Finance

Oppenheimer investment bank faces lawsuit over Ponzi scheme allegations

A class-action lawsuit claims investment bank Oppenheimer & Co. was at fault for an alleged Ponzi scheme run by a former employee, which authorities say collected $110 million from unwitting investors.

A suit filed on 31 August in the United States District Court for the Northern District of Georgia in Atlanta alleges that from 2008 through 2016, a group of former Oppenheimer investment advisers, led by Marietta, resident John J. Woods, funnelled the money of Oppenheimer customers into a fraudulent scheme.

Last week, the Securities and Exchange Commission accused Woods of raising millions for a fund called Horizon Private Equity III LLC, which the agency said was in fact a Ponzi scheme. The SEC alleged that during the time Woods was an Oppenheimer adviser, and after, he raised money for his scheme through a separate investment advisory firm he controlled, called Southport Capital.

The latest lawsuit alleges Oppenheimer ignored warning signs of Woods’ activities, enabled the transfer of millions of dollars of its customers’ money to the scheme, and finally, when red flags became too clear to ignore, allowed Woods to quietly resign at the end of 2016, without alerting authorities to his scheme.

Oppenheimer did not respond to requests seeking comment. In response to the earlier SEC complaint last month, an Oppenheimer spokesman wrote by email, “Oppenheimer ceased doing business with Southport Capital many years ago. Shortly thereafter Woods resigned from Oppenheimer.”

The SEC filed its suit on 20 August against Woods, Horizon Private Equity and Livingston Group Asset Management, the legal name of Southport Capital. On 24 August, a federal court froze the assets of Woods and the Horizon fund.

In its complaint, the SEC said Woods lured more than 400 investors, many of them elderly retirees, into the purported private equity fund by promising to make low-risk investments that would secure an annual return of 6% to 7%. Instead, the SEC alleged, Woods invested a small fraction of the money in real-estate projects, while paying out earlier investors with money raised from later ones.

The SEC said the fund now holds less than $16m in liquid assets of the $110m total raised.

In response to the SEC complaint, an attorney for Woods and Horizon said, “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 attorney, David Chaiken of ChaikenLaw, didn’t reply to a request for comment on 1 September on the class-action suit.

Woods couldn’t be reached for comment.

The SEC’s civil-fraud complaint didn’t name Oppenheimer, referring only to an “institutional investment adviser” for which Woods worked through 2016. Woods’ investment-adviser registration shows he worked for Oppenheimer during this period.

The SEC complaint said Woods took steps to conceal his fraudulent activities, and didn’t disclose to Oppenheimer his financial interests in Horizon or Southport. In 2016, when Oppenheimer became concerned about Woods’ outside business interests, it asked him to resign, the SEC complaint stated.

The class-action suit, however, claims that on the contrary, Woods “made no effort to hide the scheme from Oppenheimer’s management.” He rented office space for Southport Capital next door to Oppenheimer’s Atlanta office, the suit claims, and for years he and other Oppenheimer employees moved freely between the two offices, and transferred client money into the Horizon fund.

In addition to the class-action suit, on 31 August, investors also filed arbitration claims against Oppenheimer with the Financial Industry Regulatory Authority, Wall Street’s self-regulatory arm. These claims ask that investors be compensated for a cumulative $1.4m in invested principal that they say they lost.

An attorney for Southport Capital, the Chattanooga-based advisory firm owned by Woods, said the firm has changed its leadership and intends to defend itself against the SEC’s allegations.

“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,” wrote an attorney for the firm, which managed about $824m at the end of last year.

Write to Chris Cumming at [email protected]

This article was published by Dow Jones Newswires

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