MADISON (CN) - A rural Wisconsin insurance broker has been operating a multimillion dollar Ponzi scheme since 2008, the Securities and Exchange Commission says in a new federal complaint.
The 25-page action filed Wednesday accuses Loren Holzhueter, 69, and his insurance brokerage of lying to investors about the location of their funds, then using those funds to pay other investors or business expenses.
"From at least January 2008 through November 2014, Holzhueter raised at least $10.4 million from at least 122 investors," the complaint states. "Some of the investors Holzhueter recruited are retired and have modest or limited financial resources."
Holzhueter, who did not respond immediately to a request for comment, has worked around Oconomowoc and Watertown for 30 years as a tax preparer and insurance broker, according to the complaint.
"Over the years, Holzhueter has built relationships of trust in the communities he served," the complaint states. "Holzhueter was adept at generating business amongst the local farming community in the greater Watertown area and he attended the same church as some of his clients."
Holzhueter purchased Insurance Service Center Inc., or ISC, in 2004, and the business had to take out bank loans as it expanded beyond its means, according to the complaint.
"According to ISC's internal financial statements, by August 31, 2011, it had an outstanding balance of $169,385 on the line credit, had taken out a new bank loan with an outstanding principal balance of over $388,115, and had a negative cash balance in its general account of $432,896.97," the complaint states.
At this point, Holzhueter began to solicit investments from individuals. The SEC claims some investors were told that they were investing in the business's expansion, while others thought their money was being placed in investment accounts from which they could withdraw at any time.
Instead Holzhueter deposited investor funds "into ISC's general accounts - where they were intermingled with other revenue," the complaint states.
Regulators say Holzhueter used the funds for the business's operations: paying off bank debt and covering a legal settlement, among other things. Holzhueter also allegedly used his other company, Honefi Inc., a relief defendant, as a money source, sometimes forwarding investments from ISC to its accounts.
The complaint alleges as well that Holzhueter failed to mention that he was under criminal investigation by the Internal Revenue Service, and that a search warrant executed on ISC's property in November resulted in the seizure of dozens of files and disk images.
Holzhueter told one client, referred to as Investor C, that he was investing his money into a tax-deferred retirement account, according to the complaint.
"Instead of rolling Investor C's investment into a tax-sheltered SEP-IRA, ISC deposited $97,076.38 of Investor C's savings into an ISC checking account that had a $0 balance," the complaint states. "Within ten days, Investor C's funds were entirely dissipated."
Money invested later by Investor C was similarly deposited, then withdrawn as cashier's checks payable to Holzhueter, the complaint states.
Holzhueter told another group of investors in May that he needed capital to buy out a partner's share in an insurance business, since the partner had suddenly died and his widow needed the money - between $200,000 and $250,000, the SEC claims.
"Holzhueter's story was false," the complaint states. "In fact, Holzhueter and ISC already had purchased the ownership interest in the Beaver Dam office and had completed payments due to the former owner's widow under the purchase agreement months earlier - in January 2014. Moreover, neither the original owner of the Beaver Dam agency nor his widow has ever sought financial assistance from ISC or Holzhueter."
ISC's financial situation allegedly continued deteriorating over time. Today, Holzhueter is "delaying or refusing to make payments demanded by worried investors," the complaint states.
In December, Holzhueter invoked his Fifth Amendment right and did not comment during the SEC's investigation.
The SEC is seeking an injunction against Holzhueter, in addition to disgorgement of the invested funds and punitive damages.
Holzhueter is represented by Benjamin Glicksman with Kravit, Hovel & Krawczyk SC. Lead counsel for the SEC is Ariella O. Guardi. Neither attorney responded to a request for comment.