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March 2, 2018 | Realty Ponzi Schemes Rampant: Would-Be Investors Beware

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel ( Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog:

The past decade of escalating debt has led to falling due diligence and investment return prospects, and fueled rampant speculation in so many areas– especially real estate.  Somehow the more expensive and opulent the projects appear, the more gullible and trusting the ‘investors’.

Whether its condo developers and board members siphoning off funds for their own personal spendingmortgage fraud in Canadian lenders, or ridiculous schemes building multi-million dollar homes on ‘spec’, the end result is typical:  lost funds and lawsuits.  See this one  The alleged $1.2 billion Ponzi scheme sapping LA’s property market:

When real-estate developer Woodbridge Group of Companies bought the famous Owlwood estate in Los Angeles in September 2016, the $90 million transaction marked the pinnacle of a nearly four-year property acquisition spree. The company announced it planned to preserve the 1930s-era, Holmby Hills property—once owned by Tony Curtis and later by the pop duo Sonny & Cher—renovate it and add square footage before relisting it.

By July 2017, with none of the work completed, Woodbridge put the property back on the market for $180 million, far above the record price for a Los Angeles home. In a statement announcing the listing, Woodbridge chief executive Robert Shapiro said he’d assembled a team of well-known architects to convert and upgrade the property. He said the home had gotten significant market interest after the music mogul Jay-Z hosted a Grammy Awards party there earlier that year.

According to the Securities and Exchange Commission, Mr. Shapiro was actually operating the company as a $1.2 billion Ponzi scheme, in which storied estates like Owlwood were a lure to draw investors. The SEC lawsuit, filed in December, claims that the company, controlled by Mr. Shapiro, sold unregistered securities to an estimated 7,000 retail investors—many of them elderly—who were told their funds would provide secured, short-term real-estate loans. Instead, most of the invested money funded real-estate purchases made by Shapiro-controlled shell companies, from luxury homes in L.A. to vacant lots, court papers allege. Investors collected “interest” checks that were largely funded by money from newer investors, the SEC alleges.

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March 2nd, 2018

Posted In: Juggling Dynamite

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