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Wednesday, February 4, 2015

INSURANCE BROKER CHARGED BY SEC WITH RUNNING A PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23182 / January 29, 2015
Securities and Exchange Commission v. Loren W. Holzhueter, et al., Case No. 15-cv-00045
SEC Charges Wisconsin-Based Insurance Broker with Conducting Ponzi Scheme

The Securities and Exchange Commission today announced fraud charges against a Wisconsin-based insurance brokerage firm and its president for conducting a Ponzi scheme with money they solicited for investment purposes. The Court entered a temporary restraining order yesterday freezing assets and prohibiting continuing violations of the securities laws.

In its complaint, filed on January 21 in federal district court in the Western District of Wisconsin, the SEC alleges that Loren W. Holzhueter and his firm Insurance Service Center (ISC) raised at least $10.4 million from approximately 120 investors since January 2008 who were misled to believe their investments would be placed in separate investment accounts at ISC or would be used to expand ISC's business by acquiring other insurance agencies.

The complaint alleges that ISC instead deposited investor funds directly into its general accounts. Holzhueter and ISC siphoned investor money to fund ISC's payroll and general operations as well as to pay off existing bank debts. ISC paid some investor money to Holzhueter and entities under his control. ISC also used money raised from newer investors to make interest and principal payments to earlier investors.

According to the SEC's complaint, Holzhueter and his firm hid critical pieces of information from investors, including that ISC's records had been seized by the IRS pursuant to a search warrant.

The complaint alleges that, based on this conduct, Holzhueter and ISC violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Section 17(a) of the Securities Act of 1933.

The Court entered a temporary restraining order that, among other things, freezes Holzhueter's assets, prohibits the defendants from raising new investor funds, and requires the parties to submit a joint plan for independent oversight of ISC.

The SEC's investigation has been conducted by Jen Peltz, Luz Aguilar, and Ariella Guardi and supervised by Paul Montoya of the Chicago office. The litigation is being led by Tim Leiman and Robert Moye.

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