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Legal Review: Woodbridge Bankruptcy Admits to Ponzi Scheme; CEO Fighting Charge

By an attorney with the New Jersey Bankruptcy firm Garden State Bankruptcy.

On December 20, the Securities and Exchange Commission (SEC) accused Woodbridge Group of Companies and its former CEO, Robert Shapiro, of fraud by running a Ponzi scheme and sued them in federal court in Florida.

The company has reached an agreement with the SEC and admitted that it ran a $1.2 billion Ponzi scheme since August 2012 and maybe prior to that. Woodbridge is now in Chapter 11 bankruptcy protection.

The Ponzi scheme stemmed from thousands of small family-owned retail businesses who were told that their investments would be secured by a luxury real estate portfolio in the most real estate expensive markets in the US. However, not all of the real estate was valuable. The cash from new investors would be used to pay older investors.

Woodbridge paid for Shapiro’s opulent lifestyle, including credit cards — he charged $16,000 at Macy’s the day he left the company in December, as well as country club fees and other personal expenses. His wife received $3.9 million from the company last year, and other relatives also received payments.

Bankruptcy laws allow a company to liquidate their assets to pay off its debts and use those funds to pay its outstanding debts and to create a new repayment plan. Woodbridge is now selling off more than 130 luxury properties in its portfolio and those proceeds — which could be worth $650 million — may make it to those affected investors.

While normally this process would take years, according to an accelerated payment plan is in place and the mostly elderly victims can see money by December. However, it won’t be 100 percent of their investment; more likely, it will be 45 percent to 76 percent of it.

However, Shapiro has severed ties with the company he founded and is fighting the SEC’s charges. He resigned from his position as CEO a few days before the company filed for Chapter 11 bankruptcy on December 4.

Although he agreed to stay at the company with the title of consultant at a $2 million salary, but that did not last after the SEC filed its charges against him and the company.

“Ponzi schemes can result in financial catastrophe for its victims,” said a Chapter 7 Business Bankruptcy attorney at Garden State Bankruptcy. “Often the best way for a victim investor to recover their money is to make claims against other victims so everyone will share equally in the financial recovery of funds from the company. In addition, they may be sued in clawback lawsuits, where any money they were paid by a company must be paid back in certain situations.”

The company was also being investigated by securities regulators for selling unregistered securities and using unlicensed agents in Arizona, California, Colorado, Iowa, New Jersey, Oregon and South Carolina.