A $1.2 billion Ponzi scheme case stretching from South Florida to Southern California was settled this week, but thousands of senior citizens who lost much of their life savings in luxury real estate deals still wonder if they will ever recover their money — or see justice.
Among the more than 8,400 victims are 700 in Florida, including a retired U.S. Marine Corps colonel, a college art teacher and a physician.
They were promised 5 to 10 percent returns while financing high-end properties purchased in Beverly Hills, Aspen and other wealthy enclaves by the Woodbridge Group of Companies and its former CEO, Robert H. Shapiro, who lives in Sherman Oaks, California. He had launched the business in Boca Raton.
For a while, investors saw steady returns on a monthly basis. But in late 2017, Woodbridge’s dealings collapsed as Shapiro and his company ran out of money to pay old investors with funds from new ones, leading to a bankruptcy filing in Delaware and a crackdown by the Securities and Exchange Commission in Miami. The scope of Shapiro’s scheme was not unlike the racket run by convicted Fort Lauderdale lawyer Scott Rothstein, who sold fabricated legal settlements to rich investors totaling $1.2 billion before it all unraveled a decade ago.
This week, Woodbridge, hundreds of related companies and Shapiro resolved their dispute with the Securities and Exchange Commission by agreeing to pay $1 billion, including penalties, that might eventually compensate investors who had bought mortgage notes in the real estate investments. Woodbridge’s most celebrated purchase was the “Owlwood” estate in the Holmby Hills section of Los Angeles, which was once owned by Tony Curtis and Sonny and Cher. It is now listed on the market for $115 million.
The SEC, however, is not Woodbridge and Shapiro’s only problem. As U.S. regulators battled Woodbridge, Shapiro and others in federal court in Miami over the past year, the FBI and U.S. Attorney’s Office dug deeper in their criminal investigation, according to law enforcement sources familiar with the probe who cannot speak publicly about it. Shapiro and other senior Woodbridge executives close to him are in the feds’ cross hairs, the sources said.
At least one investment victim said she’d be happy to see some of them go to prison.
“I want the people in charge at Woodbridge to feel the financial pain that we are feeling,” said Melanie Vandenbos, a retired college art teacher from Oklahoma who moved to South Florida a decade ago. “We are pinching our pennies and want them to feel the same thing — or be behind bars.”
In the SEC case, U.S. District Judge Marcia G. Cooke approved civil judgments against Woodbridge and its 281 related companies, requiring them to pay $892 million. The judge also approved the judgment against Shapiro, requiring him to pay a $100 million civil penalty as well as $18.5 million in ill-gotten gains plus $2.1 million in interest.
“Mr. Shapiro settled the SEC action without admitting or denying the allegations in the complaint,” his attorney, Ryan O’Quinn, said in a statement. “He is happy to have put this behind him to allow all remaining resources to be focused on obtaining maximum recovery for the benefit of the Woodbridge estate.”
O’Quinn, a former federal prosecutor and SEC lawyer, declined to comment about possible criminal charges against Shapiro.
Woodbridge’s representatives sold “first position commercial mortgages” to thousands of investors who financed the company’s real estate purchases through unsecured loans, according to the SEC. Woodbridge and its agents violated SEC laws because they operated as broker-dealers by selling mortgage notes as securities without properly informing investors of the risks and other issues.
Worse still, the SEC alleged in its complaint that Shapiro and his company made Ponzi payments to investors and used a web of shell companies to conceal the scheme, which spanned five years before Woodbridge’s collapse in December 2017.
“This resolution accomplishes one of the SEC’s core missions to protect retail investors,” said Stephanie Avakian, co-director of the SEC’s Division of Enforcement. “Mr. Shapiro and other defendants will be held accountable and required to pay substantial penalties for their misconduct.”
“Our complaint charged that when Woodbridge’s fictitious business model collapsed, the company stopped paying investors and filed for Chapter 11 bankruptcy protection,” said Eric Bustillo, director of the SEC’s Miami Regional Office. “The settlement provides for the return of significant funds to investors.”
Under the settlement, funds would be paid back to Woodbridge’s investors through the liquidation of its various real estate holdings, mostly in California and Colorado. The money would be repaid on a pro rata basis, less the interest that investors already received on their principal from Woodbridge before its Ponzi scheme collapsed.
In theory, Woodbridge’s thousands of investors, who sank from $25,000 to $1 million in its real estate properties, could receive 50 to 70 percent of their investments, depending on the sale of the company’s real estate holdings. With the negative publicity from the SEC settlements, the liquidation could amount to a “fire sale,” decreasing the potential value of the properties.
That worries Vandenbos and other Woodbridge investors, who feel they were snookered by the company’s team of representatives who persuaded them to invest their retirement savings at sales pitches at South Florida hotels and restaurants. They thought their investments would be safe because they were backed by hard assets — real estate — should anything go wrong.
“It will take years to get our money,” said Vandenbos, who initially invested with Woodbridge in the hope that she could live off the income and leave the principal as an inheritance for her two children and five grandchildren. “It has been a terrible ordeal, and it ruined my life.”
Vandenbos was not the only accomplished, educated investor that Woodbridge’s sales team lured into the alleged Ponzi scheme.
“I was completely blindsided by Woodbridge’s bankruptcy filing and had no idea there was any issue with my investments,” John Beaver, a retired U.S. Marine Corps colonel who lives in Deerfield Beach, said in a federal court declaration.
“Before I decided to invest with Woodbridge, I did not know that Woodbridge was the subject of state regulatory actions in Massachusetts and Texas,” Beaver wrote. “If I had known about these regulatory actions, I would not have invested with Woodbridge.”
Another Woodbridge investor, Dan G. Jacobson, a retired gastroenterologist living in Jensen Beach, shared his stark view. In a court declaration, Jacobson also said that after he learned about the SEC enforcement action, he discovered that Woodbridge’s CEO, Shapiro, was operating as a borrower and lender in the company’s real estate deals.
“Had I known Shapiro was on both sides of the transactions, I never would have invested with Woodbridge,” wrote Jacobson, who tried to get his principal back from the company before losing everything.
He said a Woodbridge executive “tried to easy my concerns about Shapiro being on both sides of the transactions, and the risks that were not disclosed to me when I decided to invest, but ultimately refused to return my principal.”
If it’s any consolation, Woodbridge investors may not only recover some of their losses through the SEC judgments and bankruptcy proceedings, but also potential damages from a proposed class-action case brought in Miami against the company’s banker, Comerica.
A federal lawsuit says Comerica held and managed Woodbridge’s bank accounts, which Shapiro used to run “thousands of transactions and more than a billion dollars to operate his fraudulent scheme” — including withdrawing “funds freely for purposes inconsistent with an investment manager’s duties to his investors.”
“Shapiro was the sole signatory on all Woodbridge’s accounts at Comerica for the duration of his fraudulent scheme,” the suit says, “and hand-signed every check to Woodbridge’s investors and sales agents.”