Woodbridge Group of Companies and its Subsidiaries File for Chapter 11 Bankruptcy
Woodbridge Group of Companies, LLC, a real estate investment firm, has filed for Chapter 11 bankruptcy protection. The company blamed the bankruptcy filing on costs associated with ongoing litigation and regulatory compliance. During the bankruptcy process, Woodbridge will be looking to restructure its $750.0-million debt. At the heart of it, the luxury real estate developer is grappling with a probe by the U.S. Securities Exchange Commission (SEC), over allegations that it defrauded investors.
The high-end real estate developer filed for Chapter 11 in bankruptcy court in Wilmington, Delaware, The Sherman Oaks, the California-based company cited “unforeseen costs associated with ongoing litigation and regulatory compliance.”
Woodbridge Group will continue to operate as usual during the Chapter 11 proceedings.
The company obtained a commitment for up to $100.0 million in debtor-in-possession (DIP) financing from Hankey Capital, LLC. This will provide enough liquidity for Woodbridge to continue its operations and development during the bankruptcy process.
At the same time of the filing of the Woodbridge Group bankruptcy, its CEO, Robert Shapiro resigned. He will still be around though, taking a consulting role, for which he will be paid $175,000 monthly.
At the heart of the bankruptcy filings are the ongoing litigation and SEC probe. Woodbridge is being investigated over allegations that it defrauded investors out of more than $1.0 billion. On top of that, Woodbridge is facing cases in a number of states over securities violations.
Woodbridge Group SEC Probe into Alleged Fraud
In November 2016, Woodbridge came under investigation by the SEC for allegedly orchestrating a fraud scheme, in which the company raised over $1.0 billion from several thousand investors through multiple investment offerings.
According to court filings, the SEC is investigating the “offer and sale of unregistered securities, the sale of securities by unregistered brokers, and the commission of fraud in connection with the offer, purchase, and sale of securities.”
Most of the alleged victims were mom-and-pop retail investors who were told that they were investing in safe and secure valuable properties. Not only that, they were told that their investments would pay off in 12 to 18 months. The bankruptcy filing means that thousands of investors, those who helped finance Woodbridge’s real estate deals, are at risk of losing everything unless Woodbridge emerges unscathed from the Chapter 11 proceedings.
Most recently, the SEC has applied for an order forcing 235 limited liability companies affiliated with Woodbridge to comply with a subpoena for documents that the SEC says are crucial to determine whether Woodbridge is operating a fraud on its investors.
For his part, during the course of the SEC investigation, Shapiro has pleaded the Fifth in order to avoid offering evidence that might be used against him.
A representative for Woodbridge said the company has been cooperating with, and has provided documents to, the SEC. “It is important to note that Woodbridge, in its years of dealing with a multitude of state and federal regulators, has never been found to have engaged in any fraud,” said the representative. “The company stands behind its business model, and its investors, and lenders.”
One might have to read between the lines.
Over the last number of years, Woodbridge has been hit with fraud allegations in several states over claims of securities violations. Litigation in Arizona, Massachusetts, Michigan, Pennsylvania, and Texas, allege that Woodbridge offered and sold unregistered securities, didn’t provide investors with the information required by law, and—in some cases— that Woodbridge defrauded investors by not providing full disclosure.
In some of these state cases, it is alleged that Woodbridge failed to inform investors that securities agencies in other states had ordered the company to stop selling unregistered securities, and failed to disclose investment risks.
Woodbridge has settled actions in Texas, Pennsylvania, and Massachusetts, and is in settlement talks with other states. “So far every state action that has been settled was settled with no admission of guilt nor finding of fraud,” said Shapiro.
Despite the gloating, the investigation into Woodbridge has led to the development of a website, woodbridgegroupfraud.com, where attorneys from Stoltmann Law Offices are looking for concerned investors. Attorney Joe Wojciechowski of Stoltmann said, “The grounds for the subpoenas are really troubling for whoever ultimately owns these entities — there’s definitely unregistered securities being sold and that’s a violation of every security law in the land so someone is going to have to explain that.”
“This is a really complicated situation with hundreds of different LLCs and tracing where all this money has gone is going to take [the SEC] a lot of time to figure out,” added Wojciechowski, noting that the confusion is “a great way to…insulate [yourself] from liability.”
“Woodbridge Group of Companies Implements Debt Restructuring via Voluntary Chapter 11,” Woodbridge Group of Companies, LLC, December 4, 2017.
“Real Estate Developer Woodbridge Group Files for Bankruptcy Amid SEC’s Fraud Probe,” Bloomberg, December 4, 2017.
“Real Estate Developer Woodbridge Group Files for Bankruptcy,” The Wall Street Journal, December 4, 2017.
“Bob Shapiro’s Woodbridge Group is under investigation by the SEC for $1B fraud,” The Real Deal, November 14, 2017.
“Five states claimed securities violations against Woodbridge,” The Aspen Times, November 15, 2017.
“U.S. fraud investigation targets Woodbridge, big property holder in Roaring Fork Valley,” Post Independent, November 14, 2017.