U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23752 / February 16, 2017
Securities and Exchange Commission v. Patrick O. Howard, et al., No. 17-civ-00420 (N.D. Tex. filed Feb. 14, 2017)
SEC Halts Fraudulent Offering of Private Fund Investments
The Securities and Exchange Commission today announced fraud charges and an emergency court order to stop a fraudulent offering of investments in private funds.
The SEC's complaint, filed under seal in federal court in Dallas, Texas on February 14, 2017, alleges that since February 2015, Patrick O. Howard and two Dallas-based companies he controls - Optimal Economics Capital Partners, LLC and Howard Capital Holdings, LLC - have raised approximately $13 million from 119 investors through the fraudulent offer and sale of interests in three private funds. According to the SEC's complaint, Howard and his companies told investors that they would earn between 12% and 20% annual returns through investing in these funds with minimal risk exposure. They also allegedly represented that nearly all investor funds would be used to acquire the interests in the portfolio companies' revenue streams, and that the promised returns were backed by insurance. The SEC alleges that these representations were false. According to the SEC, Howard and his companies only used $7.5 million of the $13 million in investor funds to acquire revenue streams from portfolio companies and spent most of the rest on Howard's personal expenses and on unrelated business expenses. In addition, the SEC's complaint alleges that, to cover up the fact that revenue from the portfolio companies was insufficient to support the guaranteed minimum returns promised to investors, Howard sent to investors account statements that depicted false account balances and encouraged investors to "reinvest" their purported earnings back in the funds. Additionally, Optimal Economics allegedly used new investor funds to make Ponzi-like payments to earlier investors.
The SEC's complaint further alleges that Howard falsely represented his status as a registered investment adviser. The SEC encourages investors to check the backgrounds of people selling them investments. A quick search on the SEC's investor.gov website would have shown that Howard was not registered as an investment adviser.
In response to the SEC's request for emergency relief, the court issued a temporary restraining order halting the offering, as well as orders appointing a receiver over, and freezing, the defendants' assets. The court also unsealed the SEC's complaint and scheduled an additional hearing for February 27, 2017.
The SEC's complaint charges Optimal Economics Capital Partners, LLC, Howard Capital Holdings, LLC, and Howard with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The SEC seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties against all defendants.
The SEC's investigation was conducted by Catherine E. Floyd and Carol Stumbaugh and was supervised by Barbara L. Gunn and David L. Peavler of the Fort Worth Office. Timothy McCole, David Fraser, and Scott Mascianica will conduct the SEC's litigation.