A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

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Bob.Beeman
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A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Bob.Beeman » Sun Sep 18, 2016 2:52 pm

For the last year or two an organization calling itself "First Financial Tax Group " has been running banner ads in the Ft. Lauderdale (Florida) Sun-Sentinel. A friend of mine (age about 68) asked whether this was a "good deal" or not. I told him that this depends on what place fixed income has in his overall portfolio, but that it has a faint whiff of Ponzi about it.

The guy is a good friend who has limited employment prospects in the future and will probably be OK if he invests wisely. But he can't afford to be Ponzied out of $25,000 (the minimum investment).

A paragraph on their home tab says:
"First Position Commercial Mortgage Notes (FPCMs) are a SAFER alternative asset class that so many people are successfully using to improve their safety profile and increase their retirement income. Picture being able to achieve all this while staying short term, flexible, and able to take advantage of future opportunities! Let us show you how to integrate these into your portfolio mix today."
A quote from the text on the "Earn 6% for 1 Year" tab promises the following:
  • Earn 6% (APY) for One Year
  • Interest Paid Monthly
  • First Position Commercial Mortage Notes (FPCM) are SAFER alternatives. They are 12 month notes secured by high-value commercial real estate
  • Low $25,000 minimum
  • Great for single, joint, trust & IRA accounts
  • FPCM’s are not an annuity or insurance product
The reason I think this has a whiff of Ponzi is that they appear to offer above-market returns with low risk.

By way of comparison: So am I right to express a concern or not?

-Bob Beeman

tim1999
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Re: A Friend Asked Me - Ponzi or Not?

Post by tim1999 » Sun Sep 18, 2016 2:59 pm

There is a high-profile local realtor that is pitching something like this. $50,000 minimum investment. 7 to 11% annual return depending on which program you do. Advertises on the radio for free dinner seminars at a swanky local restaurant. He uses the money buy and flip distressed houses that his agency then sells.

I can't figure out why he has to pay that much in interest and use private investors if he is so successful himself. I wouldn't do it.

If whomever is buying the real estate had decent financials they would have no problem getting the money from a bank at a cheaper rate. This tells me that they have poor financials or whomever is running it has bad credit.

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slayed
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Re: A Friend Asked Me - Ponzi or Not?

Post by slayed » Sun Sep 18, 2016 3:11 pm

They are 12 month notes secured by high-value commercial real estate
That is not what I would classify as a "safe" investment. My guess is that the 6% is not compensating you for the amount of risk that you are actually taking.

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Boglegrappler » Sun Sep 18, 2016 3:25 pm

So am I right to express a concern or not?
You're right.

For one thing, even it if were legitimate, no one who needs the 25k should be going into a deal that will surely be illiquid.

There isn't anything on their website that gives you any idea what the underlying generator of the supposed 6% is.

Steer clear is my read on this.

EDIT: You be the judge.
https://www.sec.gov/litigation/admin/2010/34-62466.pdf

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by pkcrafter » Sun Sep 18, 2016 4:00 pm

I can't figure out why he has to pay that much in interest and use private investors if he is so successful himself. I wouldn't do it.
He doesn't have to, but it's how he makes his income. The investors provide the income. The more he sells, the more he makes. Not so sure we can say that about the investors.

Bob B, tell you friend to stay away from it.

Paul

edit - added >> See the link about these commercial mortgage notes.

http://www.law360.com/articles/682361/t ... ties-fraud
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Abe
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Abe » Mon Sep 19, 2016 3:15 pm

Even if it's not a ponzi scheme, and it could be, there is still a good chance your friend could lose his money. It looks like they are buying existing mortgages or creating new mortgages secured by commercial real estate and issuing notes paying 6% supposedly secured by the real estate. What's to stop them from issuing more 6% notes than property they have to secure the notes. There have been numerous cases like this where the investors lost their money. There is nothing wrong with holding mortgages directly, but when dealing with a middle man, that's where you can get burned. The investor is just taking their word that their investment is secured. It may not be. I wouldn't touch it with a ten foot pole.
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Meg77
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Meg77 » Mon Sep 19, 2016 3:28 pm

Sounds like they are raising money for a hard money investing group. Those are typically 12 months or lower and cost borrowers 12-18% including fees. It would make sense that the company could raise money at 6% and still make a spread after expenses (including foreclosing on properties when loans go bad) if they are loaning funds out at 12-18%. The "commercial" mortgages are probably single family residential loans which again makes sense due to the small minimum investment requirement.

May not be a bad deal, but it's hardly "safe" investing. I highly doubt it's a scam if it's advertised so widely. There are lots of hard money lenders out there that raise money from investors to lend out to real estate landlord wannabes who can't get bank credit or don't want to wait for it (want to pay cash quick for foreclosures) or don't want to pay 20% down or want to do a fix and flip which banks won't finance. It doesn't sound like a Ponzi scheme, just a dramatic understatement of the risk (florida real estate - individual investors - height of another real estate market cycle).

