SEC Charges Robert Shapiro in Woodbridge Ponzi Scheme

SEC Charges Robert Shapiro in Woodbridge Ponzi Scheme

The U.S. Securities and Exchange Commission (SEC) has accused Woodbridge Group of Companies owner Robert H. Shapiro of defrauding more than 8,400 investors in the $1.2 billion Woodbridge Ponzi scheme. The SEC complaint alleges that the California businessman used unregistered Florida-based funds and fake real estate investments to dupe investors, many of them seniors, in a scheme that spanned at least five years.

Woodbridge Ponzi Scheme Orchestrated Through Network of Companies

Shapiro used a group of unregistered investment companies he operated called the Woodbridge Group of Cos. LLC, to sell two types of securities to investors that promised a 5 to 8 percent return. Investors could purchase a First Position Commercial Mortgage (FPCM), described as a 12- to 18-month term promissory note bearing 5 to 8 percent interest or invest in one of seven different private placement fund offerings with five-year terms. (Unregistered companies are in clear violation of the SEC, the Financial Industry Regulatory Authority and state securities regulations.) The interest returns that Shapiro pitched supposedly would come from interest paid to a Woodbridge affiliate on loans made to third-party borrowers. According to the SEC, there were not enough third-party borrowers to pay off all investors despite receiving over $1 billion in investor funds. The third-party borrowers actually were a network of LLCs, controlled and owned by Shapiro, which had no source of income, no bank accounts, and never made any loan payments to Woodbridge.

To cover up the scam, Shapiro resorted to fraud, using money from new investors to pay the returns owed to existing investors, a hallmark of a classic Ponzi scheme. Since investors were receiving dividends, it enabled Shapiro to convince new investors to buy into the scheme and convince existing investors to roll over their investments upon maturity. These actions extended the length of the scam and delayed Shapiro’s need to come up with new dollars to pay principal investors.

Woodbridge Ponzi Scheme Affects Many

The fraudulent scheme came to light at the beginning of December when Woodbridge was unable to pay investors’ monthly dividends and interest payments. Shortly after, the company filed for bankruptcy and Shapiro stepped down as chief executive. The SEC states that Shapiro raised at least $1.22 billion from investors, issued $675 million and generated $13.7 million in interest income from truly unaffiliated third-party borrowers, falling short of the revenue needed to pay what was due to investors.

According to filings, at least 2,600 of the 8,400 impacted investors dipped into their IRAs to invest in the scheme, to the tune of nearly $400 million. The SEC says that investors will be left with substantial losses.

SEC Investigation Suspected Woodbridge of Operating as a Fraud

The SEC had been investigating Woodbridge since January of last year and issued a subpoena for company emails, taking enforcement action when Woodbridge failed to respond. Later subpoenas filed for documents relating to the company’s structure and payment methods were also ignored.

Shapiro Used Investor Money to Fund Lavish Lifestyle

According to SEC findings, Shapiro and his family used $21.1 million dollars of investor money to fund their extravagant lifestyle, spending money on expensive jewelry, country club memberships, luxury cars, and private plane charters.

SEC Seeking Disgorgement and Penalties

The SEC has accused the Woodbridge Group of Companies and Robert Shapiro of operating a scam, violating the federal securities and broker-dealer registration laws.

As of now, the complaint cites Shapiro as the sole operator of the scheme. His wife was named as a relief defendant for her role serving as a vice president of Woodbridge, and for being in possession of real estate and other assets purchased with investor funds. The SEC is seeking the return of ill-gotten gains with interest and financial penalties.

Woodbridge, based in Sherman Oaks, California, served as the main operating company of Shapiro’s businesses, with approximately 140 employees in offices in six states, including in Boca Raton, Florida, where the headquarters were formerly located.

Have You Lost Money to the Woodbridge Ponzi Scheme?

If you lost money investing in the Woodbridge Ponzi Scheme or Robert Shapiro or think you may be the victim of investment fraud, contact a qualified securities fraud attorney today.

Call a Securities Fraud Attorney Today

If you are looking for an attorney to review your rights and options, the securities fraud lawyers at Dimond Kaplan & Rothstein, P.A. have recovered more than $100 million from banks and brokerage firms for their wrongful actions.

With offices in Los AngelesNew YorkWest Palm Beach and Miami, our securities fraud attorneys represent clients nationwide and can help you recover your investment losses.

Contact a securities fraud attorney at Dimond Kaplan & Rothstein, P.A. today to schedule an appointment or consultation to review your rights and options.

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