Woodbridge Wealth Files Chapter 11 Bankruptcy

[DHK]

First, it appears that you have a position to defend. I don't. I never sold this, so I have nothing to worry about. Perhaps you do? I know the company certainly does.

So you can drink your kool-aid and I can drink mine (my POV)... but in the end, one is right, and the other is "dead".

 

[scagnt83]

A reputable investment company that was making sound decisions would not need a $100 million dollar bail out.

A company running a fraudulent enterprise is exactly the type of company that would need a $100 million dollar bail out.

Just an observation. It could also be due to extreme incompetence.

Either way, it's not a good thing for the poor suckers whose money got taken for a ride.

And there could be lots of reasons for a company wanting to bail out a Ponzi scheme and make it solvent... Especially if that company or one connected to it, has invested in that Ponzi scheme. Perhaps that money will make the Ponzi scheme a solvent investment Company again.

Lots of people were still sinking money into Madoffs scheme even after it was exposed by authorities. Mainly institutions who had invested other people's money into it and stood to lose everything.

 

[HealthGuy]

Guys, you are both assuming a lot. I have NO position to defend here - perhaps I have money to lose? You figure it out...Im merely asking the questions to find out the answers. Defending nothing here, claiming nothing either.

Hankey Capital to my knowledge had no affiliation with Woodbridge prior to the bailout, but perhaps they know something we don't know being a neighbor company in the same city.

Overall, the entire thing is confusing.

 

[DHK]

This does not bode well:

Barred Florida broker goes on to sell millions in defunct Woodbridge loans

A Florida broker who was barred from the securities industry for selling high-risk collateralized mortgage obligations in the run up to the credit crisis has since sold millions of dollars worth of commercial mortgage loans issued by the Woodbridge Group of Companies, which filed for Chapter 11 bankruptcy on Monday and has stopped paying investor distributions.

The broker, Barry Kornfeld, was barred by the Securities and Exchange Commission in 2010 for selling unsuitable CMOs to clients from 2004 to 2007, according to the SEC's order. Through his Boca Raton firm, First Financial Tax Group, he sold the defunct loans, according to a plaintiff's attorney, Jeff Sonn, and a client, who said her family had invested close to $1 million in Woodbridge loans.

"Please understand that we are Woodbridge investors just like you, and we have been as blindsided by this as you have," Mr. Kornfeld wrote Tuesday in a note to his clients. "Woodbridge was such a large part of our business that this situation has precipitated the end for First Financial Tax Group. We will be closing our doors once we help you all get the information you need to know, what is going on and where you stand in this situation."

First Financial Tax Group could not be reached for comment, and the company's website, which had advertised investments in First Position Commercial Mortgages that yielded 5%, had been taken down. Mr. Kornfeld did not respond to questions on LinkedIn.

"He sold the product as a guaranteed promissory loan to the consumer," Mr. Kornfeld's client, who asked not to be identified, said. "The investments were individual notes, and we were told that if anything happened to Woodbridge, if the company went bankrupt or belly up, investors, who are mostly retirees, would be paid first because of our position as the note holder."

Based in Sherman Oaks, Calif., Woodbridge has raised over $1 billion from investors. The SEC said in October it was investigating Woodbridge to determine whether the company was operating as a fraud.

The company intends to recapitalize $750 million in debt and has a commitment of $100 million from an investor, Hankey Capital, according to a statement from the company.

When he was working as a broker, Mr. Kornfeld "told his customers that the CMOs in which they would invest were safe, secure, liquid investments that were suitable for retirees with conservative investment goals," according to the SEC. In fact, the CMOs jeopardized clients' yield and principal and were only suited for sophisticated investors with a high-risk investment profile, according to the commission.

From 2004 to 2007, Mr. Kornfeld worked at Brookstreet Securities Corp., according to his BrokerCheck report. A harbinger of the credit crisis that saw the ruin of dozens of brokerage firms, Brookstreet infamously blew up in June 2007 after it failed to meet margin calls for the CMOs and then failed to meet net-capital requirements. The SEC charged two years later that the firm and its founder, Stan Brooks, sold the risky mortgage obligations to retirees and others with conservative investment goals and continued to promote the CMOs even after learning they could quickly become worthless.

