SEC v. Davis

SEC v. Davis

Opinion

ORDER RE: MOTION TO DISMISS [*2] 

Having reviewed and considered all the briefing filed with respect to defendants Richard Fritts, Gregory W. Anderson, Jeffrey L. Wendel, Gregory A. Koch, Fritts Financial, LLC, Balanced Financial, Inc., Wendel Financial Network LLC, and Koch Insurance Brokers, LLC's (collectively, "defendants"), Motion to Dismiss Amended Complaint[] (see Dkt. 133, "Motion"), the court finds that oral argument is not necessary to resolve the Motion, see Fed. R. Civ. P. 78; Local Rule 7-15; Willis v. Pac. Mar. Ass'n, 244 F.3d 675, 684 n. 2 (9th Cir. 2001), and concludes as follows.

BACKGROUND

Defendants in this securities action are alleged to be unregistered brokers who sold unregistered securities as part of a massive Ponzi scheme. (See Dkt. 127, First Amended Complaint ("FAC") at ¶¶ 7, 9). A company known as the Woodbridge Group of Companies ("Woodbridge") was headquartered in Sherman Oaks, California. (See id. at ¶ 4). From April 2013 to December 2017, defendants sold approximately $183 million worth of securities on behalf of Woodbridge. (See id. at ¶ 7). Woodbridge offered investors two different investment products: First Position Commercial Mortgages ("FPCM Notes") and private placement fund offerings with five-year terms. (See Dkt. 127, FAC at ¶ 31). This case primarily concerns the FPCM Notes. [*3]  Woodbridge represented to investors that the FPCM Notes were a "simple, safer and more secured opportunity for individuals to achieve their financial objectives." (Id. at ¶ 32). Woodbridge purportedly used money raised from the FPCM Notes to finance one-year loans to third-party commercial property owners. (See id.). Woodbridge told investors that it received 11-15 percent annual interest payments on the notes from the third-party property owners. (See id.). Woodbridge "would also secure the debt through a mortgage on the [t]hird-[p]arty [b]orrowers' real estate." (See id.).

In reality, Woodbridge did not use the money raised from the FPCM Notes to finance loans. (See Dkt. 127, FAC at ¶ 41). Instead, Robert Shapiro ("Shapiro"), Woodbridge's president and CEO, (see id. at ¶ 29), used the money to purchase residential and commercial properties in Los Angeles, California and Aspen, Colorado. (See id. at ¶ 41). Because the FPCM Notes were not earning revenue from borrowers, Woodbridge tried to convince investors to roll over their FPCM investments at the end of their investment terms. (See id. at ¶ 42). When this failed, Woodbridge paid investors using newly-raised funds. (See id.).

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