I would advise your friend to ask for some more info on what type of mortgage notes he's buying (risk profile of the landlords, average loan to value, etc) and whether he actually gets any collateral (i.e. whether he actually owns pieces of the notes or not). This could be a risky allocation you decide to put 5-10% of your assets in, but I wouldn't bet more than that in such a small high risk investment.
"An investment in knowledge pays the best interest." - Benjamin Franklin

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by renue74 » Mon Sep 19, 2016 3:45 pm

It definitely sounds like a hard money loan request. After so many mortgages, a REI has hard time getting new mortgages. So either he's buying/flipping or buying new rental property using investor money.

Or he's a turnkey rehabber....buys the homes, repairs them, sells them to new buyers, and then sells his firm's property management skills and pulls 10% off a month from the rent...this is a specialty for selling to out of state absentee landlords. There are a ton of turnkey providers in hot rental market areas...Memphis, KC, etc.

I own a couple 1st position mortgages that I personally sold the property to the buyers. (commercial and residential) I own the whole note and have the property has collateral if there needs to be a foreclosure. I would imagine that pooling money and investing in these positions would be pretty high risk.

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by bottlecap » Mon Sep 19, 2016 3:56 pm

If it is not a Ponzi Scheme, it is, at best, a very risky investment.

JT

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Watty
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Watty » Mon Sep 19, 2016 10:40 pm

One thing to watch out for is that sometimes the X% return on things like that includes return of capital and not just interest. It could be that the 6% could really just be 2% interest and 4% of your own money being returned.
Bob.Beeman wrote:has been running banner ads in the Ft. Lauderdale (Florida) Sun-Sentinel. A friend of mine (age about 68) asked whether this was a "good deal" or not.
If it was a good deal then they would not have to advertise it like that.

They are just looking for suckers.

Valuethinker
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Valuethinker » Tue Sep 20, 2016 3:35 am

Very unlikely this would be a good deal, because if it was, there would be no need to offer it publicly in this form.

The returns almost certainly do not compensate for the risks to capital.

I would add illiquid & opaque. All things to be avoided.

Your friend would be better off with some of a Vanguard HY Bond fund (I don't normally recommend these, but in this case) and perhaps also a dividend income fund (equity). For all sorts of reasons this is not optimal in portfolio terms BUT for those who need the discipline of a fixed monthly income (which hopefully should not vary too much) this can help. Also they should consider an SPIA Annuity (the best way to address a fixed monthly income need).
Last edited by Valuethinker on Tue Sep 20, 2016 3:59 am, edited 1 time in total.

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Bogle_Feet
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Bogle_Feet » Tue Sep 20, 2016 3:40 am

Never invest in private equity. For someone to pay to advertise an investment is a red flag that whoever is advertising it, must be earning a LOT of money by selling it. Where does that money comes from? It MUST come indirectly from YOU when you invest in it. That money comes OUT OF YOUR INVESTMENT indirectly whether you know it or not. That makes it a bad investment right there.

Is it a Ponzi sceme or is there any fraud involved? I have no idea with regard to this specific investment. What I do know about promissory notes in general is that promissory notes are typically NOT even sold to the general public! When they are sold to individual investors, often they turn out to be scams. Private equity is loosely regulated. That's one of the main reasons never to invest in private equity.

When promissory notes are sold by brokers, often the broker knows absolutely nothing about the notes they are pushing other than what they have been told by the person or company offering them. Here's a typical story about a promissory note scam. http://sports.yahoo.com/blogs/not-for-a ... 32863.html

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Valuethinker » Tue Sep 20, 2016 4:02 am

Bob.Beeman wrote:For the last year or two an organization calling itself "First Financial Tax Group " has been running banner ads in the Ft. Lauderdale (Florida) Sun-Sentinel. A friend of mine (age about 68) asked whether this was a "good deal" or not. I told him that this depends on what place fixed income has in his overall portfolio, but that it has a faint whiff of Ponzi about it.

The guy is a good friend who has limited employment prospects in the future and will probably be OK if he invests wisely. But he can't afford to be Ponzied out of $25,000 (the minimum investment).

A paragraph on their home tab says:
"First Position Commercial Mortgage Notes (FPCMs) are a SAFER alternative asset class that so many people are successfully using to improve their safety profile and increase their retirement income. Picture being able to achieve all this while staying short term, flexible, and able to take advantage of future opportunities! Let us show you how to integrate these into your portfolio mix today."
A quote from the text on the "Earn 6% for 1 Year" tab promises the following:
  • Earn 6% (APY) for One Year
  • Interest Paid Monthly
  • First Position Commercial Mortage Notes (FPCM) are SAFER alternatives. They are 12 month notes secured by high-value commercial real estate
  • Low $25,000 minimum
  • Great for single, joint, trust & IRA accounts
  • FPCM’s are not an annuity or insurance product
The reason I think this has a whiff of Ponzi is that they appear to offer above-market returns with low risk.

