The Woodbridge Group of Companies and its founder, Robert Shapiro, were charged on Thursday by the Securities and Exchange Commission with running a massive, $1.2 billion Ponzi scheme that targeted 8,400 investors.
Formerly based in Boca Raton, Fla., Woodbridge ran a real estate scheme based on short-term, one-year loans and mortgages, according to the SEC's complaint.
It advertised its primary business as issuing loans to supposed third-party commercial property owners who paid Woodbridge 11% to 15% annual interest for so-called "hard money," short-term financing.
In return, Woodbridge allegedly promised to pay investors 5% to 10% interest annually, according to the SEC.
A spokeswoman for Woodbridge, Kristin Cole, did not immediately comment when contacted Thursday afternoon.
Woodbridge and Mr. Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that "clients keep coming back to [Woodbridge] because time and experience have proven results. Over 90% national renewal rate," according to the SEC.
The SEC's lawsuit alleges that Mr. Shapiro and Woodbridge used investors' money to pay other investors, the definition of a Ponzi scheme. They paid $64.5 million in commissions to sales agents, according to the complaint, which included a broker the SEC earlier barred from the securities industry, Barry Kornfeld.
The sales agents pitched the investments as "low risk" and "conservative," the SEC claims. Mr. Shapiro, of Sherman Oaks, Calif., allegedly diverted at least $21 million for his own benefit, including to charter planes, pay country club fees and buy luxury vehicles and jewelry.
"We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors in a business model built on lies," said Stephanie Avakian, co-director of the SEC's enforcement division.
The Woodbridge Group filed for bankruptcy on Dec. 4. Woodbridge investors were not paid their monthly dividends last month, setting off alarm bells. When the company filed for bankruptcy, it blamed rising legal and compliance costs, in part, for its problems.
In August the SEC sent subpoenas to 235 LLCs — limited liability companies — which the Commission believes are owned and/or controlled by 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, for the past year.
"Mr. Shapiro is cooperating with the bankruptcy to protect the assets held for the benefit of Woodbridge's stakeholders," said Ryan O'Quinn, an attorney for Mr. Shapiro. "He denies any allegation of wrongdoing and looks forward to his opportunity to defend himself in a court of law."