Offering fraud actions have become one of the staples of the Enforcement Division. With a focus on protecting retail investors, the Division has initiated a series of these cases which often frequently target unsuspecting seniors and retirees who lose much of their life savings. The Division’s most recent case is a good example of these actions. There over 8,400 investors, many of whom were seniors, entrusted at least $1.22 billion over a five year period beginning in July 2012 to boiler room salesmen fronting for a huge Ponzi scheme characterized by sketches and cartoons included in the complaint. Unfortunately for the investors, much of their money is, in probability, largely gone. SEC v. Acevedo, Civil Action No. 1:19-cv-21380 (S.D. Fla. Filed April 11, 2019).
Ivan Acevedo and Dane Roseman, respectively the Director if Investments and an Investment Consultant until their respective resignations from Woodbridge Group of Companies, LLC d/b/a Woodbridge Wealth, are named as defendants in this action. Woodbridge, a collection of dozens of affiliated entities, was owned by President Robert H. Shapiro. The firm is in bankruptcy. The Commission brought an emergency action against Mr. Shapiro and his firm earlier. SEC v. Shapiro, Civil Action No. 1:17-cv-24624 (S.D. Fla.). That action was settled with a consent decree and an agreement to pay over $20 million in disgorgement and prejudgment interest and a $100 million penalty.
Woodbridge initially sold structured settlement to investors who had an annuity from the lottery or a stream of payments from a personal injury settlement. As business waned the model was tied to selling securities in related entities that supposedly made hard money loans to real estate investors with significant rates of return. This structure permitted the firm to tell investors that it could pay substantial monthly returns on the notes they purchased which would be collateralized by the real estate.
The Woodbridge path to profits was was supposedly based on a simple three step plan: 1) Investors lend money to Woodbridge for one year and receive 5% monthly interest payments; 2) Woodbridge Wealth funds the real estate property loan and receives payments from the owner; and 3) the property owner makes payments to Woodbridge and investors receive the first lien position as security.
While properties were purchased by various entities affiliated with Woodbridge, the loans were not profitable. Investors did receive payments, at least for a time. Those payments were not funded by the profits from loans made by the affiliated entities. The payments were made with investor funds.
The three steps to wealth claim was a sham. The operation was a Ponzi scheme whose interests were sold boiler room style by an army of salesmen peddling what were supposed to be private placement interests but were in fact unregistered securities. The representations from the boiler room were laced with an array of unsupported, incorrect and misleading statements that began with the notion that the underlying investments with the affiliated entities were actual transactions and ended with the idea that the investor payments came from those transactions – all lies. Defendants were selling what they knew, or were reckless in not knowing, was an illusion – a sham transaction that is a fraud. It tumbled into bankruptcy. Nevertheless, Messrs. Acevedo and Roseman were paid, respectively, $742,000 and $2.4 million in transaction–based compensation. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and Exchange Act Sections 10(b) and 15(a)(1). The case is pending.