Woodbridge Liquidation Trust - Quarter Report: 2023 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2023

or

For the transition period from ______ to _____

Commission File Number: 000-56115

Woodbridge Liquidation Trust

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (310) 765-1550

Securities registered pursuant to Section 12(b) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’ ‘‘smaller reporting company’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ☐ No  ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS

DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes ☒  No ☐

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Woodbridge Liquidation Trust and Subsidiaries Consolidated Statements of Net Assets in Liquidation As of September 30, 2023 and June 30, 2023

($ In Thousands)

See accompanying notes to unaudited consolidated financial statements.

		Three Months Ended September 30, 2023												Three Months Ended September 30, 2022
		Restricted For Qualifying Victims				All Interestholders				Total				Restricted For Qualifying Victims				All Interestholders				Total
Net Assets in Liquidation as of beginning of period		$	3,491			$	3,282			$	6,773			$	3,485			$	30,910			$	34,395
Change in assets and liabilities (Note 8):
Restricted for Qualifying Victims -
Change in carrying value of assets and liabilities, net			20				-				20				(2	)			-				(2	)
All Interestholders:
Change in carrying value of assets and liabilities, net			-				32,541				32,541				-				885				885
Distributions (declared) reversed, net			-				40				40				-				2,638				2,638
Net change in assets and liabilities			-				32,581				32,581				-				3,523				3,523
Net Assets in Liquidation as of end of period		$	3,511			$	35,863			$	39,374			$	3,483			$	34,433			$	37,916

On the Plan Effective Date, in accordance with the Plan, (a) the following assets automatically vested in the Trust: (i) an aggregate $5,000,000 in cash from the Debtors for the purpose of funding the Trust’s initial expenses of operation; (ii) certain claims and Causes of Action; (iii) all of the outstanding equity interests of the Wind-Down Entity (as defined below); and (iv) certain other non-real estate related assets, (b) the equity interests of Woodbridge Group of Companies, LLC and Woodbridge Mortgage Investment Fund 1, LLC (together, the “Remaining Debtors”) were cancelled and new equity interests representing all of the newly issued and outstanding equity interests in the Remaining Debtors were issued to the Trust, (c) all of the other Debtors other than the Remaining Debtors were dissolved and (d) the real estate-related assets of the Debtors were automatically vested in the Trust’s wholly-owned subsidiary, Woodbridge Wind-Down Entity LLC (the “Wind-Down Entity”) or one of the Wind-Down Entity’s 43 wholly-owned single member LLCs (the “Wind-Down Subsidiaries”) formed to own the respective real estate assets. The Trust, the Remaining Debtors, the Wind-Down Entity and the Wind-Down Subsidiaries are collectively referred to herein as the “Company.”

As further discussed in Note 9, the Trust has two classes of liquidation trust interests, Class A Liquidation Trust Interests (“Class A Interests”) and Class B Liquidation Trust Interests (“Class B Interests”). The holders of Class A Interests and Class B Interests are collectively referred to as “All Interestholders.”

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, the consolidated financial statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary for a fair and consistent presentation of the results for such periods. These consolidated financial statements have been presented in accordance with Accounting Standards Codification (“ASC”) Subtopic 205-30, “Liquidation Basis of Accounting,” as amended by Accounting Standards Update (“ASU”) No. 2013-07, “Presentation of Financial Statements (Topic 205), Liquidation Basis of Accounting.” The June 30, 2023 consolidated statement of net assets in liquidation included herein was derived from the audited consolidated financial statements but does not include all disclosures or notes required by U.S. GAAP for complete financial statements.

All material intercompany accounts and transactions have been eliminated.

U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and for the period then ended. Actual results could differ from these estimates. Estimates and assumptions are reviewed periodically, and the carrying amounts of assets and liabilities are revised in the period that available information supports a change in the carrying amount.

On a quarterly basis, the Company reviews the estimated net realizable values, liquidation costs and the estimated date of the completion of the liquidation of the Company and records any significant changes. The Company will also revalue an asset when it is under contract for sale and the buyer’s contingencies have been removed. During the period when this occurs, the carrying value of the asset and the estimated closing and other costs will be adjusted, if necessary. If the Company has a change in its plan for the disposition of an asset, the carrying value will be adjusted to reflect this change in the period that the change is approved. The change in value may include the accrued liquidation costs related to the asset.

The Company recognizes recoveries from the settlement of unresolved Causes of Action when an agreement is executed, final court approval is received (if required), and collectability is reasonably assured. An allowance for uncollectible settlement installment receivables is recorded when there is doubt about the collectability of the receivable. The Company records escrow receivables at the amount that is expected to be received when the escrow receivable is released. The Forfeited Assets (Note 7) received from the United States Department of Justice (the “DOJ”), other than cash, have been recorded at their estimated net realizable value. The Company accrues expected interest earnings when it can reasonably estimate the amount to be received.

