As recently reported, both the SEC and FINRA have commenced their own investigations into GPB Capital Holdings, LLC (“GPB”). GPB is a New York-based alternative asset management firm whose business model is predicated on “acquiring income-producing private companies” across a number of industries including automotive, waste management, and middle market lending. These investigations by federal regulators come on the heels of Massachusetts securities regulators announcing in September 2018 their own investigation into GPB, as well as the sales practices of more than 60 independent broker-dealers who reportedly offered private placement investments in various GPB funds to their clientele.

GPB has raised approximately $1.8 billion in investor funds across its various private placement offerings, including GPB Automotive Portfolio, LP, and GPB Waste Management, LP. Private placement investments are complex and fraught with risk. To begin, private placements are often sold under a high fee and commission structure. Reportedly, one brokerage executive has indicated that the sales loads for GPB private placements were 12%, including a 10% commission to the broker and his or her broker-dealer, as well as a 2% fee for offering and organization costs. Such high fees and expenses act as an immediate drag on investment performance.

Further, private placement investments carry a high degree of risk due to their nature as unregistered securities offerings. Unlike stocks that are publicly registered, and therefore, must meet stringent registration and reporting requirement as set forth by the SEC, private placements do not have the same regulatory oversight. Accordingly, private placements are typically sold through what is known as a “Reg D” offering. Unfortunately, investing through a Reg D offering is risky because investors are usually provided with very little in the way of information. For example, private placement investors may be presented with unaudited financials or overly optimistic growth forecasts, or in some instances, with a due diligence report that was prepared by a third-party firm hired by the sponsor of the investment itself.

Broker-dealers are required by law to conduct due diligence on an investment before it is recommended to a client. Furthermore, financial advisors have a duty to disclose the risks associated with a financial product, as well as to conduct a suitability analysis to determine if such an investment meets an investor’s stated investment objectives and risk profile.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in connection with complex investment products, including illiquid private placements and unregistered securities offerings. Investors may contact us via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net 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).

As we have discussed in several recent blog posts, on July 27, 2018, 1 Global Capital (a/k/a 1^st Global Capital) (hereinafter, “1GC”) filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Southern District of Florida. Formed about 5 years ago, 1GC was purportedly in the business of making short term merchant cash advances to a range of small businesses. In exchange for investor money, 1GC issued so-called “memorandums of indebtedness,” sometimes referred to as First Global Capital Notes (“Notes”), to numerous retail investors through a nationwide network of advisors and sales agents. Investors were promised a high-return, low-risk investment in supposedly safe, short-term deals.

Prior to 1GC’s bankruptcy filing, the SEC had “opened an investigation into the company’s activities related to alleged possible securities laws violations, including the alleged offer and sale of unregistered securities, the alleged sale of securities by unregistered brokers, and by the alleged commission of fraud in connection with the offer, purchase and sale of securities.” In the weeks following 1GC’s $283 million Chapter 11 filing, it has become apparent that numerous investors nationwide have been negatively impacted. As alleged by the SEC, 1GC “used a network of barred brokers, registered and unregistered advisers, and other sales agents – to whom they paid millions in commissions – to offer and sell unregistered securities to investors in no fewer than 25 states.”

Publicly available information indicates that numerous investors in the greater Kansas City, KS area have sustained losses in connection with investing in 1GC Notes. In particular, publicly available information suggests that Overland Park-based investment group Pinnacle Plus Wealth Management (a/k/a Pinnacle Financial) (“Pinnacle”), through its principal and Pinnacle employees / agents, may have recommended investments in 1GC Notes to retail investors. In fact, court records indicate that approximately 160 1GC accounts involved Kansas City area addresses, and moreover, it appears many investors committed their retirement funds to 1GC investments through their retirement accounts.

Pinnacle is structured as a Registered Investment Advisor (“RIA”), and according to publicly available information through the SEC, is licensed to sell securities in Kansas, Missouri, Colorado, and Louisiana. Pinnacle’s CEO and founder, Mr. Matthew Lynn Walker, CRD. No. 153896, also serves as Pinnacle’s Chief Compliance Officer. Upon information and belief, a number of Kansas City area investors may have been steered into 1GC Notes upon the recommendation of Mr. Walker and certain of his employees at Pinnacle.

Investors who invested in any 1^st Global Capital “memorandums of indebtedness” or Notes, or direct merchant cash advances upon the recommendation of a financial advisor, may have viable legal claims if the brokerage firm or Registered Investment Advisor (“RIA”) failed to perform adequate due diligence before recommending the investment.

Investors who wish to discuss a possible claim concerning 1^st Global investments may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net 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).

On September 14, 2018, the SEC initiated a civil action (the “Complaint”) in federal court in the Southern District of Indiana against Ms. Tamara Rae Steele (CRD# 3227494) (“Steele”), as well as her eponymous investment advisory firm, Steele Financial, Inc. (“Steele Financial”), alleging that Ms. Steele had defrauded a number of her advisory clients through recommendations to invest in certain high-risk securities issued by Behavioral Recognition Systems, Inc. (“BRS”), in a scheme that purportedly generated $2.5 million in commissions for Ms. Steele’s benefit. According to publicly available information through FINRA, Ms. Steele, a former middle school math teacher, first began working as a financial in or around 1999. Most recently, she was affiliated with broker-dealer Comprehensive Asset Management and Servicing, Inc. (CRD# 43814) (“CAMAS”) from January 2009 – July 2017. Ms. Steele’s CRD record showing her employment history and customer claims filed with FINRA is accessible below.

tamara rae steele

As alleged by the SEC in its Complaint, Ms. Steele was terminated by her former employer, CAMAS, when the “broker-dealer learned that [she] was selling BRS securities outside the scope of her employment with the firm and without the firm’s knowledge and approval, a practice called ‘selling away’ from the firm.” Specifically, the SEC has alleged that Ms. Steele fraudulently recommended “over $13 million in extremely risky securities issued by a private company, Behavioral Recognition Systems, Inc. (‘BRS’).” Further, the SEC has alleged that Ms. Steele violated her fiduciary duty to her clients — many of whom were unaccredited retail investors who were either current or former teachers and public-school employees — by purportedly failing to disclose that she was earning “[c]omissions ranging from 8% to 18% of the funds raised for BRS.” The SEC Complaint is accessible below:

tamara steele sec complaint

In violation of the antifraud provisions of the federal securities laws, the SEC has alleged that Ms. Steele’s purported scheme centered on selling high-risk securities in BRS, a Texas-based corporation now known as Giant Gray, Inc. As alleged by the SEC, Ms. Steele began earning commissions of 8% on sales of BRS securities beginning in December 2012; approximately two years later, her commission was upped to 18%. Furthermore, between December 2012 and May 2014, as alleged by the SEC, she “[r]ecommended and sold approximately $7.2 million in BRS securities.”

