Picture of the SEC building (Photo: AP)

A California financial and insurance services company and its CEO, who were tied to the Woodbridge Group of Companies Ponzi scheme, agreed to pay a total of about $301,800 in disgorgement, interest and a civil penalty to settle a suit that the Securities and Exchange Commission filed against it, the SEC said Wednesday.

In a complaint filed in the U.S. District Court for the Central District of California, the SEC said Steven M. Sexton and his firm, Sexton Advisory Group, illegally sold Woodbridge securities as an unregistered broker.

The SEC alleged that from May 2016 to November 2017, Sexton and Sexton Advisory sold about $4.6 million of Woodbridge’s securities to about 63 investors, earning $244,654 in commissions and other compensation from Woodbridge.

Neither Sexton nor Sexton Advisory were registered as broker-dealers and the Woodbridge securities were not sold pursuant to SEC registration or an exemption from registration, according to the complaint. However, through their selling activity, Sexton and Sexton Advisory acted as brokers, the SEC said.

As part of Woodbridge’s nationwide offering, Sexton and his firm offered two different Woodbridge securities to their insurance agency clients: a 12-month term promissory note and/or a nine-month term promissory note, according to the SEC.

The returns on those securities were supposedly based on the revenues Woodbridge received from issuing loans to third-party commercial property owners, the complaint said. “In reality and unbeknownst to Defendants, however, the Borrowers were hundreds of shell companies wholly-owned and controlled by Woodbridge’s CEO and president, which never made any payments to Woodbridge,” the complaint alleged.

The returns investors received on their investments were instead paid using funds raised from other investors, the SEC said.

Sexton and Sexton Advisory violated the securities registration provisions of the Securities Act of 1933 and the broker registration provisions of the Securities and Exchange Act of 1934, the SEC said.

Sexton Advisory did not immediately respond to a request for comment on Thursday.

However, without admitting or denying the allegations of the complaint, Sexton and Sexton Advisory agreed to permanent injunctions against violating the charged provisions, the SEC said.

Sexton also agreed to pay a total of about $271,792 in disgorgement and prejudgment interest, which will be offset by the approximate $251,827 that Sexton Advisory already paid to the trustee appointed over Woodbridge in a separate case, leaving a balance of about $19,965.

Sexton also agreed to pay a $30,000 civil penalty, for a total payment of about $49,965, all of which he will pay to the trustee to be distributed to investors as part of a Fair Fund, the SEC said.

The SEC found Woodbridge operated as a massive Ponzi scheme from July 2012 through December 2017. In October 2019, ex-Woodbridge CEO Robert Shapiro was sentenced to 25 years in prison by a federal judge in Miami for leading the $1.22 billion fraud scheme that hurt more than 8,400 unsuspecting investors across the U.S. through unregistered securities offerings.

The Woodbridge Ponzi scheme collapsed Dec. 4, 2017, when Shapiro caused Woodbridge and its many related companies to file for bankruptcy, according to the SEC.

Since then, there have been many actions taken by FINRA and the SEC to sanction agents and brokers tied to the Woodbridge scam.

— Related on ThinkAdvisor: