The Securities Exchange Commission on Tuesday filed charges against companies and “individuals” for selling Woodbridge Securities. As discussed in our previous post, in December 2017, Woodbridge filed for bankruptcy and, immediately thereafter, received an SEC complaint listing the company as a massive Ponzi scheme. Woodbridge sold securities billed as “First Position Commercial Mortgage Loans” or (“FPCM’s”). The Woodbridge FPCM Fund functioned as a private loan owned and held by Woodbridge. Investors owned a first position lien on a pool of mortgage loans. The way the security was touted to investors was that the product offered excellent safety. In the event that any one of the mortgages defaulted, investors were informed that they would simply pick up the collateral or underlying property that went into default. This safety, coupled with a short-term interest rate above 6%, made the product incredibly appealing to returned investors looking for safety and income. Investors were promised monthly payments and a return of their principal invested in a 12-24 month span. Woodbridge marketing material provided to brokers to present to clients provided “Property Examples” such as a water bottling plant in New York or a single family home in California. Roughly 8,400 individual investors purchased Woodbridge securities.
In reality, Woodbridge was operating a massive Ponzi scheme with funds from new investors going to pay the promised high interest rates from earlier Woodbridge purchasers. As stated by the SEC, the funds were risky, illiquid private offerings.
Investor funds also went to funding the lavish lifestyle of Woodbridge CEO Robert Shapiro. Woodbridge also spent massive sums on commissions to brokers looking to unload their products. Brokers selling Woodbridge were offered compelling commissions on the FPCM and Promissory Notes sold to investors.