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.
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.