SEC Says Georgia Man Ran "Massive" $110 Million Ponzi Scheme
The Securities and Exchange Commission filed an emergency enforcement action in an Atlanta federal court alleging that a Georgia man ran a “massive” Ponzi scheme through his ownership of a financial firm and which currently owes at least $110 million to hundreds of investors. John Woods, of Marietta, Georgia, along with Livingston Group Asset Management Company d/b/a Southport Capital (“Southport”) and Horizon Private Equity, III, LLC (“Horizon”), were named as defendants in the Commission’s action, which also sought the imposition of an asset freeze and the appointment of a receiver. The Court granted the appointment of a receiver over Horizon but denied the request to appoint a receiver over Southport.
The Scheme
According to the Commission, the story begins in 2008 when Woods was registered as both an investment advisor and registered representative of a financial services firm. In those capacities, Woods was required to disclose any outside business activities to his employer. The Complaint alleged that Woods began soliciting investors for Horizon, which was “nominally controlled” by Woods’ accountant at that time in order to shield Woods’ actual ownership. That same year, Woods also purchased Southport, which was an SEC-registered investment adviser. The Commission alleges that Woods’ brother then became “nominally” in charge of Southport when in fact Woods continued to exert control over Southport. Shortly thereafter, Woods’ cousin also left his job at the same financial services firm as Woods to join Southport. After Woods’ financial services firm apparently raised questions over Woods’ involvement in outside business activities, Woods ultimately resigned in 2016 and then joined Southport full-time. According to the Complaint, Woods apparently asked a business partner not to speak to his firm’s compliance personnel at the time they were investigating his affiliation with Southport because “he had only months to live because he was suffering from cancer.”
Woods, his brother, and his cousin all allegedly solicited clients to invest in Horizon, touting the safety and security of the investment and also promising that Horizon would pay guaranteed and fixed returns. Investors were rarely provided with any written materials relating to a prospective investment, instead relying on oral conversations and representations made by Woods, Woods’ relatives, or other Southport advisers. Investors were allegedly told that there was no possibility of losing their investment, that Horizon was not affiliated with Southport, that a Horizon investment was an annuity, and that investor funds would be used to purchase government bonds or collateralized mortgage obligations. Investors were also told that Southport employees would not receive compensation for recommending the Horizon investments.
The Commission alleged that these representations were false, and that in reality, Woods was operating Horizon as a “massive and ongoing Ponzi scheme” that owed investors more than $110 million as of the end of July 2021 but only had liquid assets worth less than $16 million. Woods allegedly used new investor fund to make payments to existing investors - a classic hallmark of a Ponzi scheme. The complaint indicates that Horizon has invested approximately $20 million of investor funds in other Horizon assets that will be “complicated” and “time consuming” to liquidate.
The Complaint details that the Commission’s Division of Examinations conducted an examination of Southport in 2018, alleging that Woods misrepresented his role with and control over Horizon. For example, Woods provided written responses indicating that he has “never” controlled Horizon’s operations, that he was not a signatory on Horizon’s checking accounts, and that Woods was "an investor in this fund, but not a manager.” It appears another examination was conducted in 2021, to which Woods allegedly provided similarly misleading responses.
In a hearing last week, U.S. District Judge Steven Grimburg agreed that appointment of a receiver was warranted over Horizon but declined to do the same for Southport, reasoning that “I don’t find this burden has been satisfied at this juncture…” An attorney for Southport, while agreeing that a receiver was necessary for Woods and Horizon, cited the recent change in management and leadership at the firm and indicated that the company “will not be around for much longer” if a receiver was appointed over Southport.
A copy of the Complaint is below: