The Securities and Exchange Commissiontoday announcedchargesand an asset freezeagainsta group of unregistered funds and theirowner who allegedly bilkedthousandsofretail investors, many of them seniors, ina $1.2 billion Ponzi scheme.
SEC investigators filed this action to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered companies to open their books.
According to the SECs complaint,unsealed today in federal court in Miami, Florida,Robert H. Shapiroand a group ofunregistered investment companies called theWoodbridgeGroup of Companies LLC formerly headquartered in Boca Raton, Florida,defrauded more than 8,400 investorsin unregistered Woodbridge funds.
We allege that throughaggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SECs Miami Regional Office staff moved to halt,saidStephanie Avakian, Co-Director of the SECs Enforcement Division.
Our complaint alleges that Woodbridges business model wasa sham,said Steven Peikin, Co-Director of the SECs Enforcement Division.The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.
Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers, said Eric I. Bustillo, Director of the SECs Miami Regional Office. Shapiro used the scheme to line his pockets with millions of investor dollars.
According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15% annual interest for hard money, short-term financing. In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually. Woodbridgeand Shapiroallegedly sought to avoid investors cashing out at the end of their terms andboastedin marketing materials thatclients keep coming back to [Woodbridge] because time and experience have proven results. Over 90% national renewal rate!While Woodbridge claimed it made high-interest loans to third parties, the SECs complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments onthe loans.
The SEC complaint alleges that Shapiro and Woodbridge used investors money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as low risk and conservative. Shapiro, of Sherman Oaks, California,is alleged to have divertedat least $21 millionfor his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry. According to the complaint, thescheme collapsed in typical Ponzi fashionin early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.
The Honorable JudgeMarcia G. Cookegranted the SECs request for a temporary asset freeze againstShapiroand a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors.
The SECs complaint chargesShapiro, Woodbridge, and certainaffiliated companies with fraud and violations of thesecurities and broker-dealer registration provisions of the federal securitieslaws.The SEC is seekingreturn of allegedly ill-gotten gains with interest and financial penalties.A court hearing has been scheduled for Dec. 29, 2017on the SECs request to continue the asset freeze. The SECs motion for the appointment of a receiver over Woodbridge and the related companies is pending.
The SECs investigation, which is continuing, has been conducted by Scott A. Lowry, Linda S. Schmidt, Russell Koonin, Christine Nestor,and Mark Deein the Miami Regional Office with assistance from Alistaire Bambach, David Baddley and Neal Jacobson. The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Mr. Koonin, Ms. Nestor,and Mr. Lowry. The SEC appreciates the assistance of the Florida Office of Financial Regulation, Californias Department of Justice andDepartment of Business Oversight, the Colorado Division of Securities,and the Texas State Securities Board.
The SECs Office of Investor Education and Advocacy has issued anInvestor Alertto help seniors identify signs of investment fraud.The SECalsostrongly encourages investors to check the backgrounds of people selling them investments by using the agencysinvestor.gov websiteto quickly identify whether they are registered professionals.