Unregistered Securities

Published on: May 25, 2018

Woodbridge Noteholders Seek Role in Bankruptcy Restructuring

money backing hard money real estate deal As we have detailed in numerous blog posts, the Woodbridge Group of Companies, LLC (“Woodbridge”) and certain of its affiliated entities filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 17-12560-KJC) on December 4, 2017. From the outset of this Chapter 11 proceeding, investors in Woodbridge Notes (“Noteholders”) have taken the position that they hold secured, perfected liens in various real estate deals.

By way of background, beginning as early as July 2012, Woodbridge and its affiliates offered securities nationwide to investors in at least two forms: (1) subscription agreements for the purchase of equity interests or units in one of Woodbridge’s seven Delaware limited liability companies (“Units”); and, (2) lending agreements, some of which were referred to as “First Position Commercial Mortgage Notes,” “mezzanine loans,” “construction loans,” and “Co-Lending Opportunities” (collectively, “FPCMs”).

On March 27, 2018, the Debtors, the Unsecured Creditors Committee and the Ad Hoc Noteholders Committee all agreed on a plan of reorganization that was encapsulated in a Term Sheet filed with the Bankruptcy Court. However, the Term Sheet failed to address whether or not Woodbridge Noteholders who invested in FPCMs do, in fact, hold secured, perfected liens. Accordingly, on March 27^th a Woodbridge FPCM investor – retired 85 year old attorney Lisa La Rochelle – filed an adversary proceeding (the “Owlwood Complaint”) in an effort to resolve the looming question of whether some $800 million in FPCMs should be treated as secured debt for purposes of disposition of the Chapter 11 proceeding.

Published on: March 24, 2018

Alaska Financial Company III Promoters Allegedly Misappropriated Funds and Violated SEC “Regulation D”

by InvestorLawyers

Stealing Money The Securities and Exchange Commission (SEC) reportedly has settled charges against the operators of a real estate investment business that caused millions in loses to investors. Up to 300 investors may have lost money on interests in a fund known as Alaska Financial Company III, LLC (“AFC III”), which two individuals named Tobias Preston and Charles Preston sold to investors via their company McKinley Mortgage Co. LLC (“McKinley”).

The SEC accused defendants of falsely portraying AFC III as a safe investment and reporting that it had profitable operations. However, according to the SEC, in reality AFC III was insolvent and unable to make interest payments as they came due. According to the SEC, although a portion of the raised funds were invested as promised to investors, Messrs. Preston and McKinley diverted millions of dollars in proceeds of outside investments to fund business and personal expenses as well as McKinley’s operations.

AFC III has made so-called Form D filings with the SEC since 2013 stating that AFC III qualifies for an exemption from registration of its securities offering under Rule 506(c), which allows for general solicitation of investors, such as through AFC III’s website and social media platforms, but limits sales to accredited investors. As a general rule, offers of securities to the public (which includes offers made over the internet) must be registered with the SEC under the Securities Act of 1933. However, under federal securities law, the SEC recognizes certain instances where companies seeking to raise capital are exempt from registering securities. Securities offerings exempt from registration are sometimes referred to as “private placements.” AFC III sought to be treated as exempt from registration by the SEC and was marketed as a private placement.

Published on: December 12, 2017

Former Bolton Capital Broker Paul Smith Indicted for Alleged Haverford Group Scheme

by InvestorLawyers

Stealing Money Paul Wescoe Smith, formerly associated with Bolton Global Capital, was the subject of a civil action and a criminal indictment filed by the United States Securities and Exchange Commission and the Department of Justice, through the United States Attorney for the Eastern District of Pennsylvania, on December 7, 2017. Smith, age 63, a resident of Wayne, Pennsylvania, has been accused of misconduct in connection with the sale and operation of a Ponzi scheme known as the Haverford Group.

Smith worked in the securities industry as a registered representative of several brokerage firms from 1982 until 2017, including with Bolton Global Capital from May 2007 to February 2017. Smith allegedly sold unregistered securities in a purported hedge fund known as The Haverford Group to more than a dozen investors.

Bolton Global Capital, Smith’s employer, reportedly notified Smith’s customers in early 2017 that their accounts were being transferred to another “financial representative” but reportedly gave no indication that Smith had been terminated and accused of wrongdoing in connection with The Haverford Group.

Published on: December 9, 2017

Woodbridge Group of Companies Receives Court Approval on its First Day Bankruptcy Court Motions

by InvestorLawyers

woodbridge mortgage funds As recently discussed in our blog, on Monday, December 4, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, filed for Chapter 11 bankruptcy protection in Delaware Bankruptcy Court (Case No. 17-12560-KJC). Woodbridge has asserted that a restructuring of its debt was necessary due to increased operating and development costs, in addition to expenses associated with ongoing litigation and regulatory compliance. As we have discussed in several previous blog posts, Woodbridge continues to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities, in addition to allegations of possible misconduct by Woodbridge and its President, Robert Shapiro.