By way of comparison: So am I right to express a concern or not?

-Bob Beeman
My father nearly got suckered into something in Real Estate which was very similar in the 1980s:

- commissions and fees often take out c. 25% of the money invested over time
- the returns don't match the risks
- these things are opaque and illiquid - there's no way out
- lots of opportunity for fraud even if that is not the actual purpose of the funds being raised

Your friend is better off with a combination of SPIAs, dividend income funds and HY bond funds. SPIAs preferred.

LonScott
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Sun Nov 05, 2017 2:31 pm

If anyone is following this, the firm offering this "investment" Woodbridge Wealth has received two SEC similar demands this year: "Securities and Exchange Commission v. 235 Limited Liability Companies, No. 1:17-mc-23986-PCH (S.D. Fla., filed October 31, 2017)

SEC Seeks Order Against 235 Entities Affiliated with Woodbridge Group of Companies, LLC to Produce Documents to SEC

The Securities and Exchange Commission has filed a subpoena enforcement action against 235 limited liability companies (the "LLCs") based in Delaware and Colorado seeking an order requiring the production of documents.

According to the SEC's application and supporting papers, filed in federal court in Miami:

The SEC is investigating whether Woodbridge or others have violated, or are violating, the antifraud, broker-dealer and securities registration provisions of the federal securities laws in connection with Woodbridge's receipt of over $1 billion of investor funds from thousands of investors nationwide." https://www.sec.gov/litigation/litrelea ... r23977.htm

They have been given Cease and desist orders from a number of States: including MA, TX, AZ.

The person selling this, mentioned by the OP, looks like an insurance agents http://www.fftaxgroup.us/services/ These sound safe but they are not First Positions: they are 2nd Trust Deed hard money loans. They will pay until the housing market tanks and the borrowers default.

No FINRA broker would sell this due to this: " April 2016, Frank John Capuano (Capuano), a registered representative, settled a complaint with the Financial Industry Regulatory Authority (FINRA), which alleged he participated in several private securities transactions, including the sale of Woodbridge Mortgage Investment Funds notes, without notice to his firm" and "Between December 2014 and March 2015, after learning of the Woodbridge Funds investment opportunity, Capuano offered and sold approximately $1.1 million in Woodbridge notes to nine of his RAI customers, all of whom were his close friends and family. In addition, Capuano purchased $55,000 of Woodbridge notes for himself and his wife in February 2015. Capuano received over $34,000 in commissions in connection with these transactions"

These Sch D offerings that can only be sold an accredited investor: "defined as a person must demonstrate an annual income of $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income. An individual must have earned income above the thresholds either alone or with a spouse over the last three years. The income test cannot be satisfied by showing one year of an individual's income and the next two years of joint income with a spouse. The exception to this rule is when a person is married within the period of conducting a test. A person is also considered an accredited investor if he has a net worth exceeding $1 million, either individually or jointly with his spouse. The SEC also considers a person to be an accredited investor if he is a general partner, executive officer, director or a related combination thereof for the issuer of unregistered securities."

I am not sure the OP's friend meets these. And I am not sure the Insurance Agent selling these cares.

Finally if anyone has made this far, the SEC information for these Woodbridge Mortgage Investment Funds, Item 15, states ZERO commissions or finders fees. Then how are they paying these Insurance agents? That is a serious question.

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unclescrooge
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by unclescrooge » Sun Nov 05, 2017 4:45 pm

Hard money loans in real estate are often 8% - 12%.

I've personally borrowed at 12%. You usually get this sort of loan when the property is in such a state of disrepair that it doesn't qualify for conventional financing.

If a property is worth $500k, but needs $100k of work, an investor could pay $250k, put down $75k, borrow $175k balance plus $100k at 12%. Even after all costs, the investor would next double his $75k investment.

Due to these returns, the hard money lender looks cheap at 12%.

Read John Napier's book on investing in real estate notes.

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Johm221122 » Mon Nov 06, 2017 9:17 am

If your friend is 68,he may like SPIA,as mentioned

wulfric
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by wulfric » Mon Nov 06, 2017 5:08 pm

I googled First Financial Tax group. The person running the company is Barry Kornfeld. He was apparently sanctioned by the SEC in 2010. I would stay away.

https://www.sec.gov/litigation/admin/2010/34-62466.pdf

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by gsmith » Mon Nov 06, 2017 5:28 pm

I would upvote Meg77 as the person who's most accurate.
While it's not a obvious scam, it's not something I would recommend to anyone but a high net worth investor.
You need economies of scale, specialized knowledge, and enough to be diversified in order for these to make sense.

