Investor Lawyers Blog
As recently reported, the Woodbridge Group of Companies, LLC (“Woodbridge”) of Sherman Oaks, CA, continues to face considerable regulatory scrutiny in connection with allegations of offering and selling unregistered securities. To date, Woodbridge has been the subject of investigations by state securities regulators in Arizona, Texas, Massachusetts, Pennsylvania, and Michigan. Several of these investigations have resulted in regulators issuing cease-and-desist orders, requiring Woodbridge to stop offering and/or selling unregistered securities, and further, to stop otherwise violating applicable securities laws.
As of mid-November 2017, Woodbridge has settled regulatory actions in Pennsylvania, Texas and Massachusetts. The company, which has offered a number of various Woodbridge Mortgage Investment Funds (“Woodbridge Funds”), has marketed so-called “First Position Commercial Mortgages” (or “FPCMs”) to investors nationwide through issuing promissory notes in exchange for investments backing certain hard money loans secured by commercial real estate.
At the federal level, for the past year the Securities and Exchange Commission (“SEC”) has also been investigating Woodbridge. Specifically, 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.”
In furtherance of the investigation, on January 31, 2017, the SEC issued a subpoena to Woodbridge (“Subpoena”). Under the Subpoena, Woodbridge was to provide the SEC with, among other things, “[a]ll non-privileged emails from January 1, 2012 through the date of the Order which were sent to, sent from, or received by: (1) Robert Shapiro… (2) Dayne Roseman; and (3) Nina Pedersen.” Dayne Roseman is listed on the Woodbridge website as a Managing Director and Ms. Pedersen serves as Woodbridge’s Comptroller.
In March 2017, Mr. Shapiro’s attorney, Ryan O’Quinn, formally responded to the SEC’s Subpoena. Through a letter to the SEC, counsel for the Woodbridge President invoked his Fifth Amendment right against self-incrimination: “Upon consideration of the SEC’s investigative subpoenas and a review with counsel of the individual rights afforded by the United States Constitution, Mr. Shapiro will rely on his constitutional privilege to refuse to be a witness against himself.”
It is worth noting that Woodbridge itself does not claim that its employees have a valid Fifth Amendment privilege with respect to their emails pertaining to the company, and for good reason given the collective entity doctrine. As the Supreme Court noted in Braswell v. United States, 487 U.S. 99, 104 (1988): the “collective entity rule… has a lengthy and distinguished pedigree.” Put simply, the common law collective entity rule holds that the Fifth Amendment privilege against self-incrimination does not apply to corporations and other collective entities, only to individuals. By extension, individuals acting on behalf of a corporate entity and in furtherance of corporate business and affairs, “[w]hen acting as representatives of a collective group, cannot be said to be exercising their personal rights and duties, nor be entitled to their purely personal privileges.” Braswell, 487 U.S. 99 (1988) quoting United States v. White, 322 U.S. 694 (1944).
On September 19, 2017, United States District Judge Cecilia M. Altonaga entered an Order granting the SEC’s Application to Enforce an Administrative Subpoena against Woodbridge. Thereafter, in early October 2017, counsel for Woodbridge informed the SEC that the document production in response to the subpoena “[i]ncluded only emails of Dayne Roseman’s Woodbridge email address.” Further, according to court filings, Woodbridge’s counsel informed the SEC that “[t]here were no responsive documents in the Woodbridge email addresses of Robert Shapiro or Nina Pedersen.” Additionally, Respondent’s counsel informed the SEC that “[M]r. Shapiro and Ms. Pedersen refused Woodbridge’s request that they either give Woodbridge access to their AOL accounts or consent to AOL providing that information to Woodbridge.”
In light of Woodbridge’s noncompliance with the Subpoena, on October 31, 2017, the SEC proceeded to file a Motion for Contempt of Court (“Motion”) in the Southern District of Florida against Woodbridge “[f]or its failure to abide by the Court’s Order on SEC’s Application to Enforce Administrative Subpoena Against Woodbridge….” Through this application to the Florida federal district court, the SEC is seeking full compliance on its Subpoena to force an order to obtain emails and documents related to 235 Woodbridge-affiliated limited liability corporations. The SEC has described the information sought pursuant to the Subpoena as critical to its investigation.
Through court filings, the SEC has asserted that the 235 LLCs are, in fact, “[i]nterwoven into the structure of the products Woodbridge offers for investment.” Of significance, the SEC believes that these companies are “[o]wned and/or controlled by Woodbridge’s President, Robert Shapiro.” Further, the SEC has stressed that the Subpoena seeks information that is not otherwise able to be obtained: “[W]hile other documents produced in the investigation indicate that Shapiro signs on behalf of the LLCs as a Manager, only the information sought by the subpoenas can definitively establish the ownership structure. Neither Colorado nor Delaware make such ownership information public, and of course the bank records are not publicly available. Moreover, Shapiro has asserted his Fifth Amendment privilege, thus forcing the Commission to establish these facts from other sources.”
At this time, Woodbridge reportedly continues to sell securities. Some of the issuers of Woodbridge securities include the following entities:
- WMF Management, LLC;
- Woodbridge Group of Companies, LLC;
- Woodbridge Mortgage Investment Fund 1, LLC;
- Woodbridge Mortgage Investment Fund 2, LLC;
- Woodbridge Mortgage Investment Fund 3, LLC;
- Woodbridge Mortgage Investment Fund 4, LLC;
- Woodbridge Mortgage Investment Fund PA, LLC;
- Woodbridge Group of Companies, LLC (d/b/a Woodbridge Wealth).
Financial advisors, and by extension their brokerage firm, have a duty to perform adequate due diligence on any investment recommended to customers, including private placement offerings pursuant to Regulation D. In addition, financial advisors have a duty to disclose the risks associated with any investment, and moreover, to conduct a suitability analysis to determine if an investment meets an investor’s stated investment objectives and associated risk profile.
Depending on their individual circumstances, Woodbridge Mortgage Investment Fund investors may be able to recover losses through FINRA arbitration or litigation. Woodbridge investors may contact the attorneys at Law Office of Christopher J. Gray, P.C. at (866) 966-9598 or newcases@investorlawyers.net for a no-cost, confidential consultation.