The US Securities and Exchange Commission has filed Texas fraud charges against Patrick O. Howard, Optimal Economics Capital Partners, LLC (OE Capital) and Howard Capital Holdings, LLC. Howard controls the two Dallas-based companies., which have raised about $13M from 119 investors. The regulator is alleging that the money went to fraudulent offerings involving private fund investments in three limited liability companies and that Howard falsely presented himself as a registered investment adviser when, in fact, he was not. In addition to offering and selling units through OE Capital, he retained two firms to do the same and paid them a 5% commission.
The SEC is charging Howard and his companies with violating the Securities Act of 1933, the Securities Exchange Act of 1934, and Rule 10b-5 thereunder. The regulator wants permanent injunctions, disgorgement, prejudgment interest, and civil penalties.
According to the Commission, which filed its complaint under seal in Dallas federal court, Howard and his two companies promised investors 12-20% yearly returns, along with minimal risk. They also purportedly claimed that almost all invested money would go toward acquiring interest in revenue streams of the portfolio companies and that promised returns were insured.
The SEC contends that Howard used offering proceeds to pay for a radio-ad campaign to market the fraudulent offerings, as well as provided written offering materials with misrepresentations about how much clients could earn from their investments.
Among misleading and false statements in written offering materials:
· Investors would get at least a 12% return.
· The Funds had experienced average growth of 20% when, in fact, since inception their growth rate was only .25%.
· Sales commissions supposedly wouldn’t be paid to OE Fund. The fund was, in fact, paid at least $175K in commissions.
In truth, claims the regulator, only $7.5M of investor funds went to these revenue stream acquisitions while the remainder was spent on unrelated business expenses and used by Howard for his own spending. Earlier investors were allegedly paid the money that had been paid by new investors in a Ponzi – like scam.
Howard is accused of sending investors account statements with bogus account balances and recommending that they reinvest the money they had supposedly made back from the private fund investments.
The SEC said that Howard and his two companies continue to sell the Units even though they were each not able to fulfill their duty of paying investors even the minimum in returns that they are owed.
Investment Adviser Fraud
By law, investment advisers must be registered. Their firms must also be either registered or licensed. Just because someone claims to be a registered investment adviser or shows you paperwork stating this does not mean that it is true. As an investor, or a prospective one, it is important that you do your own due diligence and verify this information so that you don’t end up in a financial fraud situation.
An investment adviser is required to either to register with the securities agency in the state where their main business resides or with the SEC. How much in assets under management an investment adviser is responsible for will determine with which agency it must be registered.
Investment adviser representatives, who are the individuals that work directly with clients, have to be registered or licensed with the state in which the business is being conducted with the investor. You can contact your state securities regulator to find out if an investment adviser representative is, in fact, registered and legally allowed to offer you investment advice.
Just because someone is a registered investment adviser doesn’t necessarily mean the firm, or its representative, is the right one for you.
Please contact our Texas investment adviser fraud lawyers if you suspect that your investment losses are due to fraud. Shepherd Smith Edwards and Kantas, LTD LLP would like to provide you with a free case consultation.
SEC Halts Fraudulent Offering of Private Fund Investments, SEC, February 16, 2017