A Wisconsin man was charged by the Securities and Exchange Commission with operating a Ponzi scheme that took in more than $10 million from at least 122 investors. Loren Holzhueter, 69, was the subject of an emergency enforcement action filed by the Commission last week alleging that Holzhueter used his connections in the local farming community and church to run a Ponzi scheme through his insurance brokerage, Insurance Service Center Inc. ("ISC"). Holzhueter and ISC are charged with multiple violations of federal securities laws, and the Commission is seeking injunctive relief, disgorgement of ill-gotten gains, civil monetary penalties, and prejudgment interest.
According to the Commission, Holzhueter has owned a tax preparation business, Quality Tax and Accounting Services ("QTAS") since 1985. In the 1990s, Holzhueter joined ISC, where he continued to sell his services through QTAS. After purchasing ISC in 2004, Holzhueter attempted to rapidly expand ISC's business by acquiring other insurance agencies and taking on debt. This expansion strategy also included raising money from family and friends, with some told that their investment would be used to open investment accounts with ISC while others were told that their funds would be used to expand ISC's operations or to buy out business partners. Holzhueter promised these investors varying fixed annual rates of return ranging from 2% to 8%, and assured them that they could withdraw their investments at any time or that they could "reinvest" the interest by declining to withdraw the interest payments from their accounts. Some investors were provided with a periodic "Summary Sheet" showing the terms of their investment and the balance at a given date.
However, the Commission alleged that Holzhueter was operating the classic Ponzi scheme by intermingling investor funds for a variety of undisclosed uses, including the funding of general operations, payroll for ISC's employees, personal expenses for Holzhueter, and the payment of Ponzi-style payments to existing investors purportedly representing interest payments and/or the return of invested principal. Nor were investors advised that, as of November 2013, the Internal Revenue Service had executed a search warrant on ISC's business and was conducting an active investigation. Indeed, Holzhueter is alleged to have not only concealed the IRS investigation, but also to have raised nearly $3 million from additional investors.
The Commission filed its complaint on Wednesday, January 21, 2015, and a hearing was held the following day before U.S. District Judge James D. Peterson. Holzhueter's counsel was provided notice of the hearing, where they were permitted to present argument. While Holzhueter's lawyers denied liability, they did concede that the Commission had set forth a prima facie showing of violations of federal securities laws in their complaint. The Court agreed and instructed the parties to confer on the terms of a temporary restraining order to maintain the status quo, with deference given to the inclusion of language allowing ISC to continue to operate based on the fact that any repayment to defrauded investors would come from ISC's continued operations. The Commission and Holzhueter's counsel were subsequently unable to reach an agreement on the exact language of a temporary restraining order, and both parties recently filed motions submitting alternate versions of a proposed order for the Court's entry. One of the primary sticking points appears to be Holzhueter's request for institution of a litigation bar that would effectively insulate Holzhueter and ISC from any litigation during the pendency of the Commission's action - a provision the Commission contended would "serve only to grant ISC blanket immunity from suit without any transparency or assurances that its assets are being safeguarded for defrauded investors."
The Complaint filed by the Commission is below, as well as the competing motions for entry of a temporary restratining order: