Assets including 20% ownership of the Chattanooga Lookouts were placed in receivership Tuesday by a judge in Atlanta after the U.S. Securities and Exchange Commission accused investor John J. Woods of running "a massive Ponzi scheme for over a decade."
Attorneys for Woods disputed that claim during the hearing Tuesday, saying there are considerable assets available to repay the 400 investors in Horizon Private Equity, who were promised returns of 6-7%.
"There may be mismanagement, there may be disclosure issues, but this is not a 'run when the music stops and all the money's gone and it's just Lamborghinis and jets,'" attorney Dave Chaiken said.
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.
Until he left the role this week, Woods was president and CEO of Chattanooga-based Southport Capital, which manages more than $824 million in client investments, according to the SEC. He also ran his own Horizon Private Equity, which has collected about $110 million from investors.
The SEC had requested that both Southport Capital and Horizon Private Equity be placed in receivership, along with all of Woods' personal assets.
"A receiver and a freeze over Mr. Woods is necessary to make sure those assets don't end up in the wind," said Josh Mayes, a senior trial attorney for the SEC, during the hearing.
Instead, the judge placed only Horizon in receivership, along with three specific personal assets belonging to Woods: 20% ownership of the Lookouts, 66% ownership of Southport Capital, and 60% ownership of a related business called Southport Risk Management.
"I find the SEC has met its burden with respect to Horizon and Mr. Woods, that there's a reasonable likelihood those defendants have engaged or committed to engage in violation of SEC law," Judge Steven D. Grimberg said.
Southport, an advisory firm with offices in 20 states, thousands of clients and dozens of employees, may have actually been harmed by the conduct of Woods and his Horizon operation, Chaiken said.
"Including Southport in this proposed receivership or asset freeze, it just seems preposterous," he said. "There's no evidence that this alleged conduct benefited Southport. It looks like Southport is arguably the victim of this conduct."
Mayes, however, contended that the Ponzi scheme "could not and would not have happened without Southport."
"Southport advisers were pitching this to their clients, sending statements, keeping track of everything," he said. "This is Southport running this Ponzi scheme as much as Mr. Woods."
In a 40-page complaint filed in federal court Friday, the SEC charged Woods and the Southport Capital investment firm with six counts of securities fraud.
The complaint said 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."
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.
The receivership will remain in place until the parties in the case agree to a hearing date.
Contact Mary Fortune at [email protected]. Follow her on Twitter at @maryfortune.