Federal regulators have charged one of the owners of the Chattanooga Lookouts baseball team with "running a massive Ponzi scheme for over a decade" that has defrauded more than 400 investors already and continues to illegally raise more money to try to pay off previous investors.
In a 40-page complaint filed in federal court, the U.S. Securities and Exchange Commission charged John J. Woods and his Chattanooga-based Southport Capital investment firm with six counts of securities fraud. The complaint said Woods' Ponzi scheme, which goes by the name Horizon Private Equity, collected more than $110 million from investors with promises of 6-7% rates of return but the investments "are worth far too little for there to be any realistic prospect that the Ponzi scheme will be able to pay back existing investors their principal, let alone the promised returns."
Woods, a 56-year-old East Ridge native, lives in Marietta, Georgia, and maintains offices around the country, including in the UBS building in downtown Chattanooga. Southport Capital manages more than $824 million in client investments, according to the SEC.
(Read more: Managing owner Freier plans to move forward with Lookouts, new stadium)
In 2014, Woods became one of the owners of the Chattanooga Lookouts minor league baseball team when his group bought the team from longtime owner Frank Burke. Woods also has been an investor in several local real estate projects.
Woods is now a minority owner in the Lookouts franchise, according to Jason Freier, managing owner and CEO of the Lookouts, who sought to distance the baseball team from Woods' alleged Ponzi scheme.
"The Lookouts have no relationship with any of the entities mentioned in the complaint, and we do not expect our operations or future plans to be affected by this development," Freier said.
Woods and his attorneys declined to immediately respond to the specific claims made against Southport Capital in the regulatory complaint. Woods' Atlanta attorney, David Chaiken, said "the SEC's allegations present only one side of the story."
"We look forward to presenting Mr. Woods' side in court, through the judicial process," Chaiken said Monday.
A court hearing is scheduled at 2 p.m. Tuesday in Atlanta on a request by regulators for a federal judge to issue a temporary restraining order to shut down the Horizon investment fund and prevent Woods from operating his investment firm.
"As the president and majority owner of the firm, Woods has extensively used Southport's offices and employees to carry out his Ponzi scheme," the SEC said in its request to the court to close the business. "Given his fraudulent conduct, and Southport's role in the fraud, Woods cannot be allowed to remain in charge of a firm with such a significant sum of client assets under management."
The SEC said Woods acquired majority control of Southport Capital in 2008 when he took over the investment firm from a wealthy family in Chattanooga and joined with his brother Jim to run the company. Horizon has no offices or employees of its own; all of its activities have been conducted by Woods and Southport employees who work at 17 different offices in nine states.
"For the past decade, Woods and other investment adviser representatives at Southport have falsely told investors that they will earn guaranteed returns," the SEC said in one of its complaints filed in federal court in Atlanta on Friday. "In reality, the company generated little revenue, and the returns paid to investors largely came from the funds of later investors."
Regulators said Horizon investors, many of whom are elderly, were told they would earn a return by investing their money in government bonds, stocks or small real estate projects but "Horizon has not earned any significant profits from legitimate investments." Instead, the SEC said, "a very large percentage of purported 'returns' to earlier investors were simply paid out of new investor money."
"Investors trusted Woods and the Southport investment advisers working at his direction, and they stand to lose significant portions of their retirement savings when the Ponzi scheme inevitably collapses," the SEC said. "The longer the scheme continues, the larger the losses will be for those left holding the bag."
Bassam Issa, a Chattanooga developer who has invested with Woods on the purchase of the former Sears and J.C. Penney stores at Northgate Mall, said he is surprised at the SEC's filing.
"I was shocked to hear he'd been accused of that," he said Monday, adding that he has only known Woods for the past year or two. "Everything I know, his demeanor, his way of conducting business is very up and up."
Issa said he doesn't think the SEC's allegation will affect the redevelopment of the mall properties.
"I think it will be business as usual," he said.
Woods also has been active in a variety of projects as an investor in Chattanooga and North Georgia.
Hamilton County businessman Greg Krum said he knows Woods after working with him on a construction and demolition landfill off Birchwood Pike that opened last year.
"He was a silent partner," Krum said. "John is an upstanding man, everything is straightforward."
He said Woods has donated a lot of money to East Ridge.
"He has put a lot of money back into the community," Krum said, adding that he personally has not invested in Southport.
While he grew up in East Ridge, Woods left the Chattanooga area eventually for Atlanta, where he earned a degree in risk management from Georgia State University. After college, he moved north to enter the business world in New York, and then later back to Atlanta as an asset manager with Oppenheimer.
In a 2018 interview, Woods said Chattanooga today "isn't the city I grew up in."
"The city is getting so exciting," he said then, adding that he was hopeful of moving from Atlanta to Chattanooga to live in a few years. "I want to come back where I grew up."
Contact Dave Flessner at dflessner@timesfreepress.com or Mike Pare at mpare@timesfreepress.com.