Shopoff Land Funds and other private placement investments are generally categorized as alternative investments and may be unsuitable for many inexperienced investors or those with a modest net worth. Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.

Shopoff private placement offerings have reportedly included the following:

• Shopoff Land Fund I
• Shopoff Land Fund II
• Shopoff Land Fund III
• Shopoff Land Fund IV
• Shopoff Land Fund V
• Shopoff Commercial Growth and Income Fund
• Shopoff Commercial Growth and Income Fund II
• Shopoff Commercial Growth and Income Fund III
• Vertimass, LLC
• SCF – 4440 VKA, LLC
• SCF – 2100 Q Street, LLC
• SCGIF II – Franklin, LLC
• SCGIF II – Skypointe, LLC
• SCGIF II – Des Plaines, LLC
• TSG Fund IV

Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm. According to SEC filings on “Form D”, some of the Shopoff investments listed above carry a 7% selling commission and 3% in due diligence and underwriting costs, for a total of 10% in commissions and fees. The commissions vary from investment to investment and selling commissions listed may or may not include expenses such as reimbursement of organization and offering expenses.

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.

Investors who wish to discuss a possible claim may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, 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).

The brokerage firm Herbert J Sims & Co., a/k/a HJ Sims reportedly offers to investors a number of private placement investments that the firm itself structures and establishes. For example, a private placement known as Madison Funding I, LLC was brought to market in 2019 by HJ Sims and issued $5,115,000 in bonds due June 1, 2024. The Madison Funding I bonds reportedly defaulted on principal payments due March 2, 2021 and have paid reduced interest since. Despite the default, Madison Funding I bonds are reportedly shown as having a full value of $100 on customer account statements.

In another private placement offering, Poet’s Walk Funding I, LLC, $10,000,000 in bonds were reportedly sold to the public. These bonds have reportedly also defaulted and have paid reduced interest.

Private placements are investments that are not publicly registered with the Securities and Exchange Commission that are offered via various exemptions from registration that permit the sales. Sales of certain private placements including those offered under an exemption known as “Regulation D” are largely limited to sales to “accredited investors” who meet certain eligibility criteria established by the Securities and Exchange Commission (SEC). For example, an investor would be accredited if they had a net worth over $1 million, excluding primary residence (individually or with spouse or partner) or income over $200,000 (individually) or $300,000 (with spouse or partner) in each of the prior two years, and reasonably expects the same for the current year. Investors can also be deemed accredited based upon professional experience.

Private placements are generally speculative and illiquid, in comparison to publicly traded securities such as common stocks listed on exchanges or mutual funds. However, private placements have been popular with certain independent broker-dealer firms because private placement investments generally carry commissions many times higher than publicly traded securities. Many private placements may carry commissions and other upfront costs ranging from 7% to 12% in total fees, costs, due diligence fees, and selling commissions to the brokerage firm.

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.

Investors who wish to discuss a possible claim may contact a securities arbitration lawyer at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email at newcases@investorlawyers.net for a no-cost, confidential consultation. Attorneys at the firm are admitted in New York, 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).

“Investors trusted Woods and the Southport investment advisers working at his direction, and they stand to lose significant portions of their retirement savings when the Ponzi scheme inevitably collapses. The longer the scheme continues, the larger the losses will be for those left holding the bag,” the SEC Complaint states.

According to the SEC Complaint, advisers soliciting investments in Horizon PE allegedly told clients that they would receive returns of 6% to 7% interest, guaranteed for two to three years, and that their money would be used for nonspecific investments such as government bonds, stocks, or small real estate projects. According to the SEC Complaint, clients were not told that their money would be used to pay returns to earlier investors. The SEC also alleges that investors were told they could receive their principal investment back without penalty subject to a 30-day or 90-day waiting period. The SEC alleges that because Horizon did not follow any traditional record-keeping practices, millions of dollars’ worth of investor funds are currently unaccounted for.

In August 2021, U.S. District Judge Steven D. Grimberg reportedly allowed the appointment of a receiver for, and order a freeze of the assets of, Horizon PE, stating: “The SEC has met its burden with respect to Horizon and [promoter John J.] Woods, that there is a reasonable likelihood those defendants have engaged or are about to engage in violations of the securities laws.”

This law firm has not independently verified any of the foregoing allegations, and is relying on the SEC’s allegations in publicly filed court documents alleging that Horizon PE operated as a Ponzi scheme. A Ponzi scheme refers to purported investments in which early investors in the scheme are paid funds from later investors, thus creating the illusion of legitimacy and solvency. Ponzi schemes have historically failed once the promoter of the scheme can no longer pay out investors through newly raised money.

Ponzi schemes get their name from Charles Ponzi, a charismatic Italian immigrant and polished salesman who duped numerous investors into parting with millions of dollars in exchange for the opportunity to supposedly purchase overseas postal reply coupons at a discount, to then be sold in the U.S. at a significant profit. Unbeknownst to investors, who were promised an enormous 50% return on their investment, Ponzi was not putting investment funds to the use he had represented, but instead was paying handsome “returns” to early investors from the proceeds of later investments.

