SEC charges stockbroker over $250 million Ponzi

The Securities and Exchange Commission (SEC) this week charged a Detroit-based stockbroker over a Ponzi scheme that allegedly tricked elderly investors out of $250 million. The SEC says Frank Bluestein persuaded elderly homeowners to refinance their home mortgages, acting as the principal salesman for the scheme operated by Edward May and his E-M Management Company (E-M).

The US regulator’s complaint alleges Bluestein raised around $74 million from more than 800 investors through the sale of E-M securities over a five-year period. The SEC brought separate charges against May in November 2007 over allegations he used a phoney Las Vegas casino and resort telecommunications deal to dupe up to 1,200 elderly citizens.

Bluestein is alleged to have specifically targeted retired or elderly potential investors by conducting numerous “investment seminars” in Michigan and California through his firm Maximum Financial, to lure them into investing large sums into E-M securities.

The SEC says Bluestein gained the trust of potential investors by discussing generic financial planning topics and investment products at the seminars. Then under the guise of informal conversations, he generated talk among attendees who had already invested in E-M by asking whether they had received their "Edward May checks."

The SEC says Bluestein misrepresented these investments as low risk and falsely assured investors he had conducted due diligence work as to E-M’s legitimacy. He is also alleged to have failed to inform investors of his own compensation package, through which he received $2.4 million in undisclosed commissions from May, in addition to $1.4 million in disclosed compensation he received from investor funds.

Bluestein’s alleged fraud is the latest in a string of Ponzi-related allegations since Bernard Madoff’s $65 billion swindle surfaced last December. Within the past month two men were charged in New York with an $80 million Ponzi scheme based on an automated teller machine business; a former Nebraska police officer admitted running a $4 million Ponzi based on sports outings and products; and an Oregon woman was sentenced to five years in prison for a $2 million Ponzi purportedly involved in foreign exchange trading.

The volume of frauds has kept the SEC increasingly busy since its initial embarrassment over being caught ‘asleep at the wheel’ by the Madoff scandal.

“There’s a significant increase in Ponzi scheme cases this year. From our perspective, size isn't important,” says Scott Friestad, associate director of the SEC’s enforcement division. “We're aggressively pursuing Ponzi schemes regardless of size, because the sad truth is that, for those caught up in them, they're losing most if not all of their money.”