Disgorgement of Sales Commissions Against Brokers in Connection with Woodbridge Securities

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.
Brokers looking to pocket these commissions failed to disclose risks involved in Woodbridge and made materially incomplete disclosures about the risks entailed in investing in private placements. Brokers made recommendations to allocate precious savings into Woodbridge without performing sufficient due diligence to determine the risks of the investments. Blinded by the massive fees and commissions Woodbridge offered for selling their products, the SEC stated that brokers operated with almost reckless disregard of the risks of placing a retirees into illiquid private placements.
The Florida based investment advisors listed in the SEC complaint, as with countless other brokers, presented Woodbridge as safe and secure, soliciting investors at seminars and at classes on conservative income planning. The advisors also recommended them during a radio show used as widespread marketing. The Florida brokers sold $243 million of its unregistered Woodbridge securities to more than 1,600 retail investors.
The most alarming aspect of the SEC complaints is that the Florida brokers, in addition to collecting on the massive commissions discussed above on the sale of Woodbridge, were not even registered as broker-dealers and were not permitted to sell securities. One of the Florida brokers was even barred from the securities industry. The SEC is seeking the disgorgement of Woodbridge sales commissions to the aggrieved investors as well as additional civil monetary penalties.
If you are an investor who has purchased Woodbridge Securities or Woodbridge Promissory Notes, the attorneys of Lubiner, Schmidt & Palumbo would very much be interested in speaking with you. Please call our office for a consultation.