A spokeswoman for Woodbridge, Kris Cole, did not answer a question about Mr. Kornfeld when a reporter asked why the real estate company would work with a broker who had been barred from the securities industry previously.

In its announcement about entering Chapter 11 bankruptcy, Woodbridge blamed increasing costs, including those from litigation and compliance, as a reason for its bankruptcy.

"Woodbridge's new executive management team, along with its financial and legal advisers, is currently in the process of evaluating not only the company's financials, but also its operational structure, its policies and procedures," Ms. Cole said. "Gathering and understanding all of this information is part of the process of conducting as smooth a restructuring as possible as we look to maximize recovery for our investors. Monthly payment funds are being held in a secure account and we intend to ask the bankruptcy court for permission to resume these payments during the pendency of this case."

Ronald Richards, a California attorney who has been trying to get regulators to focus on Woodbridge's lending for almost a year, said he first became aware of the company when it bought a luxury home in his neighborhood in Beverly Hills in early 2017. Woodbridge wanted to double or triple the size of the property and took a mortgage against it for millions of dollars more than it was worth, Mr. Richards said.

The new management at Woodbridge "doesn't realize how bad the debt is," he said. And the new investor has essentially diluted the equity of the current note holders, he said.

When asked about Mr. Richards' comments, Ms. Cole of Woodbridge said the company does not comment on speculation.

Lots here about HOW these CMOs were sold, WHO was selling them, and some of how the company was operating. Poor "First Financial Tax Group" will have to shut its doors - probably because this was the ONLY product they were selling.

But taking out a mortgage against a property for MILLIONS MORE than the property was worth? Where there's smoke... and all that.

 

[HealthGuy]

Thanks for posting the article, DHK. More, not less, information is helpful.

 

[scagnt83]

From what Ive read about this so far, this firm sounds shady at best, illegal at worst.

Here are the highlights of what Ive read so far:

"Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers," Eric Bustillo, the director of the SEC's Miami regional office, added. "Shapiro used the scheme to line his pockets with millions of investor dollars."

The SEC says the company, formerly headquartered in Boca Raton, Florida, had promised to pay these investors interest of 5-10% annually.

Woodbridge had said its primary business was the issuance of loans to third-party commercial-property owners that paid 11-15% annual interest. But the SEC's complaint says the "vast majority" of borrowers were companies owned by Shapiro that had no income and never made such interest payments.

the SEC sent subpoenas to 235 LLCs – limited liability companies – which the Commission believes are owned and/or controlled by Woodbridge's former president, Mr. Shapiro, but did not receive a sufficient response, according to an SEC filing from October.

So here we have100s of separate entities, owned by the CEO, all financially supporting Woodbridge and the other entities. Or, selling the "Notes" to investors.

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On the company's website: Woodbridge states that its wealth management group, Woodbridge Wealth, sells three types of investments: first position commercial mortgages with an annual yield of 5%, secondary market annuities with "above average, risk adjusted yields," and a commercial bridge loan fund that potentially returns 6%. According to a scan of BrokerCheck, there is no broker-dealer named Woodbridge Wealth registered with the Financial Industry Regulatory Authority Inc.

So the entities are not Registered with FINRA the SEC, FDIC, or State Insurance Departments. The products were not either.

But these products promised "secure returns" in the 5%-8% range.... backed by "hard assets in real estate".... and it seems to be high dollar real estate a that.

Walks like an investment, talks like an investment, looks like an investment.... ist an investment. And it must be registered as some type of Regulated Investment Product. SEC, FINRA, FDIC, DOI; take your pick, but you must pick one if you want to operate legally.

Is it a ponzi scheme? Who knows. It sure as heck seems to be an illegally run investment company that is operating outside of the law.

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It also seems that the company has been horribly mismanaged.

the company's court filings said it had assets of $650 million to $750 million in debt, or substantially less than the $1 billion it raised from investors. "What happened to the $350 million?" he asked.

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Another issue, is the faulty appearance of "being secure". Security for investors is an investment backed by Liquid assets.

Guarantees for retail investors are not Guaranteed if they are not backed by liquid no-risk assets (that means cash or US Treasury Bonds).

"He sold the product as a guaranteed promissory loan to the consumer," Mr. Kornfeld's client, who asked not to be identified, said. "The investments were individual notes, and we were told that if anything happened to Woodbridge, if the company went bankrupt or belly up, investors, who are mostly retirees, would be paid first because of our position as the note holder."

