guided teams at Marshall University and the University of Georgia and later became a television commentator, conducted the fraud with his business partner Gregory Crabtree through a West Virginia-based company called GLC Limited. Donnan and Crabtree told investors that GLC was in the wholesale liquidation business and earning substantial profits by buying leftover merchandise from major retailers and reselling those discontinued, damaged, or returned products to discount retailers. They promised investors exorbitant rates of return ranging from 50 to 380 percent. However, only about $12 million of the $80 million raised from nearly 100 investors was actually used to purchase leftover merchandise, and the remaining funds were used to pay fake returns to earlier investors or stolen for other uses by Donnan and Crabtree.

“Donnan and Crabtree convinced investors to pour millions of dollars into a purportedly unique and profitable business with huge potential and little risk,” said William P. Hicks, Associate Director of the SEC’s Atlanta Regional Office. “But they were merely pulling an old page out of the Ponzi scheme playbook, and the clock eventually ran out.”

According to the SEC’s complaint filed in federal court in Atlanta, the scheme began in August 2007 and collapsed in October 2010. Donnan recruited the majority of investors by approaching contacts he made as a sports commentator and as a coach. For instance, he capitalized on his influence over one former player by telling him, “Your Daddy is going to take care of you” … “if you weren’t my son, I wouldn’t be doing this for you.” The player later invested $800,000.

The SEC’s complaint alleges that Donnan touted GLC’s success and profitability and told investors that the company could enter into even more merchandise deals with more capital. Donnan and Crabtree offered and sold investments that were short-term (2 to 12 months) and purportedly high-yield, with returns paid to investors in monthly or quarterly installments or in a one-time payment. Donnan told investors their money was being used to purchase specific items of merchandise that was often presold, so there was little to no risk to investing in any deal. However, much of the merchandise that GLC actually purchased was merely left unsold and abandoned in warehouses in West Virginia and Ohio.

The SEC alleges that Donnan typically assured investors that he was investing along with them in any merchandise deal that he offered. He touted that he and other prominent college football coaches had successfully and profitably invested in GLC. But by the time the scheme collapsed, Donnan had actually siphoned more than $7 million away from GLC, and Crabtree misappropriated approximately $1.08 million in investor funds.

The SEC’s complaint charges Donnan, who lives in Athens, Ga., and Crabtree, who resides in Proctorville, Ohio, with violations of the antifraud and registration provisions of the federal securities laws. The complaint also names two of Donnan’s children and his son-in-law as relief defendants for the purpose of recovering illicit funds that Donnan steered to them.

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.