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 email@example.com for a no-cost, confidential consultation.