The Company considers short-term investments that have a maturity date of ninety days or less at the time of investment to be a cash equivalent.

Restricted cash includes cash that can only be used for certain specified purposes as described in Note 4.

The Trust is intended to be treated as a grantor trust for income tax purposes and, accordingly, is not subject to federal or state income tax on any income earned or gain recognized by the Trust. The Trust’s beneficiaries will be treated as the owner of a pro rata portion of each asset, including cash and each liability received by and held by the Trust. Each beneficiary will be required to report on his or her federal and state income tax return his or her pro rata share of taxable income, including gains and losses recognized by the Trust. Accordingly, there is no provision for federal or state income taxes recorded in the accompanying consolidated financial statements.

The Company regularly analyzes its various federal and state filing positions and only recognizes the income tax effect in the consolidated financial statements when certain criteria regarding uncertain income tax positions have been met. The Company believes that its income tax positions would more likely than not be sustained upon examination by all relevant taxing authorities. Therefore, no provision for uncertain income tax positions has been recorded in the consolidated financial statements.

The Company separately presents the portion of net assets in liquidation that are restricted for Qualifying Victims (see Note 7) from the net assets in liquidation that are available to All Interestholders.

The Company’s real estate assets held for sale as of September 30, 2023, with comparative information as of June 30, 2023, are as follows ($ in thousands) (unaudited):

The Company’s restricted cash as of September 30, 2023, with comparative information as of June 30, 2023, is as follows ($ in thousands) (unaudited):

		September 30, 2023				June 30, 2023
Forfeited Assets (Note 7)		$	3,272			$	3,190
Distributions restricted by the Company related to unresolved claims, distributions for recently allowed claims, uncashed distribution checks, distributions withheld due to pending avoidance actions and distributions that the Trust is waiting for further beneficiary information			1,252				1,283
Total restricted cash		$	4,524			$	4,473

The Company’s other assets as of September 30, 2023, with comparative information as of June 30, 2023, are as follows ($ in thousands) (unaudited):

(a)

The allowance for uncollectible settlement receivables was approximately $63,000 as of September 30, 2023 and June 30, 2023.

(b)

The Company accrues interest in the amount that it estimates that it will earn on its cash on deposit during the period from October 1, 2023 through March 31, 2026 and during the period from July 1, 2023 through March 31, 2026, respectively. Of the accrued interest at September 30, 2023, approximately $34,000 relates to interest on the proceeds of Forfeited Assets to be distributed to Qualifying Victims and the remainder of approximately $1,724,000 relates to interest on cash on deposit for the benefit of All Interestholders. Of the accrued interest at June 30, 2023, approximately $62,000 relates to interest on the proceeds of Forfeited Assets to be distributed to Qualifying Victims and the remainder of approximately $1,574,000 relates to interest on cash on deposit for the benefit of All Interestholders.

(c)

Escrow receivable as of September 30, 2023 and June 30, 2023 relates to one single-family home that was sold during the year ended June 30, 2023. The amount is to be released upon completion of punch list items. The escrow receivable amount may be used to pay for the cost of completing punch list items.

The following is a summary of the items included in accrued liquidation costs as of September 30, 2023, with comparative information as of June 30, 2023 ($ in thousands) (unaudited):

7)	Forfeited Assets - Restricted for Qualifying Victims

In March 2021, the Trust received certain Forfeited Assets from the DOJ, including cash, wine, jewelry, handbags, clothing, shoes, art, gold and other assets. The Company recorded the total estimated net realizable value of the Forfeited Assets of approximately $3,459,000. During the three months ended September 30, 2023, the Company sold the handbags and some of the jewelry and art. During the three months ended September 30, 2022, the Company sold the automobile, and some of the handbags, jewelry, clothing and shoes. The Forfeited Assets included in the Company’s September 30, 2023 and June 30, 2023 consolidated financial statements are as follows ($ in thousands) (unaudited):

		Cash				Remeasure-
		Activities				ment				Total
Real estate assets held for sale, net		$	(6	)		$	-			$	(6	)
Cash and cash equivalents			14,663				-				14,663
Restricted cash			9				-				9
Other assets			(392	)			17,519				17,127
Total assets		$	14,274			$	17,519			$	31,793
Accounts payable and accrued liabilities		$	(1,212	)		$	2,485			$	1,273
Accrued liquidation costs			(1,942	)			(79	)			(2,021	)
Total liabilities		$	(3,154	)		$	2,406			$	(748	)
Change in carrying value of assets and liabilities, net		$	17,428			$	15,113			$	32,541

Distributions declared		$	-
Distributions reversed			40
Distributions (declared) reversed, net		$	40

