Robert H. Shapiro led a $21 million lifestyle that included chartering planes and dining in posh country clubs while his 8,400 unsuspecting investors were being bilked out of $1.2 billion in an elaborate Ponzi scheme, according to a Securities and Exchange Commission lawsuit filed this week.

The SEC brought the charges and an asset freeze against Shapiro and his group of unregistered companies, the Woodbridge Group of Companies LLC, headquartered in Boca Raton, Fla., in Miami federal court this week.

Armed with a band of high-pressure sales agents, Shapiro is alleged to have conducted a massive scam using his web of 275 limited liability companies, which

“Our complaint alleges that Woodbridge’s business model was a sham,” said Steven Peikin, co-director of the SEC’s Enforcement Division. “The only way Woodbridge was able to pay investors their dividends and interest payments was through the constant infusion of new investor money.”

 From July 2012 through December 4, 2017, Shapiro and his sales agents told investors they would be repaid from the high rates of interest Shapiro's companies were earning on loans they were purportedly making to third-party borrowers, the SEC alleges in its lawsuit. However, nearly all the purported borrowers were actually the LLCs that were owned and controlled by Shapiro, and had no revenue, no bank accounts, and never paid any interest on the loans.

The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.” The money was also used to continue to pay investors who cashed out of the investments, Ponzi scheme style.

Shapiro, of Sherman Oaks, Calif., is alleged to have used at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry.  According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.

“We allege that through aggressive tactics, Woodbridge and Shapiro swindled seniors into a business model built on lies, which the SEC’s Miami Regional Office staff moved to halt,” said Stephanie Avakian, co-director of the SEC’s Enforcement Division.

 “Our complaint further alleges that Shapiro used a web of layered companies to conceal his ownership interest in the purported third-party borrowers,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office.  “Shapiro used the scheme to line his pockets with millions of investor dollars.”

According to the SEC complaint, Woodbridge advertised its primary business as issuing loans to supposed third-party commercial property owners who in turn would pay Woodbridge 11-15 percent annual interest for short-term financing.  In return, Woodbridge allegedly promised to pay investors 5-10 percent interest annually.  Woodbridge and Shapiro allegedly sought to avoid investors cashing out at the end of their terms and boasted in marketing materials that “clients keep coming back to [Woodbridge] because time and experience have proven results.  Over 90 percent national renewal rate!”  While Woodbridge claimed it made high-interest loans to third parties, the SEC’s complaint alleges that the vast majority of the borrowers were Shapiro-owned companies that had no income and never made interest payments on the loans.

Judge Marcia G. Cooke granted the SEC’s request for a temporary asset freeze against Shapiro and a group of his unregistered investment companies, and ordered them to provide an accounting of all money received from investors. A court hearing has been scheduled for Dec. 29, 2017, on the SEC’s request to continue the asset freeze.  The SEC’s motion for the appointment of a receiver over Woodbridge and the related companies is pending.  

This is the second case the SEC brought this week against plaintiffs who have sought to financially exploit senior investors. 

“The SEC’s focus is very much on senior investors and I’d expect that to continue into 2018,” Olga Greenberg, a partner in the law firm of Eversheds Sutherland, told Financial Advisor magazine.

Earlier this week, the SEC charged North Carolina-based investment advisor Stephen C. Peters with running a Ponzi scheme that primarily targeted retired and elderly investors.

The SEC’s lawsuit alleges that Peters, through his investment advisor firm VisionQuest Wealth Management, sold promissory notes issued by another one of his companies, VisionQuest Capital, to clients and other prospective investors, from April 1, 2012, to June 30, 2017.

Peters promised that investors’ money would be invested into revenue-producing businesses with neither Peters nor his businesses receiving compensation. Peters also claimed that the VisionQuest Capital notes presented little or no risk of loss and were "guaranteed," the SEC complaint alleges.

Instead, Peters allegedly spent at least $4.4 million to remodel a large farm in North Carolina, purchased fine art for his home and built a vacation home in Costa Rica. Peters also spent at least $4.9 million to make Ponzi payments to earlier investors, according to the SEC's complaint,

In a parallel action, the U.S. Attorney's Office for the Eastern District of North Carolina today announced criminal charges against Peters, including a charge that alleges that Peters attempted to withhold and conceal records from the SEC, fabricated records, and provided false testimony in the SEC's investigation of Peters' scheme.