September 3, 2021
Oppenheimer & Co.: Asleep at the Switch for 13 Years?
Brokerage firms like NY-based Oppenheimer & Co. are in business to make money, of course. But, they also have an obligation to protect the investing public by keeping a sharp eye out for rogue employees who may be violating securities laws or preying on unsuspecting investors. Which brings us to the case of John J. Woods—who started the Horizon Private Equity alleged Ponzi scheme in about 2008. Woods was an Oppenheimer broker and advisor for about 13 years, from early 2003 to late 2016. Did anything happen during those 13 years that should have alerted Oppenheimer & Co. that its broker, Woods, might possibly have been breaking the rules, as the SEC has alleged?
Quite possibly so.
Oppenheimer knew in 2007 that some investors sued Woods in Georgia state court, accusing him of fraud in connection with improper, undisclosed outside business activities while he was registered as an investment adviser at Oppenheimer. The lawsuit detailed not only that Woods ran a web of outside businesses, but that he was heavily indebted in connection with the failed ventures – a huge red flag for an investment adviser charged with safeguarding investor money. The investors also alleged in their complaint that Woods operated a web of companies in the fitness industry, and knew of a $6,000,000 loan “personal to John Woods” used to purchase one of the companies. The allegations against Woods included, for instance, “that Defendant Woods promised them a 12% return on their investment, overstated the financials of the companies before they invested, and misrepresented the financials of Honeycutt.” Additionally, the allegations claimed that he moved investor money into his personal bank accounts.
The allegations in the 2007 lawsuit against Woods were a “red flag” for Oppenheimer & Co. It was duty-bound to investigate them. If its investigation uncovered evidence that Woods had violated securities laws, it was required to take whatever action was needed to protect investors. That action might have included terminating its relationship with Woods and reporting its findings to regulators for further action.
Oppenheimer & Co. “permitted Woods to resign” in December 2016 and for the the next five years, he and his Southport colleagues continued to sell the Horizon Private Equity alleged scheme to many unsuspecting investors. Would the outcome have been different if Oppenheimer had (1) investigated a “red flag” elating to Woods’ activities while he was at Oppenheimer, (2) determined that he was operating an alleged Ponzi scheme out of an office adjacent to Oppenheimer’s Atlanta branch office, (3) fired him and alerted the regulators?
In the weeks and months ahead, our trial team will be laser-focused on gathering the evidence needed to answer these questions.
If you invested in Horizon Private Equity, call Chapman Albin, LLC today at 216-241-8172. You’ll talk to a knowledgeable, experienced investor rights attorney without cost or obligation.