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Robert Shapiro, the former chief executive officer of Woodbridge Group of Companies, has reportedly agreed to pay $120 million to the Securities and Exchange Commission to settle allegations he defrauded investors in an alleged $1.2 billion Ponzi scheme.  Shapiro and his subordinates reportedly promised investors returns of as high as 10% from  purported “hard money” loans to third parties.  In reality, most of the “loans” were in fact extended to shell companies controlled by Shapiro that had no cash flows to repay the loans, and investors’ funds were instead commingled and used for other purposes.

Woodbridge, which is the subject on ongoing proceedings in Delaware bankruptcy court, received approval on October 29, 2018 for its plan of liquidation.  Investors in Woodbridge securities reportedly will receive a refund of between 40-70% of their sums invested, depending on the type of investment and other factors.

Investors who have lost money in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds may be able to pursue recovery of their losses through securities litigation or arbitration.  Although so-called First Position Commercial Mortgages (“FPCMs”) and Woodbridge units are securities according to state and federal regulators, Woodbridge FPCMs were not registered as securities with government regulators as required by law, and in many instances were sold by unregistered, unlicensed persons.

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Investors in Woodbridge, either through a First Position Commercial Mortgage (commonly referred to as a “FPCM” or “note”) or in any Woodbridge “units” upon the recommendation of former broker David Ferdwerda (CRD# 832431) may be able to recover your losses through securities arbitration.  As recently disclosed by FINRA, as of October 30, 2018, FINRA barred registered representative David Carl Ferdwerda (“Ferdwerda”) from the securities industry due to his purported failure to provide requested documents and information to FINRA concerning his sales of Woodbridge securities.

According to publicly available FINRA records, from 2012 through March 2018, Mr. Ferdwerda was affiliated with broker-dealer Signator Investors, Inc. (BD No. 468) (“Signator”) in the firm’s Grand Rapids, MI office.  Further, FINRA BrokerCheck indicates that Mr. Ferdwerda was discharged from his employment with Signator on or about March 20, 2018 due to his alleged “Involvement in the sale of unapproved outside investments in violation of firm policy.”  Through his alleged nonresponsiveness to FINRA Enforcement’s investigation, Mr. Ferdwerda neither admitted nor denied FINRA’s findings.

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.”

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U.S. Bankruptcy Judge Kevin J. Carey (D. Delaware Case No. 17-12560-KJC) has overruled the final objection to the Chapter 11 Liquidation Plan (“Plan”) for the Woodbridge Group of Companies, LLC and its affiliated debtors in possession (collectively, “Woodbridge” or the “Debtors”).  As we have discussed in recent blog posts, the Woodbridge bankruptcy cases arise out of a purported massive, multi-year fraudulent scheme perpetrated by Woodbridge’s founder and former CEO, Robert Shapiro (“Shapiro”).  Judge Carey’s ruling paves the way for payment of creditor claims.  Public investors in Woodbridge reportedly will receive around 60-70% of their net investment sums for investments in Notes (or so called First Position Commercial Mortgages or “FPCMs”) and 40-50% of their net investment sums for investments in units in so-called Units.

In connection with the alleged fraud, Mr. Shapiro — through a web of various affiliated entities, including several hundred limited liability companies — raised approximately $1.2 billion from approximately 10,000 investors nationwide.  Upon information and belief, many of these investors were elderly retirees who were solicited to invest in either Woodbridge Notes or Units, as further defined below, by a nationwide network of Woodbridge’s own in-house promoters, as well as certain licensed and unlicensed securities brokers.

Woodbridge investments came in two primary forms: (1) “Units” consisting of subscription 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.

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As previously reported, American Finance Trust, Inc. (“AFIN” or the “Company”), formerly known as American Realty Capital Trust V, Inc., listed its shares on Nasdaq Global Select Market (“Nasdaq”), under the symbol AFIN effective July 19, 2018.

The former non-traded REIT’s shares are therefore publicly traded, but not all shares are yet saleable. In connection with the listing, the Company’s shares were divided into three classes: Class A, Class B-1 and Class B-2.  American Finance Trust has listed its Class A and former Class B-1 shares on NASDAQ, and the remaining Class B-2 shares are expected to list by January 2019. Shares of the non-traded REIT originally sold for $25.00 each, and the company terminated its share repurchase program at the end of June prior to listing on Nasdaq.

Against this backdrop, a private equity fund known as MacKenzie Realty Capital Inc. has offered to purchase up to 400,000 shares of each class of company common stock. MacKenzie is offering $15.00 per Class A share and $14.01 per Class B-1 share, and will purchase up to 400,000 shares of each class. The offer expires on November 16, 2018.  Of note, these prices are above the current market price of AFIN shares on NASDAQ. Although most investors paid $25.00 a share for AFIN shares in the Company’s offerings, AFIN shares have consistently traded well below that price level since the Nasdaq listing.  AFIN shares have traded as low as $13.15 a share, and closed on October 25, 2018 at $13.85 a share.  The performance of the Company since it started trading on July 19 may have caught some investors by surprise, since AFIN published an “estimated per share” net asset value of $23.56 in June 2018.

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woodbridge-1-300x82As recently reported, the U.S. Securities & Exchange Commission (SEC) has accused the founder and former CEO of the Woodbridge Group of Companies, LLC (“Woodbridge”), Mr. Robert Shapiro, of defrauding more than 8,400 investors nationwide in an elaborate real-estate related Ponzi scheme.  Specifically, the SEC has alleged that Mr. Shapiro purportedly utilized a “web of more than 275 Limited Liability Companies to conduct a massive Ponzi scheme raising more than $1.22 billion… through fraudulent unregistered securities offerings.”  At this stage, Woodbridge is in the midst of Chapter 11 bankruptcy proceedings in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) as investors wait to hopefully recoup a fraction of the money they invested in Woodbridge.