		Cash				Remeasure-
		Activities				ment				Total
Real estate assets held for sale, net		$	(12	)		$	-			$	(12	)
Cash and cash equivalents			(2,540	)			-				(2,540	)
Restricted cash			2				-				2
Other assets			(3,332	)			(110	)			(3,442	)
Total assets		$	(5,882	)		$	(110	)		$	(5,992	)
Accounts payable and accrued liabilities		$	(25	)		$	9			$	(16	)
Accrued liquidation costs			(6,480	)			(381	)			(6,861	)
Total liabilities		$	(6,505	)		$	(372	)		$	(6,877	)
Change in carrying value of assets and liabilities, net		$	623			$	262			$	885

Distributions declared		$	(12	)
Distributions reversed			2,650
Distributions (declared) reversed, net		$	2,638

The following table summarizes the Liquidation Trust Interests (rounded) for the three months ended September 30, 2023 and 2022 (unaudited):

Of the 11,514,578 Class A Interests outstanding at September 30, 2023, 11,435,288 are held by Qualifying Victims (see Note 7).

The following table summarizes the unresolved claims against the Debtors as they relate to Liquidation Trust Interests (rounded) for the three months ended September 30, 2023 and 2022 (unaudited):

Of the 13,875 Class A Interests relating to unresolved claims at September 30, 2023, 1,880 were for Qualifying Victims (see Note 7).

The Plan provides for a distribution waterfall that specifies the priority and manner of distribution of available cash to all Interestholders, excluding distributions of the net sales proceeds from Forfeited Assets (see Note 7). Distributions are to be made (a) to the Class A Interests until they have received distributions of $75.00 per Class A Interest; thereafter (b) to the Class B Interests until they have received distributions of $75.00 per Class B Interest; thereafter (c) to each Liquidation Trust Interest (whether a Class A Interest or Class B Interest) until the aggregate of all distributions made pursuant to this clause equals an amount equivalent to interest, at a per annum fixed rate of 10%, compounded annually, accrued on the aggregate principal amount of all Net Note Claims, Allowed General Unsecured Claims and Net Unit Claims, all as defined in the Plan, treating each distribution pursuant to (a) and (b) above as reductions of such principal amount; and thereafter (d) to the holders of Allowed Subordinated Claims, as defined in the Plan, until such claims are paid in full, including interest, at a per annum fixed rate of 10% or such higher rate as may be agreed to, as provided for in the Plan, compounded annually, accrued on the principal amount of each Allowed Subordinated Claim, as defined.

On August 3, 2023, at the recommendation of the Liquidation Trustee, the Trust suspended the making of additional distributions pending the results of the Company’s investigation of a construction defect claim against one of the Wind-Down Subsidiaries by the buyer of one of the subsidiary’s single-family homes. There were no distributions declared or paid during the three months ended September 30, 2023.

Terry Goebel, a member of the Trust Supervisory Board, is president and a principal owner of G3 Group LA (G3), a construction firm specializing in the development of high-end luxury residences. G3 is owned by Terry Goebel and his son Kelly Goebel. During the year ended June 30, 2023, the Company completed its contract with G3 for the development of one single-family home in Los Angeles, California. As of September 30, 2023 and June 30, 2023 there were no remaining amounts payable under this contract. During the three months ended September 30, 2023 and 2022, no payments were paid by the Company to G3 related to this contract.

The Liquidation Trustee of the Trust is entitled to receive 5% of the total gross amount recovered by the Trust from the pursuit of the Causes of Action. During the three months ended September 30, 2023 and 2022, approximately $2,478,000 and $8,000, respectively, were accrued as amounts due to the Liquidation Trustee. As of September 30, 2023 and June 30, 2023, approximately $1,298,000 and $32,000, respectively, were payable to the Liquidation Trustee. These amounts are included in accounts payable and accrued liabilities in the accompanying consolidated statements of net assets in liquidation. During the three months ended September 30, 2023 and 2022, approximately $1,212,000 and $0, respectively, were paid to the Liquidation Trustee.

The executive officers of the Wind-Down Entity were entitled to a bonus based on the Wind-Down Entity achieving certain specified cumulative amounts of distributions to the Trust. During the three months ended September 30, 2023 and 2022, $0 and $2,173,000, respectively, were paid related to bonuses. Effective January 1, 2023, there were no remaining bonus arrangements for the executive officers.  Accordingly, no amounts are accrued as of September 30, 2023 and June 30, 2023.

During the three months ended September 30, 2023 and 2022, the Company recorded approximately $34,390,000 and $190,000, respectively, from the settlement of Causes of Action. The Company also recorded liabilities of 5% of the settlements as amounts payable to the Liquidation Trustee and an allowance for uncollectible settlement installment receivables. See Note 5 for information about the settlement receivables, net as of September 30, 2023 and June 30, 2023.

The Company evaluates subsequent events up until the date the unaudited consolidated financial statements are issued.

