Scott Silver Discusses Affinity Fraud With Investment News

In a recent interview with Investment News, Silver Law Group founder attorney Scott Silver stated, “The message by the perpetrator of the scam is, ‘I would never cheat my own people.’ Affinity fraud is as old as time and a big problem. Investors trust people in their own community, and this is not limited to any race, religion or creed.”

Steven Woodard (CRD# 1019832) is a former registered stockbroker and investment advisor last employed by Girard Securities, Inc. (CRD# 18697) of San Diego, CA. His previous employers include Duerr Financial Corporation (CRD# 18558) of Chino Hills, CA, Spelman & Co., Inc. (CRD# 10232) of Phoenix, AZ, and Edward D. Jones & Co., L.P. (CRD# 250) of St. Louis, MO. He began in the industry in 1981 and his registration ended in 2005 after 24 years.

Woodard has only one disclosure from 2006. The state of Hawai’i initiated a complaint with allegations that Woodard offered “investment advice and sale of equity indexed annuities through a letter which may mislead clients with regard to nature of investments and investment services.” Woodard consented to the sanction and paid a $500 civil penalty. Girard Securities also terminated his employment after his failure to follow compliance rules. He has not been registered with another broker-dealer since.

Morganwood

Woodard founded and incorporated his own investment advisory firm, called “Morganwood,” in 1993, and kept exclusive control from the beginning. He served as secretary and treasurer and his wife served “nominally” as president and vice president.

Morganwood began offering and selling promissory notes as securities in 2009. The notes were sold to investors who were also his advisory clients, primarily in Hawai’i, California and Florida. Investors were solicited by way of family and friends, and through his local church in Kihei, Maui, Hawai’i, where he lives. All told, he collected a total of $6 million from church members between 2016 and mid-2021.

Despite telling clients that they would be investing in specific funds, all monies were deposited into two brokerage accounts at Morganwood. The monies were commingled, and Woodard traded without any restrictions. He told his investors that their funds would be invested in the securities market. He either paid them a percentage of trading profits or a fixed interest. He also told them that the investments were registered and insured when they were not.

To show the investors that their funds were doing well, he sent fabricated account statements under the Morganwood name. He also did no due diligence to learn whether the investors were accredited. He made “interest payments” to some of them by check and used email to communicate with them.

The SEC Investigation

Woodard deposited the funds in one of his two accounts at the Bank of Hawai’i, then transferred $2 million into the two Morganwood brokerage trading accounts. These accounts sustained heavy losses. Woodard had just $142 left out of the $2 million. He continued to make payments to his clients from advisory fees and other funds that were in the bank account and not in the brokerage accounts.

The falsified documents hid the fact that Woodard had misappropriated the funds. By 2022, Woodard had misappropriated $695,851 from the investor funds, from which he paid his wife a salary of $430,000.

One of Woodard’s advisory clients sued him in a Hawai’i state court and won a $1.5 million default judgment against him on December 15, 2020. Seven months later, in July of 2021, Woodard sent a letter to his investors and advisory clients. In it, he admitted that the combination of trading losses and a judgment meant that Morganwood no longer had funds with which to repay the investors any monies. Woodard’s “investments” were revealed to be a Ponzi scheme.

In the SEC’s petition, Woodard sold securities, made false claims about them and the returns, conducted a Ponzi scheme, misappropriated investor funds, including using those funds to pay for personal expenses without telling the investors. The SEC has also barred Woodard from

Affinity Fraud Defined

Affinity fraud is not exclusive to religious groups, but primarily targets specific demographics of people. In it, a fraudster perpetuates a scheme on a group of people who are identifiable by such characteristics as age, race, religion, educational background (such as university alumni) social and community groups, etc. The person pretends to be a member of the group, or becomes one.

In the infamous case of Bernie Madoff, he targeted wealthy members of the Jewish community, including charitable groups and Jewish organizations, including that of Holocaust survivor Elie Wiesel. Madoff’s scheme fell apart during the economic downturn of 2008. Many Ponzi schemes are revealed during a downturn when investors withdraw their money to cover shortfalls.

Scott continued, “As a baseline, investors need to be better educated. If someone in their church or house of worship is selling securities, they must be registered with [the Financial Industry Regulatory Authority Inc.], the SEC or state. If the salesperson is not, investors must avoid those types of advisors.”

Are You The Victim Of An Affinity Fraud?

Silver Law Group represents investors in securities and investment fraud cases. Our lawyers are admitted to practice in New York and Florida and represent investors nationwide to help recover investment losses due to stockbroker misconduct. If you have any questions about how your account has been handled, call to speak with an experienced securities attorney. Most cases are handled on a contingent fee basis, meaning that you won’t owe us until we recover your money for you. Contact us today at (800) 975-4345 and let us know how we can help.