A Colorado man was sentenced to serve 77 months in prison for his role in a Ponzi scheme that took in more than $16 million and caused losses exceeding $4 million to more than 50 investors. Michael Turnock, 69, received the sentence from U.S. District Judge Christine Arguello after previously pleading guilty to mail fraud and money laundering. In addition to the sentence, Judge Arguello also ordered Turnock to pay approximately $4.2 million in restitution to his victims.
Turnock was the principal of Bridge Premium Finance, LLC ("BPF"), which until September 2005 was known as Berjac of Colorado, LLC ("Berjac"). Berjac purported to be in the business of insurance premium funding. In 1996, Turnock bought a majority interest in Berjac, later purchasing the remaining interest in 2004. Potential investors were told that their funds would be used to make short-term loans to small businesses in order to enable those businesses to pay up-front commercial insurance premiums, and in return were promised an annual return of 12%. Investors also received marketing materials from Turnock that touted the investment as "100% safe" and protected by the "Colorado Insurance Guarantee Fund."
Investors were issued promissory notes, known as "Berjac Notes" from 1996 to 2005, and "Bridge Notes" from 2005 thereafter. These notes, which were open-ended in term, were said to be payable on demand by investors, which was touted to investors as evidence of the liquidity of the investment. Ultimately, more than 120 investors contributed approximately $15.7 million to the scheme. BPF's promissory note offerings were never registered with any federal or state securities regulator.
Turnock claimed that BPF could afford to pay such generous returns due to the rate of interest BPF received on the "bridge loans" it was making. However, according to the Securities and Exchange Commission, which also initiated a parallel civil enforcement proceeding, BPF had not had a profitable year in over a decade and had generated less than $2.5 million in revenue from 1998 to 2012. Yet, it still managed to make payments consisting of purported interest and principal redemptions to investors totaling $12.3 million. Indeed, revenues had been negative since at least January 2011. The company depended on a constant inflow of new investor funds in order to satisfy interest payments and redemption requests - a classic hallmark of a Ponzi scheme.
After the SEC began investigating in June 2012, Turnock and a co-conspirator refused to answer investigator's questions, citing their Fifth Amendment privileges against self-incrimination due to the possibility of criminal charges.
A copy of the SEC complaint is here.