Liquidation Trust Interests		Class A				Class B
Outstanding at October 1, 2023			11,514,578				675,617
Allowed claims			84				-
Settlement of claims by cancelling
Liquidation Trust Interests			-				-
Outstanding at November 9, 2023			11,514,662				675,617

Liquidation Trust Interests		Class A				Class B
Outstanding at October 1, 2023			13,875				333
Allowed claims			(84	)			-
Disallowed claims			-				-
Outstanding at November 9, 2023			13,791				333

Class of Interest
Class A Liquidation Trust Interests		11,514,578
Class B Liquidation Trust Interests		675,617

		Restricted for				All
		Qualifying Victims				Interestholders				Total
Net assets in liquidation as of beginning of period		$	3,491			$	3,282			$	6,773
Change in assets and liabilities:
Restricted for Qualifying Victims -
change in carrying value of assets and liabilities, net			20				-				20
All Interestholders-
Change in carrying value of assets and liabilities, net			-				32,541				32,541
Distributions (declared) reversed, net			-				40				40
Net change in assets and liabilities			-				32,581				32,581
Net assets in liquidation, as of end of period		$	3,511			$	35,863			$	39,374

		Restricted for				All
		Qualifying Victims				Interestholders				Total
Settlement recoveries, net (1)		$	-			$	31,948			$	31,948
Remeasurement of assets and liabilities, net (2)			8				581				589
Sales proceeds in excess of carrying value			12				-				12
Other (3)			-				12				12
Change in carrying value of assets and liabilities, net		$	20			$	32,541			$	32,541

(1)	Net of 5% payable to the Liquidation Trustee of approximately $2,478,000.

(2)	Includes interest of approximately $8,000 and $491,000 for Reserved for Qualifying Victims and for All Interestholders, respectively.

(3)	The components of Other are as follows ($ in thousands):

•

Reversed distributions of approximately $0.04 million from Class A Interests being cancelled.

•

Received net proceeds from the sale of Forfeited Assets of approximately $0.05 million.

•

Recorded approximately $31.95 million from the settlement of Causes of Action, net of 5% payable to the Liquidation Trustee.

•

Paid construction costs of approximately $0.04 million.

•

Paid holding costs of approximately $0.07 million.

•

Paid general and administrative costs of approximately $3.11 million, including approximately $0.07 million of board member fees and expenses, approximately $0.36 million of payroll and other general and administrative costs, approximately $1.48 million of professional fees and approximately $1.21 million paid to the Liquidation Trustee.

		Restricted for				All
		Qualifying Victims				Interestholders				Total
Net assets in liquidation as of beginning of period		$	3,485			$	30,910			$	34,395
Change in assets and liabilities:
Restricted for Qualifying Victims -
change in carrying value of assets and liabilities, net			(2	)			-				(2	)
All Interestholders-
Change in carrying value of assets and liabilities, net			-				885				885
Distributions (declared) reversed, net			-				2,638				2,638
Net change in assets and liabilities			-				3,523				3,523
Net assets in liquidation, as of end of period		$	3,483			$	34,433			$	37,916

		Restricted for				All
		Qualifying Victims				Interestholders				Total
Remeasurement of ssets and liabilities, net		$	(2	)		$	288			$	286
Settlement recoveries (1)			-				154				154
Other (2)			-				443				443
Change in carrying value of assets and liabilities, net		$	(2	)		$	885			$	883

(1)	Net of 5% payable to the Liquidation Trustee of approximately $8 and an allowance for uncollectible settlement installment receivables of approximately $28.

(2)	The components of Other are as follows ($ in thousands):

•

Reversed distributions of approximately $2.65 primarily from claims being disallowed or Class A Interests being cancelled.  Distributions that had been previously reversed were recorded of approximately $0.01 million for Interestholders that were previously deemed to have forfeited their rights to receive Class A Interest distributions but had subsequently responded.

•

Received net proceeds from the sale of Forfeited Assets of approximately $0.58 million.

•

Completed construction of two single-family homes (10733 Stradella and 1520 Carla Ridge).

•

Recorded approximately $0.18 million for the settlement of Causes of Action, net of 5% payable to the Liquidation Trustee.

•

Paid construction costs of approximately $1.28 million relating to single-family homes under development.

•

Paid holding costs of approximately $0.27 million.

•

Paid general and administrative costs of approximately $4.96 million, including approximately $0.16 million of board member fees and expenses, approximately $3.02 million of payroll and other general and administrative costs and approximately $1.78 million of professional fees.

•

Sales of Real Estate:  As of September 30, 2023, the Company owned a total of two real estate assets (including a promissory note that it plans to hold to maturity) with an estimated net carrying value of approximately $0.76 million. Based on the remaining assets of the Company, future net proceeds will be negligible as compared to the proceeds the Company has realized in prior periods. A transaction for the sale of the property located in Hawaii is currently pending.

