If you invested in a Woodbridge promissory note(s) upon the recommendation of broker Peter David Holler (CRD# 838897), you may be able to recover your losses through securities arbitration before FINRA. As disclosed by FINRA on May 21, 2018, registered representative Peter Holler has been suspended from the securities industry for a period of two years. From 2001 through August 2017, Mr. Holler was affiliated with Securities Service Network, LLC (BD No. 13318) (“SSN”) in their Bristol, TN office. FINRA BrokerCheck indicates that Mr. Holler was discharged from his employment with SSN on or about August 10, 2017 due to his alleged participation in “unapproved and undisclosed outside business activity…”

Pursuant to a Letter of Acceptance, Waiver, and Consent (“AWC”), through which Mr. Holler neither admitted or denied FINRA Enforcement’s findings, he accepted both the two-year suspension, as well as monetary penalties including a $10,000 fine and disgorgement of $49,790 in commissions received through the sale of unregistered Woodbridge securities to various investors. As encapsulated in the May 2018 AWC, Mr. Holler purportedly violated FINRA Rule 3280(b), an industry rule that prohibits brokers from participating in private securities transactions, without first providing written notice to their employer firm. Such written notice must set forth in detail the proposed transaction, as well as the financial advisor’s proposed role with regard to the contemplated transaction and whether he or she will receive any compensation in connection with the transaction.

According to FINRA Enforcement’s findings, from September 2016 – August 2017, Mr. Holler solicited various investors to purchase unregistered securities in certain Woodbridge Mortgage Investment Funds as offered through the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA. Further, FINRA Enforcement determined that Mr. Holler sold approximately $1.4 million in Woodbridge promissory notes to some 19 individuals, 9 of whom were SSN customers. In derogation of FINRA Rule 3280, Mr. Holler purportedly did not provide SSN with prior written notification of these private securities transactions.

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.”

Irrespective of whether Mr. Holler’s alleged outside business activity was conducted without his employer’s knowledge, brokerage firms like Securities Service Network nonetheless have a duty to ensure that their registered representatives are adequately supervised. As such, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In instances when brokerage firms fail to adequately supervise their financial advisors, they may be held liable for losses sustained by investors.

Attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including claims against broker-dealers for their failure to supervise. Investors may contact a securities arbitration attorney via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

If you invested in Woodbridge Units or Notes, as further defined below — based upon a recommendation by financial advisor Frank Capuano — you may be able to recover your losses through securities arbitration before the Financial Industry Regulatory Authority (“FINRA”). Publicly available information through FINRA BrokerCheck indicates that Frank Capuano was formerly affiliated with broker-dealer Royal Alliance Associates, Inc. (“Royal Alliance”) (CRD# 23131) in Mount Holyoke, MA, from 1989 – July 2015.

Pursuant to an Acceptance, Waiver & Consent (AWC) entered into by Mr. Capuano and FINRA on or about May 2, 2016, the former Royal Alliance stock broker, without admitting or denying any wrongdoing, consented to a one year industry suspension. In connection with the AWC, FINRA alleged that Mr. Capuano:

“engaged in undisclosed and unapproved private securities transactions. The findings stated that he offered and sold approximately $1.1 million in notes to nine of his firm’s customers … The findings also stated that he received over $34,000 in commissions in connection with these transactions. The findings further stated that he did not seek or obtain approval from his firm before participating in these private securities transactions, nor did he disclose them to his firm.” (emphasis added)

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017. Beginning as early as 2012, Woodbridge and its affiliates offered securities nationwide to numerous retail investors through a network of in-house promoters, as well as various licensed and unlicensed financial advisors. These investments came in at least two forms: (1) so-called “Units” that consisted of subscriptions agreements for the purchase of an equity interest in one of Woodbridge’s Delaware limited liability companies, and (2) “Notes” or what have commonly been referred to as “First Position Commercial Mortgages” or “FPCMs” that consisted of lending agreements underlying purported hard money loans on real estate deals.

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.”

