SEC Charges Unregistered Brokers Who Sold Woodbridge Securities to Main Street Investors

The Securities and Exchange Commission today charged five individuals and four companies for unlawfully selling securities of Woodbridge Group of Companies LLC to retail investors.  Woodbridge collapsed into bankruptcy in December 2017 and the SEC previously charged the company, its owner, and others with operating a massive $1.2 billion Ponzi scheme.

The Florida-based defendants named in the SEC’s complaints, Barry M. Kornfeld, Ferne Kornfeld, Lynette M. Robbins, Andrew G. Costa, Albert D. Klager, and their companies, were among Woodbridge’s top revenue producers, selling more than $243 million of its unregistered securities to more than 1,600 retail investors. The complaints allege that defendants reaped millions of dollars in commissions on their sales of Woodbridge securities even though they were not registered as broker-dealers and were not permitted to sell securities.  Barry Kornfeld also violated a prior SEC order which barred him from acting as a broker.

“The broker-dealer and securities registration provisions are vital protections for retail investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.  “Our actions allege the defendants, while not registered as broker-dealers, pocketed millions of dollars in unlawful commissions from their widespread sales of unregistered Woodbridge securities.”

According to the SEC’s complaints, the defendants touted Woodbridge as a “safe and secure” investment.  The Kornfelds allegedly solicited investors at seminars and a “conservative retirement and income planning class” they taught at a Florida university.  The SEC alleges that Klager pitched Woodbridge investments in newspaper ads while Costa recommended them during a radio program he hosted and Robbins used radio, television, and internet marketing.

Once Woodbridge filed for bankruptcy, investors stopped receiving monthly interest payments and have not received a return of their investment principal.  Woodbridge has since agreed to settle the liability portion of the SEC’s charges without admitting or denying the allegations and reached a resolution with the SEC and creditors in a bankruptcy action regarding the ongoing control and management of Woodbridge.  The SEC’s monetary claims against Woodbridge remain pending.

In its latest actions, the SEC filed charges seeking court-ordered injunctions, return of allegedly ill-gotten gains with interest, and financial penalties against the Kornfelds, Costa, Klager and their companies.  Robbins and her company, Knowles Systems Inc., agreed to settle the SEC’s charges in a separate action without admitting or denying the allegations and return more than $1 million of allegedly ill-gotten gains plus interest.  Robbins also agreed to pay a $100,000 civil penalty and to an industry and penny-stock bar.

The SEC’s investigation, which is continuing, has been conducted by Scott A. Lowry, Russell Koonin, Christine Nestor, and Mark Dee in the Miami Regional Office.  The case has been supervised by Jason R. Berkowitz and Fernando Torres, and the litigation will be led by Ms. Nestor, Mr. Koonin and Mr. Lowry under the supervision of Andrew O. Schiff.  The SEC appreciates the assistance of the State of Florida’s Office of Financial Regulation, the Financial Industry Regulatory Authority, and the North American Securities Administrators Association.

The SEC’s Office of Investor Education and Advocacy has issued an Investor Alert to help seniors identify signs of investment fraud and, in conjunction with the Division of Enforcement’s Retail Strategy Task Force, another Investor Alert about Ponzi schemes targeting seniors.  The SEC strongly encourages investors to use the agency’s Investor.gov website to check the backgrounds of people selling them investments to quickly identify whether they are registered professionals.

https://www.sec.gov/news/press-release/2018-157

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates Law Group, P.A provides ongoing corporate and securities counsel to private companies and public companies listed and publicly traded on the Frankfurt Stock Exchange, London Stock Exchange, NASDAQ Stock Market, the NYSE MKT and OTC Markets. For two decades the Firm has served private and public companies and other market participants in corporate law matters, securities law and going public matters. The firm’s practice areas include, but are not limited to, forensic law and investigations, SEC investigations and SEC defense, corporate law matters, compliance with the Securities Act of 1933 securities offer and sale and registration statement requirements, including Regulation A/ Regulation A+ , private placement offerings under Regulation D including Rule 504 and Rule 506 and Regulation S and PIPE Transactions as well as registration statements on Forms S-1, Form F-1,  Form S-8 and Form S-4; compliance with the reporting requirements of the Securities Exchange Act of 1934, including Form 8-A and Form 10 registration statements, reporting on Forms 10-Q, Form 10-K and Form 8-K, Form 6-K and SEC Schedule 14CInformation and SEC Schedule 14A Proxy Statements; Regulation A / Regulation A+ offerings; all forms of going public transactions; mergers and acquisitions; applications to and compliance with the corporate governance requirements of national securities exchanges including NASDAQ and NYSE MKT and foreign listings; crowdfunding; corporate; and general contract and business transactions. The firm provides preparation of corporate documents and other transaction documents such as share purchase and exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The firm prepares the necessary documentation and assists in completing the requirements of federal and state securities laws such as FINRA and DTC for Rule 15c2-11 / Form 211 trading applications, corporate name changes, reverse and forward splits, changes of domicile and other transactions. The firm represents clients in London, Dubai, India, Germany, India, France, Israel, Canada and throughout the U.S.