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•

Causes of Action Recoveries:  During the three months ended September 30, 2023, the Company recognized approximately $34.39 million from the settlement of Causes of Action. There can be no assurance that the amounts the Company recovers from settling Causes of Action in the future will be consistent with the amount recovered in prior periods.

•

Interest Earnings:  As of September 30, 2023, the Company accrued approximately $1.72 million of interest earnings through March 31, 2026.  Of this amount, the Company projects to receive approximately $0.95 million of interest earnings through June 30, 2024.

•

Forfeited Assets:  Forfeited Assets consist of cash and other assets (jewelry and art). During the three months ended September 30, 2023, the Trust sold some of its Forfeited Assets and received net proceeds of approximately $0.05 million. And as noted earlier, net sale proceeds from liquidating the Forfeited Assets are to be distributed only to Qualifying Victims.

									During the Period from February 15, 2019 (inception) through September 30, 2023 ($ in Millions)												During the Period from February 15, 2019 (inception) through November 9, 2023 ($ in Millions)
		Date Declared			$ per Class A Interest				Total Declared				Paid				Restricted Cash Account				Total Declared				Paid				Restricted Cash Account
Distributions Declared
First		3/15/2019			$	3.75			$	44.70			$	42.32			$	2.38			$	44.70			$	42.32				2.38
Second		1/2/2020				4.50				53.44				51.20				2.24				53.44				51.20				2.24
Third		3/31/2020				2.12				25.00				24.19				0.81				25.00				24.19				0.81
Fourth		7/13/2020				2.56				29.97				29.24				0.73				29.97				29.24				0.73
Fifth		10/19/2020				2.56				29.96				29.21				0.75				29.96				29.21				0.75
Sixth		1/7/2021				4.28				50.01				48.67				1.34				50.01				48.67				1.34
Seventh (a)		5/13/2021				2.58				30.04				29.35				0.69				30.04				29.35				0.69
Eighth		10/8/2021				3.44				40.02				39.14				0.88				40.02				39.14				0.88
Ninth		2/4/2022				3.44				39.98				39.15				0.83				39.98				39.15				0.83
Tenth		6/15/2022				5.63				65.02				64.19				0.83				65.02				64.19				0.83
Eleventh		5/10/2023				2.18				25.02				24.90				0.12				25.02				24.90				0.12
Subtotal					$	37.04			$	433.16			$	421.56			$	11.60			$	433.16			$	421.56			$	11.60
Distributions Returned / (Reversed)
Disallowed/cancelled (b)																		(6.31	)											(6.31)
Returned (c)																		0.74												0.74
Forfeited (d)																		(1.13	)											(1.13)
Subtotal																		(6.70	)											(6.70)
Distributions Paid from Reserve Account (e)																		(3.66	)											(3.66)
Distributions Payable, Net													as of 9/30/2023:				$	1.24							as of 11/9/2023:				$	1.24

(a)	The seventh distribution included the cash the Trust received from Fair Funds.

(b)	As a result of claims being disallowed or Class A Interests cancelled.

(c)	Distribution checks returned or not cashed.

(d)	Distributions forfeited as Interestholders did not cash checks that were over 180 days old.

(e)	Paid as claims are allowed or resolved.

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

Item 4.

Controls and Procedures

•

The first set of counts in the complaint are against law firm Halloran & Sage LLP, attorney Richard Roberts, and the “Doe” defendants for aiding and abetting securities fraud (First Count), aiding and abetting fraud (Second Count), aiding and abetting breach of fiduciary duty (Third Count), negligent misrepresentation (Fourth Count), professional negligence (Fifth Count), and aiding and abetting conversion (Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

•

The second set of counts in the complaint are against law firm Balcomb & Green, P.C., attorney Lawrence R. Green, and the “Doe” defendants for aiding and abetting securities fraud (Seventh Count), aiding and abetting fraud (Eighth Count), aiding and abetting breach of fiduciary duty (Ninth Count), negligent misrepresentation (Tenth Count), professional negligence (Eleventh Count), and aiding and abetting conversion (Twelfth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

•

The third set of counts in the complaint are against attorney Jon H. Freis and the “Doe” defendants for aiding and abetting securities fraud (Thirteenth Count), aiding and abetting fraud (Fourteenth Count), aiding and abetting breach of fiduciary duty (Fifteenth Count), negligent misrepresentation (Sixteenth Count), professional negligence (Seventeenth Count), and aiding and abetting conversion (Eighteenth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

•

The fourth set of counts in the complaint are against law firm Rome McGuigan, P.C., attorney Brian Courtney, and the “Doe” defendants for aiding and abetting securities fraud (Nineteenth Count), aiding and abetting fraud (Twentieth Count), aiding and abetting breach of fiduciary duty (Twenty-First Count), negligent misrepresentation (Twenty-Second Count), professional negligence (Twenty-Third Count), and aiding and abetting conversion (Twenty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

•

The fifth set of counts in the complaint are against law firm Haight Brown & Bonesteel LLP, attorney Ted Handel, and the “Doe” defendants for aiding and abetting securities fraud (Twenty-Fifth Count), aiding and abetting fraud (Twenty-Sixth Count), aiding and abetting breach of fiduciary duty (Twenty-Seventh Count), negligent misrepresentation (Twenty-Eighth Count), professional negligence (Twenty-Ninth Count), and aiding and abetting conversion (Thirtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $20 million, as well as for punitive damages.

