An alleged $1.2 billion Ponzi scheme that collapsed more than two years ago has resulted in some advisors losing their jobs.
In the latest monthly rundown of disciplinary actions taken by the Financial Industry Regulatory Authority, or FINRA, four cases involve brokers who put clients' money in the Woodbridge Group of Companies, which regulators claim was a massive investment-fraud scheme involving more than 8,400 retail investors around the country. A handful of other brokers already had been sanctioned in recent months.
Last week, the former owner of Woodbridge, Robert Shapiro, and two directors of the real estate investing firm were arrested on federal criminal charges including conspiracy to commit mail and wire fraud. In January, a federal judge ordered Woodbridge and Shapiro to pay $1 billion in penalties and repayments related to the alleged scheme, which came to a head in December 2017 when the firm stopped paying investors and filed for bankruptcy.
In a Ponzi scheme, money from one set of investors is used to pay earlier investors.
With Woodbridge, investors were promised a 5% to 10% annual return from investing in promissory notes issued by the firm, records show. The notes, which regulators say were unregistered securities, were pitched as low-risk and conservative.
The recently sanctioned brokers were each accused of violating FINRA rules that required them to get their broker-dealer's approval before engaging in private securities transactions — which the Woodbridge notes were considered.
In one of the latest cases, Floyd Powell, of Albertville, Alabama, sold $3.49 million in Woodbridge promissory notes to 13 investors, netting him more than $103,000 in commissions, according to FINRA, which oversees the brokerage industry.
Powell was a registered representative with MSI Financial Services (formerly known as MetLife Securities) for 25 years until leaving in March 2017 for MML Investor Services, which fired him in February 2018.
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Without admitting or denying the findings that he didn't get prior approval for selling the promissory notes, Powell agreed to being permanently banned from the securities industry. Powell did not respond to calls from CNBC seeking comment.
Another broker also was barred after selling $2.7 million of Woodbridge notes, which delivered $109,900 in commissions.
Michael Rappa, of Roseville, California, agreed to the ban while neither admitting nor denying guilt to the findings. He did not respond to a CNBC request for comment.
Rappa had been a registered representative with Foresters Equity Services of San Diego, which has since shut down.
A spokesman for that broker-dealer's Canada-based owner, Foresters Financial, declined to comment due to ongoing litigation related to the matter. The spokesman also said the company closed its broker-dealer arm as part of a shift to focus on its core life insurance business.
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Meanwhile, a broker lost his job and was suspended for a month. Kirk Bertsch, of Spearfish, South Dakota, allegedly sold a $50,0000 Woodbridge note to an investor, netting him $1,500 in commission, according to FINRA. He invested $240,000 of his own money as well, FINRA documents show.
While Bertsch's suspension was lifted in mid-March, he remains unaffiliated with any registered firm.
His previous broker-dealer, Farmers Financial Solutions of Westlake Village, California, fired him in August 2018 for allegations related to the promissory notes, FINRA reports. South Dakota state regulators also fined him $5,000 and banned him from selling securities in the state again.
