Oppenheimer & Co. ordered to pay fraud victims $37 million

Oppenheimer & Co., a New York-based brokerage and investment bank, was ordered to pay nearly $37 million in damages to 11 investors who lost money in the scheme, allegedly conducted by two firms under the control of John Woods, a Marietta, Georgia resident.

Woods, a long-time broker with Oppenheimer, had controlling interests in two other investment firms: Horizon Private Equity, III LLC, and Livingston Group Asset Management Company, doing business as Southport Capital.

Southport Capital had an office in Mount Airy, although it closed soon after the Securities and Exchange Commission (SEC) took action against Woods and his firms in August 2021. No one from the local firm acknowledged requests from The Mount Airy News for comment or information, but at the time of the SEC’s action, Woods was listed as the firm’s partner and senior investment advisor. Clay Parker was listed as president and CEO.

According to the SEC’s original complaint, filed in the United States District Court for the Northern District of Georgia in August 2021, the defendants raised more than $110 million from more than 400 investors in 20 states by offering and selling membership units in Horizon.

Woods, Southport, and other Southport investment advisers allegedly told investors – including many elderly retirees who feared the volatility of the stock market – that their Horizon investments were safe and would pay a fixed rate of return, and that investors could get their principal back without penalty after a short waiting period, according to the SEC filing.

According to the complaint, however, these statements were false and misleading: Horizon did not earn any significant profits from legitimate investments, and a large percentage of purported “returns” to earlier investors were simply paid out of new investor money. The complaint also alleges that Woods repeatedly lied to the SEC during regulatory examinations of Southport.

“Investors felt comfortable investing in Horizon in large part because of their relationships with advisers at Southport,” said Nekia Hackworth Jones, director of the SEC’s Atlanta Regional Office. “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.”

Another SEC filing, from June 10 of this year, struck closer to home for area investors. That filing, in U.S. District Court in Atlanta, pointed the finger at three additional individuals, including a Mount Airy resident.

Penny Flippen, 59 at the time of the filing, of Mount Airy; Britt Wright, 49 at the time of filing, of Pfafftown, and Michael Mooney, 52 at the time of the filing, of Sarasota, Florida, were all implicated in the complaint. The three are alleged to have advised area investors to put a collective $62 million in the Horizon fund. According to that June 10 filing, the three are alleged to have told clients the money would be invested in safe securities such as government bonds, and would pay a guaranteed 6% to 8% return while posing no risk to the principle.

“…Horizon III was only able to pay the guaranteed returns to existing investors by raising and using new investor money,” that complaint alleges. “Horizon III did not earn any significant profits from legitimate investments; instead, a very large percentage of purported ‘returns’ to earlier investors were simply paid out of new investor money.”

The three were charged with multiple violations of federal securities laws, the SEC stated. That filing has yet to be resolved.

Georgia Case

The more recent action, taken this month and settled by an arbitration panel in Atlanta on Sept. 5, orders Oppenheimer to pay $36.75 million to 13 claimants as part of the case. That award covers the money they allegedly lost, court and filing fees, as well as treble damages in some case, raising their award to as much as three times the money they lost.

According to an earlier complaint filed on their behalf in Georgia, Woods worked as an Oppenheimer investment advisor while allegedly running his Ponzi scheme, funneling customers — and their money — from Oppenheimer into his Horizon fund.

“Claimants are among more than 300 people victimized by the $110 million scheme,” the filing, by attorney John Chapman of Chapman - Albin LLC, alleged. “The SEC recently filed a complaint against Horizon and Woods and froze the Horizon fund and its assets. The SEC’s complaint alleges that Claimants have lost all, or substantially all, of their invested principal in Horizon. Respondent Oppenheimer failed utterly to discharge its duties. Claimants have suffered the consequences of Respondent’s failures,” the filing said in seeking the damages.

In the Georgia case, according to court filings there, several of the victims were led to believe Horizon was an investment vehicle approved by Oppenheimer, and part of Oppenheimer’s portfolio of investment funds.

“At all times relevant, Oppenheimer employed, held the securities license of, and was duty-bound to supervise the securities-related activities of its registered representative John Woods,” the Atlanta filing alleged in making the case for Oppenheimer to repay losses suffered by clients there. “Oppenheimer’s lax supervisory structure, in which brokers essentially supervise themselves, has led…Oppenheimer to 97 regulatory actions and 173 arbitrations including ones involving failing to supervise registered representatives’ outside business activities and private securities transactions, among others,” Chapman said in his filings.

Even though Woods left Oppenheimer in December 2016, the court filing alleges Oppenheimer knew of his wrongdoing, and was complicit in hiding that from regulators.

“In December 2016, fully aware of the numerous securities law violations taking place in its Atlanta, Georgia office, Oppenheimer sought to conceal the Horizon scheme from the regulators and the investing public by permitting Woods to quietly resign from Oppenheimer without reporting the wrongdoing to regulators and the investing public, as required by law. This enabled Woods to continue raising money from unsuspecting investors, allowing the Ponzi scheme to continue for many more years, until August 2021,” according to the September filing.

The arbitrators ruled in favor of the Georgia plaintiffs, with a lengthy outline of restitution and penalty payments to each of the victims, totaling nearly $37 million.