SEC Shuts Down $1.2 Billion “Hard Money” Ponzi Scheme

The Securities and Exchange Commission (SEC) announced charges and an asset freeze against a $1.2 billion Ponzi scheme operated by Robert H. Shapiro, owner of Woodbridge Group of Companies LLC, on December 21st, 2017. Woodbridge represented itself as a company that made 11-15% short-term “hard money” loans to commercial real estate owners and redistributed 5-10% of the interest to investors. Woodbridge claimed that “clients keep coming back to us because time and experience have proven results. Over 90% national renewal rate!” Turns out a majority of the commercial real estate companies Woodbridge was making loans to were shell companies owned by Shapiro with no revenue and no intent of paying back the loans. Interest paid to existing investors came only from deposits made by new investors. Woodbridge “consultants” were unregistered agents and collected $64.5 million in commissions to pitch unregistered investments as “low risk” and “conservative” to thousands of retirees. The Ponzi scheme crashed when Woodbridge failed to acquire new clients, stopped paying existing investors, and filed for Chapter 11 bankruptcy in December. What could the 8,400 investors caught in this Ponzi scheme have done differently to protect themselves? In my recently published book, “The Most Important Finance Book Ever Drawn,” I provide a list of questions to ask any Financial Advisor. Here are a few questions from that list that may have helped investors realize they were dealing with Brokers selling products and not Investment Advisors.

This is an actual image from "Our Team" section of Woodbridge website

1. Do you consider yourself a fiduciary? If not, why?

2. Are you willing to act as a fiduciary solely on my behalf?

3. Are you willing to disclose any conflicts of interest?

4. How are you compensated?

5. Will you earn a higher fee or compensation if I invest in certain products?

6. Will you provide a list of the fees and commissions you receive either directly from me or from other sources in writing?

Watch Guard Capital believes that a strong investment plan has robust safeguards. A knowledgable independent Investment Advisor to translate your needs into a financial plan, a non-affiliated and nationally recognized custodian to house your investments, and unaffiliated investments are all key components to protect your wealth. Avoiding illiquid private equities, Business Development Companies (BDC), non-publicly traded Real Estate Investment Trusts (REIT), and unregistered investment pools are just as important as researching your advisor’s background through sources such as brokercheck.finra.org and adviserinfo.sec.gov. Still need help? Contact Watch Guard Capital today to discuss a discrete and independent review of your advisor and investment safeguards.

Slick Mick Signals 2008 Financial Crisis Officially Forgotten

In 2008, the Financial Sector brought the country to its knees with insufficient regulation, over-leveraged balance sheets, and predatory lending practices developed to take advantaged of Americans and our non-existent financial education system. The leverage imploded, billion-dollar firms were acquired or disappeared in the middle of the night, and Americans were charged with picking up the pieces and the tab. The country healed and out of the rubble grew the Consumer Financial Protection Bureau (CFPB) to ensure it never happened again. The CFPB’s mission is to empower consumers making financial decisions, take action against predatory companies breaking the law, and educate Americans on finance from childhood through retirement; help we desperately need!

2017 CFPB accomplishments include suing Navient Corp. and Citibank for systematic student loan failures that harmed borrowers, taking actions against Prospect Mortgage, LLC for illegal kickbacks on mortgage referrals, filing complaints against Corinthian College for predatory lending schemes, and suing Federal Debt Assistance Association, LLC for illegally posing as federal government debt-relief. A complete review of CFPB’s enforcement actions indicate it is successfully carrying out its mission objectives, which is why it is incomprehensible that Mick Mulvaney who called the bureau "a joke, in a sick, sad way” earlier this year and supported eliminating it was just named the Director. His appointment is a blatant attack on consumer financial protection and an indication that the 2008 Financial Crisis has been officially forgotten by politicians, and thus may be repeated.

Overvalued Stock Market?

A common metric to evaluate investments is the Price to Earnings Ratio (PE Ratio). Imagine buying a company that makes $10,000 a year for $100,000. The PE Ratio would be 10 because a price of $100,000 divided by earnings of $10,000 is 10. If an investor paid $200,000 for the same company, the PE Ratio would be 20 and the possibility for overpayment would have increased. On a historic basis, the stock market (S&P 500®) trades at 15 to 17 times earnings. The fact that the stock market now trades at 25.75 times earnings implies market optimism and an expectation that earnings will increase, corporate costs will decrease, future tax codes will be more favorable, or some combination of positive changes that supports the third highest PE Ratio in 157 years. So is the stock market overvalued? If you are concerned with this question you haven’t thought out your investing strategy enough, are too exposed to the stock market, or improperly hedged to weather the storm. Maybe the optimism is well-founded, maybe next year the market will be flat and earnings will catch up to the recent price appreciation, or maybe the market will revert back to 17 times earnings and drop 41.74%. In the end, a consistent investment strategy is more important than an opinion and building a portfolio with optionable investments gives you options.