Brokerage firms like CAMAS have a duty to ensure that their registered representatives are adequately supervised, a duty which includes monitoring their brokers in connection with outside business activities and/or sales of investments in so-called private placements. Brokerage firms must also take reasonable steps to ensure that their financial advisors follow all applicable securities rules and regulations, in addition to internal policies and procedures. In instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have successfully resolved a number of disputes on behalf of investors, including losses sustained due to stockbroker and financial advisor misconduct and unauthorized sales of securities (sometimes referred to as “selling away”). Investors may contact us by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net 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).

Formed approximately 5 years ago, 1GC was purportedly in the business of financing small business by providing capital to a range of businesses including restaurants, construction companies, manufacturing operations, and healthcare companies. 1GC issued its Notes to retail investors, often referred to in the contract as “lenders” or in other instances as “creditors.” In exchange, these lenders or creditors invested in supposedly safe, short-term deals that would pay out around 7% in interest at the end of the term (e.g., 9-month term).

Upon information and belief, a number of 1GC investors were steered into these Notes by advisors. Advisors who have recommended Notes reportedly may include Matthew Walker or others working for his Overland Park, Kansas-based group of Pinnacle Plus companies.

THE FOREGOING PARAGRAPH IS BASED ON PUBLICLY REPORTED INFORMATION GATHERED BY OUR FIRM, AND HAS NOT BEEN PROVEN IN ANY LEGAL TRIBUNAL, NOR IS THIS ADVISOR THE SUBJECT OF ANY PENDING LEGAL CLAIMS OR ARBITRATIONS INVOLVING 1^ST GLOBAL, TO OUR KNOWLEDGE. WE DO NOT CURRENTLY REPRESENT ANY INVESTORS WITH CLAIMS AGAINST THIS ADVISOR.

Investors who invested in any 1^st Global Capital “memorandums of indebtedness” or Notes, or direct merchant cash advances upon the recommendation of a financial advisor, may have viable legal claims if the brokerage firm or Registered Investment Advisor (“RIA”) failed to perform adequate due diligence before recommending the investment. Many agents who offered 1st Global Capital’s memorandums of indebtedness were not registered as brokers, though some were registered as investment adviser representatives (IARs).

Bankruptcy court filings show that there are more than 4,000 1st Global Capital accounts nationwide, spread through various states including Florida, Illinois, Tennessee, Missouri and Kansas, among others. Many investors placed money from individual retirement accounts (IRAs) with First Global, including 11 IRAs each owed between $621,000 and $922,000, according to bankruptcy court papers.

A court filing by 1st Global Capital blamed liquidity problems for its bankruptcy, and stated that investigations by the Securities and Exchange Commission and the U.S. attorney’s office in southern Florida into “alleged possible securities law violations” led to 1^st Global’s “acute liquidity crisis.”

Investors who wish to discuss a possible claim concerning 1^st Global investments may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Formed in April 2011, FIP LLC is structured as a Delaware limited liability company, with its principal place of business in Irvine, CA. Formerly, FIP LLC conducted business as Pensions, Annuities & Settlements, LLC. Additionally, FIP LLC has business relationships with the following marketing affiliates: Cash Flow Investment Partners, LLC, BuySellAnnuity, Inc. and Pension Advance, LLC.

FIP LLC’s business model is predicated on soliciting pensioners through the websites of its marketing affiliates to enter into certain contracts, pursuant to which the pensioner receives a lump sum of money in exchange for some or all of the respective pensioner’s monthly pension payments, for a fixed period of time (typically, 5-10 years). In addition, FIP LLC enters into contracts with investors (primarily retail investors), through which the investors provide money for the lump sum cash payments and subsequently receive some or all of the pensioner’s monthly payments.

Such structured cash flow investments based upon pension or disability income streams — such as those marketed and sold by FIP LLC — are very complicated and fraught with risk. For example, while some investors may actually realize a profit on their FIP investment, in other scenarios a pensioner from whom an investor purchased a FIP may die prematurely, thus ending the income stream the investor had made a lump sum payment on. In other instances, the pensioner may argue that the agreement underlying the FIP is invalid and seek to renege on the contract, thus placing the investor’s anticipated income stream at risk. Additional risks associated with FIPs include the product’s typically high expense (commissions may be 7% or higher), the product’s illiquid nature (once money is committed to the investment, it cannot be readily exited like selling shares in stock or a mutual fund), and lack of information regarding the investment itself (unlike publicly traded securities, investments in FIPs do not have the same disclosure requirements as publicly traded securities).

As recently reported, about 370 investment intermediaries nationwide sold investments in structured cash flows through FIP LLC. Upon information and belief these intermediaries received upfront commissions between 6-10% on capital invested. Most recently, certain state securities regulators have determined that the up-front payments made to pensioners are, in fact, unlawful loans charging pensioners allegedly usurious interest rates. Furthermore, it has been estimated that approximately 1,000 investors have lost at least $100 million in connection with investing in structured cash flows though FIP LLC.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with a range of esoteric and illiquid investment products, including private placement offerings, as well as unregistered securities offerings in various investment programs, including insurance-backed investments products. Investors may contact our office at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in unregistered Woodbridge First Position Commercial Mortgages (“FPCMs”) notes and/or units upon the recommendation of former financial advisor Jerry Davis Raines (CRD# 4578689, hereinafter “Raines”) may be able to recover losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”). According to FINRA BrokerCheck, a number of investors have already filed claims against Mr. Raines in connection with allegations surrounding Mr. Raines’ alleged recommendation of unsuitable Woodbridge investments to customers. Mr. Raines was most recently affiliated with HD Vest Investment Services (CRD# 13686, hereinafter “HD Vest”) from 2014 – May 2017. Previous to that, Mr. Raines was affiliated with Signal Securities, Inc. (CRD#15916) and Woodmen Financial Services, Inc. (CRD# 117365).

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, and certain of its affiliated entities, filed for Chapter 11 bankruptcy protection on December 4, 2017 (U.S. Bankruptcy Court for the District of Delaware – Case No. 17-12560-KJC). The SEC has alleged that Woodbridge, through its owner and former CEO, Mr. Robert Shapiro, purportedly utilized “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.”

Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors. Woodbridge investments came in two primary forms: (1) “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s seven Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” consisting of lending agreements underlying purported hard money loans on real estate deals.

