24 June 2018

SEC: Massive Ponzi Scheme Moved $1.2 Billion, Defrauded Thousands

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A company once headquartered in Boca Raton, FL and a California investor perpetrated a $1.2 billon Ponzi scheme on 8,400 investors, a federal court complaint in Miami alleges.

The complaint, by the Securities and Exchange Commission, says Sherman Oaks, California’s Robert Shapiro and the Woodbridge Group of Companies, “swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division in the SEC’s release announcing the charges of fraud and violations of federal securities laws.

Aside from the classic Ponzi scheme — continually using new investment money to pay dividends and interest to old investors — “our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office, in the release.

 “Shapiro used the scheme to line his pockets with millions of investor dollars.”

That’s $21 million, by the SEC’s estimation. And many of those investors, the SEC says, were senior citizens.

Woodbridge told investors it made its money by making short-term loans for 11 to 15 percent annual interest to third-party commercial property owners. Investors were promised a 5 to 10 percent interest return each year. But all but a few of the borrowing companies were owned by Shapiro, had no income and never paid interest on the loans. Old investors were kept from cashing out by Woodbridge’s claims of 90 percent client loyalty. About $64.5 million of investor money flowed as commissions to sales agents, who sold the investments as “conservative” and “low risk.”

“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,” the complaint states. “Without real revenue to pay the monies due to investors, Shapiro resorted to fraud, using new investor money to pay the returns owed to existing investors. Meanwhile Shapiro and his family lived in the lap of luxury and spent exorbitant amounts of investor money in alarming fashion, on items such as luxury automobiles, jewelry, country club memberships, fine wine, and chartering private planes.”

The scheme collapsed earlier this month, the SEC said. A search of court records shows 12 companies carrying a Woodbridge name and now based in Sherman Oaks filed for Chapter 11 bankruptcy Dec. 4 in U.S. Bankruptcy Court in Delaware.

“The effect of Shapiro and his companies’ actions will leave investors with substantial losses, as they are owed at least $961 million in principal,” the complaint says. “At least 2,600 of these investors unknowingly placed their retirement savings into Shapiro’s Ponzi scheme.”

 

Click here for the original article from Miami Herald. 

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