- A ponzi would only be when invested money is used to pay back previous investors, it's a subset of scams, which this may or may not be.
- It's simple to see whether the property is already encumbered, someone will pay for a title search, or you can unoffically do it yourself at the county recorder's office. If it was, the previous lender would be paid off and sign a release.
- This is essentially a junk bond (not private equity).
- To get your money back, your attorney would file a foreclosure suit, at which point the property would go to sheriff's sale. At that point you can minimum bid for the amount of your mortgage, and get the property if no one outbids you (or get all your money back if someone does). You can also not bid if you have no interest in owning the property.
- If the borrower runs into hard times, he might not pay property taxes or insurance before you can foreclose, so be prepared to pay them and add it to their bill.
- It can be prepaid at any time, or depending on how the mortgage is written, it could be assumed by others... You only care about value of land.
- commissions and fees often take out c. 25% of the money invested over time
Notes pay what the paper says they will pay.
- these things are opaque and illiquid - there's no way out
These are negotiable, and can be sold to any 3rd party. Him finding a buyer anywhere near face value on the other hand....
- lots of opportunity for fraud even if that is not the actual purpose of the funds being raised
They are asking for a loan that's secured by real estate. I see no business plan or promise of how they will use the funds.

The SEC warning is a good indicator, but most creative real estate speculators would argue that a undivided note isn't a security that's regulated as an investment... Buyer beware!

If your friend does jump in, MAKE SURE HE GETS THE LANGUAGE AND MORTGAGE REVIEWED BY AN ATTORNEY EXPERIENCED IN REAL ESTATE DEBT. Contact your local creative real estate club for referrals.

Best of luck

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Wed Nov 08, 2017 10:25 am

wulfric wrote:
Mon Nov 06, 2017 5:08 pm
I googled First Financial Tax group. The person running the company is Barry Kornfeld. He was apparently sanctioned by the SEC in 2010. I would stay away.

https://www.sec.gov/litigation/admin/2010/34-62466.pdf
Good catch! It seems Mr. Kornfeld is not an investment advisor nor a broker anylonger. Then why is able to sell this "investment" This is a failure by both the SEC and Florida State regulators. Buyer beware. Just because someone runs ads doesn't mean it is legit.

6 Brokers Charged In Fraud
JUNE 2, 2009 • DOROTHY HINCHCLIFF
Sixteen brokers who worked for the now-defunct Brookstreet Securities Corp. in Irvine, Calif., have been charged with defrauding hundreds of customers by selling them collateralized mortgage obligations (CMOs) without revealing their risks.

Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have filed similar complaints against different brokers who had worked for the firm.

The SEC charged 10 former Brookstreet brokers in its civil complaint filed in West Palm Beach last week. The SEC's complaint alleges that the defendants portrayed particularly risky types of CMOs as secure investments to defraud more than 750 customers, ultimately costing them more than $36 million in losses. Meanwhile, the 10 brokers received $18 million in commissions and salaries related to their customers' investments in CMOs.

The SEC's complaint charges Florida residents William Betta, Jr., James J. Caprio, Troy L. Gagliardi, Barry M. Kornfeld, Clifford A. Popper, Alfred B. Rubin, and Steven I. Shrago as well as Travis A. Branch of Kailua, Hawaii, Russell M. Kautz of Medford, Ore., and Shane A. McCann of Florence, Mont.

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Wed Nov 08, 2017 10:58 am

gsmith wrote:
Mon Nov 06, 2017 5:28 pm


The SEC warning is a good indicator, but most creative real estate speculators would argue that a undivided note isn't a security that's regulated as an investment... Buyer beware!
Woodbridge filed SEC schedule D (private placements) for four investment funds. So I am not sure why these are not investments. Here are two:

https://www.sec.gov/Archives/edgar/data ... ry_doc.xml

https://www.sec.gov/Archives/edgar/data ... ry_doc.xml

In Fund 4, the exemption is Rule 506(b). It seems they are not following the advertising rules:

Under Rule 506(b), a company can be assured it is within the Section 4(a)(2) exemption by satisfying the following standards:

The company cannot use general solicitation or advertising to market the securities;

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Valuethinker » Thu Nov 09, 2017 8:59 am

LonScott wrote:
Wed Nov 08, 2017 10:25 am
wulfric wrote:
Mon Nov 06, 2017 5:08 pm
I googled First Financial Tax group. The person running the company is Barry Kornfeld. He was apparently sanctioned by the SEC in 2010. I would stay away.

https://www.sec.gov/litigation/admin/2010/34-62466.pdf
Good catch! It seems Mr. Kornfeld is not an investment advisor nor a broker anylonger. Then why is able to sell this "investment" This is a failure by both the SEC and Florida State regulators. Buyer beware. Just because someone runs ads doesn't mean it is legit.