People affected by this obviously just didnt know what they didnt know. And the ones at the top selling it probably knew that.

IF they were actual Bonds or Notes being sold, and the company went bust, they would indeed be Primary Debt holders who are paid first..... AFTER going through bankruptcy court.... THEN.... IF anything is left over... whatever is leftover gets distributed to the Primary Debt Holders first.

But that in no way GUARANTEES that debt will be paid in full, or at all.

In fact, it is illegal for them to use the actual term "Guarantee" unless it is backed by a certain amount of safe and liquid assets (cash/US Tbonds).

Further, the SEC accuses them of paying $64.5 million in commissions to sales agents who pitched the opportunities to prospective clients as "low risk" and "conservative."

When he was working as a broker, Mr. Kornfeld "told his customers that the CMOs in which they would invest were safe, secure, liquid investments that were suitable for retirees with conservative investment goals," according to the SEC. In fact, the CMOs jeopardized clients' yield and principal and were only suited for sophisticated investors with a high-risk investment profile, according to the commission.

There is nothing low risk about this investment. Especially considering the financial picture... it would be comparable to investing in a real estate focused mutual fund that had lost 50% of its value....

Woodbridge wanted to double or triple the size of the property and took a mortgage against it for millions of dollars more than it was worth, Mr. Richards said.

Then there is that.... no real explainable reason to do that, especially in a residential neighborhood. Not the kind of thing a normal real estate investment company does.... just sayin....



Woodbridge bankruptcy burns advisers and real estate investors


Barred Florida broker goes on to sell millions in defunct Woodbridge loans

The Feds say they just blew up a $1.2 billion Ponzi scheme aimed at thousands of elderly people in Florida

 

[DHK]

Walks like an investment, talks like an investment, looks like an investment.... ist an investment. And it must be registered as some type of Regulated Investment Product. SEC, FINRA, FDIC, DOI; take your pick, but you must pick one if you want to operate legally.

Not necessarily. It could be an investment only for SEC accredited investors. Not sure if they were sold to accredited investors... or not.

SEC.gov | Accredited Investors

 

[scagnt83]

Not necessarily. It could be an investment only for SEC accredited investors. Not sure if they were sold to accredited investors... or not.

SEC.gov | Accredited Investors

That applies to the product, but not to the company. I meant in general, including both the company and the products they were selling. The majority of products are not sold to acredited investors. It didnt really sound like these were.

But the company must be registered in order to sell those un-registered products to accredited investors.

 

[HealthGuy]

Good replies guys, very helpful. My questions remain however: 1. The mulitple LLCs grouped different investors 'loaned' monies into different properties and issued the investors an inter creditor agreement with a promissary note to repay the monies back with a stated rate of interest. What is "illegal" about that? and 2. Why is Shapiro still being paid huge dollars by the reorganization company ?

 

[scagnt83]

Good replies guys, very helpful. My questions remain however: 1. The mulitple LLCs grouped different investors 'loaned' monies into different properties and issued the investors an inter creditor agreement with a promissary note to repay the monies back with a stated rate of interest. What is "illegal" about that? and 2. Why is Shapiro still being paid huge dollars by the reorganization company ?

If you dont know the answer to #1, then you have no business making investments or advising on investments.

There are multiple issues with it. Mostly that it is called a Ponzi Scheme.




The answer to #2 could be lots of reasons. Id guess he is the only one who knows where the money is at (what is left).

And it still seems that the reorganization company has a financial interest in keeping this company afloat.

Bernie was still involved with his company after the authorities took it over. He had already admitted to wrongdoing at that point.

IF the ring leader is still around, it is very common to make every effort to keep them involved.
And if charges are brought against him, that money will be taken from him and distributed to investors.

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Ive heard the pitch for Woodbridge in the past. They had no good answers for how what they were selling wasnt classified as an "Investment Product" that is required to be Registered. It was also a SUPER shady pitch with way too many "feel good" phrases and no real substance at all.

Plus, anyone with real investment expertise knows that real estate is not the kind of liquid and secure backing needed to make CONTRACTUAL GUARANTEES to investors.

There is a reason they pitched this stuff to people who were not Securities Licensed or who had lost their Securities License. They were looking for people who didnt know any better or just didnt care.