Brokerage firms like Royal Alliance have a duty to ensure that their registered representatives are adequately supervised. Consequently, brokerage firms must take reasonable steps to ensure that their brokers follow all applicable securities rules and regulations, as well as adhere to the firm’s internal policies and procedures. In those instances when brokerage firms fail to adequately supervise their registered representatives, they may be held liable for losses sustained by investors.

In the event that a financial advisor wishes to consummate a private securities transaction, then he or she must first provide the firm with prior written notice, detailing the contemplated transaction. Such a transaction must first be approved by the firm. In the event that the transaction is not approved by the firm, then the broker cannot participate in the transaction. If the broker fails to notify the firm, in the first instance, or proceeds with an unauthorized transaction in derogation of the firm’s order, then selling away has occurred, in direct violation of FINRA Rule 3280.

The attorneys at Law Office of Christopher J. Gray, P.C. have significant experience representing investors in disputes involving broker misconduct, including selling away claims, in addition to claims against brokerage firms for their failure to supervise. Investors may contact a securities arbitration attorney via the contact form on this website, by telephone at (866) 966-9598, or by e-mail at newcases@investorlawyers.net for a no-cost, confidential consultation.

As highlighted in our most recent blog posts concerning the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, Woodbridge filed for Chapter 11 bankruptcy on December 4, 2017, in Delaware Bankruptcy Court (Case No. 17-12560-KJC). Thereafter, on December 21^st, the SEC formally filed charges against Woodbridge and its owner and former CEO, Robert Shapiro, alleging that “[D]efendant… 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.”

By January 2, 2018, the SEC further alleged, among other things, that the timing of the Chapter 11 proceeding called into question whether Mr. Shapiro had preemptively sought bankruptcy protection, in the first instance, in order to shield himself from impending charges of misconduct. Through its Motion to Direct the Appointment of a Chapter 11 Trustee, the SEC alleged that cause existed for the appointment of an independent trustee to help manage the bankruptcy process and protect the interests of numerous Woodbridge investors: “[i]nstead of allowing a District Court to appoint an independent fiduciary, Robert Shapiro decided that he would select the victims’ fiduciaries when he started hiring the team of managers and professionals who are representing the Debtors’ estates today.”

On January 19, 2018, turnaround specialist Mr. Lawrence Perkins of SierraConstellation Partners LLC, resigned as Chief Restructuring Officer of Woodbridge. As recently reported, Mr. Perkins’ resignation will be effective once a replacement is hired, according to attorney Sam Beach of Young, Conaway, Stargatt & Taylor, counsel for Woodbridge. Further, the Bankruptcy Court scheduled closing arguments related to the request for an independent trustee for Tuesday, January 23, 2018.

Investors who purchased Woodbridge First Position Commercial Mortgages (“FPCMs”) or a five-year private placement security (“Fund Offerings” or “Units”) through a stockbroker or financial advisor may have viable litigation or FINRA arbitration claims if the brokerage firm or Registered Investment Advisor (“RIA”) did not perform adequate due diligence before recommending the Woodbridge investment.

Some of the issuers of Woodbridge securities include the following entities:

• WMF Management, LLC (“WMF”);
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth);
• 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 Commercial Bridge Loan Fund 1, LLC;
• Woodbridge Commercial Bridge Loan Fund 2, LLC.

As members and associated persons of FINRA, brokerage firms and their financial advisors 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.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a First Position Commercial Mortgage or Woodbridge Fund Offering or Unit, you may be able to recover investment losses in FINRA arbitration, or in some instances, litigation. 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.

As we have discussed in previous blog posts, on December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges against the Woodbridge Group of Companies (“Woodbridge”) of Sherman Oaks, CA, as well as Woodbridge’s related unregistered investment funds and the firm’s owner and former CEO, Robert Shapiro. Essentially, the SEC has alleged that “[D]efendant Robert H. Shapiro 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.”

