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 firstname.lastname@example.org for a no-cost, confidential consultation.