$1 BILLION Judgement Against Ponzi Scheme Operators

Even EDGAR is not immune.
January 23, 2019
Insurance oversight update
February 6, 2019

Court Orders $1 Billion Judgment Against Operators of Woodbridge Ponzi Scheme Targeting Retail Investors and Former Owner Robert H. Shapiro Fined $100 Million

What a way to open a week. This one started with an announcement by the Securities and Exchange Commission (SEC) that a federal court in Florida 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.

Big hit for big losses

The Honorable Judge Marcia G. Cooke of the U.S. District Court for the Southern District of Florida approved a judgment against Woodbridge and its 281 related companies ordering them to pay $892 million in disgorgement. The court also 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.

The numbers are enormous

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 complaint alleged that Shapiro made Ponzi payments to investors and used a web of shell companies to conceal the scheme.

“Our complaint,” said Eric Bustillo, Director of the SEC’s Miami Regional Office, “charged that when Woodbridge’s fictitious business model collapsed, the company stopped paying investors and filed for Chapter 11 bankruptcy protection. 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.

Without admitting or denying the allegations, all defendants and relief defendants 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 is permanently barred 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.

This is a big $$$ deal, but what about compliance?

Ponzi schemers aside, how do you keep your company or your members from “going off the rails?” That’s where Patrina comes in. We’ve built our business based on helping organizations stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, our comprehensive 8-module compliance solution, and compliant data capture & file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered.

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