The SEC’s recent charges come on the heels of Woodbridge filing for Chapter 11 bankruptcy protection on December 4, 2017 in Delaware Bankruptcy Court (Case No. 17-12560-KJC). Through filings with the Bankruptcy Court, the SEC has alleged that Mr. Shapiro sought Chapter 11 protection in order to shield himself from charges of allegedly orchestrating a Ponzi scheme: “[h]e needed to create the appearance of a bankruptcy that resembled a bona fide Chapter 11, complete with legal and restructuring professionals of the type normally seen in a real organization. So instead of allowing a District Court to appoint an independent fiduciary, Robert Shapiro decided that he would select the victims’ fiduciaries when he started hiring the team of managers and professionals who are representing the Debtors’ estates today.”

On January 2, 2018 — in light of these allegations and concerns related to ensuring adequate representation of the numerous Woodbridge investors nationwide — the SEC filed a Motion to Direct the Appointment of a Chapter 11 Trustee. Pursuant to 11 U.S.C. §1104(a), the SEC has sought to appoint an independent Chapter 11 trustee for cause, in order to ensure Woodbridge investors are best protected. In seeking the appointment of a Chapter 11 trustee, the SEC has argued that cause exists, given allegations that “[M]r. Shapiro engaged in widespread fraud, dishonesty, incompetence and gross mismanagement in operating the Debtors prior to bankruptcy. This conduct is sufficient cause for a trustee under Section 1104(a)(1). In re Vaughan, 429 B.R. 14 (Bankr. D. N.M. 2010) (conduct relating to operation of Ponzi scheme falls squarely within Section 1104(a)).”

Investors who purchased Woodbridge First Position Commercial Mortgages (“FPCMs”) or a five-year private placement security (“Fund Offerings” or “Units”) through a stockbroker or financial advisor may have viable litigation or FINRA arbitration claims if the brokerage firm or Registered Investment Advisor (“RIA”) did not perform adequate due diligence before recommending the Woodbridge investment.

Some of the issuers of Woodbridge securities include the following entities:

• WMF Management, LLC (“WMF”);
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth);
• 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 Commercial Bridge Loan Fund 1, LLC;
• Woodbridge Commercial Bridge Loan Fund 2, LLC.

As members and associated persons of FINRA, brokerage firms and their financial advisors 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.

If you have invested in any of the Woodbridge Funds, or otherwise purchased a First Position Commercial Mortgage or Woodbridge Fund Offering or Unit, you may be able to recover investment losses in FINRA arbitration, or in some instances, litigation. 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.

On December 21, 2017, the Securities and Exchange Commission (“SEC”) formally announced charges, as well as an asset freeze, against the Woodbridge Group of Companies (“Woodbridge”) and its related unregistered investment funds, as well against Woodbridge’s owner and former CEO, Robert Shapiro. Through initiating litigation (the “Complaint”) in Florida federal court, the SEC is alleging, in sum and substance, that “[D]efendant Robert H. Shapiro 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.” As further alleged in the Complaint, “Despite receiving over one billion dollars in investor funds, Shapiro and his companies only generated approximately $13.7 million in interest income from truly unaffiliated third-party borrowers. Without real revenue to pay the monies due to investors, Shapiro resorted to fraud, using new investor money to pay the returns owed to exiting investors.”

According to Mr. Steven Peikin, Co-Director of the SEC’s Enforcement Division, “Our complaint alleges that Woodbridge’s business model was a sham. The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

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 and the SEC’s recent Complaint alleging that Woodbridge is, in fact, a Ponzi Scheme.

Investors who purchased Woodbridge First Position Commercial Mortgages (“FPCMs”) through a stockbroker or financial advisor may have viable FINRA arbitration claims if the brokerage firm or Registered Investment Advisor (“RIA”) did not perform adequate due diligence before recommending the Woodbridge investment.

Some of the issuers of Woodbridge securities include the following entities:

• WMF Management, LLC (“WMF”);
• Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth);
• 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 Commercial Bridge Loan Fund 1, LLC;
• Woodbridge Commercial Bridge Loan Fund 2, LLC.

