Chattanooga native John Woods, who the Securities and Exchange Commission says carried out a "massive Ponzi scheme," invested "large amounts of cash" with some Chattanooga developers, according to documents filed with an SEC complaint in Federal Court in Atlanta.
It says investments were with local developers Bassam Issa and Clint Wolford as well as Bill Lind.
Less than $20 million was invested with real estate ventures that are in various stages of completion, the SEC said.
The SEC said those monies would not be readily available to Ponzi scheme victims and might take an extended time to sort out.
A federal judge put a hold on assets of Woods, who lives in Marietta outside of Atlanta. However, the judge did not agree with an SEC request to place a receiver over the Southport Capital firm. Woods bought the money management firm from the Probasco family of Chattanooga in 2008.
Southport currently has 2,578 clients and 16 branches in 10 states. It has 45 employees, including 20 financial advisors. It has $1,455,151,109 in holdings.
The complaint says some Southport money managers were working with clients to try to get them to invest in the Horizon Private Equity III where the alleged scheme was carried out.
Kathryn Campbell director of operations for the Provident Trust Group of Las Vegas, Nev., said starting in 2015, "Provident began receiving account applications for clients of Southport Capital, , an investment adviser firm, which were subsequently used to direct investments into Horizon Private Equity III." She said Provident is a passive custodian for self-directed Individual Retirement Accounts and nonqualified self-directed custodial accounts
As of July 27, 2021, 454 client accounts at Provident held investments in Horizon, with account holders located in more than 20 different states.
Provident clients had a total outstanding capital account balance in Horizon of $109,570,791.45. By this week, that amount had grown to $110,715,461.45.
Ms. Campbell said, "Provident receives transfers of funds from Horizon’s bank account on a regular basis. Those funds are either for interest payments or returns of capital to Horizon investors. When Horizon transfers money to Provident for interest payments, it typically does so in a lump sum. John Woods, a principal at Southport, then sends an email attaching a spreadsheet with directions to Provident as to how much interest should be allocated and deposited into each investor account."
Bruce Goldstein, a former Southport money manager, said in 2019, he "overheard conversations from my desk referring to 'Horizon Private Equity' and became suspicious that John Woods and other Southport employees were soliciting investments for an undisclosed fund with which they were affiliated.
"Further, in 2020, I observed Southport employees Julie Jones and Ryan Arasi creating, printing, and copying investor statements for an investment named 'Horizon Private Equity'. These statements were unlike any private equity investment statement I have seen during my career.
"I also observed these employees shredding documents related to Horizon Private Equity on a regular basis, which seemed different than Southport’s normal record-keeping practices. My observations made me suspicious, because I knew that fund managers were required to file documents with the SEC, and when I checked the SEC website, I could not find any disclosures relating to Horizon Private Equity, Horizon Private Equity II or Horizon Private Equity III, as I would have expected.
"Further, I could find no public website for any Horizon fund related to Southport."
He said when he asked Ms. Jones to explain what Horizon was, "she told me that I would need to ask John Woods. I subsequently overheard Ms. Jones speaking to someone in a hushed tone, informing whoever was on the call that I was asking about Horizon. She then asked the other person what I should be told. This increased my suspicions."
Mr. Goldstein said he "became very concerned that something inappropriate was happening at Southport. In light of the fact that Southport employees were regularly shredding documents related to Horizon Private Equity, I decided to make copies of documents I found in the office related to Horizon Private Equity.
"I voluntarily resigned from Southport because of my suspicions that Southport and its principals were engaged in wrongdoing related to Horizon Private Equity on Jan. 29, 2021."
Kenneth Himmler said he sold his financial planning business to Southport Capital in 2014. He said at the time that John Woods was working for Oppenheimer and Company, Inc. "but I also understood him to be an owner of and in control of Southport, along with his brother Jim Woods. John Woods and Jim Woods were the primary people I negotiated with regarding the sale of my business to Southport."
Mr. Himmler said, "Shortly after the sale, I learned that John Woods and other Southport personnel were contacting my former clients who owned annuities, describing the annuities as 'junk,' and encouraging the clients to cash out the annuities and purchase interests in Horizon Private Equity, which I understood to be a private placement. In conjunction with those efforts, John Woods and others at Southport, including Jim Woods and Mike Mooney, told clients that Horizon would not take any fees until any penalties resulting from the investors’ early termination of the annuities were made up."
Mr. Himmler said shortly after the sale of his business, "John Woods, Jim Woods and Mike Mooney asked me to pitch the Horizon investment to existing or prospective clients. They told me that Horizon was a private equity fund invested primarily in collateralized mortgage obligations and governmental agency bonds. They told me that the investment had a guaranteed six percent return and that investors had the ability to get all of their principal back, without penalty, on 30 days’ notice. I would have been paid a fee for any clients who invested in Horizon as a result of my recommendation."
Mr. Himmler said, "Although the investment sounded good on its face, I asked for more details, including a private placement memorandum and a listing of the underlying assets in which Horizon was invested. John Woods, Jim Woods, and Mike Mooney became very confrontational when I told them I did not feel comfortable recommending the Horizon investment to clients without seeing a listing of fund assets. In response, they told me that all I needed to know was that the investment had a guaranteed six percent return and that clients could get their money back in 30 days.
"In my experience, legitimate investment funds regularly make information regarding the funds’ assets available to existing and prospective investors. I asked who the principals of Horizon were, and they told me that Clay Parker was in charge of the fund, but they would not permit me to speak with him about Horizon or its underlying investments. Despite my requests for more information about Horizon, they refused to provide me with any documentation that listed the underlying assets or that indicated how investor funds would be used. The fact that Woods and Southport would not provide me with basic information regarding the Horizon investment or permit access to the fund manager made me very concerned."
