SEC v. Flatiron Capital Partners, LLC; Flatiron Systems, LLC; David E. Howard II; Spyglass Equity Systems, Inc.; Richard L. Carter; Preston L. Sjoblom, et al., Central District of California (Mar. 21, 2011) — Complaint

 
   
   
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Polly A. Atkinson 
[email protected] 
Stephen C. McKenna 
[email protected] 
Securities and Exchange Commission 
1801 California Street 
Suite 1500 
Denver, Colorado 80202 
Telephone: (303) 844-1000 
Facsimile: (303) 844-1068 
David J. Van Havermaat Ca. Bar No. 175761 
[email protected] 
Securities and Exchange Commission 
5670 Wilshire Boulevard 
11
th
 Floor 
Los Angeles, California 90036 
Telephone: (323) 965-3866 
Facsimile: (323) 965-3908 
Attorneys for Plaintiff United States 
Securities and Exchange Commission 
UNITED STATES DISTRICT COURT 

CENTRAL DISTRICT OF CALIFORNIA
 
S
ECURITIES AND EXCHANGE 
COMMISSION, CASE NUMBER 
Plaintiff, 
v. 
S
PYGLASS EQUITY SYSTEMS, INC., 
R
ICHARD L. CARTER, 
P
RESTON L. SJOBLOM, 
T
YSON D. ELLIOTT, 
F
LATIRON CAPITAL PARTNERS, LLC, 
F
LATIRON SYSTEMS, LLC, AND 
COMPLAINT FOR VIOLATIONS OF 
D
AVID E. HOWARD II, THE UNITED STATES SECURITIES 
Defendants. LAWS 
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Plaintiff, United States Securities and Exchange Commission 
(“Commission”), states and alleges as follows for its Complaint for 
violations of the United States securities laws against Defendants Flatiron 
Capital Partners, LLC (“Flatiron Capital”), Flatiron Systems, LLC (“Flatiron 
Systems”), David E. Howard II (“Howard”), Spyglass Equity Systems, Inc. 
(“Spyglass”), Richard L. Carter (“Carter”), Preston L. Sjoblom (“Sjoblom”), 
and Tyson D. Elliott (“Elliott”): 
SUMMARY 
1. From November 2007 through January 2009, Howard, using his 
entities Flatiron Capital and Flatiron Systems, and Carter, Sjoblom and 
Elliott (until August, 2008), using their company, Spyglass, engaged in a 
scheme to defraud almost 200 investors located in approximately 38 states, 
resulting in investor losses of over $3 million.   
2. As part of the scheme, Howard, Flatiron Capital, and Flatiron 
Systems offered and sold unregistered securities which were sold to 
investors through Spyglass, a telemarketing firm functioning as a “boiler 
room” located in Los Angeles, California.  During the scheme, defendants 
made materially misleading statements and omissions to investors 
regarding the securities being offered by Flatiron Capital and Flatiron 
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Systems (the “Flatiron entities”) and two stock trading systems that were 
used to induce investors to invest their funds. 
3. Pursuant to the scheme, the defendants agreed that Spyglass 
would locate individuals to purchase membership interests (i.e., securities) 
in Flatiron Capital and Flatiron Systems, which Spyglass telemarketers did 
through cold-calling and high-pressure sales tactics.  Using scripts and lead 
lists, Spyglass telemarketers, under the control of Elliott, until May, 2008, 
Carter, and Sjoblom, fraudulently touted two different stock trading systems 
that purported to trade stocks profitably for investors based on algorithms 
or computer models.  In order to close sales, the Spyglass telemarketers 
grossly misrepresented the functionality and operational success of the 
trading systems and the fees to be charged investors.  Among other 
misrepresentations, they stated that the trading systems had achieved 
successful historical results.  They stated or implied that the Flatiron 
entities were legitimate broker-dealers, clearing their trades through 
nationally-known brokerage firms, and that separate brokerage accounts 
would be established for each investor which would be used in trading 
utilizing the trading systems.  These statements were false.  In reality, the 
trading systems had not been successfully used.  The Flatiron entities were 
not legitimate broker-dealers and they did not clear trades through 
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nationally-known brokerage firms. Instead, Howard and others 
commingled investors’ funds in trading accounts established at unaffiliated 
trading companies.  Howard along with others conducted unprofitable 
trading in the trading accounts, using a variety of strategies, not limited to 
the trading systems. 
4. As part of the scheme, Howard and the Flatiron entities made 
additional misleading statements and omissions to investors.  For example, 
in written materials provided to investors, Howard and the Flatiron entities 
falsely represented or implied that trading would be limited to the purported 
trading systems, that investor costs would be limited, and that investors 
would have separate, “designated” accounts.    Howard also made several 
false and misleading lulling statements to investors as the scheme 
unraveled, going so far as to subsidize several investors, falsifying their 
account statement to reflect inflated results.  
5. By late 2008, the scheme failed as the trading systems and 
other trades placed by Howard and others were unprofitable and investors 
incurred substantial losses.  Howard made desperate attempts to pacify 
investors by falsely claiming he was conducting an audit of a non-existent 
entity.  At the same time, Spyglass, Sjoblom and Carter were receiving, 
and rejecting, requests from investors for reimbursement of their license 
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fees.  Shortly thereafter, the defendants ceased operations, their phones 
were disconnected or the numbers were changed, and investors were left 
in the dark. 
6. Each of the defendants profited from the scheme.  Howard 
misappropriated nearly $500,000 in investor funds, over $300,000 of which 
he used for personal expenses, including travel, personal and adult 
entertainment, and gifts for his girlfriend.  During the scheme, Spyglass 
earned “licensing fees” (i.e., commissions) of approximately $1,130,000.  
Spyglass then made payments from the investor money of approximately 
$139,260 to Carter, $170,988 to Elliott, and $208,916 to Sjoblom.  Howard 
also received payments of at least $20,400 from Spyglass.        
7. The Commission brings this civil action seeking permanent 
injunctions, disgorgement plus prejudgment and post judgment interest, 
and civil penalties for violations of Sections 10(b) and 15(a) of the 
Securities Exchange Act of 1934 (“Exchange Act” ) [15 U.S.C. §§ 78j(b) 
and o(a)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder; Sections 
5(a), 5(c) and 17(a) of the Securities Act of 1933 (“Securities Act”) [15 
U.S.C. § 77e(a), e(c) and q(a)]; Section 7(a) of the Investment Company 
Act of 1940 (“Investment Company Act”) [15 U.S.C. § 80a-7]; and Sections 
206(1), (2) and (4) of the Investment Advisers Act of 1940 (“Advisers Act”) 
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[15 U.S.C. §§ 80b-6(1), (2) and (4)] and Rule 206(4)-8 [17 C.F.R. § 206(4)-
8] thereunder. 
JURISDICTION AND VENUE 
8. The Commission brings this action pursuant to the authority 
conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], 
Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78u(d) and 
78(u)(e)], Section 209(d) of the Advisers Act [15 U.S.C. § 80b-9(d)], and 
Section 42 of the Investment Company Act [15 U.S.C. § 80a-41]. 
9. This Court has jurisdiction over this action pursuant to Section 
22(a) of the Securities Act [15 U.S.C. § 77v(a)], Section 27 of the Exchange 
Act [15 U.S.C. § 78aa], Section 214 of the Advisers Act [15 U.S.C. § 80b-
14], Section 44 of the Investment Company Act [15 U.S.C. § 80a-43], and 
28 U.S.C. § 1331.   Venue lies in this Court pursuant to Securities Act 
Section 22(a) [15 U.S.C. § 77v(a)], Exchange Act Section 27 [15 U.S.C. § 
78aa], Advisers Act Section 214 [15 U.S.C. § 80b-14], Investment 
Company Act Section 44 [15 U.S.C. § 80a-43], and 28 U.S.C. § 1391(b)(1) 
& (2).  Many of the acts, practices, and courses of conduct alleged in this 
Complaint occurred in this district and one or more defendants reside within 
this district. 
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10. In connection with the transactions, acts, practices, and 
courses of business described in this Complaint, the defendants, directly 
and indirectly, have made use of the means or instrumentalities of 
interstate commerce, of the mails, and/or of the means and instruments of 
transportation or communication in interstate commerce. 
DEFENDANTS 
11. Spyglass is a California corporation with its principal place of 