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The sixth set of counts in the complaint are against law firm Bailey Cavalieri LLC, Thomas Geyer, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-First Count), aiding and abetting fraud (Thirty-Second Count), aiding and abetting breach of fiduciary duty (Thirty-Third Count), negligent misrepresentation (Thirty-Fourth Count), professional negligence (Thirty-Fifth Count), and aiding and abetting conversion (Thirty-Sixth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

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The seventh set of counts in the complaint are against law firm Sidley Austin LLP, attorney Neal Sullivan, and the “Doe” defendants for aiding and abetting securities fraud (Thirty-Seventh Count), aiding and abetting fraud (Thirty-Eighth Count), aiding and abetting breach of fiduciary duty (Thirty-Ninth Count), negligent misrepresentation (Fortieth Count), professional negligence (Forty-First Count), and aiding and abetting conversion (Forty-Second Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $500 million, as well as for punitive damages.

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The eighth set of counts in the complaint are against law firm Davis Graham & Stubbs LLP, attorney S. Lee Terry, Jr., and the “Doe” defendants for aiding and abetting securities fraud (Forty-Third Count), aiding and abetting fraud (Forty-Fourth Count), aiding and abetting breach of fiduciary duty (Forty-Fifth Count), negligent misrepresentation (Forty-Sixth Count), professional negligence (Forty-Seventh Count), and aiding and abetting conversion (Forty-Eighth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $200 million, as well as for punitive damages.

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The ninth set of counts in the complaint are against law firm Robinson & Cole LLP, attorney Shant Chalian, and the “Doe” defendants for aiding and abetting securities fraud (Forty-Ninth Count), aiding and abetting fraud (Fiftieth Count), aiding and abetting breach of fiduciary duty (Fifty-First Count), negligent misrepresentation (Fifty-Second Count), professional negligence (Fifty-Third Count), and aiding and abetting conversion (Fifty-Fourth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.

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The tenth set of counts in the complaint are against law firm Finn Dixon & Herling LLP, attorney Reed Balmer, and the “Doe” defendants for aiding and abetting securities fraud (Fifty-Fifth Count), aiding and abetting fraud (Fifty-Sixth Count), aiding and abetting breach of fiduciary duty (Fifty-Seventh Count), negligent misrepresentation (Fifty-Eighth Count), professional negligence (Fifty-Ninth Count), and aiding and abetting conversion (Sixtieth Count). These defendants are alleged to be jointly and severally liable for rescission of investors’ purchases of securities and for damages in an amount believed to be in excess of $5 million, as well as for punitive damages.

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The eleventh set of counts in the complaint are against law firms Halloran & Sage LLP; Balcomb & Green, P.C.; Rome McGuigan, P.C.; Haight Brown & Bonesteel LLP; Bailey Cavalieri LLC; Sidley Austin LLP; Davis Graham & Stubbs LLP; Robinson & Cole LLP; and Finn Dixon & Herling LLP; attorney Jon H. Freis, and the “Doe” defendants for actual-intent fraudulent transfer (Sixty-First Count) and constructive fraudulent transfer (Sixty-Second Count). These defendants are alleged to be liable for damages in an amount believed to be in excess of $5 million, as well as for provisional remedies, avoidance of the transfers, and punitive damages.

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On March 20, 2020, two sets of defendants – Sidley Austin LLP and Neal Sullivan; and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. – filed special motions to strike the portions of the complaint directed at them under a California statute (Civil Procedure Code section 425.16) that permits defendants to bring early challenges to causes of action against them that allegedly arise from protected litigation activity if those causes of action lack minimal merit.  The defendants that filed these special motions to strike asserted that the claims against them arise from communicative conduct in the course of quasi-judicial proceedings, such as regulatory inquiries, and that the Trust cannot establish a likelihood of prevailing on its claims against them.  The Trust opposed these motions, and the matters were heard on July 28, 2020, and taken under submission on that date.  On August 14, 2020, the Court entered orders: (i) granting the motion to strike filed by Sidley Austin LLP and Neal Sullivan, and (ii) granting in part and denying in part the motion to strike filed by Davis Graham & Stubbs LLP and S. Lee Terry, Jr.  In September 2020, the Trust filed notices of appeal of the foregoing orders, and Davis Graham & Stubbs LLP and S. Lee Terry, Jr. subsequently filed a cross-appeal.  On January 27, 2021, the Court entered an order granting, in part, a motion for attorneys’ fees filed by Sidley Austin LLP and Neal Sullivan, pursuant to which the movants were awarded $282,500.00 in fees and $5,557.87 in costs. On March 1, 2021, the Trustee filed a notice of appeal of the order granting fees and costs.

