New Brunswick man accused of selling $7M in unregistered securities
A New Brunswick man and his companies have been ordered to pay $750,000 in connection with allegedly selling at least 26 New Jersey investors more than $7 million worth of unregistered securities tied to an alleged $1.2 billion nationwide Ponzi scheme.
Jeffrey Mitchell Isaacs, JB Financial Resources and related entities sold the unregistered securities for the Woodbridge Group of Companies, which has been charged by the U.S. Securities and Exchange Commission with operating a Ponzi scheme that defrauded 8,400 investors across the country, according to Attorney General Gurbir S. Grewal and the New Jersey Bureau of Securities within the Division of Consumer Affairs.
The scheme apparently collapsed after Woodbridge stopped paying investors and filed for Chapter 11 bankruptcy protection on Dec. 4, 2017, two weeks before the SEC filed its charges against the California-based real estate investment group.
Isaacs, an accountant in New Brunswick, served on the Rutgers Board of Trustees from 2003-2004, according to Rutgers records.
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Between 2013 and 2017, Isaacs and his related entities allegedly sold about 88 of Woodbridge’s unregistered securities valued at approximately $7.1 million to at least 26 New Jersey investors. Isaacs was paid approximately $195,000 from Woodbridge for the sales.
“Ponzi schemes only work when unscrupulous individuals lure unsuspecting victims into a scam for their own profit,” said Grewal. “To protect New Jersey from these types of Ponzi schemes, we will continue to take action against those who seek to harm our residents and our financial markets.”
In a Summary Penalty Order issued Monday, the bureau found that Isaacs, whose agent and investment adviser representative registrations were suspended by the bureau in 2013 for dishonest or unethical practices, acted as an unregistered agent in the offer and sale of the unregistered Woodbridge investment products in the form of First Position Commercial Mortgages (FPCMs.)
According to the Order, Isaacs and his related entities marketed the FPCMs as short-term, safe investments secured by real estate that paid an annual interest rate of 5 percent or more. In reality, the FPCM securities were unregistered, unsecured and part of an alleged $1.2 billion Ponzi scheme, the bureau chief found.
“Despite having no legal authority to sell investments in New Jersey, Isaacs sold the unregistered Woodbridge securities to New Jersey investors,” said Kevin Jespersen, acting director of the Division of Consumer Affairs. “Isaacs shamelessly profited from this alleged Ponzi scheme while the investors that purchased the unregistered securities are now left to deal with the devastating impact of trying to recover their investments.”
California-based Woodbridge, which identifies itself as a developer of high-end real estate, purportedly made hard-money loans to developers that were secured by commercial mortgages and property. To help fund the purported hard-money loans, Woodbridge raised money from investors by offering FPCMs issued by Woodbridge-related entities known collectively as the Woodbridge Funds. The FPCMs were sold through a nationwide network of sales agents.
According to the SEC’s lawsuit, many of the Woodbridge sales agents across the country were not associated with registered broker-dealers or investment advisory firms, and several of them had been censured or barred by federal or state securities regulators.
“Unregistered agents are often at the heart of investment scams, which is why the bureau strongly encourages investors to verify and review the registration records of anyone offering to sell them an investment,” said Christopher Gerold, chief of the Bureau of Securities.
“Had these investors checked with the Bureau, they would have learned that Isaacs is not registered to sell securities in New Jersey, information that could have prevented them from becoming a victim. As the case against Woodbridge moves forward, we will continue to identify and hold accountable the individuals that sold the unregistered securities in this alleged Ponzi scheme.”
According to the Bureau, Isaacs and his related entities, JMI Associates LLC and JB Financial Resources, marketed and sold the unregistered FPCMs in New Jersey, representing to investors through solicitation materials that the FPCMs were “a unique lending opportunity with higher yields that (are) simple, safer and secured.”
According to solicitation materials, the Woodbridge Funds used the proceeds from the sale of the FPCMs to extend commercial loans to third-party commercial borrowers.
In reality, however, the FPCMs sold by Isaacs were not immediately collateralized. In some cases, the loans were not extended to borrowers until weeks, or even months, after Isaacs sold the FPCMs to investors.
Isaacs, JMI Associates LLC and JB Financial Resources through Isaacs, also represented to investors that there were no transaction fees for the FPCMs, nor were there any sales commissions to pay. Contrary to this representation, Isaacs, directly or through JMI Associates LLC and JB Financial, was paid a fee for each FPCM they sold, the bureau found.
Moreover, the bureau chief found that Isaacs, JB Financial Resources and another related entity, 83 Delafield St. LLC, offered unregistered securities for sale in the form of promissory notes issued by 83 Delafield St. LLC (Delafield LLC).
According to Isaacs, the minimum required investment amount in certain of the FPCMs issued by the Woodbridge Funds was $25,000. For certain of Isaacs’ clients that could not, or did not want, to invest $25,000, Isaacs used Delafield LLC to facilitate smaller investments in the FPCMs issued by the Woodbridge Funds.
In order to meet the required minimum amount for investment in the FPCMs, Isaacs had investors remit checks to Delafield LLC. Isaacs would then pool the investors’ funds, and Delafield LLC would purchase the FPCMs from the Woodbridge Funds on behalf of these smaller investors in its own name. The Woodbridge Funds would then pay the interest to Delafield LLC, which in turn would send interest payments to the investors.
Isaacs, JB Financial Resources, and Delafield LLC had at least six investors remit money to Delafield LLC. Delafield LLC in turn purchased at least four FPCMs with those investors’ funds. The Woodbridge Funds listed Delafield LLC on the FPCM Documents with no reference to the investors in Delafield LLC.
In order to provide investors evidence of their investment in Delafield LLC, and in turn the FPCMs, Isaacs created a promissory note for the investors in Delafield LLC by copying the promissory note that the Woodbridge Funds would provide as part of the FPCM Documents. According to Isaacs, he did this so the investor had “something tangible that they could take home with them.”
The bureau is charged with protecting investors from investment fraud and regulating the securities industry in New Jersey. It is critical that investors "Check Before You Invest." Investors can obtain information, including the registration status and disciplinary history, of any financial professional doing business to or from New Jersey, by contacting the Bureau toll-free within New Jersey at 1-866-I-INVEST (1-866-446-8378) or from outside New Jersey at 973- 504-3600, or by visiting www.NJSecurities.gov. Investors can also contact the Bureau for assistance or to raise issues or complaints about New Jersey-based financial professionals or investments.