It’s likely there will be no FINRA arbitration for a group of alleged Ponzi scheme victims who think Oppenheimer & Co. should bear responsibility for the loss of a good chunk of their savings.
In a ruling last week, the Ninth Circuit Court of Appeals held that four clients who had entrusted $2.2 million to an advisory firm run by the former Oppenheimer broker John J. Woods could not bring claims against Oppenheimer in a Financial Industry Regulatory Authority arbitration forum. Woods was sentenced to nearly eight years in prison in February 2024 for running a 13-year Ponzi scheme that cost more than 400 clients over $49 million. Woods was also ordered last year by a federal district court judge in Georgia to pay nearly $33.6 million in restitution.
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Among other things, Woods was accused of using a separate registered investment advisory doing business as Southport Capital to encourage investors to put money into a fund called Horizon Private Equity. Woods promised his customers returns of 6% to 7%, but, as in all classic Ponzi schemes, he was really using fresh money from new clients to pay off earlier investors.
Oppenheimer’s past fines over the Ponzi
Woods was a registered representative of Oppenheimer from 2003 to 2016, according to BrokerCheck. That association has cost Oppenheimer several times in the past for allegedly not doing enough to monitor and prevent Woods’ misdeeds.
In May 2023, for instance, a FINRA arbitration panel ordered Oppenheimer to pay nearly $14 million in compensatory and punitive damages to five victims of Woods’ Ponzi scheme. In September 2022, a separate panel ordered it to pay $36.7 million, in part to compensate eight alleged victims of the same scheme.
The latest case trying to tie Oppenheimer to the Ponzi scheme was different though, according to the Ninth Circuit Court of Appeals, because the alleged victims never furnished evidence that they were Woods’ direct customers. Instead, according to the court, the investors only managed to show that they had worked with Woods’ associate, Michael J. Mooney.
Mooney, who was barred from the industry in June as part of a settlement over the same Ponzi scheme, also was once registered with Oppenheimer. But he left in 2010, before his dealings with the alleged victims, who did not invest in Horizon until 2016, according to the court of appeals.
That finding mirrored one handed down by a federal district court in April 2024 in the same case. In the appellate court decision, Judge Milan Smith wrote: “As the district court noted and the record confirms, Woods did not reach out to Defendants, solicit them to purchase investments, advise them about Horizon, or send them information or logistical materials.Woods did not reach out to Defendants, solicit them to purchase investments, advise them about Horizon, or send them information or logistical materials,”
“Nor did Woods collect payment from Defendants, effectuate their investments, or earn any fees or commission on their spending,” the court added. “Simply put, Woods had no role in recruiting, facilitating, or causing Defendants’ investments in Horizon to occur. Instead, it was Mooney, Southport’s registered representative, who did all of these things.”
Oppenheimer declined to comment on the ruling. Lawyers representing the alleged victims did not respond to requests for comment or say whether they plan to file another appeal.
The alleged victims
The original claim for arbitration against Oppenheimer was brought by a pair of couples, Steven and Dori Mitchell and Jerome and Lori Hopper, who had entrusted money to the Southport Capital RIA. The Mitchells invested nearly $1.6 million of their retirement savings in the Horizon fund, and Hoppers invested roughly $600,000, according to the court of appeal’s decision.
The couples filed their initial arbitration claim against Oppenheimer in November 2021. After the federal district court rejected their bid for arbitration in April 2024, they filed their appeal that same month.
The court of appeals noted that the investors pressing an arbitration claim against Oppenheimer did have one brief dealing with Woods.
“Other than a single phone call between Woods and the Mitchells — a conversation that Mooney helped arrange, and during which Woods ‘backed up exactly what … Mooney’ had already told Defendants — Defendants had no contact with Woods and communicated entirely with Mooney about their investments,” according to the court of appeals.
Bill Singer, a securities lawyer and retired author of the Broke and Broker blog, said the appeals court’s decision is unfortunate for at least one reason: It will sow more distrust in Wall Street and brokerage firms.
“At the same time, I can’t disagree with the court,” Singer said. “There comes a point where you can’t have just anyone bootstrapped to a firm. You have to decide whether they were a customer or not.”
