The Securities and Exchange Commission is already pursuing charges against Robert Shapiro, the founder of the Woodbridge group of companies, for allegedly bilking thousands of investors out of hundreds of millions of dollars via a $1.2 billion real estate Ponzi scheme.
And now, the regulator is going after brokers who sold shares in the collapsed group of companies.
The SEC this week announced that it is charging five people and four companies with unlawfully selling securities of the Woodbridge companies to retail investors.
According to the SEC, Barry Kornfeld, Ferne Kornfeld, Lynette Robbins, Andrew Costa, Albert Klager, and their companies, were some of Woodbridge’s top revenue producers, selling more than $243 million of unregistered Woodbridge securities to more than 1,600 retail investors.
The SEC claims that the brokers “reaped millions of dollars” in commissions on the sales of Woodbridge securities despite the fact that they did not register as broker-dealers nor were they permitted to sell securities.
According to the SEC, Barry Kornfeld also violated a prior SEC order that barred him from acting as a broker.
The allegations all stem from the SEC’s initial investigation into Shapiro, a well-known luxury real estate developer. Back in December, the SEC accused Shapiro of allegedly running a Ponzi scheme that defrauded more than 8,400 investors by promising high returns on real estate investments.
According to the SEC’s original complaint, the Woodbridge 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 SEC’s lawsuit also states that without actual income from the assumed investments, Shapiro allegedly used new investor money to pay returns owed to earlier investors – the hallmark of a Ponzi scheme.
The scheme eventually collapsed in on itself when Woodbridge was unable to repay interest payments to certain investors. Then, investors stopped funneling in new money, Shapiro resigned, and most of his companies filed for Chapter 11 bankruptcy.
According to the SEC, many of Shapiro’s alleged victims were seniors who invested their retirement savings into the supposed Ponzi scheme.
The SEC said that Woodbridge has agreed to settle the liability portion of the charges against it without admitting or denying the allegations. Additionally, the SEC said that Woodbridge agreed to a resolution with the SEC and creditors in a bankruptcy action regarding the ongoing control and management of Woodbridge.
The SEC’s monetary claims against Woodbridge are still pending.
The new SEC complaint details how the charged brokers used Woodbridge’s supposed history of investing success to solicit new investors.
According to the SEC’s complaints, the brokers claimed that Woodbridge was a “safe and secure” investment.
The Kornfelds allegedly solicited investors at seminars and a “conservative retirement and income planning class” they taught at a Florida university, while Klager allegedly advertised Woodbridge investments in newspapers, Costa allegedly recommended them during a radio program he hosted, and Robbins allegedly used radio, television, and internet marketing to market the investments.
In this latest action, the SEC filed charges seeking court-ordered injunctions, return of the allegedly ill-gotten gains with interest, and financial penalties against the Kornfelds, Costa, Klager and their respective companies.
Additionally, Robbins and her company, Knowles Systems, agreed to settle the SEC’s charges without admitting or denying the allegations and return more than $1 million of allegedly ill-gotten gains plus interest.
Robbins also agreed to pay a $100,000 civil penalty and to a ban from the securities and penny-stock industry.
The broker-dealer and securities registration provisions are vital protections for retail investors,” said Eric Bustillo, director of the SEC’s Miami Regional Office. “Our actions allege the defendants, while not registered as broker-dealers, pocketed millions of dollars in unlawful commissions from their widespread sales of unregistered Woodbridge securities.”