The Securities and Exchange Commission has charged two Colorado residents and their Denver-based firm with carrying out a $15.7 million Ponzi scheme, dating back to 2002.

Michael Turnock and William Sullivan II allegedly sold promissory notes to investors through Bridge Premium Finance, which marketed itself as being in the business of insurance premium financing. They promised investors returns of up to 12 per cent, saying that funds would be used for short-term loans to small businesses, which would then be used by businesses to pay up-front commercial insurance premiums, the SEC says. They also assured investors that funds were “100 per cent protected” through various forms of collateral underlying the loan.

Overall, the two allegedly took in money from 120 investors across the US, and paid investor returns from other investor funds. The firm, which was not registered with the SEC and thus broke federal securities laws, was unprofitable, with obligations to noteholders in excess of its total assets. “Most funds” were diverted for Ponzi payments, with any collateral remaining on its underlying loan portfolio covering only a small fraction of the value of promissory notes, the SEC says.

A federal court in Denver, where the SEC filed its complaint earlier this week, granted the regulator’s request for a temporary restraining order to freeze the assets that Bridge Premium, Turnock and Sullivan gained from the scheme.

“Turnock and Sullivan raised millions from investors by claiming they could pay high interest rates through Bridge Premium's safe and unique business model,” said Julie Lutz, associate director of the SEC’s Denver regional office. “They hid the fact that Bridge Premium’s purported business lost money every year for more than a decade and had devolved into a Ponzi scheme long ago.”

In fact, the business had not been profitable in any year since at least 1998, the SEC says, and had lost over $3 million during the past five years. In May 2012, it owed investors $6.2 million and had an insurance premium loan portfolio totaling less than $250,000, with total assets worth less than $500,000.