Who: Plaintiff: Securities and Exchange Commission
Defendants: Bridge Premium Finance, LLC (f/k/a Berjac of Colorado, LLC); Michael Turnock; and William P. Sullivan, II
What: This complaint arises from an alleged Ponzi scheme involving the fraudulent sale of promissory notes, marketed as investments in defendants' premium financing business. According to the complaint, "[d]efendants raised money from promissory note investors purportedly to provide capital for BPF [Bridge Premium Finance]'s insurance premium financing business – that is, making short-term loans to businesses to enable them to pay their annual commercial insurance premiums." The complaint further alleges that "[d]efendants portrayed the promissory note investments as safe, conservative investments comparable to money market accounts and certificates of deposit, but offering higher rates of interest, up to 12 percent annually." According to the complaint, however, BPF was actually "operated as a Ponzi scheme" and BPF's representations "that BPF's promissory note investments were '100% protected' was false." The complaint alleges that these false representations resulted in "BPF ow[ing] investors more than $6.2 million, but it [having] total assets remaining of less than $500,000" in May 2012.
According to the complaint, in approximately 1996, defendant Michael Turnock purchased a majority interest in, and became the managing member of, Berjac of Colorado, LLC. Allegedly, in 2005, Turnock changed Berjac's name to Bridge Premium Finance, LLC. BPF's typical transaction is described by the complaint as follows: "(i) BPF's clients pay about 25% of their insurance premium up-front; (ii) BPF pays the remaining 75% of the policy premium directly to the insurance company, but retains the power to cancel the policy and receive any unearned premium due upon cancellation; (iii) the client re-pays BPF the 75% of the premium that BPF financed, plus interest, in monthly installments, usually over eight or nine months; and (iv) if the client fails to make monthly installment loan payments due, BPF retains the right to cancel the policy and receive the unearned premium refund directly from the insurance company." The complaint states that "[f]rom approximately 1996 through the present, BPF has raised capital purportedly to make insurance premium financing loans by continuously offering and selling promissory notes to investors," which were called "Berjac Notes" up until September 2005 and "Bridge Notes" thereafter.
The complaint states that "[f]rom approximately 1996 through June 2012, BPF raised more than $15.7 million from more than 120 investors located in Colorado, and at least eleven other states." According to the allegations, these investors were offered "above-market annual interest rates ranging from 3.25% to 12%" and "had the option of receiving their interest in a quarterly check, or having their interest reinvested, and paid to them at the redemption of the promissory note." The allegations state that "[t]he majority of investors reinvested their interest rather than receiving quarterly interest payments." The complaint further alleges that BPF was operated as a Ponzi scheme since "at least 2002" and that the promissory notes were not backed by "meaningful collateral." The allegations in the complaint state that "BPF's misrepresentations and omissions as to use of proceeds were material to investors because the investors believed that their funds were being used to make insurance premium financing loans, not to make Ponzi payments to other investors."
Based on these allegations, the complaint alleges five causes of action against the defendants: (i) violations of Securities Act section 17(a) (securities fraud); (ii) violations of Securities Act section 10(b) and Rule 10b-5 (securities fraud); (iii) aiding and abetting violations of Section 10(b) and Rule 10b-5; (iv) violations of Exchange Act section 20(a) (control person liability); and (v) violations of Securities Act sections 5(a) and (c) (sale of unregistered securities). The plaintiff seeks an injunction "permanently restraining and enjoining each of the [d]efendants from violating the law and rules alleged against them in the [c]omplaint;" an order disgorging from defendants "any and all ill-gotten gains;" and civil penalties pursuant to sections 20(d) of the Securities Act and 21(d)(3) of the Exchange Act.
Where: United States District Court for the District of Colorado
When: August 14, 2012
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