Oppenheimer & Co. has been ordered to pay another huge arbitration award, this time for around $14 million, to clients in Florida who said they were victimized by a former company advisor accused of running a Ponzi scheme.
The Financial Industry Regulatory Authority arbitration panel said today it had awarded $13.98 million in compensatory and punitive damages to ex-clients of John J. Woods, a former Oppenheimer broker in Atlanta. While still with the company, Woods was also the president of Southport Capital and ran the Horizon Private Equity fund. In late March, he pleaded guilty to operating a Ponzi scheme, according to the U.S. Attorney’s office, which said he defrauded hundreds of investors out of more than $25 million.
Oppenheimer was previously ordered in September of last year to pay another $36 million to investors in Georgia who said that the company was negligent over the years in overseeing Woods’ activities. In March 2023, Oppenheimer lost a bid to have that award overturned. A spokesman for the firm, Michael Dugan, said today that Oppenheimer intends to file to overturn the current award as well.
The Securities and Exchange Commission filed a complaint against Woods, now 58, in August 2021, saying he owed $110 million to investors in the scheme, who numbered 400 in 20 different states. The agency described these victims mainly as elderly retirees.
According to an attorney who worked on both cases, Oppenheimer “undeniably” ignored signs that Woods was selling away.
“Though there were numerous red flags, Oppenheimer didn’t do anything,” said John Chapman, whose firm Chapman Albin in Cleveland was one of the co-counsels for the seven new claimants in Florida. “They knew he had this vast business enterprise and was raising money from investors for all these activities he had and that are private securities transactions. So it’s selling away. Oppenheimer never approved Woods’ raising capital for these enterprises. It was undeniably aware that he was raising money from investors because there were lawsuits filed against him.”
Chapman said that the current $14 million finding could rise much higher with fees and interest and attorney's fees, which because of Florida law must be assessed separately. He suggested they could potentially rise as high as $20 million against Oppenheimer.
The U.S. Attorney’s Office for the Northern District of Georgia said in March that Woods and other advisor reps promised prospective Horizon clients 6% to 7% returns on their investment and that he’d be investing in government bonds, stocks and real estate products in diversified portfolios, and that these portfolios would be diverse.
“Contrary to these representations, the money received from new investors was not invested in a diverse portfolio,” the U.S. Attorney’s Office said, “and money collected from new investors was used largely to pay returns to previous investors. In fact, Horizon was able to pay guaranteed returns to investors only by raising and using new investor money.”
In June of last year, the SEC filed a civil action in the U.S. District Court for the Northern District of Georgia against Michael Mooney, Britt Wright, and Penny Flippen in connection with their participation in Woods’ vehicle. According to the U.S. Attorney’s Office, Woods has not yet been sentenced.
Though Chapman did not want to name his clients, he said some of them in both the Georgia and Florida cases were once commercial airline pilots and ex-military members who had lost pensions after Delta Air Lines’ bankruptcy and he said that Woods preyed upon them, offering a security with a fixed dividend.
Chapman said Woods had laid out his business for Oppenheimer supervisors as early as 2006, but that the company was slow to elevate these memos about the business to higher brass. By the time he left Oppenheimer in 2016, Woods had a clean U5 form and the imprimatur of an ex-Oppenheimer broker, which allowed him to keep approaching new investors, Chapman said.
The Finra panel, in its latest award, said the claimants’ testimony showed that Oppenheimer engaged in conduct constituting gross negligence by failing to supervise Woods, as well as others, and thus the Horizon Ponzi scheme was allowed to operate out of Woods’ Atlanta branch office.
“The failure to supervise consisted of, among other things, failing to investigate or inadequately investigating multiple red flags that should have alerted [Oppenheimer] to the Ponzi scheme, relying on the self-serving statements of employees concerning the red flags and facilitating Horizon’s accounting, investing and payments of dividends to investors.” the panel said.
The largest payout in the current case is $2.66 million to client Jerry Willoughby for compensatory damages, plus the same amount for punitive damages. Client Victor Hooper was awarded $1.61 million for compensatory damages and the same amount for punitive damages. And claimant Kelly Hooper was awarded almost $1.8 million twice over, one for compensatory and once for punitive damages.
Dugan, the Oppenheimer spokesman, said in an email today to Financial Advisor, "The company received and is extremely disappointed in the award made by the panel in the Willoughby et al. arbitration and intends to file in court to vacate the award."
Though it's not clear what the company's argument will be, in other cases filed in U.S. District Court, Oppenheimer has argued that some of the claims against it were made by people who were Woods clients but not actually Oppenheimer clients.
In September 2022, the firm said about the findings in the Georgia case that the Georgia Finra panel had erred in its findings:
"Oppenheimer," said Dugan at the time, "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.”
Chapman says he has worked on some 12 cases related to Oppenheimer and the Woods case, three of which have been arbitrated, including the Georgia and Florida cases. The others are still pending or were resolved before an arbitration hearing.