Woodbridge Group Files for Bankruptcy Amid SEC's Fraud Probe

(Bloomberg) -- Woodbridge Group of Companies LLC, a high-end real estate developer, filed for bankruptcy amid the departure of its chief executive and an investigation into potential securities fraud linked to $1 billion in investments.

The Chapter 11 filing on Monday in U.S. Bankruptcy Court in Wilmington, Delaware, cited “unforeseen costs associated with ongoing litigation and regulatory compliance.” The U.S. Securities and Exchange Commission has been probing whether Woodbridge defrauded investors who invested more than $1 billion. The agency also sought more information on about 236 limited liability companies Woodbridge formed, according to an October SEC court filing.

Woodbridge said in a statement it's cooperating with the investigation. Chief Executive Officer Robert Shapiro resigned, but will take on a consulting role as the Sherman Oaks, California-based company seeks to restructure $750 million in debt, according to the statement. He'll get a monthly fee of $175,000, which will be paid to WFS Holding Co., an entity he controls, according to court papers.

Affiliate Control

“Woodbridge has represented to investors that bona-fide third parties are borrowing money and repaying interest at a high rate, of which the investors in Woodbridge funds get a portion thereof,” the regulator said in an Oct. 31 filing. “However, evidence obtained in our investigation reveals that many, if not all, of these LLCs may be Woodbridge affiliates with Shapiro as their manager."

Ryan O'Quinn, a lawyer with DLA Piper representing Shapiro, didn't immediately return a call seeking comment about the SEC's investigation.

The Woodbridge Group Enterprise operates through a group of affiliated companies that are all directly or indirectly owned by RS Protection Trust, according to court papers. Robert Shapiro or members of his family are trustees, the papers show.

“Although RS Protection Trust retains its economic interests in the debtors, it has relinquished its control rights over them to independent third parties,” the company wrote in court papers filed Monday.

Hankey Capital LLC has agree to provide up to $100 million in debtor-in-possession financing to fund the business as it reorganizes, secured by liens on 28 properties, according to court papers. Larry Perkins of SierraConstellation Partners has been appointed chief restructuring officer.

The company's units specialize in multi-million-dollar properties, with recent listings including an $11.7 million, 8-bath home in Aspen, Colorado. They also market mortgage notes to individual investors, commercial loans and alternative investments.

CASE: In re Woodbridge Group of Companies LLC, 17-12560, U.S. Bankruptcy Court, District of Delaware

To contact the reporter on this story: Dawn McCarty in Wilmington, Delaware at dmccarty@bloomberg.net.

To contact the editors responsible for this story: James Crombie at jcrombie8@bloomberg.net, Rick Green at rgreen18@bloomberg.net, Tiffany Kary

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