6 Brokers Charged In Fraud
JUNE 2, 2009 • DOROTHY HINCHCLIFF
Sixteen brokers who worked for the now-defunct Brookstreet Securities Corp. in Irvine, Calif., have been charged with defrauding hundreds of customers by selling them collateralized mortgage obligations (CMOs) without revealing their risks.

Both the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have filed similar complaints against different brokers who had worked for the firm.

The SEC charged 10 former Brookstreet brokers in its civil complaint filed in West Palm Beach last week. The SEC's complaint alleges that the defendants portrayed particularly risky types of CMOs as secure investments to defraud more than 750 customers, ultimately costing them more than $36 million in losses. Meanwhile, the 10 brokers received $18 million in commissions and salaries related to their customers' investments in CMOs.

The SEC's complaint charges Florida residents William Betta, Jr., James J. Caprio, Troy L. Gagliardi, Barry M. Kornfeld, Clifford A. Popper, Alfred B. Rubin, and Steven I. Shrago as well as Travis A. Branch of Kailua, Hawaii, Russell M. Kautz of Medford, Ore., and Shane A. McCann of Florence, Mont.
Bernie Cornfeld and Robert Vesco perpetrated the IOS fraud (international mutual funds) on investors in the late 1960s.

This man's name is Kornfeld ? ! Talk about nominative determinism !

https://en.wikipedia.org/wiki/Bernard_Cornfeld

Valuethinker
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Valuethinker » Thu Nov 09, 2017 9:01 am

If it is "too good to be true" in investing, it usually is.

Return does not come without risk.

This thread is yet another instructive example of this phenomenon.

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by cjking » Thu Nov 09, 2017 9:22 am

If I find myself wondering whether something is a good investment, I ask if I'll be buying it at a price set in a large and liquid free market. If not, I assume the seller will be getting the better end of the deal.

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Re: A Friend Asked Me - Ponzi or Not?

Post by WhyNotUs » Thu Nov 09, 2017 10:00 am

tim1999 wrote:
Sun Sep 18, 2016 2:59 pm


I can't figure out why he has to pay that much in interest and use private investors if he is so successful himself. I wouldn't do it.

Because if you want to ride out the cycles of real estate, use as much OPM as possible and do more deals that you get a taste of with minimal personal risk. That is the formula for making money in the long haul

If whomever is buying the real estate had decent financials they would have no problem getting the money from a bank at a cheaper rate. This tells me that they have poor financials or whomever is running it has bad credit.

Not really, unless you have a huge balance sheet. After a deal or two bank money is hard to come by. Hard money lenders fill the gap and they are funding fix and flip projects that carry a good deal of risk (see RE cycle above) for a number of reasons. They want reward for that risk.
After 10 successful deals, one will pay less for hard money but nothing like bank rates.
I own the next hot stock- VTSAX

WhyNotUs
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by WhyNotUs » Thu Nov 09, 2017 10:07 am

If I could not afford to lose the money, then I would not participate.
There is money to be made in hard money schemes but it is a business with sharp elbows and requires screening deals that I would not hire out.
I own the next hot stock- VTSAX

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Abe » Fri Nov 17, 2017 11:03 am

I have invested in mortgage notes for many years. You have to do your due diligence when buying notes. I buy directly from the mortgage holders. There are many details that you need to be aware of when buying paper. One is that you need to know the investment to value ratio. One rule of thumb I go by is that I don't buy a mortgage unless I would be happy to own the property that secures the mortgage for the amount of money I'm paying plus any legal cost in case of default. For example if the property is worth $50k and I can buy a first mortgage secured by the property for say $25k, I might buy it. You also would need to do a title search to verify the mortgage you are buying is in fact in first position, not a second or third mortgage. It sounds like First Financial Tax Group is issuing notes secured by commercial real estate and they claim these notes are in first position. They may be in first position, buy how do you know how many notes they are issuing. Lets say the property is worth one million and First Financial issues two million in notes. If there is a default, someone is going to get left out.
Edited to add:
Broken Promises: Promissory Note Fraud
https://www.sec.gov/reportspubs/investo ... sehtm.html
Slow and steady wins the race.

LonScott
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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Tue Dec 05, 2017 12:33 pm

If anyone is following this: "Woodbridge Group of Companies LLC, a high-end real estate developer, filed for bankruptcy amid the departure of its chief executive and an investigation into potential securities fraud linked to $1 billion in investments."

https://www.bloomberg.com/news/articles ... n-delaware

https://www.reuters.com/article/us-wood ... SKBN1DY265

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Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Fri Dec 08, 2017 10:16 am

from another source: ELDERLY INVESTORS
Jeff Sonn, a plaintiff's lawyer, said he had six elderly clients, ranging from their seventies to nineties, who collectively had invested millions of dollars into Woodbridge investment programs.

