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Investment fraud reminiscent of pre-recession schemes

As the economy plummeted in 2007, the phrase “Ponzi scheme” became a household term. This type of fraud is defined as “a fraudulent investment operation that pays quick returns to initial contributors using money from subsequent contributors rather than profit.” Over time, the operation requires exponentially more investors to pay the previous debts, which means it can’t last forever.

Eventually, the glass pyramid shatters.

One company may be reaching its breaking point as its investment practices are under SEC investigation. Woodbridge Group of Companies’ sensational marketing efforts claimed that anyone could receive a 6% return for their investments. Sales executives wined and dined their potential targets, misleadingly assuring them that their money would be safely linked to securitized mortgages.

However, the company did not necessarily follow through with that promise. Its founder, Robert H. Shapiro, allegedly loaned money through Woodbridge investors to his own LLC companies, which did not produce revenue to pay back those loans. Without a way to pay their debts, Shapiro’s companies needed more investors to pay the original investors on their behalf. This created a Ponzi scheme cycle, according to the SEC.

Now, the company is filing for Chapter 11 bankruptcy in Delaware and shuns Shapiro, who may have profited $21 million in the process.

While Woodbridge’s case is not based in Ohio, alleged fraud of this magnitude is often a national concern. The value of this operation reached $1.2 billion before the SEC took action. Furthermore, Woodbridge marketed to investors across America, which means some Ohio residents may be affected.

Woodbridge faces pending legislation with the SEC as well as paving a way to financial recovery. Whether fraud allegations are billions of dollars or only a few hundred, white-collar crime cases are extremely sensitive and require the help of an experienced attorney.

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