SEC Files Subpoena Enforcement Action Against 235 Entities Affiliated with Woodbridge Group of Companies, LLC Related to Recent Securities Fraud Investigation and $1.22 Billion Ponzi Scheme
The US Securities and Exchange Commission (SEC) filed a subpoena enforcement action against 235 limited liability companies related to a current securities fraud investigation into Woodbridge Group of Companies, LLC, and CEO Robert Shapiro.
The investigation is seeking information regarding Woodbridge Group including “parents, subsidiaries, affiliates, predecessors, successors, officers, directors, employees, agents, general partners, limited partners, partnerships and aliases, code names, or trade and business names.” Originally, 236 LLCs were subpoenaed; only one responded.
The initial SEC investigation stems over allegations that Shapiro and the Woodbridge Group defrauded more than 8400 investors out of $1.22 billion,
from July 2012 through December 4, 2017. Several of the investors were seniors. At least 2600 invested over $400 million from retirement accounts. The sales tactics were both aggressive and high stakes, requiring a minimum investment of $50,000.
According to the SEC, the investors were offered interests in short-term commercial real estate loans made to third parties with high interest rates. The investments were falsely promoted as “safe” and “secure”. Allegedly the majority of investor funds were funneled to the LLCs. It is believed the funds were used to purchase hundreds of properties, many vacant lots. The property title would then be placed in an LLC created by Shapiro, and a loan taken out by the LLC despite having no revenue or bank account.
As filed in the complaint,
Shapiro and his companies only generated approximately $13.7 million in interest income from truly unaffiliated third-party borrowers. Without real revenue to pay the monies due to investors, Shapiro resorted to fraud, using new investor money to pay the returns owed to existing investors.” The investigation is seeking to confirm Shapiro and Woodbridge created a Ponzi scheme using at least $328 million in funds to pay initial investors. Another $64.5 million went to commissioned sales agents. In addition, the complaint alleges $21 million funded Shapiro’s exuberant lifestyle, including charter planes, luxury items, trips and country clubs.
In December 2017, Shapiro and his companies were unable to meet their obligation to pay investors their monthly dividends and interest payments. On December 4, Woodbridge Group filed Chapter 11 bankruptcy. Shapiro resigned following the bankruptcy, then retained himself as a consultant receiving a monthly fee of $175,000. ( visit our Securities Blog for a previous post about this case)
According to the SEC, the 235 LLCs failed to provide subpoenaed records by an August 31st deadline. This substantial number of subpoenas is extraordinary. The commission stated in its filing that the LLCs are not cooperating with the fraud investigation and Shapiro is applying his Fifth Amendment. The information the SEC subpoenaed could “establish the ownership structure” and help follow the flow of money.
The SEC is seeking to confirm the specific connections between the LLCs, Woodbridge and Shapiro, particularly who formed the LLCs, who owns them and whether any money was transferred from the LLCs to Woodbridge. Shapiro signed LLC documents as the manager.
Despite soliciting investors, Shapiro failed to register with the Commission, FINRA, or any state securities regulator, despite selling securities, most of his sales agents were also unregistered. Woodbridge, a California, based financial company, is not registered.
The SEC has been investigating Woodbridge since 2016 for fraudulent sales of securities. In addition, the company has received inquiries from multiple state regulators, including Michigan. Investors are owed over $961 million.
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