The US regulator stopped what it alleged was a fraudulent private fund offering involving two Dallas private equity firms.
The Securities and Exchange Commission issued an emergency court order to halt a private fund offering involving two firms owned by the same manager.
Optimal Economics Capital Partners and Howard Capital Holdings, both owned by Patrick O Howard, raised $13 million from 119 LPs, through an offer of interests in three private funds.
LPs were told their commitments would be acquiring portfolio companies’ revenue streams, generating returns of between 12 and 20 percent.
But the SEC alleges that Optimal Economics used new commitments to make “Ponzi-like” payments to earlier LPs.
The investigation also revealed only $7.5 million of the LP commitments were used for investment and that Howard falsely told LPs that the promised returns were backed by insurance. The rest was dissipated in Howard’s personal accounts and unrelated business interests, the regulator said.
The SEC confirmed that neither Howard or his firms were registered with it.