Woods sentencing set for January after guilty plea
Former Chattanooga businessman John J. Woods, who pleaded guilty to one felony count of wire fraud in March in connection with what prosecutors termed a Ponzi scheme, is slated for sentencing in January.
Woods, who lives in Marietta, Georgia, but was a former Chattanooga Lookouts investor who also ran a sizable money management firm in the Scenic City, is to go before U.S. District Court Judge Sarah F. Geraghty in Atlanta on Jan. 8 at 2:30 p.m., court papers show.
The judge ordered the U.S. Attorney’s Office in the Northern District of Georgia and Woods’ defense lawyer to file sentencing memorandums with her within five days before the hearing.
The memos are formal written sentencing positions from the government and the defendant. The filings argue in support of their requested sentence and could include legal arguments as to sentencing guidelines, mitigating evidence, character letters and expert reports.
In a plea agreement filed with the March hearing, Woods is subject to a possible maximum 20-year prison term, though there’s no mandatory minimum sentence. Also, he could be fined up to $250,000, or twice the gain or loss related to the case, the agreement said.
Woods, 58, was accused in August 2021 by the U.S. Securities and Exchange Commission of operating a Ponzi scheme that collected $110 million involving more than 400 investors for more than a decade.
Meanwhile, federal prosecutors said when Woods was criminally charged earlier this year that losses amounted to more than $25 million.
WIRE FRAUD COUNT
The single count to which Woods pleaded guilty said he caused a victim of the scheme to wire more than $251,000 to an account to invest “based on material misrepresentations and omissions,” according to court documents.
The charge said Woods on or about June 21, 2021, caused the victim, identified only by initials, to wire the money “for the
purpose of executing and attempting to execute the scheme” to defraud.
Woods’ attorney, David M. Chaiken, of Atlanta, told the judge at the March hearing that Woods “didn’t set out for this to happen.”
Chaiken said Woods believed an investment fund, Horizon Private Equity III, would be successful, and that the defense appreciated the government not using the word “Ponzi” at the hearing.
But Assistant U.S. Attorney Angela Adams later told the judge that while she understands Woods’ attorney’s remarks, “I want to make clear that this is in fact a Ponzi scheme.”
Woods, citing his attorney’s advice, had no comment after the hearing and remains free on $25,000 bond.
Prosecutors charged that Woods failed to tell investors in the fund their money would or could be used to make payments to earlier investors.
“As Woods well knew, Horizon was only able to pay guaranteed returns to investors by raising and using new investor money,” court documents said.
Woods had promised Horizon investors returns of 6% to 7% annual interest on their investments paid in monthly installments for two to three years, documents said.
Woods caused Horizon to issue monthly statements that “fraudulently misled investors by failing to disclose that the Horizon investments had not generated a positive percentage of return sufficient to cover the interest and simply paid the interest using new and existing investor funds,” prosecutors said.
Chaiken said in an earlier email the commission’s claims didn’t meet the FBI’s definition of a Ponzi scheme and unfairly portrayed Woods, whose fund had invested in a half dozen or so Chattanooga real estate projects.
Government regulators created “a catastrophe” through a “tragic shootfirst/ask-questions-later strategy,” Chaiken said. Woods was managing a private equity fund with real assets that would have been worth more than what the fund owed investors, the attorney said.
Woods also had nearly $1 million of his own family’s money invested in the fund, 100% of which he expected to lose as a result, Chaiken said. In addition, the attorney is unaware of evidence that Woods stole investor funds for himself or lived a lavish lifestyle, Chaiken said.
COMMISSION COMPLAINT
The wire fraud criminal count came this year just a few days after a final judgment was issued in the Securities and Exchange Commission’s complaint against Woods filed in the summer 2021.
A document signed by U.S. District Court Judge Steven D. Grimberg of Atlanta said Woods consented to the judgment with the commission without admitting or denying the allegations in the complaint.
The commission and Woods would try to settle a claim by regulators for monetary relief such as a civil penalty, the court document said.
Late last year, judgments totaling $65 million were entered in the commission’s case against Woods’ former management firm, Southport Capital, and Horizon. The entities are to give up that amount by forfeiting profits or paying penalties. The amounts are to be satisfied by how much is collected from the ongoing sale of the entities’ assets by a courtappointed receiver.
The receiver, attorney A. Cotten Wright, of Charlotte, North Carolina, has said there could be two or three instances of distributions of money to investors. In January, the judge ruled that investors seeking claims would receive an initial payout of $18 million.
Meanwhile, court papers said Southport’s assets have been sold, that it no longer conducts business and has been substantially wound down. Its Chattanooga offices have been closed for months.