business in Los Angeles, California.  Between October 2007 and March 
2009, Spyglass operated as a telemarketing firm or boiler room purportedly 
selling equity trading systems.  It was owned and operated by defendants 
Carter, Sjoblom and, until August 2008, Elliott.  Spyglass ceased 
operations in March 2009; however, it is still listed with the State of 
California as an active corporation. Spyglass was not registered as a 
broker-dealer or investment adviser with the Commission. 
12. Carter, age 42, is a resident of Torrance, California.  At all times 
relevant to this Complaint, Carter was a co-owner and co-operator of 
Spyglass.  Carter was also an owner and primary controller of The Trade 
Tech Institute, Inc. (“Trade Tech”), which purportedly sells licensed 
commodities and futures trading systems via telephone, and which Carter 
continues to own and operate.  On information and belief, Trade Tech is a 
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telemarketing firm or boiler room similar to Spyglass.  Carter has never 
been registered as a broker-dealer or investment adviser with the 
Commission or associated with a registered broker-dealer or investment 
adviser. 
13. Sjoblom, age 40, is a resident of Great Falls, Virginia.  In all 
relevant periods, he was a principal and a co-owner of Spyglass and was 
employed by Trade Tech as a sales and customer support representative.  
Sjoblom has not been associated with a registered broker-dealer since 
March 1998.  He has not otherwise been associated with any entity 
registered with the Commission. 
14. Elliott, age 30, is a resident of Hermosa Beach, California.  
From October 9, 2007 until August 18, 2008, he was a co-owner of 
Spyglass.  In August 2008, Elliott sold his interest in Spyglass back to the 
company.  Elliott was also an owner and primary controller of Trade Tech.  
He currently owns and operates a telemarketing firm selling commodities 
and futures trading systems.  He has never been registered with the 
Commission in any capacity or associated with any registered entity. 
15. Flatiron Capital is a Delaware limited liability company 
organized on May 23, 2007.  Between December 2007 and May 2008, 
Flatiron Capital had offices in New York City, New York and operated as an 
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investment company, purportedly trading securities through the use of a 
trading system called the Sequence Trading System (“Sequence”).  At all 
times relevant to this action, Howard was a co-managing member of 
Flatiron Capital.   Flatiron Capital is not registered with the Commission in 
any capacity and has never filed a registration statement for its securities 
with the Commission. 
16. Flatiron Systems was at relevant times a Florida limited liability 
company which was organized on March 24, 2008.  Between April 2008 
and March 2009, Flatiron Systems’ principal place of business was in 
Boynton Beach, Florida and it also operated out of Spyglass’ offices in Los 
Angeles, California.  Flatiron Systems operated as an investment company 
that purported to trade securities using a trading system called the 
Pathfinder Trading System (“Pathfinder”).  Howard was the sole managing 
member of Flatiron Systems. Flatiron Systems was never registered with 
the Commission in any capacity and has never filed a registration 
statement for its securities with the Commission. 
17. Howard, age 31, is a resident of New York, New York.  He was 
a co-managing member of Flatiron Capital and the sole managing member 
of Flatiron Systems.  He is currently employed as marketing director for 
Forex Capital Trading Partners, Inc., a purported introducing broker in the 
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foreign exchange market.  Howard has never been registered or associated 
with any entity registered with the Commission.  During the period at issue, 
Howard acted as an investment adviser with respect to Flatiron Capital and 
Flatiron Systems and investors in those entities. 
FACTUAL ALLEGATIONS 
Spyglass Induces Investors to Buy Securities Issued by Howard’s Flatiron 
Capital Using a Trading System as Bait 
18. In 2007, Howard was engaging in the day-trading of stocks in 
downtown Manhattan.  At the time, he and another individual he met 
through day-trading stocks decided to raise funds from investors through a 
recently formed company, Flatiron Capital, to trade in securities, preferably 
using an automated trading system. 
19. By late 2007, Howard had made contact with an individual who 
had supposedly developed a trading system which became known as 
Sequence.  Among other things, Sequence used signals and alerts that 
had been programmed into a trading platform to identify potential stocks for 
trading.  Sequence was not an automated trading system was not a 
computer program and did not use algorithms to identify potential trades. 
20. In late 2007, Howard met Sjoblom through the same individual 
who introduced him to Flatiron Capital.  At the time, Sjoblom was working 
at Trade Tech, the telemarketing firm in Los Angeles, purportedly selling 
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licenses to commodities and futures trading systems.  Shortly thereafter, 
Howard agreed with Sjoblom, to use Spyglass to market Sequence and to 
introduce investors to Flatiron Capital.  Spyglass was set up in the same 
building as Trade Tech but on a different floor.  . 
21. During the relevant period, Spyglass essentially operated as a 
boiler room, employing 10 to 15 telemarketers, some whom wanted to be 
actors, to sell the Sequence system (and later the Pathfinder system as 
discussed below) to investors and to introduce them to the Flatiron entities 
using cold-calling techniques and lead lists. 
22. As indicated above, Carter, Elliott, and Sjoblom co-owned and 
controlled Spyglass.  Carter handled all the back office accounting and 
finances for Spyglass.  Elliott was in charge of hiring, training, and 
supervising the sales staff until May 2008.   Sjoblom was responsible for 
sales support and customer service, and after May 2008, was also in 
charge of training and supervising the sales staff. In addition to their 
responsibilities as managers, Elliott, and Sjoblom also occasionally made 
sales calls. 
Spyglass Markets the Sequence Trading System and Introduces Investors 
to Flatiron Capital Securities 
23. Beginning in November or December 2007, Spyglass promoted 
the Sequence trading system.  During the period at issue, Spyglass 
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referred approximately 66 investors to Howard to purchase securities from 
Flatiron Capital earning “licensing fees” or commissions of approximately 
$380,000 and helping Howard to raise $602,465 in funds for Flatiron 
Capital. 
24. Spyglass telemarketers told investors that they would be given 
a limited opportunity to purchase a license to a proven stock trading system 
– Sequence.  Sequence was essentially used to entice investors to place 
funds with Flatiron Capital.  Howard allowed Spyglass to charge investors a 
license fee, which essentially constituted a commission, so that Spyglass 
would refer investors to Flatiron.  Spyglass typically charged about $6,000 
per “license”.    
25.    Spyglass    employed    telemarketers who acted as “openers” and 
“closers” in order to market and sell Sequence and to refer investors to 
Flatiron Capital.  The telemarketers worked from scripts that were posted to 
the walls of the Spyglass offices that were written primarily by Sjoblom and 
Elliott, and sometimes reviewed by Howard. 
26. In marketing Sequence and to induce investors to purchase 
Flatiron Capital securities, Spyglass, Carter, Sjoblom, Elliott, and and/or 
telemarketers under their supervision and control falsely claimed or implied 
that: 
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•	 Spyglass had been using Sequence to trade, or monitoring 
trading using Sequence, for more than 10 months and that 
that trading had generated net returns of over 12% or more 
per month. 
•	 Sequence would generate automated trades, that trades 
would be selected using algorithms, or that trades would be 
selected by a computer program. 
•	 Flatiron Capital was a prestigious firm trading institutional 
funds and retirement accounts.   
•	 Flatiron Capital cleared through Morgan Stanley or Goldman 
Sachs. 
•	 Sequence was a limited opportunity designed for high net-
worth individuals. 
27. In fact, these claims were materially false and misleading 
because: 
•	 Spyglass had not been using Sequence to trade, or 
monitoring trading using Sequence, for more than 10 
months.  Instead, Sjoblom first learned of Sequence in 
November 2007, at the earliest. Carter and Elliott, as well as 
Sjoblom, knew that Spyglass had not been using Sequence 
to trade, or monitoring trading using Sequence, for more 
than 10 months.  In addition, at least Spyglass, Sjoblom and 
Elliot were aware that the information Spyglass received did 
not reflect actual trading. 
•	 Sequence did not generate automated trades, select trades 
using algorithms, or use a computer program that selected 
trades. Rather, Sequence was a system of signals or 
information suggesting potential trades which the trader 
could follow or ignore 
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•	 Flatiron Capital was not a prestigious firm trading institutional 
funds and retirement accounts.   
•	 Flatiron Capital did not clear its trades through Morgan 
Stanley or Goldman Sachs. 
•	 Sequence was not a limited opportunity designed for high 
net-worth individuals.  Instead, it was sold to anyone who 
wanted to buy it. 
28. Spyglass, Sjoblom, Elliott, and Carter each knew or was 
reckless in not knowing that Sequence did not generate automated trades, 
select trades using algorithms, or use a computer program that selected 
trades. 
29. Spyglass, Sjoblom, Elliott, and Carter each knew or was 
reckless in not knowing that Flatiron Capital was not a prestigious firm 
trading institutional funds and retirement accounts, Flatiron Capital did not 
clear its trades through Morgan Stanley or Goldman Sachs, and Sequence 
was not a limited opportunity designed for high net-worth individuals.   
The Spyglass Defendants Provided Sales Agreements to Investors that 
Contained Additional Misleading Statements and Omissions 
30. In connection with the marketing of Sequence, interested 
investors were mailed a sales agreement either electronically or through 
the mail system.  The sales agreement provided that the “Customer wishes 
to become a client of Spyglass by purchasing access to certain software for 
use in trading equities” and “Spyglass is duly authorized and has the right 
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to sell various software including the System to Customer...”.  “System” 
was defined as the Sequence Trading System. 
31.    The    Sequence    sales    agreement further provided that investors 
would have to establish a brokerage account to utilize the trading system.  
The agreement stated that the “Customer hereby agrees to establish a 
brokerage account (“Customer’s Account”) and to execute a limited power 
of attorney granting the brokerage firm at which Customer’s Account is held 
the right to execute for Customer’s Account all trades generated by the 
System.”  Investors were also mailed a “Sequence License Receipt” which 
showed the “Brokerage Contact Person” as Howard at Flatiron Capital. 
32. In addition, the sales agreement contained a “Performance 
Based Guarantee.”  The Performance Based Guarantee provided that the 
“Customer shall have the right ... to request a refund of the purchase price 
if the system fails to generate a net profit ... at the conclusion of the one 
hundred and eighty (180) day period.”    
33.    The    Sequence    sales agreement was materially false and 
misleading because: 
•	 Sequence was not a software program, but was rather a 
system of signals or information suggesting potential trades 
which the trader could follow or ignore.  
•	 Trading was not conducted solely through Sequence. 
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•	 Howard and Flatiron Capital were not registered broker-
dealers, or associated with a registered broker-dealer. 
•	 Howard and Flatiron Capital did not set up separate 
brokerage accounts for individual investors, but rather 
invested them with unaffiliated trading companies through 
which their funds were further commingled.  
•	 Spyglass did not set aside funds necessary to meet the 
Performance Based Guarantee. 
34. Spyglass and Sjoblom each knew or was reckless in not 
knowing that Sequence was not a software program.   
35. Spyglass, Carter, Sjoblom, and Elliott each knew or was 
reckless in not knowing that Howard and Flatiron Capital were not 
registered brokers or associated with a registered broker-dealer, that they 
were not going to set up separate brokerage accounts for investors, and 
that funds were not set aside to meet the Performance Based Guarantee. 
Howard and Flatiron Capital Made Additional Misleading Statements and 
Omissions to Investors 
36. After an investor had purchased access to Sequence, the 
Spyglass defendants referred the investor to Howard and Flatiron Capital.  
Howard and Flatiron Capital mailed the investor a package including an 
“Operating Agreement of Flatiron Capital Partners for Sequence Trading 
System”, a Sequence trading agreement, and a Sequence new account 
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application.  The package also included a welcome letter from Howard 
which directed investors to send funds to Flatiron Capital. 
37. Among other things, the trading agreement falsely stated that 
Flatiron Capital would assign to the Client (i.e., the investor) one or more 
“Designated Firm Accounts” which would be maintained by Flatiron Capital.  
Similarly, the operating agreement defined “Designated Trading Account” 
as a “separate trading account of the Company’s (proprietary) trading 
account established and maintained for each Member.”  In addition, the 
welcome letter indicated that “all the account information for each account” 
was included in the welcome package.  It further requested that investors 
fill out the paperwork and return it “along with funding for the account.”  In 
fact, investors were not assigned “Designated Firm Accounts.”  Instead all 
investor funds were deposited into a Flatiron Capital bank account and then 
disbursed to accounts at unaffiliated trading companies where the funds 
were comingled with funds of other unrelated investors.  
38. Howard and Flatiron Capital knew that investors were not 
assigned “Designated Firm Accounts” and that, instead, all investor funds 
were deposited into a Flatiron Capital bank account and then disbursed to 
accounts not belonging to Flatiron Capital where the funds were comingled 
with funds of other unrelated investors. 
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39. The Sequence trading agreement also provided that the Client 
would be entered into all trades executed by Sequence.  This statement 
was misleading because the trading agreement implied that investor funds 
would be traded using Sequence.  In fact, as discussed below, trading was 
not limited to those “executed” by Sequence; rather, much of the trading 
was executed by Howard along with others without using Sequence.  
Howard and Flatiron Capital each knew or was reckless in not knowing that 
trading using investor funds would not be limited to those directed by 
Sequence. 
40. The trading agreement further falsely stated that the Client 
would receive 80 percent of the trading profits generated by Flatiron 
Capital, subject to a two percent management charge.  In fact, Howard and 
Flatiron Capital used investor funds in excess of their allotted share to pay 
trading expenses, the business expenses of Flatiron Capital and personal 
expenses of Howard, including rent, personal and adult entertainment, and 
gifts for his girlfriend.   
Howard and Flatiron Capital’s Trading of Investor Funds Was Not Profitable 
41. Instead of placing investor funds into separate brokerage 
accounts, Flatiron Capital and Howard pooled investor funds and placed 
them with certain unaffiliated trading companies that were not registered 
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broker-dealers but which allowed customers to deposit funds into pooled 
accounts and make self-directed trades through those accounts.   
42. While Spyglass and Flatiron Capital had represented that 
trading in stock or equities would be based on the operation of Sequence, 
not all the trading was based on Sequence but, instead, some was 
determined by Howard and others who invested not only in equities, but in 
commodities and other instruments.  Flatiron Capital did not keep sufficient 
records to determine which investor funds were traded using Sequence 
and which investor funds were traded by Howard and others. 
43. By March, 2008, it was clear that the trading conducted by 
Flatiron Capital for the investors was not profitable.  As a result, Sjoblom 
told Howard that he was concerned that Spyglass would have to make 
refunds based on the Performance Based Guarantee in the Sequence 
Sales Agreement which provided that Spyglass would refund the license 
fees if Sequence did not deliver profitable trading results after 180 days. 
44. Howard told Sjoblom that he was considering a new trading 
system, the Pathfinder system, being developed by another individual.  
Despite the fact that Pathfinder was not fully developed, Sjoblom and 
Howard decided to market Pathfinder to investors through Spyglass and 
Howard’s newly-formed entity, Flatiron Systems. 
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Sjoblom and Howard Induce Existing Flatiron Capital Investors to Transfer 
their Funds from Sequence to Pathfinder using a Misleading Offer Letter 
45. In March 2008, Sjoblom drafted a letter for Spyglass to send to 
existing Flatiron Capital investors and he sent it to Howard for Howard’s 
approval.  The purpose of the letter was to market the Pathfinder system 
and to induce existing Flatiron Capital investors to move their investments 
to the new entity, Flatiron Systems, and a new ostensible trading system, 
Pathfinder.  Howard agreed that Spyglass should issue the letter and in 
April 2008, the letter was sent to Sequence investors. 
46. The Pathfinder System Offer letter directed investors to fill out 
an enclosed form and send it to Howard at Flatiron Systems.  The form 
authorized Howard to transfer the investors’ funds from Sequence to 
Pathfinder.  Some but not all of the Sequence investors agreed to transfer 
their funds. 
47. The Pathfinder System Offer letter falsely represented that: 
•	 “Recently the Sequence system has done an excellent job of 
holding fast during the extraordinarily tough market 
conditions” but that “the reversals that are constantly 
occurring during the day while the markets are trading cause 
for an overall flat result on Sequence”. 
•	 Pathfinder was “[a] system that can do extremely well in 
these market conditions and has proved itself in every way” 
and that “[r]esults from January, February, and March 2008 
are stellar” resulting in returns ranging from 23.5% per 
month to over 100% per month. 
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48. The letter was materially false and misleading because: 
•	 Sequence had not done an excellent job of holding fast 
during the extraordinarily tough market conditions.  Nor was 
there “an overall flat result [using] Sequence.”  In fact, 
Flatiron Capital was suffering trading losses.   
•	 At the time the Pathfinder System Offer letter was sent to 
investors, Pathfinder was incomplete, had not proven itself in 
any way, and had not generated any actual returns. 
49. Sjoblom, Carter, Elliott, and Howard all knew or were reckless 
in not knowing that Flatiron Capital was suffering trading losses.  Sjoblom 
and Howard each knew or was reckless in not knowing that Pathfinder was 
incomplete, had not proven itself in any way, and had not generated any 
actual returns.   
Spyglass Markets Pathfinder and Introduces Investors to Flatiron Systems 
Securities 
50. By April 2008, Spyglass began to cold-call investors to market 
the new trading system, Pathfinder.  During the period at issue, Spyglass 
referred approximately 126 new investors to purchase securities from 
Flatiron Systems, earning “licensing fees” or commissions of approximately 
$750,000 and raising $1,548,000 in capital for Flatiron Systems. 
51. Sjoblom, Elliott, and Carter participated in drafting the sales 
scripts that were used by the Spyglass telemarketers to market Pathfinder 
and to locate investors to refer to Flatiron Systems.  The scripts were 
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placed on the walls of Spyglass’ offices and telemarketers continued to use 
cold-calling techniques and lead lists to locate investors.   
52. In marketing Pathfinder and to induce investors to purchase 
Flatiron Systems securities, Spyglass, Carter, Elliott, Sjoblom, and/or 
telemarketers under their supervision and control falsely claimed or implied 
that: 
•	 Pathfinder had been trading live for over a year and that that 
trading had generated returns of an average of 20% or more 
per month. 
•	 Pathfinder would generate automated trades, that trades 
would be selected using algorithms or that trades would be 
selected by a computer program. 
•	 Flatiron Systems was a prestigious and reputable firm.  
•	 Flatiron Systems cleared through Morgan Stanley or 
Goldman Sachs. 
•	 Pathfinder was a limited opportunity. 
53. These representations were materially false and misleading 
because: 
•	 Pathfinder was not completed at the time Spyglass began 
selling it.  Even in January 2009, when Spyglass was making 
its last sales, Pathfinder had been in existence for less than 
a year.  Pathfinder never generated returns in excess of 20% 
per month. 
•	 Pathfinder did not generate automated trades, select trades 
using algorithms, or use a computer program that selected 
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trades.  Rather, Pathfinder was a system of signals or 
information suggesting potential trades which the trader 
could follow or ignore. 
•	 Flatiron Systems was not a prestigious or reputable firm. 
•	 Flatiron Systems did not clear its trades through Morgan 
Stanley or Goldman Sachs. 
•	 Pathfinder was not a limited opportunity.  Instead, it was sold 
to everyone who wanted to buy it. 
54. Spyglass, Sjoblom, Elliott, and Carter each knew or was 
reckless in not knowing that the above statements and misrepresentations 
were materially false and misleading. 
The Spyglass Defendants Provided Sales Agreements to Investors that 
Contained Additional Misleading Statements and Omissions 
55. Similar to the procedures established relating to the Sequence 
system, the Spyglass defendants provided a written sales agreement to 
investors who were interested in Pathfinder.  In fact, the Pathfinder sales 
agreement was nearly identical to the Sequence sales agreement.   
56. The Pathfinder sales agreement provided that the “Customer 
wishes to become a client of Spyglass by purchasing access to certain 
software for use in trading equities;” and “Spyglass is duly authorized and 
has the right to sell various software including the System to Customer...”.  
“System” was defined as the Pathfinder Trading System. 
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57. The Pathfinder sales agreement further provided that investors 
would have to establish a brokerage account to utilize the trading system 
and trade equities.  The agreement stated that the “Customer hereby 
agrees to establish a brokerage account (“Customer’s Account”) and to 
execute a limited power of attorney granting the brokerage firm at which 
Customer’s Account is held the right to execute for Customer’s Account all 
trades generated by the System.”  Investors were also mailed a “Pathfinder 
License Receipt” which showed the “Brokerage Contact Person” as 
Howard at Flatiron Systems. 
58. In addition, the Pathfinder sales agreement contained a 
“Performance Based Guarantee.”  The Performance Based Guarantee 
provided that the “Customer shall have the right ... to request a refund of 
the purchase price if the system fails to generate a net profit ... at the 
conclusion of the one hundred and eighty (180) day period.”    
59. The Pathfinder sales agreement was materially false and 
misleading because: 
•	 Pathfinder was not a software program but was rather a 
system of signals or information suggesting potential trades 
which the trader could follow or ignore.   
•	 Trading was not limited to stocks or equities, but instead 
included commodities, futures, and risky off-market 
investments. 
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•	 Howard and Flatiron Systems were not registered broker-
dealers or associated with a registered broker-dealer. 
•	 Howard and Flatiron Systems did not set up separate 
brokerage accounts for individual investors, but rather 
invested them with unaffiliated trading companies through 
which their funds were further commingled.   
•	 Spyglass did not set aside funds to meet the Performance 
Base Guarantee. 
60. Spyglass, Sjoblom, Elliott, and Carter each knew, or was 
reckless in not knowing, that Pathfinder was not a software program.   
61. Spyglass and Carter each knew that trading was not limited to 
