Feds Allege Family Insurance Business Was $40 Million Ponzi Scheme
Two Michigan brothers, along with one man's two daughters, were indicted on charges that their family-owned insurance business was a Ponzi scheme that defrauded hundreds of victims out of ten of millions of dollars. Michael Holcomb and Gary Holcomb, along with Michael Holcomb's daughters Kristen Van Breemen and Jennifer Chalmers, were charged with one count of conspiracy to commit mail and wire fraud, nine counts of mail fraud, six counts of wire fraud, one count of conspiracy to commit money laundering, and six counts of money laundering. In addition, Michael and Gary Holcomb were charged with one count of bank fraud and one additional count of money laundering. If convicted of the charges, each of the defendants faces decades in prison.
The Scheme
The Holcomb brothers operated Berjac of Portland and Berjac of Oregon (collectively, "Berjac"), which were family-owned insurance businesses originally established in the 1960s. Berjac purported to operate an insurance premium financing business, which provided loans to small businesses for the purpose of paying those businesses' insurance premiums. Those loans are considered low risk, as Berjac would retain an interest in the unused portion of the insurance premium if the business defaulted on its loan to finance the premium.
Berjac solicited prospective investors with representations that they could earn safe and above-average returns through an investment in Berjac. Investors were assured that Berjac was a safe and financially stable investment, and Berjac touted that it has never missed or otherwise defaulted on an interest payment or investor obligation. Berjac provided investors with quarterly statements showing consistent appreciation on their investment, and investors were also told that they could add or withdraw funds from their investment at any time, and that they could do so without the inconvenience of filling new forms out. Based on these representations, Berjac raised at least $43 million from investors.
The Scheme Collapses
However, authorities allege that Berjac operated a classic Ponzi scheme by commingling investor funds, using those funds to make "interest" payments and also diverting some funds for their own use, and failing to disclose that the operation was suffering significant losses. Additionally, Berjac and its principals had been the subject of multiple regulatory actions. One of the Berjac entities' previous managers, Peter Snook, previously served a 3.5-year sentence for operating one of the Berjac entities as a Ponzi scheme from 1987 to 1991. And in 1996, the Oregon Division of Finance and Corporate Securities sanctioned Michael and Gary Holcomb for Berjac's unlawful sale of securities and the failure to disclose that investor funds were being used for unrelated real estate speculation projects.
Another former Berjac entity, Berjac of Colorado, was sold in 2004 to Michael Turnock. Turnock and another principal, William Sullivan, were arrested in 2012 and charged with operating that entity - then known as Bridge Premium Financing - as a Ponzi scheme masquerading as an insurance premium financing business. Turnock is currently serving a 77-month prison sentence after pleading guilty to money laundering and mail fraud charges.
Bankruptcy
Berjac filed bankruptcy in 2012, disclosing $17 million in investor liabilities. The FBI subsequently opened an investigation and an independent bankruptcy trustee was appointed to investigate Berjac's financial condition. The trustee filed a lawsuit last year against four Oregon banks, accusing them of providing the "lines of credit that were an essential component to the continuation of the Ponzi scheme." The suit also names an accounting firm that provided services to Berjac. The suit seeks at least $50 million in damages, as well as $10 million in punitive damages.
The Indictment is below: