Investors wait for outcome of SEC complaint

From all around South Florida, hundreds of investors, financial advisers and estate trustees thought the returns offered by the Woodbridge group of real estate companies were too good to pass up.

The pitch: Lend money to Woodbridge companies to help buy or develop real estate, and receive returns of anywhere from 5 percent to 10 percent. At first, payouts rolled in like clockwork. And the company drew favorable media attention when founder Robert Shapiro acquired the venerable Owlwood Estate in Los Angeles, once home to Tony Curtis and Sonny and Cher.

But shortly after Thanksgiving, the Southern California-based real estate group, which got its start in Boca Raton, filed for Chapter 11 bankruptcy protection in Delaware. Just before Christ-

mas, the Securities and Exchange Commission, which had investigated the company for a year, followed up in Miami federal court with a complaint that Woodbridge was a $1.22 billion Ponzi scheme.

As of Sept. 30, there were approximately 700 South Florida area investors who bought notes worth an estimated $114 million, according to a court filing by Fort Lauderdale forensic accountant Soneet Kapila, who was hired by the SEC to analyze Woodbridge’s finances. Many investors put up $25,000 to $50,000. One investor, who held power of attorney for her mother, put up $500,000.

“I can’t afford to lose $50,000,” said one investor from Davie who declined to be identified. “That’s a lot of money to me. I’m not a wealthy person.”

The investor said that three months before the bankruptcy, he wrote the company to retrieve his money, but “I never heard anything back.”

Now, amid litigation from Miami to Delaware, the options appear muddled for thousands of investors who find their interests on hold as the SEC, major creditors and hand-picked representatives of Shapiro battle for control of Woodbridge in court.

In a lawsuit that names Shapiro, the Woodbridge Group of Companies, some 275 related funds and companies, and a trust controlled by Shapiro, the SEC alleged that since 2012, Shapiro ran “a massive Ponzi scheme” that raised more than $1.22 billion from over “8,400 unsuspecting investors nationwide through fraudulent unregistered securities offerings.” The commission also alleged Shapiro diverted more than $21 million for his personal use.

Ryan O’Quinn, a Miami lawyer representing Shapiro, said his client denies any wrongdoing and is working with the bankruptcy court to protect assets “for the benefit of Woodbridge’s stakeholders.”

Still, the SEC in Miami pushed for a receiver to oversee the Woodbridge businesses and the return of money to investors. It obtained an asset freeze order from a Miami federal judge. And on Friday, the official committee of unsecured creditors asked the Delaware bankruptcy court to appoint an independent trustee to oversee the vast collection of Woodbridge companies. In a court filing, they assert that two Los Angeles turnaround specialists hired to run the businesses are doing the bidding of Shapiro, who resigned as CEO but was retained as a consultant for $175,000 a month.

“The Debtors have repeatedly contended they are ‘independent,’ but any appearance of independence is illusory,” the creditors committee said in its filing.

On Thursday, Woodbridge asked the bankruptcy court to order the SEC to halt its quest for a receiver and put its Miami complaint on hold. The company argued that allowing the SEC to take control of its assets would “place hundreds of millions of dollars of real estate at risk — imperiling investors’ only chance at a meaningful recovery.”

Earlier last month, the bankruptcy judge approved $100 million in outside financing for Woodbridge to continue operating in bankruptcy and allowed the company to use $12 million in cash. In court filings, the company indicated investors should be given “conditional adequate protection” so long as their claims could be validated.

Asked about the resistance to the SEC from the Woodbridge managers, Glenn Gordon, associate regional director of enforcement at the SEC’s Miami office, said Friday the commission’s lawyers are “constantly analyzing” the case “to find what is the best way to continue forward to protect investors. We have a special place in terms of making sure that happens in whatever court.”

Daniel Stermer, a professional receiver at Development Specialists Inc. in Fort Lauderdale, said it is not uncommon for enforcement actions and bankruptcy cases to parallel each other.

“I’ve done cases where we do state court liquidations and the SEC does enforcement actions,” said Stermer, who is not involved in the Woodbridge case. “They’re concurrent and they’re compatible with each other.”

What should Woodbridge investors do now?

“Investors should keep an eye on any announcements from the SEC and the bankruptcy proceedings,” the SEC’s Gordon said. “They should reserve whatever papers they have. Our goal at some point is to set up a claims process so that investors can hopefully recover funds.”

Separately, investors could join a proposed class action lawsuit against Comerica Bank of Dallas, where Woodbridge is alleged to have maintained all of its bank accounts. The suit, filed by South Florida lawyers Jeffrey Sonn and Scott Silver and Dan Girard of California, asserts Comerica “aided and abetted Shapiro’s Ponzi scheme and misappropriation of funds in Florida.” The four named plaintiffs, who are from Broward and Palm Beach counties, invested a combined $3.5 million.

The suit claims Comerica failed to recognize so-called “red flags” concerning Woodbridge’s activities, even while it was being investigated by the SEC and several states around the country.

“It was through Comerica account transactions that Shapiro applied new investor funds to pay existing investor returns, disbursed investor funds to his wife and his wife’s company, and spent millions in investor funds for his own enjoyment,” the suit alleges.

The investors’ suit also claims Comerica provided Shapiro with the banking support he needed “to carry out his scheme to defraud even after state and federal proceedings brought Woodbridge’s violations to light.”

A Comerica spokeswoman declined comment, saying the bank does not discuss litigation.