A federal court in Florida has ordered Woodbridge Group of Companies LLC and its former owner to pay $1 billion in penalties and disgorgement for operating a Ponzi scheme that targeted retail investors.
Judge Marcia Cooke of the US District Court for the Southern District of Florida approved judgments against Woodbridge and its 281 related companies, ordering them to pay $892 million in disgorgement. The court also ordered former owner and CEO Robert Shapiro to pay a $100 million civil penalty, and to disgorge $18.5 million in ill-gotten gains, plus $2.1 million in interest.
In December 2017, the SEC charged the company and other defendants with operating a $1.2 billion Ponzi scheme that defrauded 8,400 retail investors, many of them senior citizens who had invested in retirement funds. The SEC’s complaint alleged that Shapiro made Ponzi payments to investors and used a web of shell companies to conceal the scheme.
According to the SEC, Woodbridge advertised its primary business as issuing loans to third-party commercial property owners paying Woodbridge 11% to 15% annual interest for short-term financing. In return, Woodbridge allegedly promised to pay investors 5% to 10% interest annually. Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms. While Woodbridge claimed it was making high-interest loans to third parties, the SEC alleged that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.
“This resolution accomplishes one of the SEC’s core missions to protect retail investors,” Stephanie Avakian, co-director of the SEC’s Division of Enforcement, said in a release. “Mr. Shapiro and other defendants will be held accountable and required to pay substantial penalties for their misconduct.”
The SEC said that the court’s disgorgement order against Woodbridge and related corporate defendants will be deemed satisfied by a liquidation trust being formed under a plan in the Woodbridge Chapter 11 case. The liquidation trust will be obligated to make distributions of net proceeds from the disposition of the defendants’ assets in bankruptcy. The amount to be distributed will depend on the amounts collected by the liquidation trust.
The defendants and relief defendants neither admitted nor denied the SEC’s allegations, however, they consented to the entry of final judgments which also permanently prohibit them from violating the antifraud and other provisions of the federal securities laws.
RS Protection Trust, of which Robert Shapiro was the trustee and his family members the sole beneficiaries, as well as several relief defendants were collectively ordered to pay $5.3 million in ill-gotten gains and interest. Shapiro also consented to an SEC administrative order that permanently bars him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.