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.

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. 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 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.”

Not fully explained in the investor letter was the revelation in the bankruptcy petition 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 Noteholders are unsecured creditors who will not get paid a penny in bankruptcy until after secured creditors have been paid in full.

Included among the various Woodbridge entities or mortgage funds (and, apparently, the issuers of Woodbridge notes) 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 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 private placement, you may be able to recover investment losses in FINRA arbitration or through litigation. 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.

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:

• 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).

As indicated in certain bankruptcy proceeding filings, “Due to the concerns expressed by federal and state securities regulators regarding the Woodbridge Group Enterprises’ fundraising activities, Mr. Shapiro has agreed to empower an independent management team to take control of [Woodbridge] during the pendency of the Chapter 11 Cases…” Thus, as part of the contemplated Chapter 11 restructuring process, Mr. Shapiro will cede control of his business enterprise to Beilinson Advisory Group, an independent financial restructuring and hospitality advisory group owned and controlled by Mr. Mark Beilinson.

At this stage, Woodbridge has indicated that its assets include a portfolio of some 138 properties ranging in value from about $50,000 – $150,000,000. These properties, in various stages of development or renovation, include some raw land parcels.

For investors in Woodbridge notes, sometimes referred to as First Position Commercial Mortgages (“FPCMs”), there is significant cause for concern. Specifically, Woodbridge has indicated in its bankruptcy petition that: “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… .”

While it is still too early to determine how investors in Woodbridge notes or FPCMs (“Noteholders”) will fare in the bankruptcy proceeding, it is already troubling that Woodbridge has indicated that Noteholders may not have perfected liens on the real estate assets underlying their investment(s). Thus, it is conceivable that Noteholders will suffer steep losses on their principal invested.

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 or through litigation. 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.

As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, continues to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities. To date, Woodbridge has been the subject of investigations by state securities regulators in Arizona, Texas, Massachusetts, Pennsylvania, and Michigan. Several of these investigations have resulted in regulators issuing cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and further, to stop otherwise violating applicable securities laws.

As of mid-November 2017, Woodbridge has settled regulatory actions in Pennsylvania, Texas and Massachusetts. The company, which has offered a number of various Woodbridge Mortgage Investment Funds (“Woodbridge Funds”), has marketed so-called “First Position Commercial Mortgages” (or “FPCMs”) to investors nationwide through issuing promissory notes in exchange for investments backing certain hard money loans secured by commercial real estate.

At the federal level, for the past year the Securities and Exchange Commission (“SEC”) has also been investigating Woodbridge. Specifically, 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.”

In furtherance of the investigation, on January 31, 2017, the SEC issued a subpoena to Woodbridge (“Subpoena”). Under the Subpoena, Woodbridge was to provide the SEC with, among other things, “[a]ll non-privileged emails from January 1, 2012 through the date of the Order which were sent to, sent from, or received by: (1) Robert Shapiro… (2) Dayne Roseman; and (3) Nina Pedersen.” Dayne Roseman is listed on the Woodbridge website as a Managing Director and Ms. Pedersen serves as Woodbridge’s Comptroller.

In March 2017, Mr. Shapiro’s attorney, Ryan O’Quinn, formally responded to the SEC’s Subpoena. Through a letter to the SEC, counsel for the Woodbridge President invoked his Fifth Amendment right against self-incrimination: “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.”

It is worth noting that Woodbridge itself does not claim that its employees have a valid Fifth Amendment privilege with respect to their emails pertaining to the company, and for good reason given the collective entity doctrine. As the Supreme Court noted in Braswell v. United States, 487 U.S. 99, 104 (1988): the “collective entity rule… has a lengthy and distinguished pedigree.” Put simply, the common law collective entity rule holds that the Fifth Amendment privilege against self-incrimination does not apply to corporations and other collective entities, only to individuals. By extension, individuals acting on behalf of a corporate entity and in furtherance of corporate business and affairs, “[w]hen acting as representatives of a collective group, cannot be said to be exercising their personal rights and duties, nor be entitled to their purely personal privileges.” Braswell, 487 U.S. 99 (1988) quoting United States v. White, 322 U.S. 694 (1944).

