Four hundred investors, 20 states, 10 years, $110 million in lost principal.
Those are the big numbers that figure in an alleged Ponzi scheme perpetrated by a Georgia-based advisor, his RIA and the fund he controlled for over a decade, regulators say.
Last Friday, the Securities and Exchange Commission
According to the complaint, Woods, 56, and his associates at Southport Capital based in Chattanooga, Tennessee, raised more than $110 million from over 400 investors in 20 states by offering and selling membership units in the Horizon Private Equity Fund. The parties allegedly told the investors — many of them elderly retirees — that their investments were safe; would pay a fixed, if not extravagant, rate of return; and that the investors could get their principal back without penalty after a short waiting period.
But in reality, alleges the SEC, the fund returned scant profits and most of what it did bring in was paid out to earlier investors in classic Ponzi style. The complaint also alleges that Woods repeatedly lied to the SEC during regulatory examinations of Southport.
The complaint seeks preliminary and permanent injunctions, disgorgement, prejudgment interest, civil penalties, an asset freeze and the appointment of a receiver. Retrieving the funds could prove challenging since the Horizon fund had neither staff nor offices and so lacked the “typical recordkeeping practices one would expect from a legitimate investment fund,” the SEC said in a
One factor that contributed to the alleged Ponzi scheme’s unusually long run, according to Teresa Verges, director of the Investor Rights Clinic at Miami University’s School of Law, was its “enormous base of investors to pitch to” — one Woods likely began to acquire in his years at several broker-dealers and which vastly expanded after he bought a controlling stake in Southport in 2008 (the RIA currently has more than $824 million in AUM, according to its latest Form ADV, and has offices in 18 locations throughout the South, Midwest and in California, according to its website.)
According to FINRA’s BrokerCheck, Woods was registered as a broker-dealer at Lehman Brothers from 1989 to 1991 and at CIBC World Markets from 1991 to 2003 before logging 13 years at Oppenheimer from 2003 to 2016. In 2008, Oppenheimer made a $16,800 settlement with a customer who claimed Woods made unauthorized trades in his account, a BrokerCheck disclosure shows.
The fund would have been especially attractive to elderly investors looking for an assured return in today’s low-interest environment, Verges said.
“[They] were easy prey for a fraudster who's basically saying this is a guaranteed return, and he's not going to seem like a fraudster — he is an established broker investment advisor representative, he has licenses associated with probably prominent firms,” Verges said. “So he's wrapped up in all the earmarks of legitimacy and 6% to 7% returns in today's stock market — I mean that's not so outrageous.”
Irwin Stein, a securities and real estate attorney based in San Rafael, California, agreed. “I think the ‘low’ return added credibility to the scam,” Stein said.
In a hearing in an Atlanta courthouse on Tuesday, Judge Steven Grimburg granted the SEC’s motion for a temporary restraining order and an asset freeze for Woods and of the Horizon Equity Fund, but declined to impose one on Southport.
“We were pleased with the court’s decision not to place Southport into receivership or restrain its assets,” wrote David Chaiken, Woods’ attorney, in an email. “Going forward, we are going to let the judicial process play out and limit any further comments or information to the courtroom at this time.”
Woods did not immediately return a message requesting comment.
The SEC declined to comment on the investigation beyond the information provided in the press release and complaint.
