Mini-Madoff? SEC accuses Robert Shapiro of running $1.2 billion real estate Ponzi scheme

Robert Shapiro, the founder of the Woodbridge group of companies, bilked thousands of investors out of hundreds of millions of dollars by running a $1.2 billion real estate Ponzi scheme, the Securities and Exchange Commission claimed in a recent court filing.

Late last week, the SEC sued Shapiro, a well-known luxury real estate developer, for allegedly running a Ponzi scheme that defrauded more than 8,400 investors by promising high returns on real estate investments.

According to the SEC, many of Shapiro’s alleged victims were seniors who invested their retirement savings into the supposed Ponzi scheme.

“Shapiro promised investors they would be repaid from the high rates of interest Shapiro’s companies were earning on loans the companies were purportedly making to third-party borrowers,” the SEC claimed in its lawsuit. “However, nearly all the purported third-party borrowers were actually limited liability companies owned and controlled by Shapiro, which had no revenue, no bank accounts, and never paid any interest under the loans.”

According to the complaint, Shapiro’s companies received more than $1 billion in investor funds, but only generated approximately $13.7 million in interest income from “truly unaffiliated” third-party borrowers.

The lawsuit states that without true income from the supposed investments, Shapiro allegedly used new investor money to pay the returns owed to earlier investors – the hallmark of a Ponzi scheme.

But, according to the filing, Shapiro didn’t only use investor funds to repay previous investors, he and his family also “lived in the lap of luxury” and spent “exorbitant amounts of investor money in alarming fashion, on items such as luxury automobiles, jewelry, country club memberships, fine wine, and chartering private planes.”

Shapiro’s alleged scheme collapsed earlier this month, when the companies were unable to repay interest payments to certain investors.

Then, fundraising from investors stopped, Shapiro resigned, and most of his companies filed for Chapter 11 bankruptcy.

“The effect of Shapiro and his companies’ actions will leave investors with substantial losses, as they are owed at least $961 million in principal,” the SEC complaint states. “At least 2,600 of these investors unknowingly placed their retirement savings into Shapiro’s Ponzi scheme.”

According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners paying that were paying Woodbridge 11-15% annual interest for “hard money loans,” short-term financing.

In return, Woodbridge allegedly promised to pay investors returns of between 5% and 10% annually.

The SEC complaint alleges that Shapiro and Woodbridge used at least $328 million of investor money to repay principal and interest to other investors and spent at least another $172 million on operating expenses, including $64.5 million on sales agent commissions and $44 million on payroll.

Shapiro also allegedly spent at least $21 million of investor funds on “extravagant personal expenditures,” the SEC claims.

“Woodbridge’s business model was a sham-the vast majority of the purported Third-Party Borrowers were hundreds of Shapiro owned and controlled LLCs, which had no source of income, no bank accounts, and never made any loan payments to Woodbridge, all facts Woodbridge and Shapiro concealed from investors,” the SEC claimed in its lawsuit. “Rather, Shapiro and Woodbridge continued its ruse for the past several years by supporting its business operations nearly entirely by raising and using new investor funds, in classic Ponzi scheme fashion.”

The judge overseeing the lawsuit granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered Shapiro and the companies to provide an accounting of all money received from investors.

Click here to read the SEC’s full complaint.

Article source: https://www.housingwire.com/articles/42165-mini-madoff-sec-accuses-robert-shapiro-of-running-12-billion-real-estate-ponzi-scheme

Leave a Reply

Bunk Beds