September 3, 2019, Delaware– During the last month, Michael Goldberg, the liquidating Trustee in the Woodbridge Group of Cos., Chapter 11 proceedings initiated over 50 lawsuits to claw back close to $1 million, allegedly a part of its $1.3 billion Ponzi scheme.
Commencing with the first filings on December 4, 2017, and continuing with other filings through March 27, 2018, Debtors Woodbridge Group of Companies, LLC, et al., each commenced a case by filing a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.
Before the commencement of the Chapter 11 cases, the Debtors operated a fraudulent investment “Ponzi Scheme.” According to the court papers, beginning July 2012 through December 2017, the Debtors’ ex- CEO, Robert H. Shapiro used his web of more than 275 limited liability companies, including the Debtors, to conduct a massive Ponzi scheme raising more than $1.22 billion from over 8,400 unsuspecting investors nationwide. The Ponzi scheme involved the payment of purported returns to existing investors from funds contributed by new investors. The plot was allegedly discovered in December 2017. As the complaint alleges, the Debtors raised over one billion dollars from approximately 10,000 investors through this fraudulent scheme. Now, the investors who placed a substantial percentage of their net worth (including savings and retirement accounts) with the Debtors stand to lose a significant portion of their investments. The quality of the investors’ lives will likely be substantially and adversely affected by the fraud perpetrated by the Debtors.
The investors were allegedly told that they were investing money to be loaned for the properties owned by the third parties. The Debtors assured the investors that the properties were worth substantially more than the loans against them and that they would have the benefit of a stream of payments from these third parties for high-interest loans, protected by security interests and mortgages against such properties. In reality, these statements were lies. The investors’ money was seldom used to make high-interest loans to unrelated, third-party borrowers; there was no stream of payments. Instead, the investors’ money was commingled and utilized for an assortment of expenses. The money was used to maintaining a lavish lifestyle for Shapiro and his family, brokers’ commissions, overhead (mainly for selling even more notes and units to investors), and payment of principal and interest to existing investors.
According to the Trustee, the payments made to various creditors during the 90 days before the Debtors’ bankruptcy are avoidable as a preferential transfer under Section 547 of the Bankruptcy Code. Thus, the Plaintiff is entitled to recover the ninety-day transfers under Section 550 of the Bankruptcy Code.
The Trustee also claims that the transfers which constitute “net winnings” be avoidable as fraudulent conveyances under Sections 544 and 548 of the Bankruptcy Code and Section 3439, et seq., of the California Civil Code. Accordingly, the Trustee alleged that he is entitled to recover the net winnings under Section 550 of the Bankruptcy Code and Section 3439, et seq., of the California Civil Code.
Debtors’ Chapter 11 Cases are jointly administered under Case No. 17-12560 (BLS) in the United States Bankruptcy Court for the District of Delaware. Honorable Judge Brendan Linehan Shannon is pressing over the Debtors’ bankruptcy cases.