SEC Seeks Deceased Alleged Ponzi Schemer's Life Insurance Proceeds To Pay Victims

The recent death of a Wisconsin insurance agent accused by the Securities and Exchange Commission of operating a multi-million dollar Ponzi scheme has taken a new twist as authorities seek to use millions of dollars in life insurance policy proceeds to pay back the accused's defrauded victims.  Loren Holzhueter was charged by the Commission in January with using his insurance brokerage firm to operate a Ponzi scheme that may have duped victims of over $10 million.  Following his death in late April, authorities discovered that Holzhueter had apparently purchased a significant amount of life insurance that is now the subject of negotiations between authorities and Holzhueter's lawyer and could potentially result in a significant return to the alleged con man's victims.

The Scheme

According to the Commission, Holzhueter owned a tax preparation business, Quality Tax and Accounting Services ("QTAS") since 1985.  In the 1990s, Holzhueter joined Insurance Service Center ("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'soperations 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.

Life Insurance Policies

Following Holzhueter's death in late April, it was discovered that Holzhueter had apparently taken out life insurance policies that were set to pay out millions of dollars to Holzhueter's wife and son.  Indeed, a news report recounts a conversation between Holzhueter and a victim back in 2014 in which Holzhueter insinuated that he was "worth more dead than I am alive."   The policies are reportedly set to pay out approximately $9 million to Holzhueter's family - a significant sum that, given the roughly $10 million taken in by Holzhueter in the alleged scheme, could serve to partially or fully repay all victims.  Holzhueter's counsel has confirmed that he is in talks with the Commission to "apply most of the insurance settlements to the note holders," while apparently insinuating that a portion of the proceeds would remain with Holzhueter's widow and son.  Given that Holzhueter is accused of operating a Ponzi scheme and using investor funds to pay fictitious "returns" to existing investors, it is likely that the total net losses attributable to the scheme would be less than the total funds taken in when accounting for interest payments.  

Holzhueter's son, who has been CEO of ISC for the past three months and has been on ISC's payroll for several years, is also reportedly under investigation by authorities and has been linked to efforts to solicit funds from investors.  

A news article recounts a conversation between a victim and Holzhueter back in 2014, 

The Commission's original complaint against Holzhueter is below.


Sec Complaint by jmaglich1