Fallout from Woodbridge Ponzi scheme continues

Two former directors of investments at the Woodbridge Group of Companies LLC were arrested and separately charged by criminal authorities for their roles in the massive Woodbridge Ponzi scheme. The Securities and Exchange Commission (SEC) also charged the two, California-based advisors Ivan Acevedo and Dane Roseman, along with Woodbridge owner Robert Shapiro for their involvement.

The SEC previously charged Woodbridge and Shapiro, and Woodbridge’s highest-earning unregistered brokers. In January a federal court in Florida ordered Woodbridge and its 281 related companies, and Shapiro together to pay $1 billion for operating this Ponzi scheme.

According to the SEC’s complaint, although Acevedo and Roseman were not registered in any capacity with the SEC, they were responsible for fraudulently raising at least $1.2 billion from more than 8,400 retail investors, many of them seniors. In return, the duo received more than $3 million in transaction-based and other compensation.

The complaint, filed in U.S. District Court for the Southern District of Florida, alleges that Acevedo oversaw Woodbridge’s fundraising for Woodbridge’s securities from 2012 until his departure in 2015, when he was succeeded by Roseman. According to the complaint, the defendants were responsible for hiring and training Woodbridge’s sales force, approving fraudulent marketing materials and sales scripts, and they helped create the false appearance that Woodbridge was a legitimate operation when in reality it was a Ponzi scheme that used money from new investors to pay existing investors.

As directors, the two oversaw a sales department of approximately 30 in-house sales agents in addition to Woodbridge’s network of hundreds of external sales agents, all of whom solicited investors through a combination of television, radio, and newspaper advertisements; cold calling campaigns, social media, websites, seminars, and in-person presentations.

Wodbridge’s stated business model was to loan investor funds to third-party borrowers at high interest rates, which investors would receive a percentage. However, nearly every “third-party borrower” was in fact an entity owned and controlled by Shapiro, which paid virtually no interest and whose ownership was masked through a series of at least 275 shell Limited Liability Companies – all owned and controlled by…Shapiro.

To keep the leaky ship afloat, the entire enterprised required an continuous infusion of new investor funds and required existing investors to rollover their investments into a new note at the end of the term to avoid hefty payouts – the job of Acevedo and Roseman as Directors of Investments. The entire scheme collapsed on December 4, 2017 when Shapiro caused Woodbridge and its related companies to file for bankrupcty.

“Instead of telling investors the truth – that Woodbridge’s third-party lending business was a sham almost from inception, Eric Bustillo, the Director of the SEC’s Miami Regional Office says that the Commission alleges “that Acevedo and Roseman worked diligently to perpetuate this sham by preparing and disseminating false marketing materials to induce more investments, keeping this massive Ponzi scheme afloat.”

The SEC’s complaint charges Acevedo and Roseman with violating the securities registration, broker-dealer registration, and anti-fraud provisions of the federal securities laws, and seeks disgorgement of allegedly ill-gotten gains, with interest, and financial penalties. But… as is often the case, this may be trying to squeeze blood from a stone.

Where were compliance and oversight?

Nowhere to be found. One cannot stop investors from investing in opportunities that are much too good to be true. But one can help firms interested in compliance remain compliant. That’s where Patrina can help. We’ve built our business based on helping organizations keep track of “bad apples,” and 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.