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CONSENT ORDER
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State of California - Department of Business Oversight
MARY ANN SMITH
Deputy Commissioner
MIRANDA LEKANDER
Assistant Chief Counsel
KENNY V. NGUYEN (State Bar No. 233385)
Senior Counsel
Department of Business Oversight
1515 K Street, Suite 200
Sacramento, California 95814
Telephone: (916) 322-8782
Facsimile: (916) 445-8730
Attorneys for Complainant
BEFORE THE DEPARTMENT OF BUSINESS OVERSIGHT
OF THE STATE OF CALIFORNIA
In the Matter of:
THE COMMISSIONER OF BUSINESS
OVERSIGHT,
Complainant,
v.
WOODBRIDGE GROUP OF COMPANIES,
LLC; WMF MANAGEMENT, LLC;
WOODBRIDGE STRUCTURED FUNDING,
LLC; WOODBRIDGE PRE-SETTLEMENT
FUNDING LLC; WOODBRIDGE
MORTGAGE INVESTMENT FUND 1, LLC;
WOODBRIDGE MORTGAGE INVESTMENT
FUND 2, LLC; WOODBRIDGE MORTGAGE
INVESTMENT FUND 3, LLC;
WOODBRIDGE MORTGAGE INVESTMENT
FUND 3A, LLC; WOODBRIDGE
MORTGAGE INVESTMENT FUND 4, LLC;
WOODBRIDGE COMMERCIAL BRIDGE
LOAN FUND 1, LLC; WOODBRIDGE
COMMERCIAL BRIDGE LOAN FUND 2,
LLC; AND ROBERT H. SHAPIRO,
Respondents.
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CONSENT ORDER
This Consent Order is entered between the Department of Business Oversight (Department)
through the Commissioner of Business Oversight (Commissioner), on the one hand, and Woodbridge
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CONSENT ORDER
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State of California - Department of Business Oversight
Group of Companies, LLC, WMF Management, LLC, Woodbridge Structured Funding, LLC, ,
Woodbridge Mortgage Investment Fund 1, LLC, Woodbridge Mortgage Investment Fund 2, LLC,
Woodbridge Mortgage Investment Fund 3, LLC, Woodbridge Mortgage Investment Fund 3A, LLC,
Woodbridge Mortgage Investment Fund 4, LLC, Woodbridge Commercial Bridge Loan Fund 1,
LLC, Woodbridge Commercial Bridge Loan Fund 2, LLC (collectively, the “Debtor Respondents”),
Woodbridge Pre-Settlement Funding, LLC and Robert H. Shapiro, (collectively with the Debtor
Respondents, the “Respondents”) on the other hand (hereafter, the “Parties”), and is made with
respect to the following:
RECITALS
A. At all relevant times, Woodbridge Group of Companies, LLC was a company formed
in California with a business address of 14225 Ventura Boulevard, Suite 100, Sherman Oaks,
California 91423.
B. Beginning as early as July 2012, Woodbridge Group of Companies, LLC and its
affiliates, including but not limited to WMF Management, LLC, Woodbridge Structured Funding,
LLC, Woodbridge Pre-Settlement Funding, LLC, Woodbridge Mortgage Investment Fund 1, LLC,
Woodbridge Mortgage Investment Fund 2, LLC, Woodbridge Mortgage Investment Fund 3, LLC,
Woodbridge Mortgage Investment Fund 3A, LLC, Woodbridge Mortgage Investment Fund 4, LLC,
Woodbridge Commercial Bridge Loan Fund 1, LLC, Woodbridge Commercial Bridge Loan Fund 2,
LLC (collectively, Woodbridge) offered securities in California to investors in at least two forms: (1)
subscription agreements for the purchase of equity interests or “Units” in one of Woodbridge’s seven
Delaware limited liability companies (Units); and, (2) lending agreements, some of which were
referred to as “First Position Commercial Mortgage Notes,” “mezzanine loans,” “construction loans,”
and “Co-Lending Opportunities” (collectively, FPCMs).
C. At all relevant times until December 1, 2017, Robert H. Shapiro (Shapiro) was
principal of the Woodbridge entities.
D. For the Units, investors were asked to give Woodbridge at least $50,000 per Unit for a
term of five years in exchange for a right to receive distributions and an equity interest in one of
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CONSENT ORDER
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State of California - Department of Business Oversight
seven limited liability companies (LLCs) that Shapiro formed in Delaware. Units investors executed
subscription and joinder agreements to memorialize the investment. Units investors had no role in
management decisions for the LLCs nor any voting rights. In exchange for giving Woodbridge
money, Units investors were promised 8 to 10 percent annualized interest, paid out monthly, plus 2
percent accrued interest and 50 percent of cumulative company profits at the end of five years.
