Woodbridge Group of Companies $1 Billion Ponzi Scheme Execs Charged with Criminal Fraud
Posted on Tuesday, April 23rd, 2019 at 3:58 pm
In April 2019, the Securities and Exchange Commission (SEC) charged the Woodbridge Group of Companies execs with criminal fraud. Woodbridge Group of Companies former owner and CEO Robert Shapiro, as well as directors Ivan Acevedo and Dane Roseman were arrested on federal criminal charges for their roles in operating the $1 billion Ponzi scheme that may have defrauded more than 8,400 investors. The three executives were charged with conspiracy to commit mail fraud and wire fraud.
Acevedo and Roseman together received more than $3 million in transaction-based and other compensation. According to the SEC statement, “The complaint, filed in U.S. District Court for the Southern District of Florida, alleges that Acevedo oversaw Woodbridge’s fundraising for Woodbridge’s securities from 2012 until his departure in 2015, when he was succeeded by Roseman. According to the complaint, the defendants were responsible for hiring and training Woodbridge’s sales force, approved fraudulent marketing materials and sales scripts, and helped create the false appearance that Woodbridge was a legitimate operation when in reality it was a Ponzi scheme that used money from new investors to pay existing investors.” Additionally, “The SEC’s complaint charges Acevedo and Roseman with violating the securities registration, broker-dealer registration, and anti-fraud provisions of the federal securities laws, and seeks disgorgement of allegedly ill-gotten gains, with interest, and financial penalties.”
The Woodbridge Group of Companies was a southern California luxury real estate developer. It is alleged that unregistered brokers sold unregistered securities in the purchase and sale of securities. The company missed payments on notes sold to investors and filed chapter 11 bankruptcy in December 2017, along with 281 subsidiaries and affiliates, citing “unforeseen costs associated with ongoing litigation and regulatory compliance.” The company has $750 million in debt and has a commitment of $150 Million in DIP financing from an investor, Hankey Capital.
In January 2019, The SEC announced that a federal court in Florida ordered Woodbridge Group of Companies LLC and Shapiro to pay $1 billion in penalties and disgorgement for operating a Ponzi scheme that targeted retail investors.
The judgement was against Woodbridge and its 281 related companies, ordering them to pay $892 million in disgorgement. The court ordered Shapiro to pay a $100 million civil penalty and to disgorge $18.5 million in ill-gotten gains plus $2.1 million in prejudgment interest.
The disgorgement will be deemed satisfied by a Liquidation Trust being formed under a plan in the Woodbridge Chapter 11 case in the U.S. District Court for the District of Delaware. Additionally, “RS Protection Trust and several relief defendants were collectively ordered to pay $5.3 million in ill-gotten gains and interest. Shapiro also consented to the entry of an SEC administrative order, without admitting or denying the SEC’s findings, permanently barring Shapiro from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.”
It is alleged that elderly and other investors invested millions of dollars into the Woodbridge Group of Companies investment programs. The investors were allegedly told that these were secure investments in real estate, which is not the case as evidenced by these bankruptcy proceedings.
The SEC was investigating whether 281 LLCs violated the anti fraud, broker-dealer and securities registration provisions of the federal securities laws in connection with the Woodbridge Group of Companies receipt of more than $1 billion of investor funds from thousands of investors nationwide. According to the SEC complaint, the LLCs appear to have engaged in financial transactions with the Woodbridge Group of Companies, LLC, of Sherman Oaks, California. And, the LLCs may be owned and/or controlled by Woodbridge Group of Companies’ President, Robert Shapiro. On December 1, 2017, Shapiro resigned as CEO of the Woodbridge Group of Companies, but he will continue to work as a consultant for the firm. Lawrence Perkins took over as the company’s chief restructuring officer and Marc Beilinson is the new independent manager.
According to the SEC application, “As the investigation has unfolded, it has come to the attention of the Commission’s investigative team that there are numerous LLCs that are interwoven into the structure of products Woodbridge offers for investment.” The SEC is investigating the offer and sale of unregistered securities, the sale of securities by unregistered brokers and the commission of fraud in connection with the offer, purchase and sale of securities.
According to the SEC application, the Woodbridge Group of Companies advertises a product called the First Position Commercial Mortgage (FPCM), a “private third-party loan to Woodbridge [which] provides higher returns with shorter terms secured by commercial real estate. Private lenders select a commercial mortgage in Woodbridge’s inventory to serve as collateral for their private loan. They are recorded on title and acquire a first lien position on the mortgage. And every lender is paid monthly interest from the moment they loan to Woodbridge at a fixed annual 5% interest with a return of principal at the end of the one-year term.”
Each time a property is purchased by the Woodbridge Group of Companies to add to its inventory, the Woodbridge Group of Companies forms a different LLC, purportedly to segregate liability. These are the LLCs that the Commission’s investigative team subpoenaed for documents.
In November 2017, the Securities and Exchange Commission (SEC) filed a subpoena enforcement action against 235 limited liability companies in Delaware and Colorado and sought an order requiring the companies to produce documents which identify corporate membership and financial account information. The LLCs were required to produce these documents by August 31, 2017, but all but one failed to do so. Only one of the 236 LLCs initially contacted have responded that they were not affiliated with the Woodbridge Group of Companies or Shapiro. The Woodbridge Group of Companies has also not turned over emails of executives and salespeople. The SEC now seeks an order from the federal district court compelling the LLCs to comply with the SEC’s subpoenas.
In September 2017, the SEC first filed an order requesting the above documentation. According to an article in Bloomberg, “The Woodbridge Group Enterprise operates through a group of affiliated companies that are all directly or indirectly owned by RS Protection Trust, according to court papers. Robert Shapiro or members of his family are trustees, the papers show.”
The Woodbridge Group of Companies sold three types of investments through its wealth management group, Woodbridge Wealth:
- First position commercial mortgages with an annual yield of 5%
- Secondary market annuities with “above average, risk adjusted yields”
- A commercial bridge loan fund that potentially returns 6%
Pursuant to FINRA Rules, member firms are responsible for supervising a broker’s activities during the time the broker is registered with the firm. Therefore, the Woodbridge Group of Companies may be liable for investment or other losses suffered by its customers.
Erez Law represents investors in the United States for claims against brokers and brokerage firms for wrongdoing. If and have experienced investment losses, please call us at 888-840-1571 or complete our contact form for a free consultation. Erez Law is a nationally recognized law firm representing individuals, trusts, corporations and institutions in claims against brokerage firms, banks and insurance companies on a contingency fee basis.