Brokerage firms like HD Vest have a duty to ensure that their registered representatives are adequately supervised. Consequently, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes concerning private placement investments and other illiquid securities, as well as Ponzi schemes. Investors may contact a securities arbitration attorney via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

On July 18, 2018, the SEC filed a lawsuit in the District of Connecticut naming Temenos Advisory, Inc. (“Temenos”) and George L. Taylor (“Taylor”) as Defendants and essentially alleging that Defendants made improper recommendations of certain private placement investments to their investment advisory clients. A copy of the SEC Complaint is accessible here: SEC v Temenos & Taylor

Temenos, founded by Taylor, is a Connecticut corporation headquartered in Litchfield, CT, with additional offices located in St. Simons Island, GA and Scottsdale, AZ. Temenos has been registered with the SEC as a registered investment advisor (RIA) since 1999, and is owned by Mr. Taylor and a trust that was purportedly established for purposes of benefiting Taylor’s former business partner.

As alleged by the SEC, prior to 2014, Temenos’ business was largely focused on the sale of traditional financial products to its clientele, including “[m]utual funds, exchange traded funds, variable annuities, and publicly traded stocks.” Like many RIAs, Temenos charged an advisory fee to its customers based upon a percentage of assets under management. However, as alleged in the Complaint, beginning in 2014 Temenos began recommending private placement investments to its clients: “Between 2014 and 2017, Defendants placed more than $19 million in investments by their clients and others in [the securities of] four private issuers … And they did so without ever sufficiently examining the marketing claims, financial statements, or business activities of those companies.”

As discussed in several recent blog posts, with increasing frequency retail investors have been solicited to invest in so-called private placements. According to a recent Wall Street Journal article, “In 2017 alone, private placements using brokers totaled at least $710 billion….” A private placement, sometimes called a non-public offering, is simply an offering of a company’s securities that are not registered with the Securities & Exchange Commission (“SEC”). Pursuant to federal securities laws, a company may not offer or sell securities unless the offering has been registered with the SEC or an exemption from registration applies.

Perhaps the greatest risk associated with private placement investments concerns the lack of transparency and information available to the retail investor. On the one hand, when an investor decides to purchase publicly traded common stock or shares in a mutual fund or ETF, he or she will have the opportunity to first review a prospectus, as required by the SEC. However, with respect to private placements, no such prospectus is filed with the SEC — rather, private placement securities are typically offered through a Private Placement Memorandum (“PPM”). Ultimately, it is incumbent on the brokerage firm or RIA offering a private placement investment to its customers to conduct adequate due diligence on the investment in order to determine its suitability.

As alleged by the SEC, Temenos recommended unsuitable and risky securities in four private placements, as follows:

• “Company A marketed an emergency response communications product. Between February 2014 and February 2017, Temenos solicited approximately $11.2 million of investments in Company A from their advisory clients and other individuals.”
• “Company B purported to be building a fiber optic connection between locations along the east coast of the United States. Between September 2014 and March 2017, Temenos solicited approximately $7 million of client investments in Company B.”
• “Company C marketed itself during the relevant time period as a crowdfunding investment portal. Between March 2016 and January 2017, Defendants solicited $805,000 of client investment in Company C.”
• “Company D purported to have developed a new water purification technology. From in or about December 2014 to in or about July 2015, Temenos, through Taylor, solicited investments in Company D.”

As alleged in the Complaint, Temenos failed to conduct even basic due diligence on the four private placement investments marketed to its customers: “Throughout the relevant period, Taylor made statements to clients that misleadingly suggested that the private placement investments… had been carefully vetted and selected from a large group of potential offerings based on their favorable risk/return potential, and were suitable for any wealthy investor.” The SEC has further alleged that Temenos failed to inform clients that the RIA was receiving compensation from the recommended private placement companies.

Investors who have purchased unregistered securities through a private placement may have legal claims if the investment was solicited through a misleading sales presentation or if the recommendation to purchase the investment was unsuitable. Investors may contact Law Office of Christopher J. Gray, P.C. by telephone or email newcases@investorlawyers.net to schedule a no-cost, confidential consultation.

Investors in Woodbridge upon the recommendation of former financial advisor Joel Vincent Flaningan (“Flaningan”) (CRD# 5664958) may be able to recover their losses in FINRA arbitration. According to FINRA BrokerCheck, Mr. Flaningan was discharged from employment with NYLife Securities LLC (“NYLife”) (CRD# 5167) on or about May 10, 2018, in connection with “allegations he was involved in the solicitation of New York Life (“NYL”) clients to invest in an unregistered entity named Woodbridge Mortgage Investment Fund… Mr. Flaningan failed to disclose any involvement with Woodbridge to NYL.” Furthermore, publicly available information via BrokerCheck indicates that Mr. Flaningan is currently the subject of one customer dispute concerning allegations that he purportedly failed to disclose the material risks “associated with an unregistered investment in Woodbridge… .”

According to BrokerCheck, NYLife has disavowed any prior knowledge of Mr. Flaningan’s business activity conducted away from the firm in selling purportedly non-approved Woodbridge investments. However, sales of unregistered securities by a financial advisor who engages in such “selling away” activity while still affiliated with his or her brokerage firm may result in the broker-dealer (such as NYLife) being held vicariously liable for the negligence and/or misconduct of its registered representative.

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, and certain of its affiliated entities, filed for Chapter 11 bankruptcy protection on December 4, 2017 (U.S. Bankruptcy Court for the District of Delaware – Case No. 17-12560-KJC). The SEC has alleged that Woodbridge, through its owner and former CEO, Mr. Robert Shapiro, purportedly utilized “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.”

Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors. Woodbridge investments came in two primary forms: (1) “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s seven Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” consisting of lending agreements underlying purported hard money loans on real estate deals.

Brokerage firms like NYLife have a duty to ensure that their registered representatives are adequately supervised. Consequently, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including selling away claims often associated with risky and illiquid unregistered securities. Investors may contact a securities arbitration attorney by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

Investors in Woodbridge Units or Notes, as further defined below, who purchased a Woodbridge investment based upon a recommendation by former financial advisor Alan Harold New (CRD# 2892508) may be able to recover losses through securities arbitration. Publicly available information through FINRA BrokerCheck indicates that Alan New was formerly affiliated with broker-dealer NYLife Securities LLC (“NYLife”) (CRD# 5167) in their Fort Wayne, IN office, from June 2004 – August 2016.

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017. Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, unlicensed advisors, as well as various licensed financial advisors, including Mr. New. Woodbridge investments essentially came in two forms: (1) so-called “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” that consisted of lending agreements underlying purported hard money loans on real estate deals.