E. For the FPCMs, investors were solicited to invest anywhere between $25,000 to well
over $250,000 to give to Woodbridge to pool with other investor monies. Woodbridge then lent the
pooled monies to third-party borrowers for a short time at a high interest rate to finance the
acquisition and/or development of real property in California, Colorado, and other states. FPCMs
investors had no role in selecting or vetting the purported third-party borrower. FPCMs investors
also had no decision-making role or management in negotiating the terms of the loans with the third-
party borrower, nor did they have any decision-making role in the real estate acquisition or
development.
F. In exchange for lending money to Woodbridge, FPCMs investors were promised that
they would “[e]arn a secured yield as high as 5%” in fixed monthly interest payments, for a term of
nine, twelve, or eighteen months, with options to renew or “reposition” their lending toward a
different real property at the end of the term. FPCMs investors were told that the loans they were
making were secured by a “collateral assignment of note, mortgage, and other loan documents,”
which would be recorded with the real property that was the subject of the loan. FPCMs investors
were told that the recorded documents would give them a “first position” lien interest in the subject
real property, and that this would allow FPCMs investors to be paid back first in the event the
borrower defaulted on the loan. Woodbridge assured FPCMs investors that Woodbridge would pay
them the interest payments regardless of whether the borrower defaulted on the loan. FPCMs
investors were also assured they would get back their full principal at the end of the term if requested.
G. Shapiro was the signatory on the subscription agreement for the Units on behalf of
Woodbridge and was identified as the “duly authorized” manager for the Woodbridge entities that
received the FPCMs “loans” from investors.
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H. Woodbridge used inhouse employees called “consultants” and paid external referrers,
insurance salespersons, investment advisors, and financial planners to solicit and sell Woodbridge
securities, including Units and FPCMs, in California.
I. California investors gave millions of dollars to Woodbridge for the purpose of
investing in FPCMs and Units beginning early as July 2012 until December 1, 2017. Woodbridge
filed for Chapter 11 bankruptcy on December 4, 2017. Since the filing of Chapter 11 bankruptcy,
Woodbridge stopped making interest payments to investors and has not returned the investors’
principals. In a letter dated December 5, 2017 to investors, Woodbridge disclosed that it considered
its obligation to make interest payments a “general unsecured claim.”
J. Beginning as early as July 2012, in connection with the offer and sale of the securities,
Woodbridge and Shapiro made, or caused to be made, misrepresentations of material fact or omitted
to state material facts necessary in order to make the statements made, in light of the circumstances
under which they were made, not misleading, as follows:
1) Marketing materials given to FPCMs investors touted Shapiro’s experience, success, and
reliability with commercial loans, first mortgages, and real estate acquisitions. Private placement
memoranda (PPMs) provided to Unit investors between 2012 and 2016 also touted Shapiro’s
extensive business experience. However, investors were not told that Shapiro had been the subject of
at least one prior involuntary Chapter 7 bankruptcy related to a failed real estate development
business in the State of New York;
2) Marketing materials given to prospective and actual FPCMs investors explained that
FPCMs investors would be financing exclusively commercial loans to third parties. However,
Woodbridge failed to disclose to investors that their money was not being lent to third-party
borrowers, but instead was given to companies managed and controlled by Shapiro as trustee of the
RS Protection Trust;
3) Marketing materials given to FPCMs investors falsely represented that the loans funded by
investors would make up only 60 percent of the appraised value of the subject real property, thereby
lowering the risks to investors in the event the borrower defaults on the loan. However, many of the
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CONSENT ORDER
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State of California - Department of Business Oversight
loans made were greater than 60 percent of (and sometimes even equal to) the appraised value of the
subject real property;
4) Woodbridge failed to disclose to FPCMs and Units investors that certain Woodbridge
entities had entered into consent orders with securities regulators in the State of Texas and the
Commonwealth of Massachusetts on March 18, 2016 and May 4, 2015, respectively, concerning the
sale of unregistered securities; and,
5) When investors discovered the Massachusetts consent order, Woodbridge falsely
represented that the consent order did not include provisions whereby Woodbridge admitted to the
risks associated with FPCMs.
