A California man has pleaded guilty in Florida to orchestrating a fraudulent property Ponzi scheme valued at over $1.29bn, which took money from 9,000 investors over five years.
Robert Shapiro, 61, pleaded guilty in Miami last week to mail and wire fraud and tax evasion. He faces up to 25 years in prison at sentencing in October.
According to the indictment and court documents, Shapiro’s Woodbridge Group of Companies LLC offered investors the chance to make loans to property developers that he claimed made high monthly rates of interest.
Woodbridge falsely claimed that these investments were tied to real property owned by third parties, but where the properties existed, they were secretly owned by Shapiro through a network of more than 270 limited liability companies.
Furthermore, he was operating a Ponzi scheme in which new investments were needed to repay earlier customers’ loans and interest, said US Attorney Ariana Fajardo Orshan. In some instances, Shapiro made these fraudulent "interest" payments even when the advertised investment properties had never been acquired.
To keep the Ponzi scheme running, Shapiro employed about 130 people in Florida, California, Colorado, Tennessee and Connecticut, a sales operation prosecutors called a "boiler room". They used high-pressure sales tactics, deception and manipulation to convince more than 9,000 investors to hand over their money.
At least 2,600 of these victims had invested their retirement savings, totaling approximately $400m.
Woodbridge even misled financial advisors into promoting the scheme, the US Attorney said.
In all, 7,000 investors lost money. According to Bloomberg, losses to investors are expected to exceed $100m.Â
Prosecutors allege Shapiro misappropriated up to $95m for himself and immediate family in the scam, which ran from July 2012 until December 2017, when Woodbridge filed for Chapter 11 bankruptcy protection.
Prosecutors said Shapiro used investors’ money for his $6.7m home and $3.1m for chartering planes and for personal travel.
Shapiro agreed to forfeit artworks by Pablo Picasso, Alberto Giacometti, Marc Chagall, and Pierre-August Renoir as well as 603 bottles of wine, a hoard of jewellery and a 1969 Mercury convertible.
Ryan O’Quinn, Shapiro’s lawyer, said in a statement: "Mr Shapiro has taken personal responsibility for the failure of Woodbridge. His guilty plea follows his decision to voluntarily place hundreds of millions of dollars of assets under bankruptcy court supervision and the consensual resolution of the Securities and Exchange Commission’s enforcement investigation."
Image: Â©GCR, illustration by Denis Carrier