Investors in Horizon PE who may contact Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or via email 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). The Gray firm has substantial experience representing investors in claims arising from alleged Ponzi schemes and alleged investments frauds, including representing approximately 300 clients in litigation under the Commodity Exchange Act arising out of a Futures Commission Merchant’s aiding and abetting of convicted Ponzi schemer George Hudgins. See Carey, et al. v. Hudgins, et al., U.S. District Court for the Eastern District of Texas Docket No. 6:08-cv-344. The firm also served as court-appointed co-lead counsel in a case in which plaintiffs recovered $5,100,000 from a law firm accused of violating North Dakota securities law in connection with an unregistered securities offering that turned out to be a fraudulent scheme. See Aleem, et al., v. Pearce & Durick, No. 1:15-cv-00085 (U.S. District Court for the District of North Dakota)

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.

In connection with the Bureau’s Order, State of Michigan securities regulators made the following findings of fact concerning their investigation into Woodbridge 4:

• The Bureau determined that Woodbridge 4 offered and sold “First Position Commercial Mortgages” (“FPCMs” or “Notes”) to investors in Michigan that fell within the definition of a security;
• Approximately 230 investors invested more than $14,000,000 with Respondent and its affiliated companies;
• The Bureau determined that the Notes were not federally covered as securities, nor were they registered, or exempt from registration;
• The investigation yielded evidence that Respondent was marketing the Notes as securities to investors, and further, Respondent recommended the securities as having “higher yields and lower risk” than other investments;
• The Bureau determined that Respondent failed to provide relevant financial information to demonstrate its ability to pay investors returns in accordance with promises as advertised; and
• Finally, the Bureau found that Woodbridge 4 failed to inform investors of various cease and desist orders to which it, or one of its affiliate companies, was subject to from the Commonwealth of Massachusetts, State of Texas, and State of Arizona.

These allegations made by Michigan officials are a matter of public record, and have not been independently verified by the authors of this post.

Pursuant to the Bureau’s findings, it was determined that Woodbridge 4 allegedly violated Sections 301 and 501 of the Michigan Securities Act, MCL 451.2301 and 451.2501. Specifically, Woodbridge 4 allegedly violated Michigan securities laws (MCL 451.2301) when it offered and sold FPCMs as note securities that were not federally covered, registered, or otherwise exempt from registration. Furthermore, Woodbridge 4 allegedly violated Michigan securities laws (MCL 451.2501) when it omitted material information in connection with the offer and sale of securities that it advertised as being “safer” and offering “higher yields and lower risk” than other investments, in addition to allegedly failing to inform investors in Michigan of other cease and desist orders from various jurisdictions, including Massachusetts, Texas, and Arizona.

Woodbridge’s entities or mortgage funds (which are not subject to the Michigan Order) 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 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. As described above, in order for unregistered securities to be sold in compliance with federal and applicable state securities laws, in nearly all instances an exemption to registration must apply. With respect to Woodbridge, it does not appear that the various fund offerings were recommended to investors as exempt securities through a permissible private placement offering.

If you have purchased any of the Woodbridge Notesin a private placement and have suffered losses, you may be able to recover these 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 newcases@investorlawyers.net for a no-cost, confidential consultation.

On April 12, 2016, former LPL Financial LLC (“LPL”) broker Charles C. Fackrell (CRD# 5369665) appeared before U.S. Magistrate Judge David Cayer in order to plead guilty to one count of securities fraud for operating a $1.4 million Ponzi scheme. Based on documents filed with the federal court for the Western District of North Carolina, beginning around May 2012, Mr. Fackrell perpetrated a Ponzi scheme by misappropriating investor funds solicited from at least 20 victims in Wilke County, NC, and elsewhere. According to court documents, Mr. Fackrell abused his position of trust with his clients, steering them away from legitimate investments to purported investments with “Robin Hood, LLC,” “Robinhood LLC,” Robin Hood Holdings, LLC,” and “Robinhood Holdings, LLC,” as well as related entities (collectively, “Robin Hood”). These entities allegedly were controlled by Mr. Fackrell and provided him with a conduit through which to cover his own personal expenses, including hotel expenses, groceries, purchases at various retail shops, and to make large cash withdrawals.

Court records indicate that Mr. Fackrell successfully solicited victimized investors by making false and fraudulent representations, including that the investors’ money would be invested in, or secured by, gold and other precious metals. Further, Mr. Fackrell allegedly told investors that Robin Hood was a safe investment, paying annualized guaranteed returns of 5-7%. In actuality, however, Mr. Fackrell allegedly spent only a fraction of the investor money on such assets. Contrary to the representations made to investors, Mr. Fackrell allegedly used a great deal of the money to cover personal expenses, in addition to diverting approximately $700,000 of his victims’ money, back to other investors in classic Ponzi-style payments designed to continue the fraudulent scheme.

