Watertown insurance agent Loren Holzhueter ran $10 million Ponzi scheme, feds allege
January 29, 2015 by Cary Spivak of the Journal Sentinel
Loren Holzhueter raked in more than $10 million through a Ponzi scheme run out of his small Watertown insurance agency, the U.S. Securities and Exchange Commission charged in a securities fraud lawsuit that seeks to freeze Holzhueter’s assets.
At least 122 investors, some of whom the SEC said were “retired and have modest or limited financial resources,” were told “a wide array of lies” by Holzhueter, the SEC said in the suit. Holzhueter, 69, and one of his companies were charged with five counts of securities fraud.
Holzhueter’s attorney Stephen Kravit said the money given to Holzhueter were loans and not investments.
The SEC said that Holzhueter made a variety of claims to investors about how he would use their money. He told some that their funds would be kept in a special investment account at ISC Inc., an insurance brokerage he owns, and that those dollars could be withdrawn at any time. Others were told that their money was placed in mutual funds or other investment vehicles such as Individual Retirement Accounts.
In addition, the SEC complaint said he told some investors their money was being used to expand ISC, a company whose payroll grew from $900,000 to $2.1 million between 2011 and 2012.
The SEC alleges that investor funds were intermingled with other ISC revenue and much of the money was used for a variety of purposes including the operation of a Ponzi scheme, to pay down bank debt and to cover daily business expenses, including some payroll costs. Some cash was used to expand the business.
The SEC said that $620,000 of investor money was paid to Kravit last year to resolve claims from an investor who was demanding a return of their principal.
The Milwaukee Journal Sentinel in November reported that Holzhueter was being investigated by the Internal Revenue Service and that agents from the agency’s criminal investigation division raided his office in 2013. The IRS criminal investigation is ongoing. Holzhueter has not told clients that he was under investigation, the SEC said.
In an interview in November, Holzhueter denied any wrongdoing and said money he received were loans provided to him by clients, friends and family members. The following month Holzhueter invoked his Fifth Amendment rights against self incrimination when SEC investigators interviewed him.
The SEC suit, filed in U.S. District Court in Madison, claims that Holzhueter and family members collected $511,000 from accounts where investor cash was co-mingled with other funds. In addition, $230,000 of investor money was used to pay off a loan owed by Honefi LLC, an entity owned by Holzhueter. An additional $166,350 was paid to Honefi.
The SEC suit said he collected at least $10.4 million from January 2008 through November 2014, including about $2.8 million that was collected from 46 investors after the IRS raid.
Kravit said that ISC is a solid insurance agency with a loyal client base that simply borrowed too much money.
“Borrowing money and paying it back is routine in business,” Kravit said. “Fraud is something that someone has to prove — it is not something that we admit.”
Kravit rejected the claim that his client — who does not hold a license to sell securities — was operating a Ponzi scheme. In a Ponzi scheme, money from new investors is used to pay older investors.
A Milwaukee area lawyer representing members of a family who he says invested hundreds of thousands of dollars with Holzhueter said the SEC’s description of Holzhueter’s interactions with clients was “consistent with (what) members of the family experienced.” The attorney asked not to be named because his clients hope to recover money from Holzhueter.
“Two generations of the family put their trust in him and are devastated,” the attorney said. “Some members of the family were even approached to keep investing money with Holzhueter as late as last summer.”
The SEC said Holzhueter provided clients with statements showing the performance of their investments, cashed some clients out and made payments to others.
“Holzhueter’s payments to investors were, ultimately unsustainable,” the SEC said. “Even as he continued to raise hundreds of thousands of dollars from investors every month, ISC’s financial situation remained grim.”
The SEC said that although Holzhueter “had promised investors that they could access their principal and get access to their money at any time, Holzhueter is now delaying or refusing to make payments demanded by worried investors.”
U.S. District Court Judge James Peterson last week ordered the SEC and Holzhueter to try to reach agreement on a temporary restraining order that would freeze his assets.
Kravit said he hoped a plan will be worked out with the SEC that would result in the clients being repaid, although he declined to say whether that would occur.