As alleged by the SEC, Woodbridge and its owner and former CEO, Mr. Robert Shapiro, purportedly “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.” According to Steven Peiken, Co-Director of the SEC’s Enforcement Division, the Woodbridge “[b]usiness model was a sham. The only way that Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

As indicated through FINRA BrokerCheck, Alan New currently has five (5) pending customer disputes. Each of these disputes center on similar allegations concerning Mr. New’s alleged involvement in recommending “[u]nregistered and fraudulent investments in Woodbridge Mortgage Investment Fund.” Brokerage firms including NYLife have an affirmative obligation to ensure that their registered representatives are adequately supervised. Consequently, brokerage firms must take reasonable steps to ensure that their registered representatives follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their brokers, they may be held liable for losses sustained by investors.

Under FINRA Rule 3280, if a financial advisor wishes to consummate a private securities transaction, then he or she must first provide the firm with prior written notice, detailing the contemplated transaction. Such a transaction must first be approved by the firm. Furthermore, in the event that the transaction is not approved by the firm, then the broker cannot participate in the transaction.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including claims concerning sales of risky, illiquid and opaque financial products. Investors may contact a securities arbitration attorney via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

If you invested in a Woodbridge promissory note(s) upon the recommendation of broker Peter David Holler (CRD# 838897), you may be able to recover your losses through securities arbitration before FINRA. As disclosed by FINRA on May 21, 2018, registered representative Peter Holler has been suspended from the securities industry for a period of two years. From 2001 through August 2017, Mr. Holler was affiliated with Securities Service Network, LLC (BD No. 13318) (“SSN”) in their Bristol, TN office. FINRA BrokerCheck indicates that Mr. Holler was discharged from his employment with SSN on or about August 10, 2017 due to his alleged participation in “unapproved and undisclosed outside business activity…”

Pursuant to a Letter of Acceptance, Waiver, and Consent (“AWC”), through which Mr. Holler neither admitted or denied FINRA Enforcement’s findings, he accepted both the two-year suspension, as well as monetary penalties including a $10,000 fine and disgorgement of $49,790 in commissions received through the sale of unregistered Woodbridge securities to various investors. As encapsulated in the May 2018 AWC, Mr. Holler purportedly violated FINRA Rule 3280(b), an industry rule that prohibits brokers from participating in private securities transactions, without first providing written notice to their employer firm. Such written notice must set forth in detail the proposed transaction, as well as the financial advisor’s proposed role with regard to the contemplated transaction and whether he or she will receive any compensation in connection with the transaction.

According to FINRA Enforcement’s findings, from September 2016 – August 2017, Mr. Holler solicited various investors to purchase unregistered securities in certain Woodbridge Mortgage Investment Funds as offered through the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA. Further, FINRA Enforcement determined that Mr. Holler sold approximately $1.4 million in Woodbridge promissory notes to some 19 individuals, 9 of whom were SSN customers. In derogation of FINRA Rule 3280, Mr. Holler purportedly did not provide SSN with prior written notification of these private securities transactions.

As has been alleged by the SEC, Woodbridge and its owner and former CEO, Mr. Robert Shapiro, purportedly “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.” According to Steven Peiken, Co-Director of the SEC’s Enforcement Division, the Woodbridge “[b]usiness model was a sham. The only way that Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

Irrespective of whether Mr. Holler’s alleged outside business activity was conducted without his employer’s knowledge, brokerage firms like Securities Service Network nonetheless have a duty to ensure that their registered representatives are adequately supervised. As such, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In instances when brokerage firms fail to adequately supervise their financial advisors, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including claims against broker-dealers for their failure to supervise. Investors may contact a securities arbitration attorney via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

As we have detailed in numerous blog posts, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017. From the outset of this Chapter 11 proceeding, investors in Woodbridge Notes (“Noteholders”) have taken the position that they hold secured, perfected liens in various real estate deals.

By way of background, beginning as early as July 2012, Woodbridge and its affiliates offered securities nationwide to investors in at least two forms: (1) subscription agreements for the purchase of equity interests or units in one of Woodbridge’s seven Delaware limited liability companies (“Units”); and, (2) lending agreements, some of which were referred to as “First Position Commercial Mortgage Notes,” “mezzanine loans,” “construction loans,” and “Co-Lending Opportunities” (collectively, “FPCMs”).

On March 27, 2018, the Debtors, the Unsecured Creditors Committee and the Ad Hoc Noteholders Committee all agreed on a plan of reorganization that was encapsulated in a Term Sheet filed with the Bankruptcy Court. However, the Term Sheet failed to address whether or not Woodbridge Noteholders who invested in FPCMs do, in fact, hold secured, perfected liens. Accordingly, on March 27^th a Woodbridge FPCM investor – retired 85 year old attorney Lisa La Rochelle – filed an adversary proceeding (the “Owlwood Complaint”) in an effort to resolve the looming question of whether some $800 million in FPCMs should be treated as secured debt for purposes of disposition of the Chapter 11 proceeding.

In opposition to the Debtors and Creditors’ Committees’ stance that Noteholders are unsecured because they neither hold the original promissory note on their collateral, nor do they possess filed UCC-1 financing statements, Ms. La Rochelle has argued that a California statute offers protection to Noteholders. Specifically, the Owlwood Complaint relies upon Section 10233.2 of the California Business and Professional Code, as interpreted by the 9^th Circuit Court of Appeals in In Re: First T.D. Investment, Inc., 253 F.3d 520 (9^th Cir. 2001). Under the holding of In Re FTD, Section 10233.2 is recognized as a consumer protection statute that enumerates certain requirements that will establish perfection, absent holding the underlying note or a filed UCC-1, as is the case with numerous Woodbridge Noteholders.

To begin, the borrower needs to be acting as a broker within the meaning of Section 10131 or 10131.1 of the California Business and Professional Code. Pursuant to 10131.1, the term real estate broker is defined as “a person who engages as a principal in the business of making loans or buying from, selling to, or exchanging with the public, real property sales contracts or promissory notes secured directly or collaterally by liens on real property, or who makes agreements with the public for the collection of payments or for the performance of services in connection with real property sales contracts or promissory notes secured directly or collaterally by liens on real property.”

Second, the statute mandates that the real estate broker has to have “…arranged a loan or sold a promissory note or any interest therein, and thereafter undertakes to service the promissory note on behalf of the lender or purchaser in accordance with Section 10233…” It is worth noting that the Ninth Circuit in In Re FTD used a very broad definition of “sold.” Third, the statute contemplates that the real estate broker undertakes to service the promissory note on behalf of the lender. In the Owlwood Complaint, Ms. La Rochelle has argued that Woodbridge was clearly servicing the note between the respective investment fund and the property company within the meaning of Section 10233. The Secured Noteholders received direct communications and checks from the Woodbridge Group. Further, the Secured Noteholders received monthly interest payments and statements from the Debtors.