Mr. Himmler said, "I ultimately decided not to recommend the Horizon investment to anyone and told that to John Woods and Jim Woods. Around that same time, Southport stopped making payments on the promissory note it had signed as part of the agreement for the sale of my firm. As a result of their failure to make payments, and their theft of certain other seminar materials I had created, I filed a lawsuit against Southport and some of its executive in Florida and another lawsuit against them in Las Vegas. We settled those lawsuits in 2015, and I was paid in full for the sale of my business as part of the settlement."
Mr. Himmler said several months after the settlement was finalized, "I received an unsolicited call from John Woods. During that call, Mr. Woods told me that he was being investigated by the compliance group at Oppenheimer for having undisclosed outside business activities. Mr. Woods told me that someone from the compliance group at Oppenheimer might be contacting me in the near future, and he asked me not to cooperate with them. He did not ask me to lie, but he asked me not to answer any of their questions. I do not recall ever speaking with anyone at Oppenheimer about the situation."
Clay Parker, a Chattanoogan who is a former Major League Baseball pitcher, said he currently manages $220 million in assets for 80-90 families. He said when he agreed to join Southport in 2002 he was given $50,000 in shares.
He said Southport's assets have grown from $129 million when he joined the firm to $1.4 billion.
Mr. Parker said in 2008 that Horizon Private Equity and James Woods acquired majority ownership of Southport. He said John Woods replaced him as Southport CEO in 2018.
He said last December Southport Investors LLC was formed with he holding 12.87 percent, James Woods 11.11 percent, Michael Mooney 10 percent and John Woods 66.02 percent. John Woods also had 10 "special units."
Mr. Parker said he was contacted by the SEC about Horizon, and he agreed to speak with investigators without an attorney. He said he knew nothing about Horizon's activities until he reviewed the SEC complaint.
John Woods was described as a businessman, philanthropist and children’s sports development enthusiast at the time he acquired Southport Capital.
He said he would bring Speed to Win speed training systems to Tennessee. It was described as a unique sporting group that focuses on young athletes.
It was said at the time that Jim Woods, brother of John Woods, would be the chief investment strategist for Southport Capital.
The SEC said that from 2008-2016, John Woods hid his ownership of and control over Southport because, during that time, he was also a registered representative at an institutional, dually-registered broker dealer and investment adviser firm. It said he also did not disclose his ownership of Horizon.
It said the individual Southport advisers who convinced their clients to invest in Horizon III received significant compensation from Horizon in addition to their normal Southport compensation. It said a cousin of Woods received nearly $600,000 from Horizon between January 1, 2019 and May 28, 2021, and another Southport investment adviser representative received more than $400,000 from Horizon during that same period.
The SEC said, "Because of the length of time Woods has been running the Ponzi scheme, the SEC has not yet fully determined the scope of the fraud. Nevertheless, financial records from January 1, 2019 through the present show that the Ponzi scheme is massive and ongoing. Between January 1, 2019 and the present, Horizon III used accounts at Bank of America and IBERIABANK to receive money from and send money to Horizon III investors.
"As of January 1, 2019, the Horizon Accounts had a combined balance of approximately $47,777. From January 1, 2019 to May 28, 2021, Horizon III received approximately $49 million in deposits in the Horizon Accounts. Of that amount, more than $40 million was deposited by the Trust Company and represented new investor money
"During that same period, Horizon III withdrew or transferred approximately $48 million from the Horizon Accounts. Of that amount, more than $21 million was sent to the Trust Company for interest payments and returns of investor capital. Without the $40 million in new investor money, Horizon III would not have had enough money for the $21 million in interest payments and returns of investor capital that it made during the period from January 1, 2019 through May 28, 2021
"The pattern described above holds true when looking at specific months - interest and principal payments were necessarily funded with new investor money. (Id. Ex. 2.) On April 1, 2021, for example, Horizon III’s IBERIABANK account had a balance of $684,024. That amount includes $250,000 deposited from an investor on March 31, 2021, $118,400 deposited from an investor on March 29, 2021, and $50,000 from two other investors that same day. In other words, at least $400,000 of the money in Horizon III’s bank account at the beginning of April 2021 was new investor money.
"During April 2021, the Trust Company deposited $1,377,200 in new investor funds in the IBERIABANK account. That amount represents 99% of the funds deposited into the account during that month. Also during the month of April 2021, Horizon III transferred $725,335 from the IBERIABANK account to the Trust Company for payments to existing investors. Without the deposits of new investor money referred to above, Horizon III would not have had enough money to make interest payments to investors in April 2021. The Commission staff has spoken with several of the Southport clients who made investments at the end of March or in April 2021, and none of them was told that their investment proceeds would or could be used to make interest payments to existing investors.
"As of the end of July 2021, Horizon III owed investors more than $110 million in principal. Those investors believe that they can get their money back at any time, with 30 or 90 days’ notice. As of the end of July 2021, Horizon III had liquid assets worth less than $16 million. The majority of the other Horizon III assets of which the Commission is aware are fractional ownership interests in small real estate projects in various stages of development. The SEC estimates that Horizon III has invested less than $20 million in those projects, and liquidating them will be complicated, time consuming, and yield uncertain amounts.
"As of May 27, 2021, Horizon III owed investors approximately $109 million, meaning that Horizon III’s outstanding liability to investors grew by more than $1 million in just two months.Woods and Southport raised money from new Horizon III investors as recently as July 13."
John Woods attended Tennessee Tech University, where he majored in marketing and played football. He graduated from Georgia State University with a major in risk management.