The US Securities and Exchange Commission is pressing charges against - and freezing the assets of - a group of unregistered funds and their owner who allegedly defrauded thousands of HNW investors, many of them elderly.

According to the SEC’s complaint, unsealed in a federal court in Miami, Robert Shapiro and a group of unregistered investment companies called the Woodbridge Group engineered a scam against more than 8,400 investors in unregistered Woodbridge funds.

The complaint alleges that Woodbridge’s business model was a sham, claiming that the only way in which the group could pay investors their dividends and interest payments was through the constant infusion of new money from new investors.

Shapiro allegedly used a web of layered companies to conceal his ownership interest in the purported third-party borrowers. According to the SEC complaint, Woodbridge advertised its primary business as the issue of loans to supposed third-party commercial property owners who paid Woodbridge 11-15% interest per annum for 'hard money,' short-term financing. In return, Woodbridge allegedly promised to pay investors 5-10% 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% national renewal rate!”  

Although 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.

Shapiro and Woodbridge allegedly used investors’ money to pay $64.5 million in commissions to sales agents while Shapiro himself, of Sherman Oaks in California, drained off $21 million for his own use, chartering aeroplanes and buying luxury vehicles and jewellery. The SEC says that the scheme "collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection."

The investigation continues.