Through Ms. La Rochelle’s Motion papers and the supporting Owlwood Complaint, Woodbridge Noteholders seek to terminate the Debtors’ exclusive period and be afforded the right to file their own completing plan of reorganization. As argued by Ms. La Rochelle:

“… this Court should allow the Secured Noteholders to explore filing their own plan. It is clear that certain California properties such as Owlwood hold the greatest value in this case and may provide a basis for significant recovery. To deny California noteholders the right to realize on their specific collateral, which they relied on at the outset when making the investment decision, would be a miscarriage of justice.”

Investors in Woodbridge FPCMs, Units and other securities may be able to recover investment losses through arbitration or litigation. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

The Securities and Exchange Commission (SEC) reportedly has settled charges against the operators of a real estate investment business that caused millions in loses to investors. Up to 300 investors may have lost money on interests in a fund known as Alaska Financial Company III, LLC (“AFC III”), which two individuals named Tobias Preston and Charles Preston sold to investors via their company McKinley Mortgage Co. LLC (“McKinley”).

The SEC accused defendants of falsely portraying AFC III as a safe investment and reporting that it had profitable operations. However, according to the SEC, in reality AFC III was insolvent and unable to make interest payments as they came due. According to the SEC, although a portion of the raised funds were invested as promised to investors, Messrs. Preston and McKinley diverted millions of dollars in proceeds of outside investments to fund business and personal expenses as well as McKinley’s operations.

AFC III has made so-called Form D filings with the SEC since 2013 stating that AFC III qualifies for an exemption from registration of its securities offering under Rule 506(c), which allows for general solicitation of investors, such as through AFC III’s website and social media platforms, but limits sales to accredited investors. As a general rule, offers of securities to the public (which includes offers made over the internet) must be registered with the SEC under the Securities Act of 1933. However, under federal securities law, the SEC recognizes certain instances where companies seeking to raise capital are exempt from registering securities. Securities offerings exempt from registration are sometimes referred to as “private placements.” AFC III sought to be treated as exempt from registration by the SEC and was marketed as a private placement.

Securities exempt from registration may be offered pursuant to Regulation D (“Reg D”) as promulgated by the SEC in 1982. Essentially, Reg D sets forth a series of rules establishing certain transactional exemptions from the securities registration requirements of the ’33 Act.

One of the more commonly utilized Reg D Rules, Rule 506, is the rule that AFC III sought to use to establish its purported exemption from registration. Under Rule 506(c), a company can broadly solicit and generally advertise the securities offering, but must qualify for exemption by satisfying the following standards: (a) the investors in the offering are all accredited investors; and (b) the issuing company has taken reasonable steps to verify that its investors are accredited investors, which could include reviewing documentation, such as W-2s, tax returns, bank and brokerage statements, credit reports and the like.

The SEC alleged that the Prestons facilitated investments in AFC III from unaccredited investors since at least 2013, and accepted approximately $3 million of investments in AFC III from unaccredited investors, who reportedly received AFC III offering materials and returns consistent with AFC III’s offering materials.

The SEC’s complaint charges violations of the anti-fraud and registration provisions of the federal securities laws. Without admitting or denying the SEC’s allegations, as part of the settlement the Prestons and McKinley agreed to repay almost $30 million to the fund and to the appointment of new management at McKinley, AFC III, and their affiliates.

Public reports do not reveal whether AFC III was sold through FINRA-registered brokers or financial advisors. However, as members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors- including private placements under Regulation D. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in representing investors who have incurred losses in connection with private placement offerings, including investments in oil and gas drilling funds and hedge funds. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Paul Wescoe Smith, formerly associated with Bolton Global Capital, was the subject of a civil action and a criminal indictment filed by the United States Securities and Exchange Commission and the Department of Justice, through the United States Attorney for the Eastern District of Pennsylvania, on December 7, 2017. Smith, age 63, a resident of Wayne, Pennsylvania, has been accused of misconduct in connection with the sale and operation of a Ponzi scheme known as the Haverford Group.

Smith worked in the securities industry as a registered representative of several brokerage firms from 1982 until 2017, including with Bolton Global Capital from May 2007 to February 2017. Smith allegedly sold unregistered securities in a purported hedge fund known as The Haverford Group to more than a dozen investors.

Bolton Global Capital, Smith’s employer, reportedly notified Smith’s customers in early 2017 that their accounts were being transferred to another “financial representative” but reportedly gave no indication that Smith had been terminated and accused of wrongdoing in connection with The Haverford Group.

The SEC Complaint alleges that Smith raised approximately $2.35 million for The Haverford Group from approximately 30 unwitting investors, including some of his Bolton Global Capital customers. Smith allegedly told investors that the purported hedge fund would invest in publicly-traded securities. However, in reality, the purported hedge fund allegedly was in the nature of a Ponzi scheme, with the proceeds of new investments being used to repay earlier investors and for Smith’s own personal use. Smith reportedly attracted elderly and unsophisticated investors to his purported fund, including some members of his own country club.

Smith allegedly created account statements that were not authentic to send to customers, and wrote at least $247,400 worth of checks to himself from Haverford’s checking account, which he deposited into his personal bank accounts and used for personal expenses.

Bolton Global Capital has reportedly denied responsibility for Smith’s actions in response to a customer claim, and indicated that his activities were unauthorized. However, Financial Industry Regulatory Authority rules have established that firms must properly supervise brokers’ activities while they are registered with the firm. If they fail to do so, the 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.

Investors who lost money as a result of recommendations to purchase purported securities of the Haverford Group may be able to recover investment losses in FINRA arbitration or through litigation if they were customers of Bolton Global Capital. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

As recently discussed in our blog, on Monday, December 4, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, filed for Chapter 11 bankruptcy protection in Delaware Bankruptcy Court (Case No. 17-12560-KJC). Woodbridge has asserted that a restructuring of its debt was necessary due to increased operating and development costs, in addition to expenses associated with ongoing litigation and regulatory compliance. As we have discussed in several previous blog posts, Woodbridge continues to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities, in addition to allegations of possible misconduct by Woodbridge and its President, Robert Shapiro.

As reported on December 6, Woodbridge’s First Day Motions in Delaware Bankruptcy Court (“Motions”) were successful. The Bankruptcy Court issued certain interim authorizations to help ensure Woodbridge’s ability to continue operations in the ordinary course during its restructuring process. For instance, the Bankruptcy Court approved Woodbridge’s request to access debtor-in-possession (“DIP”) financing through a California private direct lender specializing in real estate debt investments, Hankey Capital, LLC (“Hankey”).

This DIP financing, combined with cash on hand generated by Woodbridge’s operations, is intended to support continued business operations during the restructuring process. In signing off of on Woodbridge’s request to borrow $6 million for a day through its DIP financing, Judge Kevin Casey indicated “The request here is a relatively modest one.” In addition to receiving approval on its initial DIP financing request, Woodbridge also received approval for, among other things, cash to pay employee salaries and benefits.