"This came as a shock to all of them," Mr. Sonn said, adding that he had also spoken with three advisers who sold the Woodbridge products. "They were told these were secured investments in real estate. And the advisers feel duped as well. They've been trying to call the company and can't get hold of anybody."

He noted that the company's court filings said it had assets of $650 million to $750 million in debt, or substantially less than the $1 billion it raised from investors. "What happened to the $350 million?" he asked. END

And: The company's CEO, Robert Shapiro, resigned on Friday but will continue to work as a consultant to the firm, according to a company press release.

According to a report by Bloomberg News, Mr. Shapiro will be paid a monthly fee of $175,000.

Cottonseed
Posts: 2
Joined: Thu Dec 21, 2017 2:38 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Cottonseed » Thu Dec 21, 2017 2:45 pm

Hello Bogleheads,
My mother was recently (August 2017) put into a Woodbridge first position commercial mortgage account by a family member that is a financial advisor.
There is about $500k that has been invested.

Now we all know what is happening.

I've contacted an attorney's office and another CFP investor about the situation.

Haven't heard back from the attorney yet.
CFP (not a part of WBridge) said that the money is safe, insured, protected, etc.

Any suggestions on what course of action to take here?

Chances of getting all the money back?

Definitely need to hire a lawyer?

Any insight is appreciated.
I'm fairly young myself and have only "invested" in my company sponsored 401k.

Thanks to all.
Happy Holidays.

LonScott
Posts: 35
Joined: Wed May 13, 2015 12:21 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Thu Dec 21, 2017 3:58 pm

Ponzi Scheme, now the SEC says!

SEC Charges Operators of $1.2 Billion Ponzi Scheme Targeting Main Street Investors
FOR IMMEDIATE RELEASE
2017-235

Washington D.C., Dec. 21, 2017 —
The Securities and Exchange Commission today announced charges and an asset freeze against a group of unregistered funds and their owner who allegedly bilked thousands of retail investors, many of them seniors, in a $1.2 billion Ponzi scheme...... The SEC complaint alleges that Shapiro and Woodbridge used investors’ money to pay other investors, and paid $64.5 million in commissions to sales agents who pitched the investments as “low risk” and “conservative.” Shapiro, of Sherman Oaks, California, is alleged to have diverted at least $21 million for his own benefit, including to charter planes, pay country club fees, and buy luxury vehicles and jewelry. According to the complaint, the scheme collapsed in typical Ponzi fashion in early December as Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection.

https://www.sec.gov/news/press-release/2017-235

Valuethinker
Posts: 34895
Joined: Fri May 11, 2007 11:07 am

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Valuethinker » Thu Dec 21, 2017 5:50 pm

Cottonseed wrote:
Thu Dec 21, 2017 2:45 pm
Hello Bogleheads,
My mother was recently (August 2017) put into a Woodbridge first position commercial mortgage account by a family member that is a financial advisor.
There is about $500k that has been invested.

Now we all know what is happening.

I've contacted an attorney's office and another CFP investor about the situation.

Haven't heard back from the attorney yet.
CFP (not a part of WBridge) said that the money is safe, insured, protected, etc.

Any suggestions on what course of action to take here?

Chances of getting all the money back?

Definitely need to hire a lawyer?

Any insight is appreciated.
I'm fairly young myself and have only "invested" in my company sponsored 401k.

Thanks to all.
Happy Holidays.
You will need a lawyer. My guess is your mother will be a creditor in the wind up. Given there was fraud, (or so it appears from these other posts), she may not get back very much (if at all).


All the below are my opinions and I am not a lawyer nor investment professional, nor am I based in the USA. Take this in the form of " heard it from an anonymous dude on the internets"
and retain professional advisers.

"safe, insured, protected" is meaningless in investment terms. "insured" only means something in the context of a guarantee by an insurance company OR by the FDIC. Safe and protected are not words that I recognize in finance - if though she has that in writing, it may form part of the basis of a legal claim.

It was too good to be true. If she gets a significant proportion of her investment back, she will be lucky.

She may also be able to reclaim from the relative-- at the very least any commission paid for that investment. The relative may wind up being named in the suit (I doubt she will be the only aggrieved investor)-- and may themselves face bankruptcy (if the court allows access to personal assets). At the very least one would hope they would be forced to pay any commission they received from the investors.

In the case of Madoff Investments a lot of investors were able to get at least some recompense from intermediaries who introduced them, or made investments on their behalf, and had failed in their duty of care to do proper due diligence on Madoff.

I am unclear where the fiduciary duty of US financial planners lies - and I am aware that this was a subject of discussion in the last US presidential election, and so is not a permitted Forum discussion topic.

