FINRA arbitrators demanded this week that Oppenheimer & Co. pay more than $35 million in awards to a number of investors allegedly victimized by a Ponzi scheme that was reportedly orchestrated by a former Oppenheimer advisor during the time he worked there.
According to the arbitration award, the investors argued Oppenheimer was negligent in violating FINRA rules, breaching fiduciary duties and violating Georgia’s Racketeer Influenced and Corrupt Organizations (RICO) statute, among other claims.
The arbitration stemmed from the claimants’ “investments in Horizon Private Equity III,” an investment fund that operated as an alleged Ponzi scheme run by John Woods via his RIA, Southport Capital. According to a Securities and Exchange Commission (SEC) complaint filed last August, Woods, a minority owner of the minor league baseball team the Chattanooga Lookouts, raised more than $110 million from over 400 investors in 20 states.
In 2008, Woods began soliciting investors for the Horizon fund and also bought the Chattanooga-based Southport Capital. Woods and other Southport reps told clients they’d get returns with six to seven percent guaranteed interest for years, and that the investments held ‘little risk.’ But in reality, Woods and his RIA used funds from new investors to pay returns to already-existing ones, according to the SEC. In its complaint, the SEC argued Woods kept the scheme running for more than a decade, with many of his victims being retirees.
The firm he worked for as an IAR and registered rep in 2008 (when he bought Southport and began soliciting investors for the Horizon fund) is not named in the SEC complaint, but according to his AdviserInfo profile, Woods worked for Oppenheimer from 2004 through 2016.
In a response to the SEC complaint last November, Woods denied the majority of the allegations, arguing that he lacked the knowledge “to form a belief as to whom investors trusted and whether they stood to lose significant portions of their retirement savings.” The SEC case against Woods and Southport is ongoing (Woods could not be reached for comment).
Oppenheimer plans to file a motion to vacate the FINRA award in its entirety, according to Haven Tower Group President Michael Dugan, who spoke on behalf of the firm. Dugan argued the arbitration panel erred in several respects, including allowing the hearing to go ahead without the presence of Woods (who was also named as a defendant) and prematurely reaching a decision while a court-ordered receiver is working to recoup investors’ assets. Dugan said Oppenheimer regretted that investors suffered losses due to Woods' alleged actions, but they felt Woods and several other co-defendants (whom Oppenheimer said did not appear at the hearing) were those responsible.
"Oppenheimer believes the panel erred in multiple ways, including but not limited to, allowing the hearing to proceed without Mr. Woods and other key parties and witnesses; prematurely rendering an award for damages while a court-appointed Receiver continues to collect assets on behalf of all impacted investors, including the Robinson claimants; issuing an award where there was evident partiality against the Company by one of the arbitrators; and allowing the hearing to proceed when the claims were barred by relevant statutes of limitation," Dugan wrote.
Recently, a number of victimized Horizon investors filed suit in Georgia federal court against Oppenheimer, arguing that Woods made no effort to hide his alleged Ponzi scheme from his employers. The unnamed investors argued that Oppenheimer “turned a blind eye” while Woods and others (allegedly including other investment advisors in Oppenheimer’s Atlanta office) conducted the scheme and decided to sweep the wrongdoing under the rug to avoid liability.
“In December 2016, with full knowledge that Woods was operating a secret, illegal ‘private equity fund,’ Oppenheimer actively concealed the Ponzi scheme from the regulators and investing public by permitting Woods to quietly resign from Oppenheimer without reporting the wrongdoing to regulators and the investing public, as required by law,” the suit read.
Last month, a federal judge dismissed this complaint against Oppenheimer, although the plaintiffs were given until Sept. 9 to file a motion to amend the complaint.