The United States District Court for the Central District of California has entered a Final Judgment against David E Howard II, Flatiron Capital Partners, LLC (FCP), and Flatiron Systems, LLC (FS).
Between December 2007 and March 2009, FCP and FS operated as investment companies that purported to trade securities using an automated trading system. Howard, a resident of New York City, was a co-managing member of FCP and the sole managing member of FS. 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 LLC membership interests in FCP and FS. Investors were persuaded through false and misleading statements made by Howard and others to invest approximately USD2.15 million in FCP and FS, and in addition, paid approximately USD1.1 million in purported license fees for access to the trading systems. Thereafter, Howard misused and/or misappropriated almost USD500,000 of the investor money and he and other principals lost the majority of the remaining funds through unsuccessful trading. Investors lost over USD3 million in the scheme.
Howard, FCP and FS did not respond to the SEC’s allegations and the court therefore ordered default judgment against them.
Howard, FCP and FS have each been enjoined from committing future violations of Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Howard has been enjoined from future violations of Sections 206(1), 206(2), 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder, and FCP and FS have each been enjoined from future violations of Section 7(1) of the Investment Company Act of 1940. The Judgment also found Howard and FCP jointly and severally liable to pay disgorgement of USD487,028 plus prejudgment interest of USD79,838.69 on that disgorgement for a total of USD566,866.69 and Howard and FS jointly and severally liable to pay disgorgement of USD1,124,218.95 plus prejudgment interest of USD127,192.86 on that disgorgement for a total of USD1,251,411.81. Finally, Howard was ordered to pay a penalty of USD390,000.