On September 19, 2017, United States District Judge Cecilia M. Altonaga entered an Order granting the SEC’s Application to Enforce an Administrative Subpoena against Woodbridge. Thereafter, in early October 2017, counsel for Woodbridge informed the SEC that the document production in response to the subpoena “[i]ncluded only emails of Dayne Roseman’s Woodbridge email address.” Further, according to court filings, Woodbridge’s counsel informed the SEC that “[t]here were no responsive documents in the Woodbridge email addresses of Robert Shapiro or Nina Pedersen.” Additionally, Respondent’s counsel informed the SEC that “[M]r. Shapiro and Ms. Pedersen refused Woodbridge’s request that they either give Woodbridge access to their AOL accounts or consent to AOL providing that information to Woodbridge.”

In light of Woodbridge’s noncompliance with the Subpoena, on October 31, 2017, the SEC proceeded to file a Motion for Contempt of Court (“Motion”) in the Southern District of Florida against Woodbridge “[f]or its failure to abide by the Court’s Order on SEC’s Application to Enforce Administrative Subpoena Against Woodbridge….” Through this application to the Florida federal district court, the SEC is seeking full compliance on its Subpoena to force an order to obtain emails and documents related to 235 Woodbridge-affiliated limited liability corporations. The SEC has described the information sought pursuant to the Subpoena as critical to its investigation.

Through court filings, the SEC has asserted that the 235 LLCs are, in fact, “[i]nterwoven into the structure of the products Woodbridge offers for investment.” Of significance, the SEC believes that these companies are “[o]wned and/or controlled by Woodbridge’s President, Robert Shapiro.” Further, the SEC has stressed that the Subpoena seeks information that is not otherwise able to be obtained: “[W]hile other documents produced in the investigation indicate that Shapiro signs on behalf of the LLCs as a Manager, only the information sought by the subpoenas can definitively establish the ownership structure. Neither Colorado nor Delaware make such ownership information public, and of course the bank records are not publicly available. Moreover, Shapiro has asserted his Fifth Amendment privilege, thus forcing the Commission to establish these facts from other sources.”

At this time, Woodbridge reportedly continues to sell securities. 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 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.

Depending on their individual circumstances, Woodbridge Mortgage Investment Fund investors may be able to recover losses through FINRA arbitration or litigation. Woodbridge investors may contact the attorneys at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.

Recently, the Securities and Exchange Commission (SEC) requested documents form a group of companies known as Woodbridge that has previously been accused of selling unregistered securities by state securities regulators. The SEC reportedly has now asked a Miami federal judge to enforce subpoenas against nearly 250 companies affiliated with Woodbridge as part of the SEC’s investigation into whether “the company is perpetrating a fraud on its investors.”

The SEC also recently disclosed its ongoing investigation into Woodbridge’s receipt of more than $1 billion in investor funds in connection with securities offerings including a security known as the First Position Commercial Mortgage (“FPCM”), which the company describes as “[a] private third-party loan to Woodbridge [which] provides higher returns with shorter terms secured by commercial real estate.” In connection with FCPMs, investors reportedly loan money to Woodbridge, which says it uses those funds to acquire properties and in return pays investors a 5% annual return. Woodbridge also raises money using investment offerings through entities such as Woodbridge Mortgage Investment Fund III, LLC.

The SEC’s investigation, which began in September 2016, reportedly is focused on “possible significant violations of the securities laws,” including “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.” The recent round of subpoena requests reportedly began after Woodbridge failed to cooperate with less formal requests for documents by the SEC.

The 236 LLC subpoenas requested by the SEC reportedly sought basic information about the formation, ownership and bank account information about the Woodbridge-linked LLCs, in order to garner further insight into their affiliation and connection with Woodbridge and its President, Robert Shapiro.

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 may contact our office at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.