Robert Shapiro, the former chief executive officer of Woodbridge Group of Companies, has reportedly agreed to pay $120 million to the Securities and Exchange Commission to settle allegations he defrauded investors in an alleged $1.2 billion Ponzi scheme. Shapiro and his subordinates reportedly promised investors returns of as high as 10% from purported “hard money” loans to third parties. In reality, most of the “loans” were in fact extended to shell companies controlled by Shapiro that had no cash flows to repay the loans, and investors’ funds were instead commingled and used for other purposes.
Woodbridge, which is the subject on ongoing proceedings in Delaware bankruptcy court, received approval on October 29, 2018 for its plan of liquidation. Investors in Woodbridge securities reportedly will receive a refund of between 40-70% of their sums invested, depending on the type of investment and other factors.
Investors who have lost money in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds may be able to pursue recovery of their losses through securities litigation or arbitration. Although so-called First Position Commercial Mortgages (“FPCMs”) and Woodbridge units are securities according to state and federal regulators, Woodbridge FPCMs were not registered as securities with government regulators as required by law, and in many instances were sold by unregistered, unlicensed persons.
In other instances, stockbrokers and financial advisors who were licensed and associated with Financial Industry Regulatory Authority (FINRA)-registered firms sold Woodbridge securities to investors, notwithstanding the fact that the Woodbridge securities were not registered.
A registered person who sells a security away from his or her firm without first obtaining written approval from the firm violates FINRA Rule 3270, and a registered person who engages in an outside business activity without prior notice to his or her firm, including the sale of non-securities products, violates FINRA Rule 3280. Associated persons are required to report, in writing, any and all types of business that they plan to conduct away from their brokerage firms, whether or not it involves a security, and to obtain written approval from their firms before they sell any security, including securities in the form of promissory notes.
In such cases, brokerage firms have typically taken the position that Woodbridge securities were sold without their knowledge or authority in what is typically referred to as a “selling away” scenario. However, denying knowledge of a broker’s activity (or the fact that the activity may be unauthorized) does not absolve a brokerage firm from its obligation to supervise all activities of its associated persons. Financial Industry Regulatory Authority rules including FINRA Rule 3110 have established that firms must properly supervise brokers’ activities while they are registered with the firm. If they fail to do so, the brokerage firms can be held responsible for the activities of their representatives and, thus, could be ordered to compensate their clients for losses sustained for the period they were registered with the firm.
The following Woodbridge investments could give rise to an arbitration claim against a stockbroker or financial advisor (or their employer/brokerage firm) if the recommendation to purchase them lacked a reasonable basis, or if the investments were sold based on misrepresentations or omissions of material fact:
* WMF Management, LLC
* Woodbridge Group of Companies, LLC
* Woodbridge Mortgage Investment Fund 1, LLC
* Woodbridge Mortgage Investment Fund 2, LLC
* Woodbridge Mortgage Investment Fund 3, LLC
* Woodbridge Mortgage Investment Fund PA, LLC
* Woodbridge Group of Companies, LLC (DBA Woodbridge Wealth)
Investors in any Woodbridge fund who have suffered losses and purchased Woodbridge securities may be able to recover their losses in FINRA arbitration. Investors may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at email@example.com for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York and Wisconsin and various federal courts around the country, and handle cases nationwide (in cooperation with attorneys located in those states if required by applicable rules).