Finra arbitrators order Oppenheimer to pay nearly $14M to Florida retirees

The award is another loss for the firm in a case involving a Ponzi scheme that was run from an Oppenheimer branch office in Atlanta by former broker John J. Woods.

Finra arbitrators ordered Oppenheimer & Co. Inc. to pay nearly $14 million to several Florida retirees who were victims of a Ponzi scheme perpetrated by a former Oppenheimer broker.

It’s the latest setback for Oppenheimer involving investors who bought shares in the Horizon Private Equity III fund, an alleged Ponzi scheme created by John J. Woods and launched in 2008 when he worked out of an Oppenheimer branch office in Atlanta.

Woods ran the Ponzi at Oppenheimer until 2016, when he left the firm. He continued to operate it on his own for several years afterwards. In August 2021, the Securities and Exchange Commission filed charges against Woods, alleging that he had operated a $110 million Ponzi scheme tied to Horizon. The SEC said Horizon raised capital from more than 400 investors in 20 states.

The latest arbitration case against Oppenheimer involved five investors who are Florida residents — Jerry Willoughby, Victor Hooper, Kelly Hooper, John Disosway and Sylvia Majani — and a couple of trusts. They filed their claim in December 2021, citing breach of fiduciary duty and contract, and unlawful sales of securities, among other claims.

A panel of three all-public Financial Industry Regulatory Authority Inc. arbitrators found Oppenheimer liable and awarded $6,989,702 in compensatory damages to the claimants, according to the May 4 award document. They also awarded $6,989,702 in punitive damages, for a total of $13,979,404 in monetary sanctions.

Unlike Finra arbitration, where arbitrators rarely reveal the reasoning behind their decisions, the arbitrators in this case had to explain the punitive damages to satisfy Florida law.

The arbitrators said Oppenheimer “engaged in conduct constituting gross negligence by failing to supervise” Woods and other employees “such that the Horizon Ponzi scheme was allowed to operate out of [Oppenheimer’s] Atlanta, Georgia, branch office,” the award document states. “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 investors are “really gratified that the arbitrators did their job,” said one of their lawyers, John Chapman, a partner at Chapman Albin. “This was a careful, fastidious panel of arbitrators. They listened to the evidence. They were shocked at what they heard.”

Oppenheimer indicated it will fight the award.

“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,” Michael Dugan, president and managing partner at Haven Tower Group, said on behalf of Oppenheimer.

Oppenheimer failed to get a $36.7 million award vacated in court last year. Altogether, Finra arbitrators have awarded about $53 million to claimants in cases against Oppenheimer involving the Horizon fund.

The latest case centered on retirees, most of whom were Air Force veterans or former Delta Air Lines pilots. They were targeted by Woods when Delta went bankrupt in the mid-2000s, Chapman said. He lured them into investing in Horizon, touting the safety of their principal and guaranteeing high returns.

The investors depended on the ongoing dividends from the fund to pay various living expenses. Everything crashed to the ground when they learned their investment was worthless.

“The effect on their lives was horrifying,” Chapman said. “Oppenheimer not only harbored a predator, they helped him carry out what he was doing.”

Several more Horizon cases are in the Finra arbitration pipeline, Chapman said.