Securities Regulation Daily Unregistered brokers who sold Woodbridge securities must pay over $6 million in disgorgement, penalties
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Wednesday, January 16, 2019

Unregistered brokers who sold Woodbridge securities must pay over $6 million in disgorgement, penalties

By R. Jason Howard, J.D.

Five Florida-based defendants charged in connection with a scheme to unlawfully sell securities of the Woodbridge Group of Companies LLC to retail investors even though they were not registered as broker-dealers and were not permitted to sell securities, have all consented to entry of a final judgment without admitting or denying the allegations in the complaint (SEC v. Kornfeld, August 20, 2018).

Woodbridge scheme. Woodbridge Group of Companies engaged in a massive Ponzi scheme which raised over $1.2 billion from investors. The Ponzi scheme collapsed in December 2017, and Woodbridge filed for bankruptcy.

Unregistered sale. According to the complaint, the defendants raised almost $100 million from the offer and sale of unregistered securities to over 1,100 retail investors located throughout the United States and collectively earned more than $5.8 million in transaction-based sales commissions. The defendants were not authorized to sell securities because they did not hold securities licenses, were not registered with the SEC, were not associated with registered broker-dealers, and did not qualify for any exemptions. According to the complaint, the defendants touted Woodbridge’s securities as "safe and secure" through marketing techniques that included advertising on television, radio, newspapers, email, social media, and pitching investors at in-person meetings and investment seminars.

Final judgments. Barry M. Kornfeld, the co-president of FEK Enterprises, Inc., d/b/a/ First Financial Tax Group, was found liable for disgorgement of over $3.6 million, representing the ill-gotten profits along with prejudgment interest thereon in the amount of over $690,000, jointly and severally with Ferne Kornfeld and FEK Enterprises, Inc., d/b/a First Financial Tax Group, and a civil penalty in the amount of $500,000.

FEK Enterprises, Inc., was found liable for disgorgement of the over $3.6 million representing ill-gotten profits in addition to the prejudgment interest of over $680,000, jointly and severally with Barry M. Kornfeld and Ferne Kornfeld.

Ferne Kornfeld, the co-president of First Financial, was found liable for disgorgement of the ill-gotten profits and the pre-judgment interest jointly and severally with Barry M. Kornfeld and FEK Enterprises, Inc., d/b/a First Financial Tax Group, as well as a civil penalty totaling $150,000.

Atlantic Insurance & Financial Services, Inc., was found liable for disgorgement of over $1.3 million, representing the ill-gotten profits along with prejudgment interest of over $278,900, jointly and severally with Albert D. Klager.

Albert D. Klager, the president and beneficial owner of Atlantic Insurance & Financial Services, Inc., was found liable for disgorgement of over $1.3 million, representing the ill-gotten profits along with prejudgment interest of over $278,900, jointly and severally with Atlantic Insurance & Financial Services, Inc.

The defendants were permanently restrained and enjoined from further violations. Additionally, Barry Kornfeld was barred from association with any broker, dealer, or investment adviser pursuant to a previous order barring such conduct.

The case is No. 1:18-cv-23369.

Attorneys: Christine Nestor for the SEC.

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