SEC Charges Three Additional Investment Advisers for Recommending Ponzi Scheme to Clients

Securities and Exchange Commission v. Michael Mooney, Britt Wright, and Penny Flippen, Civil Action No. 1:22-cv-2320-SDG (N.D. Ga. filed June 10, 2022)

On June 10, 2022, the Securities and Exchange Commission filed a civil action in the United Stated District Court for the Northern District of Georgia against Michael Mooney, Britt Wright, and Penny Flippen in connection with their participation in a Ponzi scheme that raised more than $110 million from over 400 investors. According to the complaint, Mooney, Wright, and Flippen-each a former investment adviser representative of Livingston Group Asset Management Company d/b/a Southport Capital (Southport)- recommended that their clients invest or maintain at least $62 million in Horizon Private Equity, III, LLC (Horizon), a private investment fund controlled entirely by John J. Woods, Southport's former owner and manager. In August 2021, the SEC charged Woods and Southport with multiple counts of securities fraud for operating Horizon as a Ponzi scheme.

According to the complaint, many of the defendants' clients were elderly and inexperienced investors who communicated that they wanted safe investment opportunities for their assets, a large percentage of which were earmarked for retirement. Nevertheless, the defendants, who each received undisclosed compensation from Horizon, recommended that their clients invest in the fund based solely on Woods' unsubstantiated claims about Horizon's investment objectives, source of returns, and operations. The defendants also allegedly ignored significant red flags, such as Woods instructing the defendants not to use their Southport email addresses when communicating about Horizon. The complaint also states that the defendants falsely told their clients that Horizon would use the funds they invested to purchase safe investments; that Horizon would pay them a guaranteed rate of return; and that they could get their principal back without penalty. In reality, Horizon earned very few profits from investments, and investor proceeds were used primarily to make principal and interest payments to earlier Horizon investors and to fund Woods' personal projects, such as his purchase of a minor league baseball team.

The complaint charges Mooney, Wright, and Flippen with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. Additionally, the complaint charges each of the defendants with aiding and abetting previously charged violations of the federal securities laws by Woods, Southport, and Horizon. The complaint seeks injunctive relief, disgorgement plus prejudgment interest, and civil penalties against each defendant.

The SEC's ongoing investigation is being conducted by Melissa Mitchell, Erin East, and Tiffany Kunkle, with assistance from the Division of Examinations, and supervised by Matthew McNamara and Justin Jeffries. The litigation is led by H.B. Roback.