K. The Commissioner is of the opinion that the FPCMs offered by Woodbridge and
Shapiro are securities subject to qualification under the Corporate Securities Law of 1968 (Corp.
Code, § 25000 et seq.) that have been offered or sold without first being qualified in violation of
Corporations Code section 25110.
L. Furthermore, the Commissioner is of the opinion that securities in the form of FPCMs
and Units were offered in the State of California by Woodbridge and Shapiro by means of a written
or oral communication which included an untrue statement of material fact or omitted to state a
material fact necessary to make the statement made, in light of the circumstances under which they
were made, not misleading, in violation of Corporations Code section 25401.
M. Respondents admit to the jurisdiction of the Commissioner with respect to the subject
matter hereof and agree to the execution of this Consent Order as a resolution of the matter without
the need to initiate litigation.
N. The Commissioner finds this Consent Order is appropriate, in the public interest, for
the protection of investors, and consistent with the purposes fairly intended by the policy and
provisions of the Corporate Securities Law of 1968 (CSL).
NOW THEREFORE, in consideration of the foregoing, and the terms and conditions set forth
herein, the Parties agree as follows:
TERMS AND CONDITIONS
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CONSENT ORDER
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State of California - Department of Business Oversight
1. Purpose. The purpose of this Consent Order is to resolve the foregoing issues in a
manner that avoids the expense of a hearing and possible other court proceedings.
2. Desist and Refrain Order. Respondents are hereby ordered to desist and refrain from
the further offer or sale of securities, in the State of California, including but not limited to lending
agreements such as FPCMs, unless and until qualification has been made under said law or unless the
security is exempt. Respondents are further hereby ordered to desist and refrain from offering or
selling any security in the State of California, including but not limited to lending and subscription
agreements, by means of any written or oral communication which includes an untrue statement of
material fact or omits to state a material fact necessary in order to make the statements made, in light
of circumstances under which they were made, not misleading in violation of Corporations Code
section 25401.
3. Waiver of Hearing Rights. Respondents have read this Consent Order, are aware of
their rights to a hearing and appeal in this matter if a formal enforcement action had been
commenced to request the relief specified under this Consent Order, and elect to permanently waive
any right to a hearing and appeal, including those rights under the CSL, the California
Administrative Procedures Act (Gov. Code, § 11400 et seq.), and the Code of Civil Procedure with
respect to the issuance of the Desist and Refrain Order specified in Paragraph 2.
4. Future Actions by the Commissioner. The Parties acknowledge and agree that nothing
contained in this Consent Order shall operate to limit the Commissioner’s ability to assist any other
agency, (county, state or federal) with any prosecution, administrative, civil or criminal, brought by
any such agency against Respondents based upon the subject matter hereof or otherwise. This
Consent Order shall not limit the ability of the Commissioner to bring any administrative or civil
action to enforce compliance with this Consent Order or to seek penalties for its violation. Further,
the Commissioner reserves the right to bring any future action(s) against Respondents or any of the
managers, officers, directors, shareholders or employees of Respondents for all unknown or future
violations of the CSL.
5. Independent Legal Advice. Respondents represent, warrant, and agree that they have
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had the opportunity to seek independent advice from legal counsel and/or representative with respect
to the advisability of executing this Consent Order.
//
6. No Other Representation. Each of the Parties represents, warrants, and agrees that in
executing this Consent Order each has relied solely on the statements set forth herein and the advice
of its own counsel and/or representative. Each of the Parties further represents, warrants, and agrees
that in executing this Consent Order it has placed no reliance on any statement, representation, or
promise of any other party, or any other person or entity not expressly set forth herein, or upon the
failure of any party or any other person or entity to make any statement, representation or disclosure
of anything whatsoever. The Parties have included this clause: (1) to preclude any claim that any
party was in any way fraudulently induced to execute this Consent Order; and (2) to preclude the
introduction of parol evidence to vary, interpret, supplement, or contradict the terms of this Consent
Order.
7. Modifications and Qualified Integration. No amendment, change, or modification to
this Consent Order shall be valid or binding to any extent unless it is in writing and signed by all the
parties affected by it.
8. Full Integration. This Consent Order is the final written expression and the complete
and exclusive statement of all the agreements, conditions, promises, representations, and covenants
between the parties with respect to the subject matter hereof, and supersedes all prior or
contemporaneous agreements, negotiations, representations, understandings, and discussions between
and among the parties, their respective representatives, and any other person or entity, with respect to
the subject matter covered hereby.
