SEC Charges & Asset Freeze Against Group of Unregistered Funds & Their Owner Who Allegedly Bilked Thousands of Retail Investors in a $1.2 Billion Ponzi Scheme
Robert H. Shapiro & Woodbridge Group of Companies LLC Defrauded More than 8,400 Investors in Unregistered Woodbridge Funds – SEC Complaint Alleges
According to the SEC’s press release, the SEC complaint alleges that
Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying Woodbridge 11-15 percent annual interest for “hard money,” short-term financing. In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually. Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients 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 SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans. [Emphasis added]
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 diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry. According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.
The SEC’s press release stated that the action was filed “to prevent further dissipation of investor assets after obtaining court orders in September and November in subpoena enforcement actions that forced the unregistered [Woodbridge Group of] companies to open their books.”
Woodbridge Ponzi Scheme – Woodbridge Business Model a Sham
The SEC’s press release also stated that the “complaint alleges that Woodbridge’s business model was a sham,”; “[t]he only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money”; “Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers”; and “Shapiro used the scheme to line his pockets with millions of investor dollars.” [Emphasis added]
SEC v. Robert H. Shapiro, Woodbridge Group of Companies, LLC, d/b/a Woodbridge Wealth, RS Protection Trust, WMF Management, LLC, Woodbridge Structured Funding, LLC, et al
Woodbridge Ponzi Schem: Web of More than 275 Limited Liability Companies Used to Conduct the Massive Ponzi Scheme
According to the SEC complaint:
Beginning in July 20 12 through December 4, 20 17, Defendant Robert H. Shapiro (“Shapiro“) used his web of more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $ 1.22 billion from over 8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings. Shapiro promised investors they would be repaid from the high rates of interest Shapiro‘s companies were earning on loans the companies were purportedly making to third-party borrowers. However, nearly all the purported third-party borrowers were actually limited liability companies owned and controlled by Shapiro, which had no revenue, no bank accounts, and never paid any interest under the loans. [Emphasis added]
Despite receiving over one billion dollars in investor funds, 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. Meanwhile Shapiro and his family lived in the lap of luxury and spent exorbitant amounts of investor money in alarming fashion, on items such as luxury automobiles, jewelry, country club memberships, fine wine, and chartering private planes. [Emphasis added]
By December 20 17, the fraudulent scheme collapsed. Shapiro and his companies became unable to timely meet their obligation to pay investors their monthly dividends and interest payments. Fundraising from investors was halted, and on December 4, 20 17, Shapiro caused most of his companies to file Chapter 11 bankruptcy. The effect of Shapiro and his companies’ actions will leave investors with substantial losses, as they are owed at least $961 million in principal. At least 2,600 of these investors unknowingly placed their retirement savings into Shapiro’s Ponzi scheme. [Emphasis added]
Woodbridge Ponzi Scheme Entities – Essential to Shapiro’s Fraudulent Business Operation
The SEC’s complaint alleges that the following entities were essential to Shapiro’s fraudulent business operation:
Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth); RS Protection Trust; WMF Management, LLC; Woodbridge Structured Funding, LLC (a/k/a Woodbridge Structured Funding of Florida, LLC); Woodbridge Mortgage Investment Fund 1, LLC; Woodbridge Mortgage Investment Fund 2, LLC; Woodbridge Mortgage Investment Fund 3, LLC; Woodbridge Mortgage Investment Fund 3A, LLC; Woodbridge Mortgage Investment Fund 4, LLC; Woodbridge Commercial Bridge Loan Fund 1, LLC; Woodbridge Commercial Bridge Loan Fund 2, LLC; 144 Woodbridge–Affiliated Property Limited Liability Companies & 131 Woodbridge-Affiliated Holding Limited Liability Companies
Woodbridge Ponzi Scheme: Misrepresentations & Omissions to Investors & Ponzi Scheme Payments
The SEC complaint stated:
Shapiro, as the sole person in control of the Corporate Defendants, not only mad material misrepresentations and omissions to investors, but also signed falsified documents, controlled the company’s bank accounts, made Ponzi payments to investors, paid significant sales commissions to unregistered sales agents, and misappropriated investor funds for his own personal enjoyment and the enjoyment of his family.
At Shapiro ‘s direction, Woodbridge’s network of hundreds of in-house and external sales agents raised in excess of $1.22 billion dollars, falsely selling Woodbridge‘s investments as “safe” and “secure“. Shapiro and Woodbridge directed that investor funds be deposited into [various] accounts . . . (with Shapiro as the sole authorized signer) and almost immediately commingled the funds into Woodbridge‘s operating account.
Shapiro and Woodbridge used at least $328 million to repay principal and interest to investors and spent at least another $ 172 million on operating expenses, including $64.5 million on sales agent commissions and $44 million on payroll. Shapiro also spent at least $21 million of investor funds on extravagant personal expenditures.
Woodbridge Ponzi Scheme: Shapiro Properties Had No Revenue Source or Bank Accounts
The SEC complaint stated that
Shapiro selected which properties would be purchased with the investors’ commingled funds. Shapiro would create a Shapiro Property LLC to hold title to the property, making RS Trust and Shapiro the ultimate beneficial owners of the properties. The Shapiro Property LLCs, which had no revenue source or bank accounts, then issued promissory notes to one of the Fund entities promising to pay monthly interest, with the principal usually due in one year. Despite the Shapiro Property LLCs having no ability to pay monthly interest, Shapiro and Woodbridge created investment products which sought to market these Shapiro Property LLC’s promissory notes as “low risk” and “simpler” investments.
Because . . . entities were not receiving any interest payments on the Shapiro Property LLC promissory notes, Shapiro instead used new investor funds to pay the interest and dividends owed to previous investors. These interest payments created the illusion that Shapiro and Woodbridge were successfully loaning investor funds as promised to legitimate third–party borrowers who had an ability to pay monthly interest. This allowed Woodbridge and Shapiro to continually induce new investors to participate in their investment products and induce existing investors to rollover their investment into a new note upon maturity, thus delaying Shapiro‘s and Woodbridge’s need to come up with cash to repay the principal balance.
Woodbridge Ponzi Scheme: Relief Defendants
The SEC’s complaint named the following as Relief Defendants:
Jeri Shapiro (Shapiro’s wife), Woodbridge Realty of Colorado, LLC d/b/a Woodbridge Realty Unlimited; Woodbridge Luxury Homes of California, Inc. d/b/a Mercer Vine, Inc.; Riverdale Funding, LLC; Schwartz Media Buying Company, LLC; and WFS Holding Co. LLC, all of which, according to the SEC complaint, received proceeds of the fraud without any legitimate entitlement to the funds.
If you invested in the Woodbridge Group of Companies, LLC; Woodbridge Structured Funding, LLC; RS Protection Trust or WMF Management, LLC and wish to speak privately with a securities attorney, please fill out the form on the right or send an e-mail to [email protected].