Woodbridge bankruptcy burns advisers and real estate investors

Luxury developer in SEC fraud investigation leaves elderly investors without monthly dividend

Dec 5, 2017 @ 2:00 pm

By Bruce Kelly

Already under investigation by the Securities and Exchange Commission, the Woodbridge Group of Companies, a luxury real estate developer, last week missed payments on notes sold to investors and Monday filed Chapter 11 bankruptcy.

Based in Sherman Oaks, Calif., Woodbridge has raised over $1 billion from investors. The SEC said in October it was investigating Woodbridge to determine whether the company was operating as a fraud.

The company's CEO, Robert Shapiro, resigned on Friday but will continue to work as a consultant to the firm, according to a company press release.

According to a report by Bloomberg News, Mr. Shapiro will be paid a monthly fee of $175,000. Lawrence Perkins is the company's new chief restructuring officer and Marc Beilinson is the new independent manager.

The company intends to recapitalize $750 million in debt and has a commitment of $100 million from an investor, Hankey Capital, according to a statement from the company.

A spokeswoman for Woodbridge, Kris Cole, did not return a call to comment. Scott Dobbins, president of Hankey Capital, also did not return a call to comment.

DIVIDENDS UNPAID

Woodbridge investors were not paid their monthly dividends last week, according to the company, which blamed rising legal and compliance costs for its problems.

"Historically a leading developer of high-end real estate, as the size and scope of the business has grown, increased operating and development costs have been exacerbated by the unforeseen costs associated with ongoing litigation and regulatory compliance," according to the company. "This combination of rising costs and regulatory pressure led to a loss of liquidity, resulting in Woodbridge's inability to make its regularly scheduled one-year notes payment due Dec. 1, 2017."

On the company's website, Woodbridge states that its wealth management group, Woodbridge Wealth, sells three types of investments: first position commercial mortgages with an annual yield of 5%, secondary market annuities with "above average, risk adjusted yields," and a commercial bridge loan fund that potentially returns 6%. According to a scan of BrokerCheck, there is no broker-dealer named Woodbridge Wealth registered with the Financial Industry Regulatory Authority Inc.

"It's inspiring to be part of a company that's constantly searching for new ways to revolutionize financial opportunities for its clients," according to a quote on the website attributed to Dayne Roseman, managing director of Woodbridge Wealth.

In August the SEC sent subpoenas to 235 LLCs – limited liability companies – which the Commission believes are owned and/or controlled by Woodbridge's former president, Mr. Shapiro, but did not receive a sufficient response, according to an SEC filing from October.

The Commission has been investigating Woodbridge, which is based in Sherman Oaks, Calif., for the past year, according to the filing.

ELDERLY INVESTORS

Jeff Sonn, a plaintiff's lawyer, said he had six elderly clients, ranging from their seventies to nineties, who collectively had invested millions of dollars into Woodbridge investment programs.

"This came as a shock to all of them," Mr. Sonn said, adding that he had also spoken with three advisers who sold the Woodbridge products. "They were told these were secured investments in real estate. And the advisers feel duped as well. They've been trying to call the company and can't get hold of anybody."

He noted that the company's court filings said it had assets of $650 million to $750 million in debt, or substantially less than the $1 billion it raised from investors. "What happened to the $350 million?" he asked.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Oct 09

Conference

Diversity & Inclusion Awards

Attend the industry’s first event celebrating diversity and inclusion as well as recognizing those who are leading the financial services profession in this important endeavor. Join InvestmentNews, as we strive to raise awareness, educate... Learn more

Featured video

INTV

How interest rates have affected different types of insurance

Social media and engagement editor Scott Kleinberg and reporter Greg Iacurci discuss a common theme in this week's popular insurance stories.

Latest news & opinion

LPL video about private equity looks like a swipe at Cetera

Recruiting video warns about potential consequences for advisers when a PE firm buys a broker-dealer.

Envestnet Tamarac partners with Schwab, TD on digital account openings

Auto-filling documents designed to make onboarding more efficient for RIAs and more convenient for clients.

Wells Fargo plans to cut staff up to 10% within next three years

Bank is struggling to cut spending amid regulatory fines and higher legal costs stemming from scandals.

Universal life insurance lawsuits underscore product risk

Sudden cost increases could cause clients to pay much higher annual premiums — or lapse their policies.

10 least affordable U.S. cities for renters

Based on average salaries and rents, here are the least affordable U.S. cities for renters, according to businessstudent.com.

X

Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting investmentnews.com? It'll help us continue to serve you.

Yes, show me how to whitelist investmentnews.com

Ad blocker detected. Please whitelist us or give premium a try.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print