9. No Presumption from Drafting. In that the Parties have had the opportunity to draft,
review and edit the language of this Consent Order, no presumption for or against any party arising
out of drafting all or any part of this Consent Order will be applied in any action relating to,
connected, to, or involving this Consent Order. Accordingly, the Parties waive the benefit of Civil
Code section 1654 and any successor or amended statute, providing that in cases of uncertainty,
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CONSENT ORDER
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language of a contract should be interpreted most strongly against the party who caused the
uncertainty to exist.
10. Limited Nature of Consent Order. Respondents neither admit nor deny the allegations
and violations set forth in paragraphs A through L, above, in this Consent Order. As part of this
Consent Order the Respondents agree that they: (i) will not take any action or make or permit to be
made any public statement denying, directly or indirectly, any allegation in the Consent Order or
creating the impression that the Consent Order is without factual basis; and (ii) will not make or
permit to be made any public statement to the effect that the Respondents do not admit the allegations
of the Consent Order, or that this Consent Order contains no admission of the allegations, without
also stating that Respondents do not deny the allegations. If the Respondents breach this agreement,
the Department may vacate this Consent Order and restore this action. Nothing in this paragraph
affects the Respondents: (i) testimonial obligations; or (ii) right to take differing legal or factual
positions in litigation or other legal proceedings.
11. Effect Upon Future Proceedings. If Respondents apply for any license, permit or
qualification under the Commissioner’s current or future jurisdiction, or are the subject of any future
action by the Commissioner to enforce this Consent Order, then the subject matter hereof shall be
admitted for the purpose of such application(s) or enforcement proceedings(s).
12. Counterparts. This Consent Order may be executed in one or more counterparts, each
of which shall be an original but all of which, together, shall be deemed to constitute a single
document.
13. Terms, Headings and Governing Law. All terms used, but not defined herein, shall
have the meaning assigned to them by the CSL. The headings to the paragraphs of this Consent
Order are inserted for convenience only and will not be deemed a part hereof or affect the
construction or interpretation of the provisions hereof. This Consent Order shall be construed and
enforced in accordance with, and governed by, the laws of the State of California.
14. Authority for Settlement. Each party warrants and represents that such party is fully
entitled and duly authorized to enter and deliver this Consent Order. In particular, and without
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limiting the generality of the foregoing, each party warrants and represents that it is fully entitled to
enter the covenants, and undertake the obligations set forth herein.
15. Public Record. Respondents acknowledge that this Consent Order is a public record.
Respondents further understand and agree to not make any statement or representation that is
inconsistent with the Consent Order.
16. Voluntary Agreement. The Parties each represent and acknowledge that in executing
this Consent Order, each does so completely voluntarily and without any duress or undue influence of
any kind from any source.
17. Effective Date: This Consent Order shall become effective upon (i) the when executed by the
Commissioner or her designee and transmitted by electronic mail to Bradley Sharp at
[email protected], and Ryan Dwight O’Quinn at [email protected].
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Dated: 2/21/18 JAN LYNN OWEN
Commissioner of Business Oversight
By: ______________________________
MARY ANN SMITH
Deputy Commissioner
Enforcement Division
Dated: 2/20/18 _____________________________
ROBERT H. SHAPIRO
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CONSENT ORDER
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State of California - Department of Business Oversight
Subject to approval by the United States Bankruptcy Court for the District of Delaware:
WOODBRIDGE GROUP OF COMPANIES, LLC
WMF MANAGEMENT, LLC
WOODBRIDGE STRUCTURED FUNDING, LLC
WOODBRIDGE MORTGAGE INVESTMENT FUND 1, LLC
WOODBRIDGE MORTGAGE INVESTMENT FUND 2, LLC
WOODBRIDGE MORTGAGE INVESTMENT FUND 3, LLC
WOODBRIDGE MORTGAGE INVESTMENT FUND 3A, LLC
WOODBRIDGE MORTGAGE INVESTMENT FUND 4, LLC
WOODBRIDGE COMMERCIAL BRIDGE LOAN FUND 1, LLC
WOODBRIDGE COMMERCIAL BRIDGE LOAN FUND 2, LLC
Dated: 2/20/18 By: ______________________________
BRADLEY SHARP
Chief Restructuring Officer
WOODBRIDGE INDEPENDENT MANAGER, LLC
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CONSENT ORDER
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State of California - Department of Business Oversight
Dated: 2/20/18 WOODBRIDGE PRE-SETTLEMENT FUNDING LLC
By: ______________________________
President and Chief Operating Officer