UPDATED, Tuesday, November 15th, 2017, 11:15 a.m.: Woodbridge Group of Companies, a real estate investment company led by Robert Shapiro, is under investigation by the Securities and Exchange Commission for allegedly orchestrating a fraud, The Real Deal has learned.
The Sherman Oaks-based company has raised over $1 billion from several thousand investors nationwide through hundreds of limited liability corporations, court documents filed in the Southern District of Florida claim.
In the documents, the SEC alleges Woodbridge “operated a fraud on its investors.”
The SEC first launched an investigation into the firm in November 2016, looking into the “offer and sale of unregistered securities, the sale of securities by unregistered brokers and the commission of fraud in connection with the offer, purchase and sale of securities.” At the time, it made informal requests with the firm requesting company documents.
Woodbridge failed to produce the necessary documents, according to court filings, which led to a Jan. 31 subpoena demanding Woodbridge identify its investors, release sales agents’ compensation, share emails from three high-level executives and turn over a privilege log. Woodbridge provided some documents, but not all of what was requested, according to the SEC, which issued a second subpoena on July 17.
Woodbridge has since released both personal and corporate emails to the government, including those of CEO Shapiro, managing director Dayne Roseman and 10 others, according to a court document filed on Sept. 19. The company was forced to release correspondences that had any of the 23 “keywords” requested by the SEC – including broad terms such as “pay” and “Bob” – from a compilation of roughly 23,000 emails.
“Woodbridge Group of Companies has cooperated, and will continue to cooperate, with the Securities and Exchange Commission’s exceedingly broad request for documents,” Shapiro said in an emailed statement he sent to TRD. “As of today, we have provided in excess of four million pages of documents to the agency in response to its requests.”
Shapiro said Woodbridge has not engaged in fraud and “stands squarely behind its business model.”
Woodbridge-related entities have been active in Los Angeles. Sturmer Pippin Investments, an LLC owned by Shapiro and an affiliate of Woodbridge, currently owns the Owlwood Estate, a 12,200-square-foot property acquired for $90 million and now listed for sale for double its purchase price — $180 million. Another Woodbridge-related LLC announced plans in May to develop a Bel Air spec mansion on land it acquired for $14.6 million in 2016 — which is slated to be finished in 2018 and listed for $100 million, or $19 million if bought before development begins. Woodbridge entities also purchased four teardowns in the expensive Trousdale Estates for $29 million, as well as three teardowns in the Bird Streets for $31 million — all in the last two years.
The company’s sky-high asking prices — even on properties that did not receive major renovations — are troubling, some sources said, even in the golden age of the spec manse. The firm could be hyper-inflating the value of its investments to portray a scenario different than reality, they said. One source who wished to remain anonymous labeled Woodbridge’s business model as reminiscent of a “Ponzi scheme” — the model that landed Bernie Madoff in jail at the height of the Great Recession.
The situation is also proving complicated for Beverly Grove-based boutique brokerage Mercer Vine, who sources said is largely backed and partly owned by Shapiro. The firm, led by Adam Rosenfeld, is usually the go-to for any Woodbridge listing and even represented the firm in its purchase of Owlwood.
“Almost all of Mercer’s listings are properties owned by [Shapiro],” a source said. “If they lose that account, it would be a huge blow.”
Rosenfeld declined to comment for this story.
Woodbridge already faced litigation between 2015 and 2017 from state governments in Massachusetts, Arizona, Michigan, Pennsylvania and Texas, court documents show. Woodbridge has settled actions in Pennsylvania, Texas and Massachusetts and is settlement talks in other states, Shapiro said.
“So far every state action that has been settled was settled with no admission of guilt nor finding of fraud,” Shapiro said in an email to TRD.
The investigation into Woodbridge has led to the formation of a website titled “woodbridgegroupfraud.com,” where attorneys from Stoltmann Law Offices are soliciting concerned investors.
“The grounds for the subpoenas are really troubling for whoever ultimately owns these entities — there’s definitely unregistered securities being sold and that’s a violation of every security law in the land so someone is going to have to explain that,” attorney Joe Wojciechowsky of Stoltmann said. “This is a really complicated situation with hundreds of different LLCs and tracing where all this money has gone is going to take [the SEC] a lot of time to figure out.”
This web of confusion, Wojchiechowsky said, is “a great way to…insulate [yourself] from liability.”
The story has been updated to include statements from Shapiro, who had not responded to requests at the time of initial publication.