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Regulation and Compliance > Federal Regulation > SEC

SEC Accuses Advisor of Running $110M Ponzi Scheme

By Jeff Berman

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What You Need to Know

  • A Marietta, Georgia, advisor was named in a complaint by the SEC, along with two entities he controls.
  • The advisor had served as the CEO and president of RIA Southport Capital, one of those entities.
  • He served as a broker for Oppenheimer from 2003 to 2016.

The Securities and Exchange Commission obtained a temporary restraining order and asset freeze on Tuesday against a Marietta, Georgia, advisor and Horizon Private Equity III, an entity he controls, to stop the $110 million Ponzi scheme that the SEC alleged they were operating, according to court documents.

The SEC was also granted its requests for expedited discovery and that Horizon and select assets owned by the advisor, John J. Woods, including his ownership stake in the RIA firm Livingston Group Asset Management, which operates as Southport Capital, be placed into receivership.

The SEC filed a complaint on Friday in U.S. District Court for the Northern District of Georgia against Woods, Horizon and Livingston/Southport, alleging the defendants raised more than $110 million from more than 400 investors in 20 states by offering and selling membership units in Horizon.

Woods, who served as a broker at Oppenheimer & Co. from 2003 to 2016, according to his report on the Financial Industry Regulatory Authority’s BrokerCheck website, was the principal officer at Livingston/Southport, serving as its CEO and president.

However, he was no longer listed as a member of the executive team on the firm’s website on Wednesday. Clay Parker, a partner who previously served as senior investment advisor, was instead listed as the Livingston/Southport CEO and president on Wednesday.

The SEC had also requested that a TRO be granted against Livingston/Southport. But that request was denied without prejudice by Judge Steven D. Grimberg, according to court documents.

Woods could not immediately be reached for comment and the company email address he previously had was no longer in use.

David Chaiken, one of the attorneys representing Woods and Horizon, told ThinkAdvisor: “We were pleased with the Court’s decision not to place Southport into receivership or restrain its assets, and per the Court’s directive, we are working with the SEC on a proposed order.”

“The SEC’s recent court filings have come as a shock to everyone at Southport Capital, and we are pleased with the court’s favorable decision to deny the Commission’s request to place Southport into a receivership and freeze its assets,” Gerald B. Kline, partner at Taylor English and counsel for Livingston Group Asset Company/Southport Capital, said in a statement shared with ThinkAdvisor on Thursday.

“We remain deeply concerned about the allegations of concealment and wrongdoing at the hands of our former CEO and Horizon Private Equity, a company Southport has never engaged to provide asset management services for its valued advisory clients,” Kline said. “In addition to taking swift and immediate action to implement executive leadership changes, we intend to vigorously defend Southport as it has only ever sought to operate with its clients’ best interests at heart.”

Earlier in the week, an Oppenheimer spokesperson explained: “Oppenheimer ceased doing business with Southport Capital many years ago. Shortly thereafter Mr. Woods resigned from Oppenheimer.”

The SEC’s counsel was ordered to prepare and submit to the court, after conferring with the defendants’ counsel, a proposed order by close of business on Friday.

More Details

Woods, Southport and other Southport advisor representatives allegedly told investors, including many older retirees, that their Horizon investments were safe, would be used for different investment activities, 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.

Those statements were false and misleading, however, because Horizon did not earn any significant profits from legitimate investments, and a huge percentage of purported “returns” to earlier investors were simply paid out of new investor money, the SEC alleged.

The complaint also alleged that Woods repeatedly lied to the SEC during regulatory examinations of Southport.

The SEC’s complaint charged the defendants with violating the antifraud provisions of federal securities laws. The complaint seeks permanent injunctions, disgorgement, prejudgment interest, civil penalties, an asset freeze and the appointment of a receiver.

Jeff Berman

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