Woodbridge's alleged Ponzi scheme hits home for Treasure Coast seniors bilked of savings
Anthony Elvas bet big on the Woodbridge Group of Companies.
The mailers he received promised three times the interest banks were paying. The host of a free dinner seminar said his investment wouldn’t be affected by market downturns because it was backed by real estate. It was a smart, conservative investment, he said Vero Beach insurance salesman Al Klager assured him.
So the 90-year-old pulled out of the stock market and invested his life savings — about $160,000.
His accounts paid dividends at first, but when he tried to withdraw $10,000, he never got it. Now all his money is gone.
Woodbridge filed for bankruptcy Dec. 4. Two weeks later, the Securities and Exchange Commission filed a federal civil lawsuit accusing the company of operating a $1.2 billion Ponzi scheme.
“It was all I had,” said Elvas, a resident of The Preserve of Vero Beach. “I got problems at home with me, my wife. If it wasn’t for Medicare, we’d be out in the street like the rest of the homeless.”
His Social Security isn’t enough to make ends meet, so he said he is considering selling his belongings and getting a reverse-mortgage on his home. He’s also hired an attorney to try to recover some of his losses.
“I don’t know what I’m going to do,” Elvas said. “I’m going to play it one day at a time right now."
Treasure Coast victims
Woodbridge owes money to 54 Treasure Coast residents, according to bankruptcy documents, which don’t list the amounts.
Over 8,400 people from the U.S. and Canada invested in the company, including 2,600 who invested their retirement savings, the SEC complaint says.
TCPalm interviewed three other Treasure Coast investors, but they declined to talk on the record because they are seeking legal action against Woodbridge and its founder, Robert H. Shapiro.
In theory, Woodbridge would make construction loans to third-party borrowers using money from investors, who then would get monthly interest payments: 5 percent for investing the minimum $25,000 and 6 percent for investing over $100,000, according to marketing materials.
“From what they told me, the money went into mortgages of property that was worth a hell of a lot more than they were mortgaging for,” Elvas said. “They said if anything happened, they could sell the property and get your money back, and that’s what I went on.”
In reality, Woodbridge shuffled investors’ money around Shapiro’s 275 limited liability companies to make it look like the money was being loaned, according to the SEC. The shell companies had no bank accounts or revenue sources, and Woodbridge used new-investors’ money to pay previous-investors’ interest, the SEC says.
That's the definition of a Ponzi scheme.
The few investments Woodbridge actually made generated minimal revenue, the SEC complaint says, and “many of the properties Woodbridge purchased remain as vacant lots that have sat undeveloped for years.”
After Woodbridge opened in 2012, some financial experts saw its larger-than-life promises as red flags and some tipped off Florida regulators, who didn’t investigate until it was too late.
“The obvious thing that kind of jumped out to me is, if they’re investing in real estate, why won’t a bank loan them money?” said Scott Turnbull, a Stuart securities lawyer who said he is suing on behalf of some local investors and considering a class-action suit. “Why does a sophisticated company need to go raise $60,000 here, $50,000 there, from elderly investors?”
Shapiro used $21 million of investor money to fund his extravagant lifestyle, the SEC says. A few examples include:
- $3.1 million to charter private planes
- $1.4 million on luxury designer goods such as Chanel and Louis Vuitton
- $700,000 on meals and entertainment
- $600,000 on political contributions
- $400,000 on jewelry
- $308,000 on wine
- $130,000 on country club fees.
An attorney representing Woodbridge deferred TCPalm’s questions to Shapiro, whose attorney denied all allegations of wrongdoing.
“Mr. Shapiro is hopeful that Woodbridge management will not be inhibited in its important efforts by unnecessary litigation and administrative inefficiencies at the expense of creditors,” attorney Ryan O’Quinn said in an emailed statement.
It’s unclear whether those who sold securities for Woodbridge will face charges. The SEC complaint names only Shapiro, but some states have taken action against brokers.
The Treasure Coast brokers TCPalm identified, based on newspaper advertisements and interviews with investors and financial experts, include:
- James H. Gilchrist of Florida Tax Advisory Services in Fort Pierce
- Al Klager of Atlantic Financial Services in Vero Beach
- Gordon C. Hannah of Retirement Planning Solutions in Stuart
Gilchrist did not respond to requests for comment and Klager and Hannah declined to comment.
None were licensed to sell securities while Woodbridge was operating — Woodbridge itself was an unlicensed security — and all have a checkered history:
- 2002: The Florida Division of Securities fined him $26,722 for selling unregistered securities.
