In conjunction with their participation in a Ponzi scheme that garnered more than $110 million from around 400 investors, the Securities and Exchange Commission (SEC) filed a civil case in a Georgia district court against Michael Mooney, Britt Wright, and Penny Flippen.
The trio, all former investment adviser representatives of Livingston Group Asset Management Company (doing business as Southport Capital), advised their clients to invest at least $62 million in Horizon Private Equity III, a private fund managed by John Woods, the former owner, and manager of Southport Capital. The Securities and Exchange Commission (SEC) accused Woods and Southport of many charges of securities fraud in August 2021 for running Horizon as a Ponzi scheme.
According to the SEC, many of the defendants’ clients were elderly and unskilled investors who expressed a desire for secure investment alternatives for their funds, which included a sizable portion set aside for retirement.
The defendants, who allegedly received hidden money from Horizon, allegedly advised their customers to participate in the fund solely on the basis of Woods’ “unsubstantiated statements” about Horizon’s investment objectives, source of returns, and operations. They are also accused of ignoring “major red flags,” such as Woods’ instruction to the defendants not to communicate about Horizon using their Southport email addresses.
The SEC also claims that the defendants misled their clients by telling them that Horizon would use their money to buy secure investments, that they would receive a guaranteed rate of return of 6% to 8%, and that they could get their money back without penalty.
In reality, Horizon made very little money from its investments, and the money was mostly used to pay off previous investors’ principal and interest, as well as to fund Woods’ personal ambitions, such as the acquisition of a minor league baseball franchise.
In its complaint, the SEC stated, “This case exemplifies the Commission’s continuous commitment to hold those responsible for this egregious deception accountable.”
Mooney, Wright, and Flippen are accused of breaching antifraud provisions of numerous federal securities laws, as well as aiding and abetting Woods, Southport, and Horizon, according to the complaint.
Injunctive relief, disgorgement plus prejudgment interest, and civil penalties are among the SEC’s demands.
How to Spot a Ponzi Scheme
If a company promises you high returns in a short period of time, it’s probably a Ponzi scheme. In reality, every investment carries a certain level of risk. Besides, you can never guarantee returns in a volatile economy. In addition, Ponzi schemes often involve unregistered sellers who don’t have a license or register their business. Here are some of the warning signs that might point you in the direction of a Ponzi scheme.
A Ponzi scheme will likely fail when it cannot attract new investors and large numbers of victims cash out. One common reason that Ponzi schemes fail is that the promoter disappears with the remainder of the investors’ funds. External market forces may also cause investors to withdraw their money and the scheme will eventually collapse. In addition, it’s important to remember that the term “ponzi scheme” refers to any financial scheme that uses the money of previous investors to pay off earlier investors.
A Ponzi scheme is a type of investment scam that works by paying old investors a return while neglecting new investors. The operator pays high returns to entice new investors to join the scheme, and then uses the money of the new investors to pay the initial investors. As more people get involved, the scheme starts to break down and new investors are left with nothing. This can be dangerous because it can lead to fraud. If you don’t know how to spot a Ponzi scheme, take a deep breath and follow these warning signs.
If you suspect that you have fallen victim to a Ponzi scheme, the best way to protect yourself is to contact the FBI. There’s no need to give your name when reporting a federal crime, but be aware that there are consequences if you submit false claims on more than one occasion. You can also try claiming your losses through the Internal Revenue Service. The IRS has forms to claim Ponzi scheme losses and restitution, and an extensive FAQ section with more information.
The original Ponzi scheme lasted about eight months, and defrauded its investors of $15 million. The Ponzi scheme’s name was earned when Charles Ponzi promised to use postal reply coupons to take advantage of a foreign currency difference. The recipient would take the coupon to the local post office and exchange it for a priority airmail stamp. This is a form of arbitrage. While it is not illegal to perform this type of exchange, Ponzi became greedy and his investors lost their money.
In one case, an investor invested $936,000, but was only given a refund of $15,000 when he eventually sold his investment company to an investment advisor. Eventually, law enforcement began to suspect the individual behind the scheme. He bought an investment adviser’s business and then reportedly moved to Pennsylvania in order to find new victims. As of this writing, the investigation continues in New York and Pennsylvania. So, there are no guarantees that you won’t become a victim of a Ponzi scheme.