If you invested in Woodbridge upon the recommendation of former financial adviser Max Jacob Hechtman (“Hechtman”), you may be able to recover your losses through arbitration or litigation.  According to SEC records, Mr. Hechtman (CRD No. 6709423) was formerly affiliated with the Registered Investment Advisor (RIA) firm AE Wealth Management, LLC (“AE Wealth”, IARD No. 282580) from October 5, 2016 until September 27, 2018.  If you invested in any Woodbridge securities during this time frame, you may possess a viable legal claim to recover your losses against Mr. Hechtman and/or his former employer, AE Wealth.

Beginning as early as 2012, Woodbridge and its affiliate companies offered securities nationwide 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” consisting of subscription 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.

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Building DemolishedInvestors in American Finance Trust (“AFIN”) may have arbitration claims to be pursued before FINRA, if their AFIN investment was recommended by a financial advisor who lacked a reasonable basis for the recommendation, or if the nature of the investment was misrepresented by the broker.  AFIN was initially structured as a publicly registered, non-traded real estate investment trust (REIT).  As such, many unsophisticated retail investors participated in the AFIN IPO upon the recommendation of a financial advisor at a price of $25 per share.

In the wake of AFIN’s listing as a publicly-traded stock, AFIN’s stock price has languished at far below the $25 a share price that many investors paid for AFIN stock at the recommendation of stockbrokers or advisors.  As of October 18, 2018, AFIN shares closed at $14.26 a share.

Earlier this year — as we have discussed in several recent blog posts — the board of directors of AFIN announced the approval of a plan to list the REIT’s common stock on the Nasdaq Global Select Market (“NasdaqGS”), under the symbol ‘AFIN’.  In connection with this planned “liquidity event,” AFIN’s board also approved a phased liquidity plan, pursuant to which certain amendments were made to AFIN’s corporate charter:

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Money in WastebasketAs recently reported, the Massachusetts Securities Division (the “Division”) has commenced an investigation into the sales practices of some 63 independent broker-dealers who offered private placements sponsored by alternative asset manager GPB Capital Holdings, LLC (“GPB”).  Specifically, the Division has intimated that it began an investigation into GPB following a recent tip concerning the firm’s sales practices which allegedly occurred not long after GPB announced that it was temporarily halting any new capital raising efforts, as well as suspending any redemptions.

According to the Division’s head, Mr. William Galvin, the investigation is in its “very nascent stages.”  At this time, Massachusetts securities regulators have requested information about GPB from more than 60 broker-dealers, including HighTower Securities, Advisor Group’s four independent broker-dealers, as well as Ladenburg Thalmann’s Triad Advisors.

In August 2018, GPB – the sponsor of certain limited partnership offerings including GPB Automotive Portfolio and GPB Holdings II – announced that it was not accepting any new capital.  According to filings with the SEC, sales of the two aforementioned GPB private placements allegedly netted the broker-dealers marketing these investment products some $100 million in commissions, at a rate of about 8%, since 2013.

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1st-Global-Capital-1As we have discussed in several recent blog posts, on July 27, 2018, 1 Global Capital (a/k/a 1st 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.

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The expensive insurance that consumers are prompted to opt in or out of when they book online travel on popular websites is big business- and, according to lawsuits and a U.S Senator, airlines and others may be illegally profiting from travel insurance by receiving a portion of the premiums paid by consumers for the insurance.  The practice of sharing insurance premiums may violate some state laws, and customers of airlines and online travel booking websites may have viable legal claims as a result.

Two major airlines, Delta and JetBlue – are named as defendants in class action lawsuits alleging that that the companies are not disclosing to their customers that they profit by receiving a portion of the premiums from the sales of travel cancellation insurance policies endorsed on their websites.  In addition, according to court records, American Airlines appears to have entered into a settlement in a case involving the receipt of a portion of travel insurance premiums paid by customers. .

These lawsuits follow allegations by U.S. Senator Edward J. Markey of Massachusetts that online website and travel agencies induce consumers to buy travel insurance with minimal coverage and numerous exclusions by requiring them to affirmatively accept or reject travel insurance before completing a purchase of a plane ticket.  In addition to JetBlue and Delta, the following airlines reportedly sell travel insurance:

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Hospitality Investors Trust Inc. (“HIT”, formerly known as ARC Hospitality Trust, Inc.) has announced that it is buying back shares for $9.00 a share, which is a discount of approximately 35% to what it the company claims is the shares’ net asset value (NAV) of $13.87 a share.  It is also a far cry from the $25.00 a share price at which most investors initially acquired shares.

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HIT is a non-traded real estate investment trust (REIT) focused on ownership of hotels and other lodging properties in the United States.  As a publicly registered non-traded REIT, Hospitality Investors Trust was permitted to sell shares to the investing public at large, oftentimes upon the recommendation of a broker or financial advisor.  The REIT sold shares to the public for $25.00/share.  Some investors may not have been properly informed by their financial advisor or broker of the complexities and risks associated with investing in non-traded REITs.

HIT’s board has adopted the share repurchase program, effective October 1, 2018, for shareholders who desire immediate liquidity, and recommends that investors do not sell their shares unless they need immediate liquidity because (according to HIT) the initial repurchase price is well below the current and potential long-term value of the shares.  Shares bought at any time are eligible for repurchase under the program, and the first repurchase date under the to the program is scheduled for December 31, 2018.