Regulators gunning for brokers and advisers who sold $1.2 billion Ponzi
Finra and at least one state agency have taken disciplinary action against two brokers and an adviser involved in the Woodbridge real estate scheme.
Securities regulators have started to hit brokers and advisers who sold Woodbridge promissory notes with a variety of disciplinary actions, including fines, suspensions and disbarment.
In December, The Woodbridge Group of Companies and its founder, Robert Shapiro, were charged by the Securities and Exchange Commission with orchestrating a massive $1.2 billion Ponzi scheme, which targeted 8,400 investors, many of them senior citizens.
Woodbridge, formerly based in Boca Raton, Fla., ran a real estate scheme based on short-term, one-year loans and mortgages, according to the SEC’s complaint. It advertised its primary business as issuing loans to supposed third-party commercial property owners that paid Woodbridge 11% to 15% annual interest for short-term financing. In return, Woodbridge allegedly promised to pay investors 5% to 10% interest annually, according to the SEC. But the agency claimed the business was a sham and made few, if any, legitmate loans. The only way it paid existing investors was with new investor money.
As InvestmentNews reported, a network of unlicensed securities salesman, some of whom had been brokers but had been barred or left the business, were instrumental in selling the Woodbridge real estate notes to investors.
Recent actions by a state regulator, as well as two by the Financial Industry Regulatory Authority Inc., show that the Woodbridge notes were also sold by licensed securities brokers and advisers, some of whom hid the sales of the notes from their firm.
For example, Finra last Friday barred Christopher Wendel, a former broker with SA Stone Wealth Management Inc., who sold $343,500 in Woodbridge promissory notes between April and August 2017, collecting $10,000 in commissions.
According to the Finra order, Mr. Wendel violated industry rules because he did not tell SA Stone he was selling Woodbridge or get the firm’s approval, the definition of “selling away.” Mr. Wendel also gave false testimony about the sale of the Woodbridge notes, according to the Finra order.
Mr. Wendel could not be reached to comment. In the Finra settlement, he neither admitted or denied its findings.
Also in Finra’s cross hairs was Peter Holler, a rep formerly registered with Securities Service Network. Finra suspended Mr. Holler last month for two years and fined him $10,000, for selling the Woodbridge notes without telling his firm or getting its approval, according to the Finra order.
From September 2016 to August 2017, Mr. Holler sold close to $1.4 million of Woodbridge promissory notes to 19 people, nine of whom were customers of the firm, according to Finra. He got close to $50,000 in commissions, and also bought $75,000 of the notes for himself.
Mr. Holler did not return a phone message on Tuesday, but in the settlement he neither admitted or denied the findings.
Also last month, the Pennsylvania Department of Banking and Securities fined a state registered investment adviser, John Harris, $100,000 for selling the Woodbridge notes from October 2013 to last November and collecting a commission while not registered as a broker. Because he was not a registered agent, he violated state rules, according to the Pennsylvania settlement.
Reached by phone on Tuesday, Mr. Harris declined to comment.
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