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On April 13, 2020, four sets of defendants – Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; Robinson & Cole LLP and Shant Chalian; and Finn Dixon & Herling LLP and Reed Balmer – filed motions to quash the service of summonses.  The defendants that filed these motions asserted that they are not subject to suit in California because they do not have sufficient contacts with California to justify a California court’s exercise of jurisdiction over them.  The Trust opposed these motions, and the matters were heard in part on July 15, 2020 and in part on July 20, 2020, and (with exception of the motion filed by Finn Dixon & Herling LLP and Reed Balmer) were taken under submission on July 20, 2020.  The motion filed by Finn Dixon & Herling LLP, and Reed Balmer was taken off calendar prior to July 20, 2020, and the parties thereafter reached a confidential settlement.  On July 21, 2020, the Court entered orders granting the motions to quash filed by Rome McGuigan, P.C. and Brian Courtney; Bailey Cavalieri LLC and Thomas Geyer; and Robinson & Cole LLP and Shant Chalian.  On September 10, 2020, the Trust filed a notice of appeal of the foregoing orders.

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On June 16, 2020, the Trust reached a confidential settlement with Balcomb & Green, P.C. and Lawrence R. Green.  On July 6, 2020, these defendants filed a motion seeking the Court’s determination that the settlement was made in good faith under a California statute (Civil Procedure Code section 877.6) that permits settling defendants to seek a good faith settlement finding in order to bar any other defendant from seeking contribution or indemnity.  The motion was unopposed, and the Court entered an order granting it on August 12, 2020.

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On September 11, 2020, the Trust reached a settlement with Finn Dixon & Herling LLP and Reed Balmer that resolved all litigation between them.

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On January 21, 2021, the Trust reached a confidential settlement with Robinson & Cole LLP and Shant Chalian.  As part of that settlement, the appeal of the jurisdictional ruling as to those parties has been dismissed.

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The other appeals remain pending. On June 14, 2021, the Trustee filed a combined opening brief for all of the appeals other than his appeal of the order granting fees and costs to Sidley Austin LLP. Between September 22 and 29, 2021, the respondents filed their opening briefs.   On March 17, 2022, the Trustee filed a combined reply brief for all of the appeals other than his appeal of the order granting fees and costs to Sidley Austin LLP.  On June 30, 2022, Davis Graham & Stubbs LLP filed its reply brief in support of its cross-appeal of the order denying a portion of its special motion to strike.  The matter is currently fully briefed and awaiting argument.

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While the appeals were pending, the Trust reached a settlement with Davis Graham & Stubbs LLP and Lee Terry on July 29, 2023 for $25.5 million, which amount resulted in proceeds paid to the Trust on October 2, 2023 of approximately $17.0 million, net of attorneys’ fees.  The settlement resolved all litigation between the Trust and Davis Graham & Stubbs LLP and Mr. Terry.

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The appeal of the award granting fees and costs to Sidley Austin LLP remains pending. The appeal is fully briefed and will be decided following the disposition of the appeal of the underlying order.

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In March 2023, the Trust dismissed its claims against Jon H. Freis.

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In April 2023, the Trust reached a settlement with Bailey Cavalieri LLC and Thomas Geyer that resolved all litigation between them.

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In June 2023, the Trust reached a settlement with Halloran & Sage and Richard Roberts for the remaining amount of the law firm’s applicable liability insurance policies, which resulted in proceeds paid to the Trust on August 11, 2023 of approximately $13.2 million, net of attorneys’ fees and other litigation expenses.  This settlement resolved all litigation between the Trust and Halloran & Sage and Richard Roberts.

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Preferential transfers and/or fraudulent transfers (Noteholders and Unitholders).  Certain of the actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid or recover payments made by the Debtors: (1) during the 90 days prior to the December 4, 2017 bankruptcy filing, including payments to miscellaneous vendors and former Noteholders and Unitholders; and/or (2) during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for interest paid to former Noteholders and Unitholders.

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Fraudulent transfers (Shapiro personal expenses). Two remaining actions include claims arising under chapter 5 of the Bankruptcy Code and seek to avoid and recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for the personal expenses of Robert and Jeri Shapiro, including those identified in a forensic report prepared in connection with an SEC enforcement action in the United States District Court for the Southern District of Florida.

