by T. GormanPosted on Posted in SECActions

Since the days of Madoff the Commission has filed what seems like a steady stream of Ponzi scheme cases. The cases are generally similar – some involve persons supposedly running an investment operation; others center on the sale of shares of a company that is supposed to be the next greatest thing. All center on investors being convinced to put their money into the investment; all involve the promoter essentially leaving town with the investor cash or losing it in bad investments. Despite the repetition of the schemes, the repetition of the Commission cases and the repetition of the investor losses the cases keep coming. The latest is SEC v. Woodward, Sr., Civil Action No. 1:23-cv-00112 (D. Hawaii Filed March 1, 2023).

Steven Keith Woodward, Sr. is the sole defendant in this investment fraud action. He has been a registered representative with four registrants. He has been a registered investment adviser and terminated by a broker-dealer for failing to comply with its advertising rules. The same year the Hawaii Business Registration Division sanctioned him for giving investment advice that was misleading.

Beginning in 2016, and continuing for the next four years, Defendant operated Morganwood Ltd. which he also controlled. The firm issued promissory notes over the period, raising $6 million from about 30 investors. Investors were assured Mr. Woodward had a history of making safe investments with returns of 15% to 30% per year. Investments were also insured investors were assured by Defendant Woodward.

In reality, the investor funds were put into risky investments; virtually all investments turned into losses. During the years the scheme continued Defendant Woodward kept the majority of the funds liquid. That permitted him to pay fantom returns to some investors as monthly payments. Other investors were furnished with false account statements. Eventually, there was insufficient cash to make even small payments to investors. In July 2021 Mr. Woodard penned a letter to investors stating that all the money was gone. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a), Exchange Act Section 10(b) and Advisers Act Sections 206(1) and 206(2). The case is pending. See Lit. Rel. No. 25654 (March 1, 2023).

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by T. GormanPosted on Posted in SECActions

Frequently investors fall victim to fraudsters because of greed. The Commission has brought numerous cases were investors turned over their hard-earned cash to fraudsters because the potential return from a particular investment appeared so good the investor just could not resist. Of course, in virtually every instance the too good to be true deal was just that – to good and was often undertaken despite red flags that should have warned the investors.

The Commission has brought far fewer cases where the investor turns over his or her cash to a trusted adviser who then misappropriates the cash. This is particularly true where the would-be fraudster had an earlier opportunity to misappropriate a very substantial sum. An action filed earlier this week by the agency did, however, follow this pattern. SEC v. Holts, Civil Action No. 1:23-cv-00081 (E.D. Tx. Filed February 27, 2023 (E.D.Tx. February 27, 2023).

Defendant Bradley Morgan Holts, resident of Beaumont, Texas, holds a Series 7 and 66 licenses from FINRA. From October 2022 he was associated with a broker dealer. Prior to that position he had worked for other broker dealers since 2010.

In 2020 three investors came to Defendant Holts. They had applications to invest with Invesco. The total was about $1.9 million. Defendant Holts invested the funds as directed. The next year was different, however. Early in 2021 the broker opened an account titled “Bradley Morgan Holts d/b/a Invesco Investment Texas”. The account opening documents listed Defendant Holts’ home address. Invesco did not have a relationship with Invesco Investment Texas.

Subsequently, the three investors returned. The sum to be invested was far less than earlier – $187,382. Nevertheless, the funds were not invested as earlier, despite representations by Defendant Holts. To the contrary, the money went to the Invesco Investment Texas account – actually Mr. Holts. The investors have never been repaid or recovered their funds. The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Section 10(b). The case is pending.

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