equities because Carter requested that investor funds be invested in off-
market investments. 
62. Spyglass, Carter, Elliott, and Sjoblom each knew or was 
reckless in not knowing that neither Howard nor Flatiron Systems were 
registered broker-dealers or associated with a registered broker-dealer.   
Howard and Flatiron Systems Made Additional Misleading Statements and 
Omissions to Investors 
63. Similar to the procedure that was established for Sequence, 
after an investor had purchased access to Pathfinder, the Spyglass 
defendants referred the investor to Howard and Flatiron Systems.  
Thereafter, Howard caused an investor package to be mailed to the 
prospective investors through an administrative assistant hired by Carter 
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and located at the Spyglass offices.  The package included an “Operating 
Agreement of Flatiron Systems for Pathfinder Trading System”, a 
Pathfinder trading agreement, and a new account application.  The 
package also included a welcome letter from Howard and funding 
instructions.  The welcome letter instructed investors to return the signed 
documents to the Flatiron Systems administrative assistant at Spyglass 
and to send funds to accounts controlled by Howard.  
64.  The Pathfinder welcome letter from Howard falsely stated that 
“[w]e at Flatiron Systems ... believe that the Pathfinder System will 
continue to have the incredible success we have seen throughout the 
year.”   In fact, Pathfinder had not had “incredible success seen throughout 
the year.”  It either was not ready for trading or was generating poor 
returns. 
65. Flatiron Systems, Howard, Spyglass, Carter, Elliott, and 
Sjoblom each knew or was reckless in not knowing that Pathfinder had not 
had “incredible success seen throughout the year” and was either not ready 
for trading or was generating poor returns. 
66. Among other things, the Pathfinder trading agreement falsely 
represented that Flatiron Systems would assign to the Client (i.e., the 
investor) one or more “Designated Firm Accounts” which would be 
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maintained by Flatiron Systems. Similarly, the Pathfinder Operating 
Agreement defined “Designated Trading Account” as a “separate sub-
account of the Company’s (proprietary) trading account established and 
maintained for each Member.”  In fact, investors were not assigned 
separate accounts.  Nor did Flatiron Systems have a proprietary trading 
account.  Instead all investor funds were deposited into a Flatiron Systems 
bank account and then disbursed to accounts belonging to unaffiliated 
trading companies where the funds were comingled with funds of other 
unrelated investors. 
67. Howard and Flatiron Systems each knew or was reckless in not 
knowing that investors were not assigned separate accounts or sub-
accounts and that, instead, all investor funds were deposited into a Flatiron 
Systems bank account and then disbursed to accounts not belonging to 
Flatiron Systems where the funds were comingled with funds of other 
unrelated investors. 
68. The Trading Agreement also provided the Client would be 
entered into all trades executed by Pathfinder.  This statement was 
misleading because while the Pathfinder trading agreement implied that 
investor funds would be traded using Pathfinder; as discussed below, 
trading was not limited to those “executed” by Pathfinder and trades were 
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executed by Howard and others involving equities, commodities, futures, 
and off-market investments.  Howard, Flatiron Systems, and Carter each 
knew or was reckless in not knowing that trading using investor funds 
would not be limited to those directed by Pathfinder.   
69.    The    Pathfinder    trading agreement further falsely stated that the 
Client would receive 80 percent of the trading profits generated by Flatiron 
Systems subject to a two percent management charge.  In fact, Howard 
and Flatiron Systems used investor funds to pay trading expenses, the 
business expenses of Flatiron Systems, and personal expenses of Howard, 
including rent, personal and adult entertainment, and gifts for his girlfriend.   
Howard’s and Flatiron Systems’ Trading of Investor Funds Was Not 
Profitable 
70. Similar to the investor funds associated with Flatiron Capital, 
Howard and Flatiron Systems deposited the funds they received from 
investors into pooled accounts with certain unaffiliated trading companies 
that were not registered broker-dealers but which allowed their customers 
to deposit funds into pooled accounts and make self-directed trades 
through those accounts. 
71. While Flatiron Systems and Spyglass had represented that 
trading would be limited to stocks or equities and be based on the 
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operation of Pathfinder, not all the trading was in equities or based on 
Pathfinder.  Howard and several others also traded investor funds.  Among 
other investments, Howard allowed some investor funds to be used to trade 
in oil and gas futures.  In addition, at least $250,000 of investor funds was 
used by Howard, at Carter’s request, to fund a private placement 
connected to Carter and a business venture of Carter’s.   
72. Flatiron Systems did not keep sufficient records to determine 
which investor funds were traded using Pathfinder and which investor funds 
were traded without using Pathfinder. 
73. Howard’s and Flatiron Systems’ trading and investments of 
investor funds was not profitable and investors incurred significant losses. 
The Scheme Unravels and Howard Falsifies Account Statements and 
Makes False and Misleading Lulling Statements  
74. By mid-2008, it was clear that both Sequence and Pathfinder 
were not profitable trading systems, and investors were suffering losses.  In 
addition, some investors were reaching the 180 day time period for the 
Performance Based Guarantee.  In June, 2008, at the request of Spyglass, 
Carter, and Sjoblom, Howard “subsidized” several investors, falsifying their 
account statements to reflect higher results than actually occurred. 
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75. In December 2008, Howard sent a false and misleading letter to 
investors for the purpose of lulling them and concealing the fraudulent 
scheme.  The letter falsely represented, among other things, that: 
•	 “[T]rading has been voluntarily halted by [Howard] so that a 
voluntary, independent audit can be performed of the 
accounting done by Pathfinder Trading Technologies, LLC 
and the accounting firm hired by Pathfinder Trading 
Technologies, LLC  which has been managing the 
statements to members of Flatiron Systems, LLC.” 
•	 The audit was initiated “as a result of noticing what may be 
possible discrepancies by the accounting firm and/or 
Pathfinder Trading Technologies, LLC in recent statements 
that have been received.” 
•	 The audit would take no longer than 60 days.  
•	 After the audit was completed either “the accounts will all be 
closed and your [sic] will promptly receive your remaining 
distribution” or “you will have your choice to close your 
account and take the remaining funds in distribution or 
continue trading through a different LLC...” 
76. The December 2008 letter was materially false and misleading 
because: 
•	 There was no audit. 
•	   Pathfinder   Trading   Technologies, LLC did not exist.   
•	 Howard and Flatiron Systems did not stop trading voluntarily 
but rather because their trading had been unsuccessful, 
resulting in the loss of a significant portion of the investors’ 
money. 
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•	 Flatiron Systems did not set up brokerage accounts for 
individual investors but instead pooled investor funds. 
77. Howard and Flatiron Systems each knew or was reckless in not 
knowing that the December 2008 letter was materially false and 
misleading. 
78. In March 2009, Howard drafted another lulling letter that made 
additional false statements.  The letter falsely stated, “[a]fter meeting with 
the accountants we were forced to realize that the audit procedures ... are 
taking much longer than expected.”  The letter went on to state, “[w]ith the 
total collapse of the U.S. capital markets, and subsequent equities market 
decline, public accounting firms are very overburdened with work ... I 
assure you that my attorneys’ [sic] and accountants have been diligently 
working on every aspect of this.” 