Mr. Fackrell entered the securities industry in 2007, when he was under the employ of Morgan Stanley. From 2010-2014, Mr. Fackrell was employed by LPL in Yadkinville, NC. Currently, FINRA BrokerCheck indicates that Mr. Fackrell has been the subject of several customer complaints, including the following four pending complaints:

• Customer Dispute – 8/21/2015 – the Claimants have alleged unsuitable investments and misrepresentations, as well as alleging that the financial advisor placed them in investments unapproved by LPL;
• Customer Dispute – 2/16/2016 – the Claimants have alleged selling away, forgery, unsuitability, and misrepresentation;
• Customer Dispute – 3/24/2016 – the Claimants have alleged selling away, unsuitability, and misrepresentation;
• Customer Dispute – 11/21/2016 – the Claimants have alleged selling away, forgery, unsuitability, and misrepresentation.

Mr. Fackrell was discharged from his employment with LPL in December 2014. Thereafter, in February 2015, Mr. Fackrell, without admitting or denying the findings, consented to sanctions by FINRA, including his being barred from the securities industry based on “findings that… Fackrell converted customer’s funds and sold private securities offerings away from his member firm without the firm’s knowledge or approval.”

Broker-dealers such as LPL are charged with the responsibility to adequately supervise all representatives who are registered through their firm. This supervision includes monitoring the investments sold by their registered representatives. Further, broker-dealers must take steps in order to ensure that their financial advisors follow all applicable securities rules and regulations, as well as internal firm policies. When broker-dealers fail to adequately supervise their registered representatives, this may give rise to liability for investment losses sustained by customers.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience in recovering funds on behalf of investors who have lost money due to financial frauds, including Ponzi schemes. Investors may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

The Securities and Exchange Commission (SEC) recently sought documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators. Woodbridge, based in California, has reportedly raised over $1 billion from investors- allegedly by offering the sale of unregistered securities through unregistered brokers. Woodbridge and its agents have also been sanctioned by multiple state regulators for allegedly offering unregistered securities, including a 2015 cease-and-desist order by Massachusetts, a cease-and-desist order against Woodbridge Fund 3 and principal Robert Shapiro imposed by Texas in 2015, and a 2016 complaint filed by Arizona regulators.

Most recently, Colorado regulators reportedly have opened an investigation into Colorado-based alleged Woodbridge brokers including James Campbell of Campbell Financial Group in Woodland Park, and Timothy McGuire of Highlands Ranch. Woodbridge has reportedly raised $57 million from 450 Colorado investors and continues to solicit investors through online and radio advertising.

Some FINRA-registered stockbrokers and financial advisors have also allegedly sold unregistered Woodbridge securities to clients, including Frank Capuano, who was registered with Royal Alliance Associates in Holyoke, MA. Capuano was alleged to have sold over $1,000,000 of the private notes to Royal Alliance customers and received over $30,000 in commissions.

Despite the regulatory actions, Woodbridge reportedly continues to sell securities. Some of the issuers of Woodbridge securities 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 PA, LLC

* Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth)

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.

Brokerage firms that sell private placements such as the Woodbridge funds must conduct due diligence on the investment before recommending it to their clients. The due diligence rule stems from FINRA Rule 2310, the so-called suitability rule, which requires that a brokerage firm must have reasonable grounds to believe that a recommendation to purchase a security is suitable for the customer. This principle is further explained in National Association of Securities Dealers Notice to Members 03-71, which elaborates that a brokerage firm must perform significant due diligence before recommending a private placement investment to any customer(s). By recommending a security to customers, the brokerage firm effectively represents that a reasonable investigation of the merits of the investment has been made.

According to a lawsuit filed by the Securities and Exchange Commission (“SEC”), Woodbridge has raised over $1 billion from thousands of investors through various finds. Some of the Woodbridge investments involve First Position Commercial Mortgages (“FPCMs”), which 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. These FPCMs are securities in the form of notes, investment contracts, and real property investment contracts.

The following Woodbridge investments could give rise to an arbitration claim against a stockbroker or financial advisor if the recommendation to purchase them lacked a reasonable basis, or if the investments were sold based on misrepresentations or omissions of material fact:

* WMF Management, LLC

* Woodbridge Group of Companies, LLC

* Woodbridge Mortgage Investment Fund 1, LLC

* Woodbridge Mortgage Investment Fund 2, LLC

* Woodbridge Mortgage Investment Fund 3, LLC

* Woodbridge Mortgage Investment Fund 3A, LLC

* Woodbridge Group of Companies, LLC (DBA Woodbridge Wealth)

If you have invested in any Woodbridge fund or another private placement, and you have suffered losses in connection with your investment (or are currently unable to exit your illiquid investment position without incurring considerable losses), you may be able to recover your 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.