SEC Accuses Real Estate Investment Firm of Swindling Thousands

(CN) – The Security and Exchange Commission claims in court that a California-based real estate investment firm swindled thousands of investors in a $1 billion Ponzi scheme.

According to the federal complaint filed Wednesday in the Southern District of Florida, defendant Robert Shapiro, owner and president of defendant Woodbridge Group of Companies LLC, promised investors big returns from interest on loans made to commercial property owners, but instead funneled their money through several shell companies with no assets. The SEC claims Shapiro solicited funds from new investors to pay out small dividends to the previous investors and keep the ruse going.

All the while, the government claims, Shapiro spent millions on extravagant cars, jewelry and private planes.

The SEC estimates more than 8,400 people bought into the unregistered securities, including at least 2,600 seniors who used their retirement savings.

The agency began investigating Shapiro and Woodbridge after several states filed actions against them. The alleged Ponzi scheme further unraveled when Woodbridge filed Chapter 11 bankruptcy earlier this month and Shapiro stepped down as president, the complaint says.

On Thursday, the SEC also convinced a federal judge to issue a temporary asset freeze on Shapiro and some of his companies.

“Mr. Shapiro is cooperating with the bankruptcy to protect the assets held for the benefit of Woodbridge’s stakeholders,” said Shapiro’s attorney, Ryan O’Quinn of DLA Piper in Miami, in an e-mail to Courthouse News. “He denies any allegation of wrongdoing and looks forward to his opportunity to defend himself in a court of law.”

The attorney representing Woodbridge, Adam Schwartz of the Miami-based firm Homer Bonner Jacobs, declined comment.

The 47-page complaint described an alleged business model that used Woodbridge’s nationwide network of in-house and external salespeople to target small-time “retail investors” looking for low-risk investments.

The SEC alleges investors were promised returns of between 5 percent to 10 percent annual interest in short-term loans made to third parties buying real estate.

But the government says many of those third parties turned out to be companies solely owned by Shapiro, who did not make any loan payments on their behalf.

It asserts Shapiro used the capital from new investors to pay the previous ones. The quick return and “aggressive tactics” persuaded investors to put in more and more money.

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

Over a five-year period, Shapiro and Woodbridge raised more than $1.22 billion, but only paid out $328 million in returns, according to the complaint. The rest went to Woodbridge’s operating expenses, inflated sales commissions and Shapiro’s luxurious lifestyle, including millions in charter flights, home furnishings and Louis Vuitton and Chanel purchases, the government says.

The SEC also says Shapiro used investor money for $600,000 in political contributions. Federal Election Commission records show Shapiro – who lives in Sherman Oaks, California but is registered to vote in Florida – donated thousands to several Republican lawmakers, the Republican National Committee and conservative PACs between 2015 and 2017, the SEC says.

The SEC wants the court to appoint a receiver and force the company to open its records.

Andrew Stoltmann, a Chicago attorney who specializes in securities law, says he long suspected the Woodbridge Group’s investment strategy.

“I’ve been telling people for months that this looked like a Ponzi scheme, but few people believed me,” Stoltmann told Courthouse News on Thursday.

Stoltmann, who is representing some of the impacted investors, said many of them put their life savings into funds they thought were low-risk and secure.

“A large percentage of their portfolio was in these investments and that’s why this is so devastating,” he said. “You’re talking about thousands of people whose lives have been ruined.”

What’s more, Stoltmann said, investors face several hurdles when trying to get their money back – if they do at all.

“It’s very much a question as to how much money they are going to get back,” he said, adding the process of “clawback” litigation, which tries to recoup money taken by fraud, is a “nightmare in and of itself.”

“The people who could least afford to take a hit have taken a massive hit,” he said.

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