Woodbridge’s DIP facility with Hankey is structured to provide Woodbridge with up to $100 million in post-petition financing. In exchange for offering Woodbridge the DIP financing, Hankey has secured first priority priming liens on a set of twenty-eight (28) of Woodbridge’s properties, referenced in the bankruptcy filings as “Core Assets.”

As we have previously reported, investors in Woodbridge’s so-called First Position Commercial Mortgages, or FPCMs (“Noteholders”) should have cause for concern, even at this early stage, in light of their questionable status as secured creditors during the restructuring process. For example, as set forth by Woodbridge in its bankruptcy petition, the company believes “[t]hat the Noteholders’ liens on the Third-Party Collateral are not properly perfected and are thus subject to avoidance….” Moreover, given the fact that Hankey now has first priority liens on certain Core Assets, there is a distinct possibility that investors will find themselves taking significant haircuts and incurring steep losses on the capital invested in Woodbridge FPCMs.

To date, Woodbridge has been the subject of numerous investigations by state securities regulators. Several of these investigations have resulted in the issuance of cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and further, to stop otherwise violating applicable securities laws. These regulatory allegations are factual assertions by the regulators and have not been independently verfied by our attorneys.

Woodbridge, through various Woodbridge Mortgage Investment Funds has marketed FPCMs to investors nationwide through issuing promissory notes in exchange for investments backing certain hard money loans secured by commercial real estate. Some of the issuers of Woodbridge securities include the following entities:

• 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 3A, LLC;
• Woodbridge Mortgage Investment Fund 4, LLC;
• Woodbridge Mortgage Investment Fund PA, LLC;
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth).

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D. In addition, financial advisors have a duty to disclose the risks associated with any investment, and moreover, to conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a First Position Commercial Mortgage through investing in a Woodbridge promissory note, you may be able to recover investment losses in FINRA arbitration. Investors may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

If you are have invested in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds, you may have questions concerning your rights in light of Woodbridge’s recent bankruptcy filing.

Investors who purchased Woodbridge FPCMs through a stockbroker or financial advisor may have viable FINRA arbitration claims if the brokerage firm did not perform adequate due diligence before recommending the Woodbridge investment. Law Office of Christopher J. Gray, P.C. offers a confidential, no-obligation consultation to Woodbridge investors.

Woodbridge Wealth, a California-based firm, sells structured financial products to investors, often through intermediary brokers. Woodbridge has reportedly raised over $1 billion by selling investors instruments known as First Position Commercial Mortgages (“FPCMs”). The Woodbridge Funds advertise that their management team’s substantial experience lets them maintain a successful lending model and find lending opportunities that are favorable for investors. Investors do not have any role other than providing money. An FPCM consists of a promissory note from a Woodbridge Fund, a loan agreement, and a non-exclusive assignment of the Woodbridge Fund’s security interest in the mortgage for the underlying hard-money loan. The Woodbridge Funds pool money from multiple investors for each hard-money loan. The Woodbridge Funds’ promissory notes effectively guarantee the underlying hard-money loans, and the Woodbridge Funds’ advertising materials state that the Woodbridge Funds are obligated to make payments to FPCM investors even if the hard-money borrower defaults.

However, the viability of Woodbridge’s FPCMs is called into question by Woodbridge’s filing for Chapter 11 bankruptcy protection in Delaware Bankruptcy Court (Case No. 17-12560-KJC). Woodbridge has asserted that a restructuring of its debt was necessary due to increased operating and development costs, in addition to expenses associated with ongoing litigation and regulatory compliance. In a development that may be of concern to FPCM investors, Woodbridge argued in its bankruptcy court filings as follows: “While the Debtors believe that the Noteholders’ liens on Third-Party Collateral are not properly perfected and are thus subject to avoidance, out of an abundance of caution, at this stage in the proceedings the Debtors are making available conditional adequate protection to the Noteholders…” Translated into English, this appears to mean that Woodbridge believes its FPCM holders are unsecured creditors who will not get paid a penny in bankruptcy until after secured creditors have been paid in full.

Woodbridge’s FPCM sales have resulted in certain actions and/or investigations by regulators, including state regulators in Pennsylvania, Michigan, Massachusetts, and Colorado, as well as the U.S. Securities and Exchange Commission (‘SEC”). For example, in May of 2015, Massachusetts state regulators charged an individual with fraud based on the regulators’ allegations that he was marketing and selling unregistered securities to vulnerable elderly investors. The SEC is also reportedly investigating the Woodbridge Group of Companies for possible violations ongoing violations of Sections 5(a), 5(c), and 17(a) of the Securities Act, and Section 15(a) and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, by Woodbridge and other persons and entities. Specifically, the Commission is reportedly investigating the offer and sale of unregistered securities, the sale of securities by unregistered brokers, and the commission of fraud in connection with the offer, purchase, and sale of securities. Please note that these regulatory allegations remain unproven and represent only the factual allegations made by the government regulators.

Some of the Woodbridge entities or Woodbridge Funds include the following:

• 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 who purchased Woodbridge FPCMs through a stockbroker or financial advisor may have viable FINRA arbitration claims if the brokerage firm did not perform adequate due diligence before recommending the Woodbridge investment. As members and associated persons of FINRA, brokerage firms and their financial advisors must ensure that adequate due diligence is performed on any investment that is recommended to investors- including private placements under Regulation D. Further, firms and their brokers must ensure that investors are informed of the risks associated with an investment, and must conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and risk profile. Either an unsuitable recommendation to purchase an investment or a misrepresentation concerning the nature and characteristics of the investment may give rise to a claim against a stockbroker or financial advisor.

Woodbridge investors with questions about their rights may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a confidential, no-obligation consultation.

On December 4, 2017, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. As we have previously highlighted in a series of blog posts, Woodbridge has come under considerable regulatory scrutiny over the past year, both by the Securities and Exchange Commission (“SEC”), and various state securities regulators including officials in Arizona, Colorado, Idaho, Massachusetts, Michigan, Pennsylvania, and Texas.

In a letter to investors dated December 5, Woodbridge announced the bankruptcy filing and stated that “[t]he Company took this action in an effort to recapitalize its debt and establish a stronger financial platform.”

In the investor letter, Woodbridge elaborated as follows concerning the purported reasons for the bankruptcy: “While Woodbridge continues to be a leading developer of high-end real estate, as the business has grown, increased operating and development costs have been exacerbated by the unforeseen costs associated with ongoing litigation and regulatory compliance. This combination of rising costs and regulatory pressure led to a loss of liquidity, resulting in an inability to make our regularly scheduled one-year Notes payment due December 1, 2017. So you understand, this unpaid obligation incurred by Woodbridge prior to December 4, 2017 is now frozen and will be considered as general unsecured claims in the restructuring proceedings.”

