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Investments - Private

PSTs: Is There a Woodbridge Securities in Your Future?

August 13, 2020

by Howard Haykin



Sigma Financial broker, with 32 years’ experience, was recently disciplined for selling $625,000 worth of promissory notes issued by Woodbridge Securities (a/k/a Woodbridge Group of Companies), a self-advertised real-estate investment fund that filed for bankruptcy in December 2017 when it was sued by the SEC for allegedly running a Ponzi scheme. [FINRA AWC #2018059663501.]  
Reading this case brought to mind the significant number of cases where an allegedly 'guilty' broker: (i) was a long-time veteran of Wall Street; and, (ii) was enticed by excessive payouts to sell what proved to be the worthless Woodbridge notes.



Woodbridge Securities proved to be a $1.2 billion Ponzi scheme, which claimed between 8,400 and 10,000 victims - many of them elderlyAND MAKE NO MISTAKE, the victimized investors did not purchase the fraudulent promissory notes. These unregistered securities were sold by veteran brokers - each with over 20 years’ experience. Like the …




REFLECTING ON INVESTOR SAFEGUARDS.    A Private Securities Transaction (“PST”) is any securities transaction relating to new offerings of securities which are not registered with the SEC. While brokers are required to receive permission from their firms in order to participate in a PST, many brokers do so anyway without notifying their firms - as happened in the Woodbridge Ponzi scheme. Broker's violate the rules, in part, because their firms are not likely to give them permission to participate, and because brokers do not expect they will be caught. 


That said, the risks are all too real – if not amplified - by unregistered securities offerings. First, they typically are not supervised, meaning the issue of 'suitability' falls on the sole judgment of the broker (who admittedly is biased). Second, there's no one to conduct adequate due diligence - to see that "all the I's are dotted, and T's are crossed."


As a result, PST investors should consider their own safeguards, which might include the following:

  • Pass on investing in a PST if your broker or financial adviser has not given assurance that he or she received firm approval. [Note: If you don’t trust your broker to tell you the truth, contact a branch manager and think about switching to a new broker.]
  • Before investing, seek advice from a trusted independent individual or financial watchdog - who can help decide whether the particular offering is legitimate and fits you investment profile.