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.

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