The Securities and Exchange Commission is seeking help from a Georgia federal court to stop what it claims is an ongoing Ponzi scheme.
The SEC filed a complaint against John Woods, his RIA, Livingston Group Asset Management—known as Southport Capital, and an investment fund he ran called Horizon Private Equity. It states that 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 as part of a Ponzi scheme, with the commission concerned that “additional victims are being defrauded on a daily basis.”
On Tuesday, the court granted a temporary restraining order against Woods and the Horizon fund, while denying a TRO against Southport Capital. It also granted the SEC's request for an asset freeze on both Woods and Horizon.
According to the SEC, Woods has been running the Ponzi scheme for more than a decade, with many of his alleged victims being retirees.
“As alleged in the complaint, Woods and Southport preyed upon their clients’ fears of losing their hard-earned savings and convinced them to place millions of dollars into a Ponzi scheme by falsely promising them a safe investment with steady returns,” Nekia Hackworth Jones, the director of the SEC’s Atlanta office, said.
According to the complaint, in 2008 Woods was an IAR and registered rep at an unnamed institutional investment advisor (according to SEC’s AdviserInfo, Woods worked for Oppenheimer & Co.). Woods was already soliciting investors for Horizon, and around this time also bought Southport, which was based in Chattanooga, Tenn.
According to the complaint, Woods and other Southport IARs told clients that they’d receive returns in 6%–7% interest at a guarantee for two to three years, by investing in Horizon Private Equity, telling investors the firm would invest their money in government bonds, stocks or small real estate projects. Investors in the fund were purportedly told they had a guaranteed rate of return, that the investments carried “little risk” and were conservative in nature, and there was no possibility that their principal investment would be lost.
But Woods and Southport Capital used the money they raised from new investors to pay the returns for existing ones; to date, Horizon has failed to earn “significant profits” from legitimate investments, according to the SEC. By the time the complaint was filed, Southport had more than $824 million in assets under management, but according to the commission, Woods’ assets, his business and the Horizon fund were not worth nearly enough to pay back existing investors the principal or their returns. As of July, the Horizon fund had only $16 million in liquid assets, compared to the $110 million in principal investments made during the scheme, according to the SEC.
“Investors trusted Woods and the Southport investment advisors working at his direction and they stand to lose significant portions of their retirement savings when the Ponzi scheme inevitably collapses,” the complaint read. “The longer the scheme continues, the larger the losses will be for those left holding the bag.”
Time is also of the essence, according to the SEC. Because the scheme had been committed for so long, and Woods and his companies lacked any typical documentation, millions of dollars from affected investors could not be accounted for, the SEC argued.
But the scheme is continuing to draw in new money monthly, with the commission finding Woods and Southport had raised more than $600,000 per month from new investors in the past several months. To cover up the scheme, the SEC claimed that Woods had lied both to the institutional advisor he worked for as well as SEC investigators.
"We were pleased with the Court’s decision not to place Southport into receivership or restrain its assets," David Chaiken, the attorney representing Woods and his business entities in the suit, told WealthManagement.com in a statement about the rulings. He also said they'd be letting the judicial process play out without public comment going forward.
In addition to the TRO and asset freeze, the federal judge in the case granted the SEC's request to appoint a receiver for Woods and the Horizon fund. The commission is also seeking disgorgement and prejudgment interest, as well as civil penalties, against Woods.