A federal court in Florida yesterday ordered Woodbridge Group of Companies LLC and its former owner to pay $1 billion in penalties and disgorgement for operating a Ponzi scheme that targeted retail investors.
Judge Marcia G. Cooke of the U.S. District Court for the Southern District of Florida approved judgments against Woodbridge and its 281 related companies ordering them to pay $892 million in disgorgement. The court ordered former owner and CEO Robert H. Shapiro to pay a $100 million civil penalty and to disgorge $18.5 million in ill-gotten gains plus $2.1 million in prejudgment interest.
In December 2017, the SEC filed an emergency action charging the company and other defendants with operating a massive $1.2 billion Ponzi scheme that defrauded 8,400 retail investors nationwide, many of them seniors who had invested retirement funds. The SEC’s complaint alleged that Shapiro made Ponzi payments to investors and used a web of shell companies to conceal the scheme.
“This resolution accomplishes one of the SEC’s core missions to protect retail investors,” said Stephanie Avakian, co-director of the SEC’s Division of Enforcement. “Mr. Shapiro and other defendants will be held accountable and required to pay substantial penalties for their misconduct.”
“Our complaint charged that when Woodbridge’s fictitious business model collapsed, the company stopped paying investors and filed for Chapter 11 bankruptcy protection,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “The settlement provides for the return of significant funds to investors.”
The court’s disgorgement order against Woodbridge and related corporate defendants will be deemed satisfied by a liquidation trust being formed under a plan in the Woodbridge Chapter 11 case in the U.S. District Court for the District of Delaware (Case No. 17-12560-KJC). The liquidation trust will be obligated to make distributions of net proceeds from the disposition of the defendants’ assets in bankruptcy. The amount to be distributed will depend upon the amounts collected by the liquidation trust.
All defendants and relief defendants, without admitting or denying the SEC’s allegations, consented to the entry of final judgments which also permanently prohibit the defendants from violating the antifraud and other provisions of the federal securities laws.
RS Protection Trust and several relief defendants were collectively ordered to pay $5.3 million in ill-gotten gains and interest. Shapiro also consented to the entry of an SEC administrative order, without admitting or denying the SEC’s findings, permanently barring Shapiro from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.