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Fraudulent transfers and fraud (against former agents). Certain of the actions, which arise under chapter 5 of the Bankruptcy Code and applicable state law governing fraudulent transfers, seek to avoid and recover payments made by the Debtors during the course of the Ponzi scheme (from July 2012 through the December 4, 2017 bankruptcy filing) for commissions to former agents, as well as for fraud, aiding and abetting fraud, and the unlicensed sale of securities asserted by the Trust based on claims contributed to the Trust by defrauded investors. These actions were filed by the Trust in the Bankruptcy Court between November 15, 2019 and December 4, 2019. Actions of this type are also being pursued by the SEC, and it is the Trust’s understanding that any recoveries obtained by the SEC will be transmitted to the Trust pursuant to a Fair Fund established by the SEC.

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Fraudulent transfers (Kenneth Halbert).  The Trust has pursued fraudulent transfer claims against Kenneth Halbert to avoid and recover prepetition payments of principal and interest to Mr. Halbert. The Trust filed its initial complaint on December 1, 2019 and the operative first amended complaint on December 7, 2021. Fact discovery closed on April 24, 2023.  Thereafter, on June 27, 2023, the Trust agreed to settle its pending fraudulent transfer claims against Kenneth Halbert.  The terms of the settlement are contained in a settlement agreement between the Trust and Mr. Halbert.  Under the agreement, the Trust agreed to dismiss its claims against Mr. Halbert for the sum of $4 million, payable in cash to the Trust.  The Trust received the settlement payment on August 15, 2023 and dismissed the action against Mr. Halbert on August 22, 2023.

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Actions regarding the Shapiro’s personal assets. On December 4, 2019, the Trust filed an action in the Bankruptcy Court, Adv. Pro. No. 10-51076 (BLS), Woodbridge Liquidation Trust v. Robert Shapiro, Jeri Shapiro, 3X a Charm, LLC, Carbondale Basalt Owners, LLC, Davana Sherman Oaks Owners, LLC, In Trend Staging, LLC, Midland Loop Enterprises, LLC, Schwartz Media Buying Company, LLC and Stover Real Estate Partners LLC. In this action, the Trust asserts claims under chapter 5 of the Bankruptcy Code and applicable state law for avoidance of preferential and fraudulent transfers together with claims for fraud, aiding and abetting fraud, the unlicensed sale of securities, breach of fiduciary duty and unjust enrichment. The Trust seeks to recover damages and assets held in the names of Robert Shapiro, Jeri Shapiro and their family members and entities owned or controlled by them, which assets the Trust contends are beneficially owned by the Debtors or for which the Debtors are entitled to recover based on the Shapiros’ defalcations, including over $20 million in avoidable transfers. On February 4, 2022, the Trust entered into a Settlement Agreement with Ms. Jeri Shapiro resolving the Trust’s adversary proceeding against Ms. Shapiro.  In connection with the Settlement Agreement, Ms. Shapiro responded to interrogatories from the Trust and submitted a declaration under penalty of perjury detailing her lack of assets.  Upon execution of the Settlement Agreement, Ms. Shapiro executed and delivered a Stipulated Judgment for approximately $20.6 million that will be held by the Trust in escrow for three years that can be entered without notice if the Trust learns Ms. Shapiro’s representations in her declaration were false or materially inaccurate.  Additionally, Ms. Shapiro authorized the Trust to expunge the filed claims of certain co-defendants for entities she was listed as an officer and turned over payments to the Trust that were received by certain co-defendants in the adversary proceeding.  A stipulation of dismissal (as to Ms. Shapiro only) was entered on April 1, 2022.

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Criminal proceeding and forfeiture.  In connection with the United States’ criminal case against Robert Shapiro (Case No. No. 19-20178-CR-ALTONAGA (S.D. Fla. 2019)), Shapiro agreed to the forfeiture of certain assets.  The Trust filed a petition in the Florida court to claim the Forfeited Assets as property of the Debtors’ estates, and therefore as property that had vested in the Trust pursuant to the Plan.  The Trust has entered into an agreement with the United States Department of Justice to resolve its claim.  The agreement was approved by the Bankruptcy Court on September 17, 2020 and was approved by the United States District Court on October 1, 2020.  Among other things, the agreement provides for the release of specified Forfeited Assets by the United States to the Trust, and for the Trust to liquidate those assets and distribute the net sale proceeds to Qualifying Victims, which include the vast majority of Trust beneficiaries—specifically, all former holders of Class 3 and 5 claims under the Plan and their permitted assigns—but do not include former holders of Class 4 claims under the Plan. The Trust has taken possession of the Forfeited Assets and has sold the wine, gold, clothing, handbags, shoes and an automobile.  A substantial majority of the jewelry and art have also been sold.

Item 1A.

Risk Factors

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.

Defaults upon Senior Securities

Item 4.

Mine Safety Disclosures

Item 5.

Other Information

Item 6.

Exhibits

	Woodbridge Liquidation Trust
Date: November 9, 2023	By:	/s/ Michael I. Goldberg
		Michael I. Goldberg,
		Liquidation Trustee

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