79. Howard’s statements in the March 2009 letter were false.  In 
truth, Howard never met with or hired accountants to perform an audit.  In 
addition, Howard never hired attorneys for an audit.  Howard and Flatiron 
Systems each knew or was reckless in not knowing that the March 2009 
letter was materially false and misleading.   
Flatiron Systems and Spyglass Shut Down 
80. In early 2009, soon after the March lulling letter, Howard and 
Flatiron Systems ceased business operations, their phone numbers were 
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disconnected or changed, and investors were no longer able to contact 
them. 
81. As it became evident that the Pathfinder investment had been 
unprofitable, investors began contacting Spyglass in increasing numbers 
and requesting refunds of the license fee they had paid as provided in the 
Performance Guarantee provisions of the Sales Agreement.  However, 
Spyglass had not reserved any of the sales proceeds to cover refunds.  
Only a few investors were granted refunds by Spyglass and some of those 
investors received only partial payments.  
82. By early 2009, Spyglass, Sjoblom, and Carter had stopped all 
communications with investors, closed their offices and disconnected their 
telephones. 
Defendants Received and Misappropriated Investor Funds 
83. Spyglass received approximately $380,000 from its sales of 
Sequence and approximately $750,000 from its sales of Pathfinder for 
“licensing fees” or commissions. 
84. Between December 2007 and February 2009, Spyglass paid 
Carter $139,260. 
85. Between December 2007 and February 2009, Spyglass paid 
Sjoblom $208,916. 
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86. Between December 2007 and February 2009, Spyglass paid 
Elliott $170,988. 
87. Howard deposited investor funds in his personal bank account 
and used checks and debit cards for the Flatiron Capital or Flatiron 
Systems bank account holding investor funds to pay personal expenses 
such as rent and to buy clothing, jewelry for himself, a necklace from 
Tiffany’s for his girlfriend, and flowers for his girlfriend.  Howard also spent 
large amounts of investor funds for entertainment, including adult 
entertainment, often in the company of Carter, spending as much as 
$5,000 per night. 
88. Between December 2007 and February 2009, Howard 
misappropriated or misused almost $500,000 in investor funds. 
89. Between December 2007 and February 2009, Spyglass paid 
Howard $20,400. 
Howard, Flatiron Capital and Flatiron Systems Sold Unregistered Securities 
90. Section 5 of the Securities Act prohibits any offers, directly or 
indirectly, to sell a security unless a registration statement for that security 
has been filed with the Commission. A registration statement is 
transaction specific.  Each sale of a security must either be made pursuant 
to a registration statement or fall under a registration exemption. 
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91. Howard, Flatiron Capital, and Flatiron Systems sold securities 
in the form of LLC membership interests in Flatiron Capital and Flatiron 
Systems to investors referred to them by Spyglass using the mails or 
systems of interstate commerce.  Flatiron Capital securities were offered 
and sold in at least 38 states and Flatiron Systems securities were offered 
and sold in at least 24 states.  The membership interests in Flatiron 
Capital and Flatiron Systems were investment contracts, which are 
securities under federal law.   At the time of the offers and sales of the 
securities in Flatiron Capital and Flatiron Systems, there were no 
registration statements filed or in effect for them and no registration 
exemption applied to sales of those securities.   
Spyglass, Sjoblom, Carter, and Elliott Acted as Unregistered Broker-
Dealers 
92. Section 15(a)(1) of the Exchange Act prohibits a broker or 
dealer from using jurisdictional means such as the telephone or mails to 
effect transactions in securities unless the broker or dealer is registered 
with the Commission.  Section 3(a)(4) of the Exchange Act defines a 
“broker” as any person who is engaged in the business of effecting 
transactions in securities for the accounts of others.   
93. Sjoblom, Carter and Elliot, the principals of Spyglass, hired and 
controlled a sales force to solicit investors nationwide by telephone.  
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Spyglass’s sales force actively recruited investors, advised them on the 
merits of an investment with Flatiron Capital or Flatiron Systems, and then 
put them in contact with Howard to complete the transaction.  Spyglass and 
its principals were compensated for each transaction that they helped to 
complete. 
94. In some instances, Sjoblom and Elliot personally recruited 
investors, advised them on the merits of an investment with the Flatiron 
entities, and then put them in contact with Howard to complete the 
transaction.  Sjoblom and Elliot received additional compensation for each 
individual transaction that they personally helped to complete. 
95. Spyglass, Sjoblom, Carter and Elliot were not registered with 
the Commission as broker-dealers and they were not affiliated with any 
broker-dealers at the time of the offers and sales of Flatiron Capital or 
Flatiron Systems securities. 
Flatiron Capital and Flatiron Systems Failed to Register as Investment 
Companies 
96. Flatiron Capital and Flatiron Systems were investment 
companies.  Section 3(a)(1) of the Investment Company Act  defines 
“investment company” to include “any issuer which – (A) is or holds itself 
out as being engaged primarily, or proposes to engage primarily, in the 
business of investing, reinvesting, or trading in securities.”  The only 
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business that Flatiron Capital and Flatiron Systems proposed to engage in, 
and did engage in, was the investing, reinvesting, or trading in securities.   
97. Section 3(c) excludes several categories of businesses from 
the definition of investment company; however, Flatiron Capital and Flatiron 
Systems do not fall within any of these categories.  Specifically Flatiron 
Capital and Flatiron Systems are not excluded under Sections 3(c)(1) and 
(7) of the Investment Company Act because their securities were sold in 
public offerings to individuals who were not “qualified purchasers”.   
98. Section 7(a) of the Investment Company Act prohibits 
investment companies from, among other things, offering or selling 
securities through interstate commerce unless they are registered under 
the Act.  As previously described, Flatiron Capital and Flatiron Systems 
securities were offered to investors nationwide.  Flatiron Capital securities 
were offered and sold in at least 38 states and Flatiron Systems securities 
were offered and sold in at least 24 states. 
99. Although required to do so, neither Flatiron Capital nor Flatiron 
Systems registered with the Commission as an investment company at any 
time. 
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Howard Was an Investment Adviser to Flatiron Capital and Flatiron 
Systems 
100. Section 202(a)(11) of the Investment Advisers Act defines the 
term “investment adviser” to mean any person who, for compensation, 
engages in the business of advising others, either directly or through 
publications or writings, as to the value of securities, or who, for 
compensation and as part of a regular business, issues or promulgates 
analyses or reports concerning securities.   
101. Howard was a managing member of both Flatiron Capital and 
Flatiron Systems.  Howard initially shared management responsibilities with 
a co-manager at Flatiron Capital and then later took on all of the 
responsibilities.  At Flatiron Systems, Howard was the sole managing 
member and exercised complete control.  As a managing member of 
Flatiron Capital and Flatiron Systems, Howard directed the investments by 
the funds; investing their assets in equities, commodities and private 
placements. 
102. Howard advised Flatiron Capital and Flatiron Systems on the 
value and trading of securities in exchange for compensation. Howard 
received approximately $36,000 in compensation from Flatiron Capital and 
approximately $281,000 from Flatiron Systems. 
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103. Therefore, Howard was an investment adviser to Flatiron 
Capital and Flatiron Systems as defined under Section 202(a)(11) of the 
Investment Advisers Act. 
CLAIMS FOR RELIEF 
FIRST CLAIM
 
