John J. Woods, one of the minority owners of the Chattanooga Lookouts, had his assets frozen by a federal judge after a hearing in an Atlanta Federal Court on Tuesday afternoon. The Securities and Exchange Commission believes Mr. Woods and Horizon Private Equity, along with Southport Capital, has allegedly been operating “a massive Ponzi scheme” for decades, one where 400 investors from 20 different states are owed over $110 million in principal.
The SEC also requested an order that no records be destroyed and for the court to mandate a receivership to be appointed. Both were granted.
“It is granted in respect to Mr. Woods and Horizon and denied as to Southport,” Judge Steven Grimburg said. “I find that the SEC has met its burden in respect to Horizon and Mr. Woods that there is a reasonable likelihood those defendants have engaged and continue to engage in violations of law. I don’t find this burden has been satisfied at this juncture in respect to Southport.”
“I will appoint a receiver as to Horizon in its entirety, as to Mr. Woods, only the three assets identified, I’ll ultimately ask for the council to work on a proposed order to submit to me those details.” The judge continued. “An asset freeze will also be granted for both Horizon and Mr. Woods’ assets.”
The complaint says investors were told they would receive returns of six or seven percent interest, but that HPE did not earn those returns and had to consistently get new investors to pay the original investors. The complaint also says investors will lose large portions of their retirement savings once the scheme collapses, as Woods’ holdings are too small to pay back the investors on their principal, and are completely incapable of paying the promised returns.
“John Woods has treated Horizon as his own personal piggy bank for his own personal projects,” said the SEC’s Joshua Mayes, who told the judge that all three entities before the court are culpable for the scheme. “John Woods has been running this for over a decade, and has been in control of Southport and Horizon. This is Southport running the Ponzi scheme as much as Mr. Woods. This is a situation where the Ponzi scheme would not have happened if Southport hadn’t been involved.”
Woods and Horizon’s attorney David Chaiken argued that what has happened over the last decade does not qualify as a Ponzi scheme. He emphasized that Woods and the entities listed still have real assets, and are not all “smoke and mirrors.” Attorney Chaiken said every transaction has been tracked.
He agreed Woods should have his assets frozen, and said that Woods has assets that, if sold, can get investors back a significant portion of their money. Attorney Chaiken also referenced several other ongoing projects that once finished will also have significant value.
“Mr. Woods would freeze his majority share in Southport,” attorney Chaiken said. “You’ll see these assets could get the investors 80 percent of the way to being whole, and some of these projects if completed could go a significant way.”
Southport’s attorney said the company will be ruined if their assets are frozen and a receiver is appointed over those funds. He told the judge that new leadership has been appointed, and that freezing assets will cause what he described as innocent people to lose their jobs. He said what occurred was the actions of a few bad actors.
“If that continues, this company will not be around for much longer. It’s all a consequence of what has been going on here,” the attorney said of people beginning to pull their investments from the company. “What I did with management is we had discussions and arrangements, and there is a new leadership now.”
Attorney Mayes told the judge that an independent receiver for the Woods assets is needed, and said the new leadership still has deep ties to John Woods. He said the new leader of Southport has known Woods for a decade.
“We don’t know who at Southport can be trusted,” attorney Mayes said. “The only thing that happens if you appoint a receiver at Southport, it’s that an independent person makes the decisions. All value doesn’t go away and everybody doesn’t get fired.
“Everything that is done for Horizon making money was done at the direction of John Woods, and Horizon is nothing more than an alter ego for John Woods. John Woods’ personal assets should be available to fill those holes.”
After a short recess, attorney Mayes said the receiver is necessary because Woods is an owner of the two named entities and the Chattanooga Lookouts. He said decisions will need to be made in regard to those assets, and a receiver will be able to do that.
“We don’t want to put him out on the street,” attorney Mayes said. “We want to make sure money doesn’t disappear.”
The judge granted the freeze on the majority of Mr. Woods’ assets, which include Horizon, Livingston Group Asset Management Co, and the Lookouts, but found that a freeze was not necessary for Southport’s assets.
Mr. Woods will be allowed to retain enough assets to go about “his daily living and routine financial decisions.”
A date for the next court appearance has yet to be set.