The Securities and Exchange Commission announced Monday 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 and included a company owned by a Villages cosmetologist.
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.
Villager Lynette M. Robbins, a cosmetologist who owns a home along with Theodore F. Leutz at 731 Evans Way in the Village of Bridgeport at Lake Sumter, was among five Florida-based defendants charged in an SEC complaint last year. Her company, Knowles Systems Inc., was among Woodbridge’s top revenue producers.
Robbins, who was first tied this past April to what has been labeled one of the biggest Ponzi schemes in history, was among those accused of reaping millions of dollars in commissions on their sales of Woodbridge securities, even though they were not registered as broker-dealers and were not permitted to sell securities. An SEC filing claimed Robbins received at least $8.1 million in commissions.
Robbins and her company agreed to settle the SEC’s charges in a separate action 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, according to the SEC.
Knowles Systems also filed for Chapter 11 bankruptcy, saying it lost two-thirds of its revenue when Woodbridge collapsed, a Wall Street Journal article stated, adding that Knowles “denies it was negligent in providing leads to Woodbridge” in a court filing.
In December 2017, the SEC filed an emergency action charging Woodbridge and other defendants with operating the 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. 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 him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal adviser, transfer agent, or nationally recognized statistical rating organization, and from participating in any offering of a penny stock.
A Ponzi scheme typically is a financial scam where early investors are paid returns with money from later investors rather than legitimate investment activities. The most well-known Ponzi scheme involved New York financier Bernard Madoff, who in 2009 pleaded guilty to masterminding a decades-long, $65 billion swindle. The Ponzi scheme is named for Charles Ponzi, who in 1920 bilked thousands of people out of close to $10 million before he was caught.