The Securities and Exchange Commission has barred three advisors connected to disgraced former Oppenheimer & Co. broker John J. Woods, an Atlanta advisor who was sentenced to prison earlier this year for conducting a Ponzi scheme that lost clients $49 million. 

In a filing yesterday, the SEC said three of Woods’s colleagues—Michael Mooney, Britt Wright and Penny Flippen—“made false statements to investors and otherwise engaged in conduct which operated as a fraud and deceit on investors” while working at Woods’s firm, Southport Capital in connection with the sale of investments in the Horizon Private Equity III LLC. Prosecutors said this fund was run as a Ponzi scheme from 2008 until 2021, when it was shut down by the SEC.

Woods was president of Southport and, according to the U.S. Attorney’s office, defrauded hundreds of investors through Horizon Private Equity III, which prosecutors said had raised $110 million from investors. The 59-year-old Atlanta broker was sentenced to nearly eight years in federal prison in February.

Oppenheimer & Co. itself was ordered to pay two huge arbitration awards totaling some $50 million to ex-clients of Woods after Financial Industry Regulatory Authority panels found the firm had been negligent in overseeing his activities.

In April the SEC had asked the U.S. District Court for the Northern District of Georgia, Atlanta Division, to order Woods’s colleagues, Mooney, Wright and Flippen, to each pay $230,464 in civil penalties. The agency alleged they violated federal securities laws by advising dozens of their clients to invest in a “fraudulent scheme.”

The SEC also asked the court to order Mooney to pay $793,391 in commissions he received from the “fraudulent fund” in addition to paying $300,571 in prejudgment interest.

In the original suit against the three, filed by the SEC in June 2022, the agency said Woods and other advisor reps told prospective Horizon clients they would get 6% to 7% returns from diversified portfolios, investing in assets such as government bonds, stocks and real estate products. But the new money was used to largely pay returns to previous investors, prosecutors said.

Mooney, Wright and Flippen, the suit said, “fueled the Ponzi scheme by recommending that advisory clients invest or maintain at least $62 million in Horizon III, representing more than half of the total funds invested in the Horizon III scheme.” According to the filing, Mooney is a resident of Sarasota, Fla., while Wright and Flippen live in North Carolina.

In a filing in the Georgia district court, the lawyer for Wright and Flippen argued against the SEC’s financial penalties, essentially suggesting his clients were unwitting accomplices in a scheme masterminded by Woods. The filing referred to Mooney as Woods’s “right-hand man.”

“John Woods is a fabulist, dissembler, prevaricator, and now convicted fraudster,” said the filing by Randy S. Chartash, of Chartash Law in Atlanta. “This con artist lied to many, including, by his own admission, Britt Wright and Penny Flippen. By contrast, neither Britt Wright nor Penny Flippen ever knowingly or intentionally misrepresented any facts or anything else to any of their respective clients.”

Chartash suggested his clients were “duped by Woods and Mooney.” He also strongly criticized the SEC for presenting a “distorted picture of the fraud that caught up defendants Wright and Flippen,” and that by Woods’s own admission, Wright and Penny “had no knowledge of the Ponzi scheme.”

In an interview with Financial Advisor, Chartash said his clients are less culpable than Woods and Mooney, which is his best argument in getting a favorable ruling from the judge. He expects a hearing on this case within a month or two.

The filing also mentioned that the SEC itself had failed to discover the fraud when the agency audited Southport Capital and Horizon in 2018.

“The SEC did not get it right; it was both too aggressive and not aggressive enough in its enforcement action,” Chartash said in the filing.

(Correction: An early headline on this story suggested the three barred advisors were residents of Georgia. They are actually residents of different states.)