Articles Posted in Private Placements

Published on:

woodbridge mortgage fundsAs 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.

Published on:

woodbridge mortgage fundsIf 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.

Published on:

woodbridge mortgage fundsOn 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.”

Published on:

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:

Published on:

woodbridge mortgage fundsOn 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;
Published on:

Cage MoneyFormer 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.

Published on:

woodbridge-300x82As 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.

Published on:

Financial FraudIf you have sustained losses in an investment in GWG Renewable Secured Debentures, an illiquid and high-risk alternative investment, you be able to recover losses in arbitration before the Financial Industry Regulatory Authority (“FINRA”) if the investment was sold pursuant to a misleading sales presentation or the recommendation to purchase the securities lacked a reasonable basis.  GWG Holdings, Inc. (“GWG”) began selling what it termed Renewable Secured Debentures (“Debentures”) in 2012.  In certain instances, financial advisors and brokers recommending these Debentures reportedly solicited their clients to invest without first fully disclosing the Debentures’ many risks.  In fact, in some instances, financial advisors reportedly made false and misleading oral and written statements concerning these investments offered by GWG, describing them as safe, low-risk, liquid and/or guaranteed.  Further, some financial advisors may have recommended these Debentures without taking into account a customer’s specific investment objectives, risk tolerance, as well as other relevant factors which all touch upon the suitability of a specific investment.

In actuality, these Debentures were anything but safe, liquid investments.  In structuring the Debentures, Minnesota firm GWG purchased life insurance policies in the secondary market at a discount to their face value and then packaged these policies into the Debentures, to be sold to investors.  In structuring the overarching investments, GWG planned to continue paying on the insurance policy premiums, while paying investors interest, ultimately hoping to collect more upon maturity of the policies than GWG had initially paid to purchase, finance and service the policies.  GWG required a minimum investment of $25,000 – with the optionality to make additional investments at $1000 increments.  The Debentures had varying maturity terms and interest rates, ranging from six (6) months at an annual interest rate of 4.75% to seven (7) years at an interest rate of 9.5%.

Significantly, as stated in the GWG Prospectus, the life insurance policies underlying the investments do not serve as collateral for the Debentures, but rather acted as collateral for GWG on a line of credit to purchase the insurance policies, in the first instance.  In addition to the risk of default without secure collateral in place, the GWG Debentures are extremely illiquid in nature.  This means that investors do not have ready access to their initial capital commitment prior to maturity (unless such a request is due to death, bankruptcy, or disability).  Further, there is no active trading market for GWG’s Debentures, making resale extremely difficult.

Published on:

investing in real estate and hard money loansOn November 9, 2017, the Securities and Exchange Commission (“SEC”) filed a civil complaint (“Complaint”) against Philadelphia-based Singer Financial Corp. (“SFC”).  The SEC’s Complaint alleges that SFC, a ‘hard-money lender’, raised approximately $4.5 million from at least 70 investors from late 2012 through July 2015.  During this time frame, the SEC has alleged that SFC sold unregistered securities that were not exempt from registration, an impermissible practice that constitutes a violation of federal securities laws.

Specifically, the SEC’s Complaint alleges that SFC and the firm’s founder and sole officer, director and shareholder, Paul Z. Singer, violated Sections 5(a) and (c) of the Securities Act of 1933 (the ’33 Act).  The SEC is seeking a permanent injunction against SFC and Mr. Singer in order to prevent any future unregistered securities offerings, as well as monetary remedies including disgorgement, prejudgment interest and penalties.  According to its website, SFC provides hard money loans in the greater Philadelphia, PA area, and offers “Creative real estate financing in Pennsylvania (PA), New Jersey (NJ) and Delaware (DE)….”  The firm was founded in 1992 by Mr. Paul Singer.

As alleged in the Complaint, an unregistered offering of promissory notes to investors backing hard money loans first occurred in or around 2012 when “… SFC’s business was beginning to struggle due in part to sizeable non-interest bearing related-party loans that SFC made to Singer and other companies owned by him.  These interest-free related-party loans totaled over $2 million, approximately 20% of SFC’s assets, when Singer sold the first promissory note, and the balance grew to nearly $3 million during the relevant period.”

Published on:

Money BagsOn May 4, 2015, the Commonwealth of Massachusetts Securities Division (“Division”) entered a Cease and Desist Order (“Order”) against certain Woodbridge Mortgage Investment Funds.  With respect to the Order, these mortgage funds — which are offered by Woodbridge Wealth (“Woodbridge”) of Sherman Oaks, CA — include: Woodbridge Mortgage Investment Fund 1, LLC, Woodbridge Mortgage Investment Fund 2, LLC, and Woodbridge Mortgage Investment Fund 3, LLC (collectively, the “Woodbridge Funds”).  These Woodbridge Funds, and other similar fund iterations, have been offered nationwide by Woodbridge through a network comprised primarily of independent broker-dealers and financial advisors.

Through its findings of fact, the Division noted that the Woodbridge Funds, all Delaware limited liability companies, sought to “[r]aise money from individuals in Massachusetts, by offering and selling ‘First Position Commercial Mortgages…’”  Significantly, the Division determined that Woodbridge’s First Position Commercial Mortgages (“FPCMs”) were not registered as securities in either Massachusetts or on the federal level, nor were these FPCMs exempt from registration.  In nearly all instances, in order to recommend an investment in a security, the issuer and/or broker or promoter soliciting the investment must either register the security, or seek exemption from registration (e.g., exemption through Regulation D via private placement).

The Order indicated that in response to a Division subpoena, “[W]oodbridge identified 144 Massachusetts residents who invested in [FPCMs] between January 1, 2012 to present.  The 144 Massachusetts Investors reside in cities and towns across the Commonwealth, including Springfield, Worcester, Gloucester, Truro, Plymouth, Dorchester, and Boston.”  Finally, the Division determined that Charles N. Nilosek, a resident of Plymouth, MA, was promoting and selling FPCMs through his two business entities, Position Benefits, LLC and SHP Financial LLC.  Of concern, the Division noted that Mr. Nilosek was not registered in any capacity with the Division, the SEC, or FINRA.  Further, Position Benefits, LLC was not registered in any capacity with the Division, the SEC, or FINRA.

Contact Information