Against Howard, Flatiron Capital and Flatiron Systems 

Fraud in the Offer or Sale of Securities 

Violations of Section 17(a) of the Securities Act 

[15 U.S.C. § 77q(a)] 

104. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Flatiron Capital, Flatiron Systems and Howard have, directly or 
indirectly, with scienter, in the offer or sale of securities, by use of the 
means or instruments of transportation or communication in interstate 
commerce or by use of the mails, employed a device, scheme, or artifice to 
defraud in violation of Section 17(a)(1) of the Securities Act. 
105. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Flatiron Capital, Flatiron Systems and Howard have, directly or 
indirectly, in the offer or sale of securities, by use of the means or 
instruments of transportation or communication in interstate commerce or 
by use of the mails obtained money or property by means of untrue 
statements of material fact or by omissions to state material facts 
necessary to make the statements made, in light of the circumstances 
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under which they were made, not misleading in violation of Section 17(a)(2) 
of the Securities Act. 
106. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Flatiron Capital, Flatiron Systems and Howard engaged in 
transactions, practices, or courses of business which have been or are 
operating as a fraud or deceit upon the purchasers of securities in violation 
of Section 17(a)(3) of the Securities Act. 
107. Unless restrained and enjoined defendants Flatiron Capital, 
Flatiron Systems and Howard will, in the future, violate Section 17(a) of the 
Securities Act. 
SECOND CLAIM
 
Against All Defendants
 
Fraud in the Purchase or Sale of Securities 

Violations of Section 10(b) and Rule 10b-5 of the Exchange Act 

[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5] 

108. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Spyglass, Carter, Sjoblom, Elliott, Flatiron Capital, Flatiron 
Systems and Howard have, directly or indirectly, with scienter, by use of 
means or instrumentalities of interstate commerce or of the mails, or of any 
facility of a national securities exchange, used or employed, in connection 
with the purchase or sale of a security, a manipulative or deceptive device 
or contrivance in contravention of the rules and regulations of the SEC; 
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employed devices, schemes or artifices to defraud; made untrue 
statements of material fact or omitted to state material facts necessary in 
order to make the statements made, in light of the circumstances under 
which they were made, not misleading; or engaged in acts, practices or 
courses of business which operated or would operate as a fraud or deceit 
upon any person, in violation Section 10(b) of the Exchange Act and Rule 
10b-5 thereunder. 
109. Unless restrained and enjoined defendants Spyglass, Carter, 
Sjoblom, Elliott, Flatiron Capital, Flatiron Systems and Howard will, in the 
future, violate Section 10(b) of the Exchange Act and Rule 10b-5 
thereunder. 
THIRD CLAIM
 
Against Howard
 
Fraud by an Investment Advisor 

Violations of Sections 206(1), (2) and (4) and Rule 206(4)-8 of the 

Advisers Act 
[15 U.S.C. §§ 80b-6(1), (2) and (4) and 17 C.F.R. § 275.206(4)-8] 
110. As a result of the conduct alleged in paragraphs 1 through 103, 
defendant Howard, while acting as an investment adviser, has, directly or 
indirectly, with scienter, by use of the means or instruments of interstate 
commerce or by use of the mails, employed devices, schemes, or artifices 
to defraud clients or prospective clients; engaged in transactions, practices, 
or courses of business which operated or operate as a fraud or deceit upon 
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any client or prospective client; and engaged in acts, practices, or courses 
of business which are fraudulent, deceptive, or manipulative. 
111. Among other things, Howard made untrue statements of 
material facts and omitted to state material facts necessary to make the 
statements made, in the light of the circumstances under which they were 
made, not misleading, to any investor or prospective investor in pooled 
investment vehicles; and Howard otherwise engaged in acts, practices, or 
courses of business that are fraudulent, deceptive, or manipulative with 
respect to any investor or prospective investor in the pooled investment 
vehicle. 
112. Unless restrained and enjoined defendant Howard will, in the 
future, violate Section 206 of the Advisers Act. 
FOURTH CLAIM
 
Against Spyglass, Carter, Sjoblom and Elliott
 
Aiding and Abetting Fraud by an Investment Advisor 

Aidng and Abetting Violations of Section 206(4) 

and Rule 206(4)-8 of the Advisers Act 

[15 U.S.C. § 80b-6(4) and 17 C.F.R. § 275.206(4)-8] 

113. As a result of the conduct alleged in paragraphs 1 through 103, 
defendant Howard, engaged in violations of Section 206(4) of the Advisers 
Act and Rule 206(4)-8 thereunder. 
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114. Spyglass, Carter, Sjoblom and Elliott, with scienter, provided 
substantial assistance to Howard’s violations of Section 206 (4) of the 
Advisers Act and Rule 206(4)-8 thereunder. 
115. Unless restrained and enjoined defendant Spyglass, Carter, 
Sjoblom and Elliot will, in the future, aid and abet violations of Section 
206(4) of the Advisers Act and Rule 206(4)-8 thereunder. 
FIFTH CLAIM
 
Against Howard, Flatiron Capital and Flatiron Systems
 
Unregistered Sale of Securities 

Violations of Sections 5(a) and 5(c) of the Securities Act 

[15 U.S.C. §§ 77e(a) and e(c)] 

116. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Flatiron Capital, Flatiron Systems and Howard have, directly or 
indirectly, made use of the means or instruments of transportation or 
communication in interstate commerce or of the mails to offer and sell 
securities, and carried or caused to be carried through the mails, or in 
interstate commerce, by means or instruments of transportation, such 
securities for the purpose of sale or for delivery after sale, when no 
registration statement had been filed or was in effect as to such securities 
in violation of Section 5(a) and 5(c) of the Securities Act. 
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117. Unless restrained and enjoined, defendants Flatiron Capital, 
Flatiron Systems and Howard will, in the future, violate Sections 5(a) and 
5(c) of the Securities Act. 
SIXTH CLAIM
 
Against Spyglass, Carter, Sjoblom and Elliott
 
Offers and Sales of Securities by an Unregistered Broker-Dealer 

Violations of Exchange Act Section 15(a) 

[15 U.S.C. § 78o(a)] 

118. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Spyglass, Carter, Sjoblom and Elliott have, while not registered 
as or associated with a broker or dealer made use of the means or 
instruments of interstate commerce to induce or attempt to induce the 
purchase or sale of, a security in violation of Section 15(a) of the Exchange 
Act. 
119. Unless restrained and enjoined defendants Spyglass, Carter, 
Sjoblom and Elliott will, in the future, violate Section 15(a) of the Exchange 
Act. 
SEVENTH CLAIM
 