- 1995: The National Association of Securities Dealers fined him $1,320 after a client complained he made false statements about an annuity.
- 1998: Three DUIs since then; two convictions and one reduced to reckless driving
- 2002: The Department of Insurance fined him $2,000 for allegations of misrepresentation.
- 2013: The Department of Financial Services fined him $500 for stating on his insurance license application he’d never received an administrative punishment. The Bureau of Licensing said the violation was serious enough to deny his application, yet the agency did not
- 2009: Hasn’t been registered to sell securities since he left Brookstone Securities, which federal regulators fined $1 million for defrauding clients, and eventually shut down in 2012.
- 2002: Convicted of DUI in Martin County
All three had their own money invested in Woodbridge, and they told clients that when convincing them to invest. SEC documents don’t say how much they invested, but regulatory action against a Massachusetts broker offers details.
Frank John Capuano invested $55,000 of his own money and sold $1.1 million of Woodbridge securities to nine close friends and family. He received $34,000 in commission on those sales, according to regulatory documents. SEC documents don’t say whether he and his investors received any interest, but he lost his job, was fined $10,000 and was suspended from federally registered firms for a year.
Bob Anderson tried to warn Florida officials something wasn’t right in December 2016.
The Vero Beach president of Anderson Wealth Management sent the Department of Financial Services a copy of Klager’s ad from the Indian River Press Journal.
“Are there enough disclosures on these ads? Are these products legal to advertise and sell to the public?” the financial adviser asked in his letter.
Rather than forward Anderson’s complaint to investigators at the Office of Financial Regulation, the Department of Financial Services merely told Anderson it doesn’t provide advice on which advertisements are legal.
That was a “miscommunication,” spokesman Jon Moore told TCPalm, adding the tip “could have been handled differently.” Still, he emphasized such tips must “clearly indicate a suspicion of unlawful activity,” before the department will act on it.
Anderson said he didn’t accuse Klager of breaking the law because he’s not an expert in disclosure requirements and he didn’t want to falsely accuse Klager.
“I expected (the department) to look at the ad and say, ‘Something isn't right here,’ and start asking more questions,” Anderson told TCPalm in an email. “Had I known the state would take such a narrow view of the ad, I would have asked them to answer more questions to focus their thinking.”
The state received several more tips, Moore said, but the Office of Financial Regulation would not give them to TCPalm, citing “an ongoing open investigation,” spokeswoman Jamie Mongiovi said.
Florida law prohibits selling unregistered securities, save for a few exceptions, but it’s unclear whether any exceptions apply to Woodbridge Securities.
Other states acted
Citing laws prohibiting the sale of unregistered securities, five states tried to prevent Woodbridge from doing business there long before the SEC stepped in.
In April 2015, Massachusetts fined Woodbridge $250,000 and issued a cease-and-desist order barring the company from doing business in the state. Four others followed suit: Texas in July 2015; Arizona in October 2016; Pennsylvania in April 2017 with a $30,000 fine; and Michigan in August 2017, with a $20,000 fine.
The states varied on whether they pursued charges against brokers. Arizona fined each $3,000 and formally recommended license revocation. Texas listed brokers as co-defendants. Massachusetts, Pennsylvania and Michigan did not pursue charges.
Woodbridge did not comply with any cease-and-desist court orders, reached as a part of settlements with the states, according to the SEC complaint.
Rather, Woodbridge sold $3.2 million in securities in Massachusetts, $2.6 million in Pennsylvania, $2.3 million in Texas, $900,00 in Arizona and none in Michigan.
What you can do
Would-be investors should research brokercheck.finra.org, an independent regulator whose website lists brokers’ licenses, past employment and all sanctions and formal allegations against them and their companies, financial experts said.
Watch for these red flags, according to the SEC:
- Unregistered or unlicensed sellers
- Promise of high returns with little or no risk
- Pressure to buy quickly
- Free meals
- Brokers with a history of complaints or regulatory actions against them
Report fraudulent activity to the Florida Office of Financial Regulation at:
- 877-693-5236 (consumer services)
- 800-378-0445 (fraud hotline)
“Get a second opinion” from an attorney, accountant or licensed financial adviser, said Turnbull, the Stuart securities lawyer. Anderson, the Vero Beach adviser, recommended comparing investments, and to remember, “If it looks too good to be true, it probably is.”
Article From:- https://www.tcpalm.com