ATLANTA — Former Chattanooga businessman John J. Woods on Thursday pleaded guilty to one felony count of wire fraud, even as his attorney and a federal prosecutor sparred in court over whether he conducted a Ponzi scheme.
Woods, 58, a Chattanooga native who now lives in Marietta, Georgia, likely will be sentenced this fall, attorneys said during a 40-minute hearing in U.S. District Court in which a plea agreement was entered into the record.
The ex-Chattanooga Lookouts investor, who also ran a large money management firm in the Scenic City, was accused in August 2021 by the U.S. Securities and Exchange Commission of operating a Ponzi scheme that collected $110 million involving more than 400 investors for more than a decade. Federal prosecutors said last week when Woods was criminally charged that losses amount to more than $25 million.
Woods' attorney, David M. Chaiken, of Atlanta, told U.S. District Judge Sarah E. Geraghty that Woods "didn't set out for this to happen."
Chaiken said that Woods believed an investment fund would be successful and that the defense appreciated the government not using the word "Ponzi."
But Assistant U.S. Attorney Angela Adams told the judge that while she understands Woods' attorney's remarks, "I want to make clear that this is in fact a Ponzi scheme."
Woods, citing his attorney's advice, had no comment after the hearing and remains free on $25,000 bond he posted last week after his arraignment on the charge. Adams also declined comment. Chaiken said he may have comments later.
Woods was accused by the U.S. Attorney's Office in the Northern District of Georgia of causing a victim of the scheme to wire more than $251,000 to an account to invest "based on material misrepresentations and omissions," according to court documents.
The charge said Woods on or about June 21, 2021, caused the victim, identified only by initials, to wire the money "for the purpose of executing and attempting to execute the scheme" to defraud.
In a near-empty courtroom Thursday in downtown Atlanta, Woods was sworn under oath and answered a series of questions from the judge after the federal prosecutor read from the plea agreement between the parties.
"Before people plea, I need to make sure it was voluntary," the judge said.
Adams told the judge that Woods agreed to cooperate with the government moving forward.
Prosecutors charged that Woods failed to tell investors in the Horizon Private Equity III fund that their money would or could be used to make payments to earlier investors.
"As Woods well knew, Horizon was only able to pay guaranteed returns to investors by raising and using new investor money," court documents said.
Woods had promised Horizon investors returns of 6% to 7% annual interest on their investments paid in monthly installments for two to three years, documents said.
Prosecutors also said Woods caused Horizon to issue monthly statements that "fraudulently misled investors by failing to disclose that the Horizon investments had not generated a positive percentage of return sufficient to cover the interest and simply paid the interest using new and existing investor funds."
Chaiken said in an email in August that the commission's claims didn't meet the FBI's definition of a Ponzi scheme and unfairly portrayed Woods, whose fund had invested in a half dozen or so Chattanooga real estate projects.
Chaiken said government regulators created "a catastrophe" through a "tragic shoot-first/ask-questions-later strategy." He said Woods was managing a private equity fund with real assets that would have been worth more than what the fund owed investors.
He said Woods also had nearly $1 million of his own family's money invested in the fund, 100% of which he expected to lose as a result. In addition, Chaiken said he is unaware of evidence that Woods stole investor funds for himself or lived a lavish lifestyle.
The wire fraud count comes just a few days after a final judgment was issued in the earlier Securities and Exchange Commission complaint that claimed Woods ran "a massive Ponzi scheme for over a decade."
A document signed two weeks ago by U.S. District Court Judge Steven D. Grimberg of Atlanta said Woods consented to the judgment with the commission without admitting or denying the allegations in the complaint.
The court document also said the commission and Woods will try to settle a claim by regulators for monetary relief such as a civil penalty.
Late last year, judgments totaling $65 million were entered in the commission's case against Woods' former management firm, Southport Capital, and Horizon. The entities are to give up that amount by forfeiting profits or paying penalties. The amounts are to be satisfied by how much is collected from the ongoing sale of the entities' assets by a court-appointed receiver.
The receiver, attorney A. Cotten Wright, of Charlotte, North Carolina, has said there could be two or three instances of distributions of money to investors.
In January, a judge ruled that investors seeking claims would receive an initial payout of $18 million.
Contact Mike Pare at mpare@timesfreepress.com or 423-757-6318.