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.

The President of a California group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators, Robert Shapiro, has reportedly invoked his Fifth Amendment right against self-incrimination in a letter to the Securities and Exchange Commission (SEC). A March 27, 2017 letter to the SEC from Shapiro’s attorney Ryan O’Quinn, Esq., reportedly stated that “Upon consideration of the SEC’s investigative subpoenas and a review with counsel of the individual rights afforded by the United States Constitution, Mr. Shapiro will rely on his constitutional privilege to refuse to be a witness against himself.”

Woodbridge Wealth, a California-based firm, is a successor company to Woodbridge Structured Funding, LLC, and sells structured financial products to investors, often through intermediary brokers. These sales have resulted in certain actions by state regulators. For example, in April of 2017, the Pennsylvania Bureau of Securities Compliance and Examinations entered into an agreement with Woodbridge Wealth, to settle allegations of securities industry misconduct arising out of sales of complex structured settlement products that Pennsylvania regulators alleged were unregistered securities. In another example, in May of 2016, the Financial Industry Regulatory Authority (FINRA) suspended Frank John Capuano (CRD#: 844182), a registered broker from western Massachusetts, after he was alleged to have improperly sold Woodbridge Wealth notes to investors while employed as a registered representative of Royal Alliance Associates in Holyoke, Massachusetts. Finally, in May of 2015, Massachusetts state regulators charged a non-registered individual named Charles Nilosek and his firm, Position Benefits, LLC, with fraud. These charges were brought bssed on the regulators’ allegations that the firm was marketing and selling unregistered securities to vulnerable elderly investors. These complex securities were allegedly sold to retirees as having a guaranteed return, but in fact were complex unregistered securities with no guaranteed return and the potential to create substantial principal losses.

Woodbridge, based in California, has reportedly raised over $1 billion from investors. 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 with questions about losses in Woodbridge investments may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.