WILMINGTON, Del., Jan 23 (Reuters) - Woodbridge Group of Companies, a property company accused by the U.S. Securities and Exchange Commission of being a huge Ponzi scheme, reached a deal with the government on Tuesday to appoint a new board and to pay for legal representation for thousands of alleged victims.
The deal announced in U.S. Bankruptcy Court in Delaware resolves weeks of fighting among creditors, the SEC and investors for control of the company.
Woodbridge filed for bankruptcy in December and days later was sued by the SEC for allegedly running a $1.2 billion fraud by selling unregistered securities to raise funds to repay earlier investors.
The company has said it is investigating the allegations and working on behalf of the company’s investors.
About 8,400 individuals were told their money was being loaned at high interest rates to commercial property developers and used to buy luxury real estate.
The SEC alleges the property developers were actually entities controlled by Woodbridge’s founder and former CEO, Robert Shapiro. Much of the money was spent on 138 high-end properties in California and Colorado, operating expenses and at least $21 million on luxury cars and jet charters for Shapiro and his family.
Shapiro has denied the allegations and has not been criminally charged. He resigned from the Sherman Oaks, California-based company on Dec. 1.
As part of Tuesday’s deal, the SEC dropped its request for a court-ordered trustee to replace management. On Friday, the company’s chief restructuring officer and independent manager said they were resigning.
“The staff truly believes the settlement is in the best interest of investors,” said David Baddley, a staff attorney for the SEC.
Woodbridge agreed to appoint Richard Nevins, Freddie Reiss and Michael Goldberg as its new board.
The SEC also agreed to withdraw a request filed with a Miami federal court to appoint a receiver over Woodbridge’s assets.
U.S. Bankruptcy Judge Kevin Carey in Wilmington said the deal would be less disruptive than appointing a trustee, which is rare in a large bankruptcy.
Woodbridge also agreed to pay for advisers for two newly formed committees for alleged victims. One committee would represent investors who bought promissory notes issued by seven Woodbridge funds. Another would represent holders of equity in the same seven Woodbridge funds.
The two groups of investors are at odds over who should be repaid first. In addition, Woodbridge’s property is divided among scores of legally separate entities, each with differing claims in favor of different groups of investors, complicating the process of unwinding the alleged fraud. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Phil Berlowitz)