Lawsuit against Oppenheimer seeks class-action status over alleged Ponzi scheme by John Woods

Oppenheimer denies affiliation, says plaintiff was never a client

Staff file photo / John J. Woods was a minority investor in the Chattanooga Lookouts minor league baseball team.

A class action lawsuit has been filed against a global investment firm that formerly employed John J. Woods, the Chattanooga Lookouts investor accused of operating a Ponzi scheme.

The firm being sued, Oppenheimer & Co., is seeking to have the action dismissed, saying there's no basis to hold it liable for Woods' conduct in which he allegedly schemed to collect more than $110 million from investors.

The lawsuit was filed in U.S. District Court in Atlanta by 6694 Dawson Blvd LLC, a Georgia company that said it made a $200,000 investment in Horizon Private Equity III. That's the fund federal regulators allege held the investments that Woods took from more than 400 investors.

The suit contended the scheme was "conceived, founded and operated" by investment advisers in Oppenheimer & Co.'s Atlanta branch office, 3414 Peachtree Road.

Woods, the Marietta, Georgia, man who was a minority owner in the Lookouts minor league baseball team and in an array of other Chattanooga ventures, was an investment adviser at Oppenheimer from January 2003 through 2016, according to the suit.

In 2008, the suit said, Woods founded the fund and he began marketing the unapproved security to Oppenheimer's customers and the investing public.

"Woods made no effort to hide his scheme from Oppenheimer's management - going so far as to rent office space for his scheme next door to Oppenheimer's branch office," said the suit filed by Atlanta attorney Craig H. Kuglar.

According to the suit, from 2008 through 2016, Oppenheimer's management actively aided Woods and two relatives, all of whom were investment advisers in Oppenheimer's Atlanta office, in funneling investor money into Horizon.

Also, the suit said that in December 2016, having full knowledge Woods was operating a secret, illegal fund, Oppenheimer took steps to conceal the Ponzi scheme from regulators and investing public.

The suit said Oppenheimer permitted Woods to quietly resign without reporting the wrongdoing to regulators and the investing public as required by law.

For nearly five more years, the suit said, the Ponzi scheme continued raising money from unsuspecting investors through Southport Capital, an investment firm headquartered in Chattanooga.

But Oppenheimer said in its answer to the suit that Horizon has never been affiliated with the company. Also, 6694 Dawson Blvd LLC has never been a customer of Oppenheimer, the answer said.

In addition, Woods' employment at Oppenheimer ended in December 2016, years before the plaintiff's investment was made with Woods in June 2019, according to the answer filed by attorneys Frank M. Lowrey IV of Atlanta and J. Gordon Cooney Jr. of Philadelphia.

"Why would Oppenheimer partake in a criminal scheme to enrich a long-gone former employee at the expense of an investor totally unknown to Oppenheimer? It would not. Each claim fails," the answer said.

Oppenheimer's attorneys said "there are no factual allegations showing Oppenheimer participated in any enterprise with Woods or others with the common purpose of effectuating a Ponzi scheme."

The lawsuit was brought Aug. 31 on behalf of a class composed of all investors in the fund shortly after federal regulators named Woods in the alleged scheme the same month.

The U.S. Securities and Exchange Commission charged in a civil action that Woods used the Ponzi scheme to defraud the investors. The complaint said the scheme collected more than $110 million from investors with promises of 6-7% rates of return.

But the federal regulators said 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."

The SEC charged Woods and Southport Capital investment firm with six counts of securities fraud.

Woods and Southport Capital have denied allegations of wrongdoing made by federal regulators.

Woods' attorneys said earlier in court papers that he acted "in honest and reasonable reliance on the advice and experience of others, including legal professionals, as to matters within the area of their expertise and experience."

Southport's attorneys said the company did not violate any statutes, and it denied any liability related to investors in the fund used in the alleged Ponzi scheme.

Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318. Follow him on Twitter @MikePareTFP.