LonScott
Posts: 35
Joined: Wed May 13, 2015 12:21 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Thu Dec 21, 2017 7:38 pm

ValueThinker gave you some good advice so I will not repeat it. I would contact the lawyer in the Investment News article http://www.investmentnews.com/article/2 ... -investors

1) The person who sold your mother is probably NOT an investment adviser nor a stock broker. Based on the other people who sold this, he is probably an insurance salesman. If he his stockbroker, you need to go to the FINRA broker check to see who his broker dealer is, then report it to his firm. They may be liable for his actions but I doubt any FINRA rep would be approved to sell this. But you need to find out what is licences are so you can file a claim against his errors and omissions policy.

2) The CFP(r) you contacted is an idiot: forgive me but anyone with any investment/financial experience should be able to figure that out. The Woodbridge website states nothing could go wrong since Woodbridge supposedly invested their own funds in a 2nd position to the investors first. But - news flash - they were lying! If the SEC complaint is correct, Woodbridge did not do what they said they would: they took money in commissions and personal expenses, and to pay original investors.

Did he really say this was "safe, insured, protected" ??? That is how these scams work: people just assume no one would lie. He is either inexperienced or ...

3) Your mother will be just another creditor in the Woodbridge BK filing. You can follow that here: https://www.pacermonitor.com/public/cas ... anies,_LLC
Unless you have an unlimited Pacer account, I suggest you give up on reading the 134 dockets already filed!

I would also contact a local reporter. For some reason, the mainstream press missed this. After Maddoff, 1.2 billion or 1.9 B is not what it used to be.

Your mother may never get her investment back. But she needs to act now.




Cottonseed wrote:
Thu Dec 21, 2017 2:45 pm
Hello Bogleheads,
My mother was recently (August 2017) put into a Woodbridge first position commercial mortgage account by a family member that is a financial advisor.
There is about $500k that has been invested.

Now we all know what is happening.

I've contacted an attorney's office and another CFP investor about the situation.

Haven't heard back from the attorney yet.
CFP (not a part of WBridge) said that the money is safe, insured, protected, etc.

Any suggestions on what course of action to take here?

Chances of getting all the money back?

Definitely need to hire a lawyer?

Any insight is appreciated.
I'm fairly young myself and have only "invested" in my company sponsored 401k.

Thanks to all.
Happy Holidays.

Cottonseed
Posts: 2
Joined: Thu Dec 21, 2017 2:38 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Cottonseed » Thu Dec 21, 2017 8:45 pm

Wow. Thanks for the information.
I feel like this is a nightmare that won’t end.
I dont think the CFP knew the full story about Woodb.

I did speak with an attorney (Jeff Sonn) after I posted initially.

He said that the fee would be 1/3 of whatever they get back.
He also laid out how money was paid in a bankruptcy.

He seemed pretty confident that he could get back a large amount given that most of the money was invested in 1 year contracts.
Thoughts on this?

I did speak with a call center rep with Epiq (company handling inquiries about Woodb)and received this from the advisor.

http://dm.epiq11.com/#/case/woodbridge/info

Is this jargon about how WB thinks they can restructure and get the company back on the right track complete BS?

Does it matter when the money was given to Wb?

Thanks for all the insight guys, much appreciated.

LonScott
Posts: 35
Joined: Wed May 13, 2015 12:21 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Thu Dec 21, 2017 9:03 pm

The last part of your comment mentions the Fiduciary standard. As far as I know, this does not apply to insurance agents like Barry Kornfeld. While he was barred by both the SEC and FINRA he was able to sell this investment. This was a failure by the SEC, and the FL insurance and securities regulators as this troll was selling this via the internet since the OP posted this Sep. 2016. The FL regulators should have stopped then.

Valuethinker wrote:
Thu Dec 21, 2017 5:50 pm

In the case of Madoff Investments a lot of investors were able to get at least some recompense from intermediaries who introduced them, or made investments on their behalf, and had failed in their duty of care to do proper due diligence on Madoff.

I am unclear where the fiduciary duty of US financial planners lies - and I am aware that this was a subject of discussion in the last US presidential election, and so is not a permitted Forum discussion topic.
Last edited by LonScott on Thu Dec 21, 2017 9:21 pm, edited 1 time in total.

LonScott
Posts: 35
Joined: Wed May 13, 2015 12:21 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Thu Dec 21, 2017 9:15 pm

I would talk to Soon. He should figure out who is regulating the person that sold this to your mother. Besides getting money from Woodbridge and the courts/BK, you also may be able to get money from the person/company/ that sold this to your mother and their insurance company. But if Soon is your rep. that is where internet trolls like myself need to stop (note to self!)


