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Mass. Regulator Serves Woodbridge With Cease-And-Desist Order

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.

There are numerous risks associated with investing in unregistered securities (typically offered through an exempt private placement).  Further, there are certain risks inherent to investing in real estate and debt obligations, such as hard money loans, encumbering real estate.  With regard to these risks, the Division alleged the following potential risk factors specific to Woodbridge FPCMs:

  • DISCLOSURE: “Massachusetts Investors may have been uninformed of the potential risks typically associated with real estate transactions…”
  • POTENTIAL DEFAULT: “… if Woodbridge were to become bankrupt or default on its obligation to pay a Massachusetts Investors, the Massachusetts Investor may have to file a lawsuit against Woodbridge to recoup owed payments….”
  • VALUATION OF UNDERLYING COLLATERAL: “Massachusetts Investors rely on Woodbridge to properly value the property serving as collateral on the loan… including the potential for depreciation, to file the Massachusetts Investor’s security interest on local land records, and to obtain title insurance….”
  • HARD MONEY LOAN COMPLIANCE: “Documentation of hard money loans… involves compliance with numerous state and federal regulations. Failure to comply with these regulations may invalidate the security interest claimed by Woodbridge….”

In connection with the Order, the Division charged that the Respondent Woodbridge Funds had violated Section 301 of the Massachusetts Uniform Securities Act, making it unlawful for any person to “[o]ffer or sell any security in the commonwealth unless: (1) the security is registered… (2) the security or transaction is exempted… or (3) the security is a federal covered security.”  In rendering its Order, the Division required that the Woodbridge Funds cease and desist from any further selling of unregistered or non-exempt securities in Massachusetts, and further, that Woodbridge pay a $250,000 fine.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a FPCM through investing in a Woodbridge promissory note private placement, you may be able to recover investment losses in FINRA arbitration.  To find out more about your legal rights and options, contact a securities arbitration attorney at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or for a no-cost, confidential consultation.

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