A company once headquartered in
Boca Raton, FL and a California investor perpetrated a $1.2 billon Ponzi scheme
on 8,400 investors, a federal court complaint in Miami alleges.
The complaint, by the Securities
and Exchange Commission, says Sherman Oaks, California’s Robert Shapiro and the
Woodbridge Group of Companies, “swindled seniors into a business model built on
lies, which the SEC’s Miami Regional Office staff moved to halt,” said
Stephanie Avakian, co-director of the SEC’s Enforcement Division in the SEC’s
release announcing the charges of fraud and violations of federal securities
laws.
Aside from the classic Ponzi
scheme — continually using new investment money to pay dividends and interest
to old investors — “our complaint further alleges that Shapiro used a web of
layered companies to conceal his ownership interest in the purported
third-party borrowers,” said Eric I. Bustillo, Director of the SEC’s Miami
Regional Office, in the release.
“Shapiro used the scheme to line his pockets
with millions of investor dollars.”
That’s $21 million, by the SEC’s
estimation. And many of those investors, the SEC says, were senior citizens.
Woodbridge told investors it made
its money by making short-term loans for 11 to 15 percent annual interest to
third-party commercial property owners. Investors were promised a 5 to 10
percent interest return each year. But all but a few of the borrowing companies
were owned by Shapiro, had no income and never paid interest on the loans. Old
investors were kept from cashing out by Woodbridge’s claims of 90 percent
client loyalty. About $64.5 million of investor money flowed as commissions to
sales agents, who sold the investments as “conservative” and “low risk.”
“Despite receiving over one
billion dollars in investor funds, Shapiro and his companies only generated
approximately $13.7 million in interest income from truly unaffiliated
third-party borrowers,” the complaint states. “Without real revenue to pay the
monies due to investors, Shapiro resorted to fraud, using new investor money to
pay the returns owed to existing investors. Meanwhile Shapiro and his family
lived in the lap of luxury and spent exorbitant amounts of investor money in
alarming fashion, on items such as luxury automobiles, jewelry, country club
memberships, fine wine, and chartering private planes.”
The scheme collapsed earlier this
month, the SEC said. A search of court records shows 12 companies carrying a
Woodbridge name and now based in Sherman Oaks filed for Chapter 11 bankruptcy
Dec. 4 in U.S. Bankruptcy Court in Delaware.
“The effect of Shapiro and his
companies’ actions will leave investors with substantial losses, as they are
owed at least $961 million in principal,” the complaint says. “At least 2,600
of these investors unknowingly placed their retirement savings into Shapiro’s
Ponzi scheme.”
Click
here for the original article from Miami
Herald.