As reported on December 6, Woodbridge’s First Day Motions in Delaware Bankruptcy Court (“Motions”) were successful. The Bankruptcy Court issued certain interim authorizations to help ensure Woodbridge’s ability to continue operations in the ordinary course during its restructuring process. For instance, the Bankruptcy Court approved Woodbridge’s request to access debtor-in-possession (“DIP”) financing through a California private direct lender specializing in real estate debt investments, Hankey Capital, LLC (“Hankey”).

This DIP financing, combined with cash on hand generated by Woodbridge’s operations, is intended to support continued business operations during the restructuring process. In signing off of on Woodbridge’s request to borrow $6 million for a day through its DIP financing, Judge Kevin Casey indicated “The request here is a relatively modest one.” In addition to receiving approval on its initial DIP financing request, Woodbridge also received approval for, among other things, cash to pay employee salaries and benefits.

Published on: December 8, 2017

Woodbridge FPCM Investors May Have Legal Rights

by InvestorLawyers

If you are have invested in Woodbridge Wealth or in any of the Woodbridge Mortgage Funds, you may have questions concerning your rights in light of Woodbridge’s recent bankruptcy filing.

Investors who purchased Woodbridge FPCMs through a stockbroker or financial advisor may have viable FINRA arbitration claims if the brokerage firm did not perform adequate due diligence before recommending the Woodbridge investment. Law Office of Christopher J. Gray, P.C. offers a confidential, no-obligation consultation to Woodbridge investors.

Woodbridge Wealth, a California-based firm, sells structured financial products to investors, often through intermediary brokers. Woodbridge has reportedly raised over $1 billion by selling investors instruments known as First Position Commercial Mortgages (“FPCMs”). The Woodbridge Funds advertise that their management team’s substantial experience lets them maintain a successful lending model and find lending opportunities that are favorable for investors. Investors do not have any role other than providing money. An FPCM consists of a promissory note from a Woodbridge Fund, a loan agreement, and a non-exclusive assignment of the Woodbridge Fund’s security interest in the mortgage for the underlying hard-money loan. The Woodbridge Funds pool money from multiple investors for each hard-money loan. The Woodbridge Funds’ promissory notes effectively guarantee the underlying hard-money loans, and the Woodbridge Funds’ advertising materials state that the Woodbridge Funds are obligated to make payments to FPCM investors even if the hard-money borrower defaults.

Published on: December 7, 2017

Woodbridge Group of Companies Tells Investors Bankruptcy Is “Effort To Recapitalize Debt And Establish Stronger Financial Platform”

by InvestorLawyers

woodbridge mortgage funds On December 4, 2017, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. As we have previously highlighted in a series of blog posts, Woodbridge has come under considerable regulatory scrutiny over the past year, both by the Securities and Exchange Commission (“SEC”), and various state securities regulators including officials in Arizona, Colorado, Idaho, Massachusetts, Michigan, Pennsylvania, and Texas.

In a letter to investors dated December 5, Woodbridge announced the bankruptcy filing and stated that “[t]he Company took this action in an effort to recapitalize its debt and establish a stronger financial platform.”

In the investor letter, Woodbridge elaborated as follows concerning the purported reasons for the bankruptcy: “While Woodbridge continues to be a leading developer of high-end real estate, as the business has grown, increased operating and development costs have been exacerbated by the unforeseen costs associated with ongoing litigation and regulatory compliance. This combination of rising costs and regulatory pressure led to a loss of liquidity, resulting in an inability to make our regularly scheduled one-year Notes payment due December 1, 2017. So you understand, this unpaid obligation incurred by Woodbridge prior to December 4, 2017 is now frozen and will be considered as general unsecured claims in the restructuring proceedings.”

Published on: December 5, 2017

Woodbridge Group of Companies Files for Chapter 11 Bankruptcy Protection

by InvestorLawyers

On December 4, 2017, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the District of Delaware. As we have previously highlighted in a series of blog posts, Woodbridge has come under considerable regulatory scrutiny over the past year, both by the Securities and Exchange Commission (“SEC”), and various state securities regulators including officials in Arizona, Colorado, Idaho, Massachusetts, Michigan, Pennsylvania, and Texas. Further, according to bankruptcy filings, Woodbridge has received information requests from state securities regulators in approximately 25 states. The investigations conducted by securities regulators at both the federal and state level have centered on allegations of offering and selling unregistered securities that are not exempt from registration.

