An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
A Flatiron Pathfinder Gets Lost As Investors Are Defrauded
May 28, 2013
Starting around March 2008 and lasting until approximately 2009, David Eugene Howard II, 34, of Queens Village, NY, told potential investors that his company, Flatiron Systems LLC, traded pooled equity accounts using a proprietary trading system called "Pathfinder." If you had at least $5,000, you would be able to avail yourself of this purportedly amazing opportunity.
Except, you know, BrokeAndBroker doesn't tend to report in breathless tones about things that make money; on this site you tend to learn about scams, schemes, and shams. As such, welcome to another bit of baloney.
Seems that Howard diverted about $373,000 of $1.8 million in investor funds. Diverted as in transferring $86,000 into his personal bank account. Seems he managed to find that pathway with ease. He also made cash withdrawals and personal charges against the company debit card, including $34,500 in night club charges and $3,600 for his girlfriend's Tiffany necklace.
Starting To Come Apart
Alas, by December 2008, when things started to unravel, Howard came up with a beaut of a story that trading had been voluntarily halted so that an independent audit could be performed. While that fib may have forestalled some investors' complaints, it didn't deter Howard from helping himself to funds earmarked for Pathfinder's trading - in fact, he transferred some $26,500 in investor funds to his personal bank account, along with additional cash withdrawals and personal expenditures over the course of the following four months. Thereafter, perhaps hoping to add another deft touch, Howard informed his investors investors of prolonged audit and tax procedures, which his nonexistent attorneys and accountants were purportedly diligently working on.
Guilty Plea
On May 23, 2013, Howard pleaded guilty in the Eastern District of Virginia to one count of mail fraud, for which he faces a maximum penalty of 20 years in prison, a fine of $250,000 or twice the gross gain or loss, and full restitution. Sentencing is scheduled for September 20, 2013.
SEC Weighs In
In a related action, the U.S. Securities and Exchange Commission ("SEC") filed a civil enforcement action against Howard. SEC v. Mattera et al. (SDNY, November 17, 2011).
In the Mattera Complaint, we learn this lovely bit of background about Howard:
22. Defendant Howard, aged approximately 32, resides in New York, New York. He is an authorized representative of the Praetorian Fund and claims to be the manager of Wilshire Capital, a putative investment firm owned by Mattera. On March 22, 2011, in a different action, the Commission charged Howard with fraud in connection with the operation of a boiler room, selling interests in a purported trading platform. On July 27, 2011, the Commodity Futures Trading Commission filed suit against Howard and others for operating a fraudulent and unregistered foreign exchange trading business.
SIDE BAR: For details about Mattera, read: Guilty Plea In Fall Of A Roman Empire And Groupon And Facebook (BrokeAndBroker Blog)
Mattera Plus Spyglass
We also have this additional bit of history: SEC v. Spyglass Equity Systems, Inc. et al. (CDCA, March 21, 2011) In this Spyglass Complaint, three firms and four individuals are charged with running a Los Angeles-based boiler-room, which was touting investors about purportedly profitable trading systems. This Complaint alleged that representatives of Spyglass Equity Systems Inc. raised over $2.15 million from nearly 200 investors nationwide for two related investment companies - Flatiron Capital Partners LLC ("FCP") and Flatiron Systems LLC ("FS"). Flatiron -- ah, yes, Howard pops up on the radar screen yet again. Whatever trading took place never quite used the touted trading systems and FCP and FS lost about $1 million in investor funds. Howard was charged with misusing about $500,000 of investor money for unauthorized business expenses as well as personal expenses including travel, entertainment, and gifts for his girlfriend.
And Finally
In the Matter of David E. Howard, Respondent (Order Instituting Proceedings and Notice of Hearing, Investment Advisers Act Of 1940 Release No. 3396, Administrative Proceeding
File No. 3-14849 / April 17, 2012), we learn the following additional details:
5. The Commission's complaint alleged, among other things, that, between December 2007 and January 2009, approximately 192 investors, located in at least 38 states, purchased Limited Liability Company membership interests in FCP and FS. Investors were persuaded through false and misleading statements made by Howard and others to invest approximately $2.15 million in FCP and FS, and in addition, paid approximately $1.1 million in purported "license fees" for access to their trading systems. Thereafter, Howard misused and/or misappropriated almost $500,000 of the investor money and he and other principals lost the majority of the remaining funds through unsuccessful trading. Investors lost over $3 million in the scheme.