Cottonseed wrote:
Thu Dec 21, 2017 8:45 pm
Wow. Thanks for the information.
I feel like this is a nightmare that won’t end.
I dont think the CFP knew the full story about Woodb.

I did speak with an attorney (Jeff Sonn) after I posted initially.

He said that the fee would be 1/3 of whatever they get back.
He also laid out how money was paid in a bankruptcy.

He seemed pretty confident that he could get back a large amount given that most of the money was invested in 1 year contracts.
Thoughts on this?

I did speak with a call center rep with Epiq (company handling inquiries about Woodb)and received this from the advisor.

http://dm.epiq11.com/#/case/woodbridge/info

Is this jargon about how WB thinks they can restructure and get the company back on the right track complete BS?

Does it matter when the money was given to Wb?

Thanks for all the insight guys, much appreciated.

LonScott
Posts: 35
Joined: Wed May 13, 2015 12:21 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Thu Jun 14, 2018 9:05 am

A quick copy regarding Woodbridge from the WSJ. The California Department of Insurance lets people change their name so no one change search their background! Unbelievable!

"A Private-Market Deal Gone Bad: Sketchy Brokers, Bilked Seniors and a Cosmetologist
Investments called private placements are among the fastest growing in finance, outpacing the public stock market. They are frequently populated by brokers with red flags in their record
By Jean Eaglesham and Coulter Jones
May 7, 2018 12:30 p.m. ET
Ray Kay, who works as a financial adviser in Beverly Hills, Calif., advertised on the radio a purportedly low-risk, high-income investment.

There were a few points Mr. Kay omitted. He used to be called Raymond L. Kotrozo. Under that name, he was barred from the securities industry for allegedly running a fraud, according to public records, and later fined $5,000 for breaking that ban.

Boglegrappler
Posts: 1012
Joined: Wed Aug 01, 2012 9:24 am

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by Boglegrappler » Thu Jun 14, 2018 9:48 am

The journal article notes that George Stephanopolous was an investor as well.

Hard to know what to make of that without knowing the size and the circumstances of the investment.

It's not unheard of for aggressive brokers to get a celebrity client involved in something in order to use their name as a sales tactic, although there's no report that that happened here. The place where you typically see it is in real estate sales for high end developments.

LonScott
Posts: 35
Joined: Wed May 13, 2015 12:21 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by LonScott » Sat Jun 16, 2018 9:45 am

"Brokers" Very few FINRA brokers sold Woodbridge (6? were). Most were Insurance Agents and many like "Ray Kay" and Barry Kornfeld, who operated First Financial Tax Group of Boca Raton, were banned by FINRA and the SEC. See above. This is a common mistake since NO journalist has written a decent article on Woodbridge. The WSJ ties this into a companion article about FINRA brokers selling private placements but with Woodbridge there was no official prospectus so it was not officially sold by any FINRA broker. It was not approved by their firm, and most are now banned. But hey, they can always change their name and come back as Insurance agents.

One reason Woodbridge note were sold by Insurance agents is that Woodbridge main business seems to be been buying structured settlements before the venture in RE. That the business JG Wentworth keeps advertising. Insurance agents seem to be a main way to sell structured settlements, and not FINRA brokers.

One could probably find how much and who sold George Stephanopolous Woodbridge notes. There are only 1,988 dockets on the case now so one would have to search those. He is in there somewhere.....

And the WSJ did write 4/30 "Estimates are that investors could get from 45% to 76% of what they are owed, if things go according to plan in Woodbridge’s bankruptcy proceeding. That recovery estimate doesn’t include what Woodbridge might be able to recover from lawsuits against its ex-chief executive and brokers that sold the notes, court papers say." I am no sure if this includes Plaintiff's lawyer fees which could be about 1/3.
Boglegrappler wrote:
Thu Jun 14, 2018 9:48 am
The journal article notes that George Stephanopolous was an investor as well.

Hard to know what to make of that without knowing the size and the circumstances of the investment.

It's not unheard of for aggressive brokers to get a celebrity client involved in something in order to use their name as a sales tactic, although there's no report that that happened here. The place where you typically see it is in real estate sales for high end developments.

pcsrini
Posts: 85
Joined: Mon Jan 24, 2011 10:51 pm

Re: A Friend Asked Me - Ponzi or Not? [1st position commercial mortgage notes]

Post by pcsrini » Sat Jun 16, 2018 2:45 pm

https://www.wsj.com/articles/woodbridge ... 1525086115

"Investors such as Mr. Stephanopoulos could also come under scrutiny for possible clawback lawsuits. Mr. Stephanopoulos received $2.5 million in investor payments from Woodbridge in the 90-day period before the bankruptcy, court papers say. By that time, the SEC had gone public with its probe of Woodbridge. Court papers didn’t say how much Mr. Stephanopoulos invested."

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