Not fully explained in the investor letter was the revelation in the bankruptcy petition as follows: “While the Debtors believe that the Noteholders’ liens on Third-Party Collateral are not properly perfected and are thus subject to avoidance, out of an abundance of caution, at this stage in the proceedings the Debtors are making available conditional adequate protection to the Noteholders…” Translated into English, this appears to mean that Woodbridge believes its Noteholders are unsecured creditors who will not get paid a penny in bankruptcy until after secured creditors have been paid in full.

Included among the various Woodbridge entities or mortgage funds (and, apparently, the issuers of Woodbridge notes) are the following:

• 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 3A, LLC;
• Woodbridge Mortgage Investment Fund 4, LLC;
• Woodbridge Mortgage Investment Fund PA, LLC;
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth).

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D. In addition, financial advisors have a duty to disclose the risks associated with any investment, and moreover, to conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a First Position Commercial Mortgage through investing in a Woodbridge promissory note private placement, you may be able to recover investment losses in FINRA arbitration or through litigation. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On December 4, 2017, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. As we have previously highlighted in a series of blog posts, Woodbridge has come under considerable regulatory scrutiny over the past year, both by the Securities and Exchange Commission (“SEC”), and various state securities regulators including officials in Arizona, Colorado, Idaho, Massachusetts, Michigan, Pennsylvania, and Texas. Further, according to bankruptcy filings, Woodbridge has received information requests from state securities regulators in approximately 25 states. The investigations conducted by securities regulators at both the federal and state level have centered on allegations of offering and selling unregistered securities that are not exempt from registration.

In addition, at the federal level, the SEC has raised allegations of possible misconduct by Woodbridge and its President, Robert Shapiro (“Shapiro”). On Friday, December 1, Mr. Shapiro resigned as Woodbridge’s CEO. As of Monday, December 4, according to bankruptcy proceeding filings, Woodbridge owes approximately $750 million to an estimated 8,998 noteholders who invested in various Woodbridge funds. Holders of these notes are entitled to a fixed rate of interest generally ranging from 4.5 – 13%, payable on a monthly basis, and repayment of principal upon maturity (typically within 12-20 months of issuance) of the note.

Woodbridge operates through a complex structure of interrelated companies (numbering about 250) which are owned either directly or indirectly by RS Protection Trust, an irrevocable Nevada trust, of which Mr. Shapiro is the trustee and his family members are the sole beneficiaries. Included among the various Woodbridge entities or mortgage funds are the following:

• 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 3A, LLC;
• Woodbridge Mortgage Investment Fund 4, LLC;
• Woodbridge Mortgage Investment Fund PA, LLC;
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth).

As indicated in certain bankruptcy proceeding filings, “Due to the concerns expressed by federal and state securities regulators regarding the Woodbridge Group Enterprises’ fundraising activities, Mr. Shapiro has agreed to empower an independent management team to take control of [Woodbridge] during the pendency of the Chapter 11 Cases…” Thus, as part of the contemplated Chapter 11 restructuring process, Mr. Shapiro will cede control of his business enterprise to Beilinson Advisory Group, an independent financial restructuring and hospitality advisory group owned and controlled by Mr. Mark Beilinson.

At this stage, Woodbridge has indicated that its assets include a portfolio of some 138 properties ranging in value from about $50,000 – $150,000,000. These properties, in various stages of development or renovation, include some raw land parcels.

For investors in Woodbridge notes, sometimes referred to as First Position Commercial Mortgages (“FPCMs”), there is significant cause for concern. Specifically, Woodbridge has indicated in its bankruptcy petition that: “While the Debtors believe that the Noteholders’ liens on Third-Party Collateral are not properly perfected and are thus subject to avoidance, out of an abundance of caution, at this stage in the proceedings the Debtors are making available conditional adequate protection to the Noteholders… .”

While it is still too early to determine how investors in Woodbridge notes or FPCMs (“Noteholders”) will fare in the bankruptcy proceeding, it is already troubling that Woodbridge has indicated that Noteholders may not have perfected liens on the real estate assets underlying their investment(s). Thus, it is conceivable that Noteholders will suffer steep losses on their principal invested.

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D. In addition, financial advisors have a duty to disclose the risks associated with any investment, and moreover, to conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a First Position Commercial Mortgage through investing in a Woodbridge promissory note, you may be able to recover investment losses in FINRA arbitration or through litigation. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

On March 18, 2016, the Securities Commissioner of the State of Texas (“Securities Commissioner”) entered a Cease and Desist Order (“Order”) against Woodbridge Mortgage Investment Fund 3, LLC (“Woodbridge 3” or “Respondent”). Respondent Woodbridge 3 is a Delaware-organized limited liability company formed in or around 2014. Woodbridge 3 is one of a number of mortgage funds offered by the Woodbridge Group of Companies, LLC (“Woodbridge”), the successor firm to Woodbridge Structured Funding, LLC. Woodbridge is headquartered in Sherman Oaks, CA, and its principal and controlling person is Robert H. Shapiro (“Shapiro”).

In connection with the Securities Commissioner’s Order, State of Texas securities regulators made the following findings of fact concerning their investigation into Woodbridge 3:

• The Bureau determined that Respondents Woodbridge 3 and Shapiro offered and sold “First Position Commercial Mortgages” (“FPCMs” or “The Note Program”) to investors in Texas that fell within the definition of a security;
• On July 17, 2015, the Securities Commissioner entered an Emergency Cease and Desist Order (No. ENF-15-CDO-1740) (“Emergency Order”) against Respondents, as well as other parties;
• On or about August 20, 2015, Respondents Woodbridge and Shapiro filed a request to modify or set aside the Emergency Order;
• By virtue of entering into the March 18, 2016 Order, Respondents withdrew their request for an administrative hearing “… as the parties [had] settled all matters in controversy.”

Pursuant to the Securities Commissioner’s findings, it was concluded that the Note Program constituted investments in securities, as defined by Section 4.1 of the Texas Securities Act (the “Act”). Furthermore, the Securities Commissioner concluded that Respondents Woodbridge and Shapiro had allegedly violated Section 7 of the Act by “… offering securities for sale in Texas at a time when the securities were not registered with the Securities Commissioner.” Based upon these alleged violations, the Securities Commissioner ordered that Respondents immediately cease and desist from offering for sale unregistered securities through its Note Program to Texas residents under the Act, until such time as the Note Program became registered in Texas and sold “… pursuant to an exemption from registration under the Texas Securities Act.”

