The Securities and Exchange Commission is going after brokers who sold shares in a group of companies that collapsed when it was revealed that the companies were merely a front for a Ponzi scheme.
In January, the SEC announced charges against Robert H. Shapiro and a group of unregistered investment companies he owned called the Woodbridge Group of Companies. Woodbridge advertised its primary business as hard-money lending to commercial property owners who paid 11%-15% annual interest. In reality, according to the SEC, Woodbridge merely fronted a Ponzi scheme, and investors’ money went not to funding loans, but to paying off earlier investors. All told, Woodbridge allegedly bilked investors out of $1.2 billion.
Now the SEC has charged five individuals and four companies for unlawfully selling securities of Woodbridge to retail investors. The Florida-based defendants – Barry M. Kornfeld, Ferne Kornfeld, Lynette M. Robbins, Andrew G. Costa, Albert D.Klager and their companies – were among Woodbridge’s top revenue producers, selling more than $243 million in unregistered securities to more than 1,600 investors, the SEC alleged. The agency said that the defendants “reaped 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.”
“The broker-dealer and securities registration provisions are vital protections for retail investors,” said Eric I. Bustillo, director of the SEC’s Miami Regional Office. “Our actions allege the defendants, while not registered as broker-dealers, pocketed millions of dollars in unlawful commissions from their widespread sales of unregistered Woodbridge securities.”
When Woodbridge filed for bankruptcy, investors stopped receiving monthly interest payments and have not received a return of their investment principal, the SEC said. Woodbridge has since agreed to settle the liability portion of the agency’s charges without admitting or denying the allegations. The SEC’s monetary claims against the companies are still pending.
In the actions against the brokers, the SEC is seeking court-ordered injunctions, return of the allegedly ill-gotten gains with interest, and financial penalties against the Kornfelds, Klager, Costa and their companies. Robbins and her company, Knowles Systems, have agreed to settle the charges and return more than $1 million plus interest to investors. Robbins also agreed to pay a $100,000 civil penalty.