A Financial Industry Regulatory Authority arbitration panel has issued a judgment that requires Oppenheimer & Co. to pay more than $36 million for allegedly failing to prevent one of its former advisors from carrying out a massive Ponzi scheme that victimized hundreds of investors.
In a statement, Oppenheimer vowed to appeal the ruling and questioned the impartiality of a Finra arbitrator.
In its decision issued Tuesday, the Finra panel sided with 12 former Oppenheimer clients who claimed that the company, through improper supervision, was responsible for them falling victim to a $110 million private equity fund fraud allegedly orchestrated for over a decade by John Woods, a former advisor at an Oppenheimer branch office in Atlanta.
Woods, 57, and two entities he controls were sued by the U.S. Securities and Exchange Commission for the alleged fraud in August 2021, which resulted in the U.S. District Court for the Northern District of Georgia granting a temporary restraining order and asset freeze against Woods and his investment company, Horizon Private Equity III LLC. In its complaint, the SEC said Woods and his companies raised more than $110 million in a fraud that victimized more than 400 investors—including many elderly retirees—in more than 20 states. Woods and his companies are also defendants in a class-action federal lawsuit tied to the alleged fraud.
Woods, a resident of Marietta, Ga., left Oppenheimer in 2016, according to a company SEC filing.
In a statement, Oppenheimer said it "intends to file a motion to vacate the award in its entirety."
"While Oppenheimer regrets that any of the claimants may have suffered losses due to the actions of John Woods, the firm believes that the other defendants, who are currently covered by a judicial stay and did not appear at the hearing, are the parties responsible for any losses," company spokesman Michael Dugan said in a statement emailed to Financial Advisor. "Oppenheimer believes the panel erred in multiple ways, including, but not limited to, allowing the hearing to proceed without Mr. Woods and other key parties and witnesses; prematurely rendering an award for damages while a court-appointed receiver continues to collect assets on behalf of all impacted investors … ; issuing an award where there was evident partiality against the company by one of the arbitrators; and allowing the hearing to proceed when the claims were barred by relevant statutes of limitation."
Asked to respond to Oppenheimer's statement, Finra spokeswoman Michelle Ong said the regulator does not comment on individual arbitration cases and awards. But she noted that "Finra arbitrators are independent and are chosen by the parties to issue final, binding awards."
In a filing notifying the SEC of the case, Oppenheimer also noted that it was not named a defendant in the SEC court action against Woods and that the company never received complaints from clients about Woods before the SEC charges were filed.
"At the time of their investment in Horizon, each claimant signed a document acknowledging that Horizon was not an approved Oppenheimer product," the company said in the SEC filing. "Over a protracted period of time, Woods made multiple false statements to Oppenheimer, to regulators and to a state court regarding Horizon."