MORE BAD NEWS FOR PONZI PURVEYORS: Upstart Ponzi Operator Sued By SEC After Assists From FINRA, Texas State Securities Board, Agency Says; Gregory Todd Froning Confronts Civil, Administrative Actions

EDITOR’S NOTE: Online HYIP and autosurf purveyors and their fellow “mini-Madoffs” may find the brick-and-mortar case of Gregory Todd Froning at once unsettling and instructive. In yet-another development apt to create unease in the HYIP and autosurf Ponzi worlds, a new court action by the SEC demonstrates that even “small” operators in the universe of Ponzi fraud may find their names on a court docket or named respondents in an administrative action — or both.

Here, now, the story about the allegations against Gregory Todd Froning.

A Greater Dallas financial adviser has been accused by the SEC of misappropriating more than $800,000 from investors in an upstart Ponzi scheme.

Gregory Todd Froning, 48, of Coppell, Texas, was accused yesterday of placing investors funds in a “personal bank account” and using them to make Ponzi payments, withdraw cash, make online purchases and buy groceries, meals and unspecified “adult entertainment.”

The SEC filed a lawsuit against Froning that seeks the return of ill-gotten gains from the alleged scheme, which involved the sale of “promissory notes” for Wealth Planning Partners LLC. The agency said it was assisted in the probe by the Financial Industry Regulatory Authority (FINRA) and the the Texas State Securities Board.

Froning also faces an administrative action by the SEC.

Investigators said Wealth Planning Partners was a “now-defunct financial planning company” operated by Froning.

“Froning never disclosed that he was using funds in this fashion and has never repaid a single promissory note,” the SEC said. “Further, Froning never disclosed to investors that Wealth Planning Partners had no significant business and was essentially worthless.”

Investors were denied information critical to making an informed investment decision, the SEC alleged.

Indeed, the agency alleged, Froning did not disclose that “his own financial condition was extremely precarious due, in part, to pending IRS liens.”

Froning, who neither admitted nor denied the lawsuit allegations, has consented to a permanent injunction. He already has “agreed to an administrative order barring him from future association with any broker, dealer, or investment adviser,” the SEC said.

Lack of disclosure is a common element in both brick-and-mortar and online fraud schemes that promise investors returns or interest payments. Froning’s case demonstrates that such schemes may attract the attention of multiple regulatory agencies and that operators may confront securities litigation on multiple fronts.

Despite claims on Ponzi HYIP and autosurf forums that promoters have conducted “due diligence” on operators and that “payments” received from the operators are “proof” that no Ponzi scheme exists, it often is the case that the claims of “due diligence” are false and that “payments” participants received came from other investors and were designed to lull participants into a false sense of comfort to mask the nature of the scheme.

It also often is the case that claims of “due diligence” can’t pass the giggle test because promoters have no access to legitimate financial statements, repeat lies told by other promoters or rely exclusively on false representations by Ponzi purveyors.

Froning “diverted investors’ proceeds to a personal bank account and used them both to pay personal expenses and to make Ponzi payments to some investors,” the SEC alleged.

Like Froning’s purported investment-advisory business, virtually all HYIP and autosurf companies can be viewed as “essentially worthless.” Not only are they insolvent out of the gate, their unfunded liabilities expand rapidly, and operators rely on a shell game to create the illusion of sustainability and legitimate commerce.

HYIPs and autosurfs are infamous for changing rules on the fly, providing “training” that encourages participants not to withdraw money or withdraw it in small increments as a purported means of maximizing “earnings,” treating liabilities as assets and disappearing with vast sums of money.

About 15 investors were affected by the alleged Froning brick-and-mortar Ponzi, according to the SEC. Some online Ponzis have mushroomed to gather tens of millions of dollars and have affected tens of thousands of investors, according to court filings.

The Froning case also turns yet-another online myth on its head: that regulators never bother to investigate “small” Ponzi operators and that small operators don’t have to comply with regulations.