An American flag flies outside the headquarters building of the U.S. Securities and Exchange Commission (SEC) in Washington, D.C., U.S., on Dec. 22, 2018. (Photocredit: Zach Gibson/Bloomberg).© 2018 Bloomberg Finance LP
The U.S. Securities and Exchange Commission (SEC) has announced that a federal court in Florida has ordered Woodbridge Group of Companies LLC and its former owner to pay $1 billion in penalties and disgorgement for operating a Ponzi scheme that targeted thousands of retail investors – many of them senior citizens across America.
Judge Marcia G. Cooke of the U.S. District Court for the Southern District of Florida approved judgments against Woodbridge and its 281 related companies and ordered them to pay $892 million in disgorgement.
The court ordered Robert H. Shapiro, CEO and former owner, to pay a $100 million civil penalty and to disgorge $18.5 million in ill-gotten gains, in addition to $2.1 million in so-called prejudgment interest.
The judgment comes just days after the SEC initiated emergency action charges late this January against Phillip Michael Carter, a Texas real-estate developer, and two other individuals, for a “multi-million dollar” offering fraud.
This particularly SEC complaint alleged that Carter, along with Bobby Eugene Guess and Richard Tilford, attracted almost $45 million capital from over 270 investors across the United States by selling short-term, high-yield promissory notes issued by a number of shell companies, which were the agency described as “intentionally named to confuse investors.”
In relation to the latest action regard the Ponzi scheme, an emergency action filed by the SEC back in December 2017 charging the company and other defendants with operating a $1.2 billion Ponzi scheme, which defrauded some 8,400 retail investors nationwide, many of whom were senior citizens who had invested their retirement funds.
Last May the SEC, an independent agency of the U.S. federal government headed by chairman Jay Clayton, shut down Madison Timber Properties, LLC, run by Arthur Lamar Adams, who had mounted a series of timber investments in three U.S. states that saw investors lied to over lucrative returns. This company allegedly “bilked at least” 150 investors in an $85 million Ponzi scheme.
And more recently, just last month on December 13, the SEC charged Hector May, a former New York investment advisor (based in Rockland County) and his daughter Vania Bell with a Ponzi scheme, which conducted multi-million scam that defrauded local community members and members of their family and close friends. May was the president and chief compliance officer of the now-defunct Executive Compensation Planners Inc.
The SEC’s complaint alleged that Shapiro made Ponzi payments to investors and used a web of shell companies to conceal the actual nature of the scheme. It all has echoes of Bernard Madoff and his Ponzi’ scheme, although in that case he was sentenced to 150 years in prison a decade in June 2009. Madoff’s Ponzi empire was estimated to have ran up massive losses estimated at around $65 billion as of December 2008.
Stephanie Avakian, co-Director of the SEC’s Division of Enforcement, commenting on this latest Ponzi fraud said: “This resolution accomplishes one of the SEC’s core missions to protect retail investors. Mr. Shapiro and other defendants will be held accountable and required to pay substantial penalties for their misconduct.”
Eric I. Bustillo, Director of the SEC’s Miami regional office, added: “Our complaint charged that when Woodbridge’s fictitious business model collapsed, the company stopped paying investors and filed for Chapter 11 bankruptcy protection. The settlement provides for the return of significant funds to investors.”
The court’s disgorgement order against Woodbridge and related corporate defendants will be deemed satisfied by a Liquidation Trust being formed under a plan in the Woodbridge Chapter 11 case in the U.S. District Court for the District of Delaware (Case No. 17-12560-KJC).
The Liquidation Trust will be obligated to make distributions of net proceeds from the disposition of the defendants’ assets in bankruptcy. The amount to be distributed will depend upon the amounts collected by the Liquidation Trust.
All defendants and relief defendants, without admitting or denying the SEC’s allegations, consented to the entry of final judgments which also permanently prohibit the defendants from violating the antifraud and other provisions of the federal securities laws.
RS Protection Trust and several relief defendants were collectively ordered to pay $5.3 million in ill-gotten gains and interest.
Mr. Shapiro also consented to the entry of an SEC administrative order, without admitting or denying the SEC’s findings, permanently barring Shapiro from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization (NRSRO) that include the likes of Moody’s Investors’ Service, Standards & Poor’s or Fitch Rating, and from participating in any offering of a penny stock.
The case – along with previous Ponzi schemes exposed and shutdown by the U.S. authorities – underlines that these frauds are not going away and investors should exercise caution when being contacted by financial intermediaries purporting to offer outsized returns. If it sounds too good to be true, it probably is and your by words should be caveat emptor (buyer beware).
The SEC’s continuing investigation with regards to this latest Ponzi matter is being conducted by Mr. Lowry, Ms. Nestor, Mr. Koonin and Mark Dee, and supervised by Jason R. Berkowitz and Fernando Torres.