In addition to regulatory scrutiny in Texas, Woodbridge has been subject to investigations by state securities regulators in: Arizona, Colorado, Massachusetts, Michigan, and Pennsylvania. Included among the various Woodbridge entities or mortgage funds are the following:

• 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 3A, LLC;
• Woodbridge Mortgage Investment Fund 4, LLC;
• Woodbridge Mortgage Investment Fund PA, LLC;
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth).

Among the many risks associated with investing in securities through a private placement is the potential for fraud or related misconduct. Pursuant to applicable federal securities laws, as well as corresponding state “Blue Sky” laws governing securities — in order for unregistered securities to be sold in a compliant manner — in nearly all instances an exemption to registration must apply. With respect to securities offerings under the Note Program through Woodbridge 3 to Texas investors, it does not appear that offerings to Texas investors were recommended to investors as exempt securities through a permissible private placement offering.

If you have purchased any of the Woodbridge Notes and have suffered losses, you may be able to recover these losses in FINRA arbitration if the investment was based on a recommendation from a stockbroker or financial advisor that lacked a reasonable basis. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Former United Planners Broker Jerry Lou Guttman allegedly sold over $7,000,000 worth of unregistered securities to customers of his former employer. Guttman allegedly sold membership interests in at least six different limited liability companies to 31 customers and seven non-customers without first disclosing the sales to United Planners, according to a recent Letter of Acceptance, Waiver, and Consent (AWC) issued by the Financial Industry Regulatory Authority (FINRA). According to the AWC, Mr. Guttman neither admitted to nor denied the conduct charged by FINRA.

Guttman was a financial advisor and a registered representative of United Planners Financial Services of America from 2001 to October 2017. Guttman has also allegedly been the subject of three previous customer complaints. During his career, Guttman has been affiliated with Guttman Financial Group, Nationwide Planning & Benefits, Champion Entertainment Group, Walled Lake Properties, and Serenity Management.

FINRA Rule 3280 prohibits associated persons from participating in any manner in a private securities transaction without first providing written notice to the registered representative’s employing firm. The notice to the employer must occur before the private securities transaction begins. There are other requirements imposed by the rule, including that the employing firm must approve the transaction.

Selling away occurs when a broker or investment adviser sells an investment to a client that is not included in the client’s account or offered by the broker-dealer employer of the broker. These “selling away” transactions often involve investments in private placements, private non-traded REITs, privately-held companies, limited partnerships, real estate and promissory notes.

Selling away cases often involve both the actions of the broker and the supervisory practices of the firm. Often, selling away could have been prevented if the firm’s supervisors had paid attention to certain red flags that should have alerted them to the broker misconduct.

If you have been sold a private placement by a stockbroker or investment advisor, you may be able to recover investment losses in FINRA arbitration if the recommendation lacked a reasonable basis, or the broker did not comply with FINRA rules. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, continue to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities. For the past year on the federal level, the Securities and Exchange Commission (“SEC”) has been conducting an investigation into Woodbridge. In that regard, according to a publicly available court filing, the SEC “[i]s investigating the offer and sale of unregistered securities, the sale of securities by unregistered brokers and the commission of fraud in connection with the offer, purchase and sale of securities” by Woodbridge and its affiliated companies and agents.

Concurrently at the state level, Woodbridge has been the subject of investigations by various state securities regulators in Arizona, Texas, Massachusetts, Pennsylvania, and Michigan (as well as recent inquiries made by the Colorado Division of Securities). Several of these investigations have resulted in regulators issuing cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and furthermore, to stop otherwise violating applicable securities laws.

For example, on or about April 24, 2017, the Commonwealth of Pennsylvania Department of Banking and Securities, Bureau of Securities Compliance (the “Bureau”) entered into a Consent Agreement and Order (“Consent Order”) with Woodbridge. As part of the Consent Order, Respondent Woodbridge — without admitting or denying any of the allegations raised by the Bureau — agreed to pay an administrative assessment of $30,000, and additionally agreed to adhere to Pennsylvania’s state securities laws which prohibit, among other things, selling unregistered securities that are not exempt from registration.

The Bureau has also focused its attention on various individuals who allegedly sold certain Woodbridge mortgage funds (“Woodbridge Funds”), often marketed as First Position Commercial Mortgages (“FPCMs”), to Pennsylvania investors. For example, from August – October 2017, publicly available information demonstrates that the Bureau has issued Orders to Show Cause against the following four (4) individual Respondents in connection with their purportedly selling certain Woodbridge Funds to Pennsylvania residents:

• August 8, 2017 – an Order to Show Cause was issued by the Bureau against Dennis Drake (“Drake”). The Bureau has alleged that Mr. Drake offered and sold interests in a certain Woodbridge Fund(s) for an aggregate amount of at least $75,000 to at least one Pennsylvania investor;
• August 8, 2017 – an Order to Show Cause was issued by the Bureau against Elizabeth J. Haskell d/b/a Iron Will Advisory Group (“Haskell”). The Bureau has alleged that Ms. Haskell offered and sold interests in a certain Woodbridge Fund(s) for an aggregate amount of at least $350,000 to at least one Pennsylvania investor;
• October 13, 2017 – an Order to Show Cause was issued by the Bureau against Greg A. Koch d/b/a Koch Financial Group (“Koch”). The Bureau has alleged that Mr. Koch offered and sold interests in a certain Woodbridge Fund(s) for an aggregate amount of at least $710,000 to at least three Pennsylvania investors;
• October 18, 2017 – an Order to Show Cause was issued by the Bureau against Michael Kandravi d/b/a Explore Financial Group (“Kandravi”). The Bureau has alleged that Mr. Kandravi offered and sold interests in a certain Woodbridge Fund(s) for an aggregate amount of at least $475,000 to Pennsylvania investors.

The Bureau has alleged that the above-named individual Respondents engaged in activity in Pennsylvania that resulted in a “[w]illful violation of Section 301(a)” of the Pennsylvania Securities Act of 1972 (the “Act”), based upon their purportedly selling unregistered securities that were not exempt from registration.

At this time, Woodbridge reportedly continues to sell securities. Some of the issuers of Woodbridge securities (and not necessarily the same Woodbridge Funds subject to the various aforementioned Pennsylvania regulatory proceedings) include the following entities:

• 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 3A, LLC
• Woodbridge Mortgage Investment Fund 4, LLC;
• Woodbridge Mortgage Investment Fund PA, LLC;
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth).

Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D. In addition, financial advisors have a duty to disclose the risks associated with any investment, and moreover, to conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a First Position Commercial Mortgage through investing in a Woodbridge promissory note based on the advice of a stockbroker or financial advisor, you may be able to recover investment losses in FINRA arbitration. Investors may contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.