In addition, at the federal level, the SEC has raised allegations of possible misconduct by Woodbridge and its President, Robert Shapiro (“Shapiro”). On Friday, December 1, Mr. Shapiro resigned as Woodbridge’s CEO. As of Monday, December 4, according to bankruptcy proceeding filings, Woodbridge owes approximately $750 million to an estimated 8,998 noteholders who invested in various Woodbridge funds. Holders of these notes are entitled to a fixed rate of interest generally ranging from 4.5 – 13%, payable on a monthly basis, and repayment of principal upon maturity (typically within 12-20 months of issuance) of the note.

Woodbridge operates through a complex structure of interrelated companies (numbering about 250) which are owned either directly or indirectly by RS Protection Trust, an irrevocable Nevada trust, of which Mr. Shapiro is the trustee and his family members are the sole beneficiaries. Included among the various Woodbridge entities or mortgage funds are the following:

Published on: December 5, 2017

Woodbridge Mortgage Investment Fund 3, LLC Subject To Texas Cease-and-Desist Order

by InvestorLawyers

woodbridge mortgage funds On March 18, 2016, the Securities Commissioner of the State of Texas (“Securities Commissioner”) entered a Cease and Desist Order (“Order”) against Woodbridge Mortgage Investment Fund 3, LLC (“Woodbridge 3” or “Respondent”). Respondent Woodbridge 3 is a Delaware-organized limited liability company formed in or around 2014. Woodbridge 3 is one of a number of mortgage funds offered by the Woodbridge Group of Companies, LLC (“Woodbridge”), the successor firm to Woodbridge Structured Funding, LLC. Woodbridge is headquartered in Sherman Oaks, CA, and its principal and controlling person is Robert H. Shapiro (“Shapiro”).

In connection with the Securities Commissioner’s Order, State of Texas securities regulators made the following findings of fact concerning their investigation into Woodbridge 3:

The Bureau determined that Respondents Woodbridge 3 and Shapiro offered and sold “First Position Commercial Mortgages” (“FPCMs” or “The Note Program”) to investors in Texas that fell within the definition of a security;

Published on: November 29, 2017

FINRA Bars Former United Planners Broker Jerry Lou Guttman For Alleged Private Securities Transactions

by InvestorLawyers

Cage Money Former United Planners Broker Jerry Lou Guttman allegedly sold over $7,000,000 worth of unregistered securities to customers of his former employer. Guttman allegedly sold membership interests in at least six different limited liability companies to 31 customers and seven non-customers without first disclosing the sales to United Planners, according to a recent Letter of Acceptance, Waiver, and Consent (AWC) issued by the Financial Industry Regulatory Authority (FINRA). According to the AWC, Mr. Guttman neither admitted to nor denied the conduct charged by FINRA.

Guttman was a financial advisor and a registered representative of United Planners Financial Services of America from 2001 to October 2017. Guttman has also allegedly been the subject of three previous customer complaints. During his career, Guttman has been affiliated with Guttman Financial Group, Nationwide Planning & Benefits, Champion Entertainment Group, Walled Lake Properties, and Serenity Management.

FINRA Rule 3280 prohibits associated persons from participating in any manner in a private securities transaction without first providing written notice to the registered representative’s employing firm. The notice to the employer must occur before the private securities transaction begins. There are other requirements imposed by the rule, including that the employing firm must approve the transaction.

Published on: November 28, 2017

Woodbridge Mortgage Funds Subject of Pennsylvania Orders to Show Cause

by InvestorLawyers

woodbridge-300x82 As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, continue to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities. For the past year on the federal level, the Securities and Exchange Commission (“SEC”) has been conducting an investigation into Woodbridge. In that regard, according to a publicly available court filing, the SEC “[i]s 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” by Woodbridge and its affiliated companies and agents.

Concurrently at the state level, Woodbridge has been the subject of investigations by various state securities regulators in Arizona, Texas, Massachusetts, Pennsylvania, and Michigan (as well as recent inquiries made by the Colorado Division of Securities). Several of these investigations have resulted in regulators issuing cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and furthermore, to stop otherwise violating applicable securities laws.

For example, on or about April 24, 2017, the Commonwealth of Pennsylvania Department of Banking and Securities, Bureau of Securities Compliance (the “Bureau”) entered into a Consent Agreement and Order (“Consent Order”) with Woodbridge. As part of the Consent Order, Respondent Woodbridge — without admitting or denying any of the allegations raised by the Bureau — agreed to pay an administrative assessment of $30,000, and additionally agreed to adhere to Pennsylvania’s state securities laws which prohibit, among other things, selling unregistered securities that are not exempt from registration.