Against Flatiron Capital and Flatiron Systems
 
Offers and Sales of Securities by an  

Unregistered Investment Company 

Violations of Investment Company Act Section 7(a) 

[15 U.S.C. § 80a-7] 

120. As a result of the conduct alleged in paragraphs 1 through 103, 
defendants Flatiron Capital and Flatiron Systems have, while not registered 
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as an Investment Company, have made use of the means or instruments of 
interstate commerce to induce or attempt to induce the purchase or sale of 
a security in violation of Section 7(a) of the Investment Company Act. 
121. Unless restrained and enjoined defendants Flatirons Capital 
and Flatiron Systems will, in the future, violate Section 7(a) of the 
Exchange Act. 
PRAYER FOR RELIEF 
WHEREFORE, the Commission respectfully requests that this Court:  
Find that defendants Spyglass, Carter, Sjoblom, Elliott, Flatiron Capital, 
Flatiron Systems and Howard committed the violations alleged;  
I. Enter an Injunction, in a form consistent with Rule 65(d) of the 
Federal Rules of Civil Procedure, permanently restraining and enjoining 
defendants Spyglass, Carter, Sjoblom, Elliott, Flatiron Capital, Flatiron 
Systems and Howard, his or its agents, employees, and all persons in 
active concert or participation with them, from violating, directly or indirectly, 
the laws and rules alleged in this Complaint;  
II. Order that defendants Spyglass, Carter, Sjoblom, Elliott, 
Flatiron Capital, Flatiron Systems and Howard disgorge all ill-gotten gains, 
including pre- and post-judgment interest, in the form of any benefits of any 
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kind received as a result of the acts and courses of conduct in this 
Complaint; 
III. Order that defendants Spyglass, Carter, Sjoblom and Elliott pay 
civil penalties, including post-judgment interest, pursuant to Section 21(d) 
of the Exchange Act [15 U.S.C. § 78u(d)] and Section 209(e) of the 
Adviser’s Act [15 U.S.C. § 80b-9(e)]; 
IV. Order that defendant Howard pay civil penalties, including post-
judgment interest, pursuant to Section 20(d) of the Securities Act [15 
U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] 
and Section 209(e) of the Adviser’s Act[15 U.S.C. § 80b-9(e)]; and 
V. Order that defendants Flatiron Capital and Flatiron Systems 
pay civil penalties, including post-judgment interest, pursuant to Section 
20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d) of the 
Exchange Act [15 U.S.C. § 78u(d)] and Section 42(e) of the Investment 
Company Act [15 U.S.C. § 80a-41(e)]; and 
VI. Order such other relief as is necessary and appropriate.  
Respectfully Submitted 
David J. Van Havermaat 
Attorneys for Plaintiff 
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Polly A. Atkinson 
[email protected] 
Stephen C. McKenna 
[email protected] 
Securities and Exchange Commission 
1801 California Street 
Suite 1500 
Denver, Colorado 80202 
Telephone: (303) 844-1000 
Facsimile: (303) 844-1068 

David J. Van Havermaat Ca. Bar No. 175761 
[email protected] 
Securities and Exchange Commission 
5670 Wilshire Boulevard 
11th Floor 
Los Angeles, California 90036 
Telephone: (323) 965-3866 
Facsimile: (323) 965-3908 

Attorneys for Plaintiff United States 
Securities and Exchange Commission 

UNITED STATES DISTRICT COURT 

CENTRAL DISTRICT OF CALIFORNIA
 

SECURITIES AND EXCHANGE 
COMMISSION, CASE NUMBER 

Plaintiff, 
v. 

SPYGLASS EQUITY SYSTEMS, INC., 
RICHARD L. CARTER, 
PRESTON L. SJOBLOM, 
TYSON D. ELLIOTT, 
FLATIRON CAPITAL PARTNERS, LLC, 
FLATIRON SYSTEMS, LLC, AND COMPLAINT FOR VIOLATIONS OF 
DAVID E. HOWARD II, THE UNITED STATES SECURITIES 

Defendants. LAWS 

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Plaintiff, United States Securities and Exchange Commission 

(“Commission”), states and alleges as follows for its Complaint for 

violations of the United States securities laws against Defendants Flatiron 

Capital Partners, LLC (“Flatiron Capital”), Flatiron Systems, LLC (“Flatiron 

Systems”), David E. Howard II (“Howard”), Spyglass Equity Systems, Inc. 

(“Spyglass”), Richard L. Carter (“Carter”), Preston L. Sjoblom (“Sjoblom”), 

and Tyson D. Elliott (“Elliott”): 

SUMMARY 

1. From November 2007 through January 2009, Howard, using his 

entities Flatiron Capital and Flatiron Systems, and Carter, Sjoblom and 

Elliott (until August, 2008), using their company, Spyglass, engaged in a 

scheme to defraud almost 200 investors located in approximately 38 states, 

resulting in investor losses of over $3 million.   

2. As part of the scheme, Howard, Flatiron Capital, and Flatiron 

Systems offered and sold unregistered securities which were sold to 

investors through Spyglass, a telemarketing firm functioning as a “boiler 

room” located in Los Angeles, California.  During the scheme, defendants 

made materially misleading statements and omissions to investors 

regarding the securities being offered by Flatiron Capital and Flatiron 

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Systems (the “Flatiron entities”) and two stock trading systems that were 

used to induce investors to invest their funds. 

3. Pursuant to the scheme, the defendants agreed that Spyglass 

would locate individuals to purchase membership interests (i.e., securities) 

in Flatiron Capital and Flatiron Systems, which Spyglass telemarketers did 

through cold-calling and high-pressure sales tactics.  Using scripts and lead 

lists, Spyglass telemarketers, under the control of Elliott, until May, 2008, 

Carter, and Sjoblom, fraudulently touted two different stock trading systems 

that purported to trade stocks profitably for investors based on algorithms 

or computer models.  In order to close sales, the Spyglass telemarketers 

grossly misrepresented the functionality and operational success of the 

trading systems and the fees to be charged investors.  Among other 

misrepresentations, they stated that the trading systems had achieved 

successful historical results.  They stated or implied that the Flatiron 

entities were legitimate broker-dealers, clearing their trades through 

nationally-known brokerage firms, and that separate brokerage accounts 

would be established for each investor which would be used in trading 

utilizing the trading systems. These statements were false.  In reality, the 

trading systems had not been successfully used.  The Flatiron entities were 

not legitimate broker-dealers and they did not clear trades through 

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nationally-known brokerage firms.  Instead, Howard and others 

commingled investors’ funds in trading accounts established at unaffiliated 

trading companies. Howard along with others conducted unprofitable 

trading in the trading accounts, using a variety of strategies, not limited to 

the trading systems. 

4. As part of the scheme, Howard and the Flatiron entities made 

additional misleading statements and omissions to investors.  For example, 

in written materials provided to investors, Howard and the Flatiron entities 

falsely represented or implied that trading would be limited to the purported 

trading systems, that investor costs would be limited, and that investors 

would have separate, “designated” accounts.  Howard also made several 

false and misleading lulling statements to investors as the scheme 

unraveled, going so far as to subsidize several investors, falsifying their 

account statement to reflect inflated results.  

5. By late 2008, the scheme failed as the trading systems and 

other trades placed by Howard and others were unprofitable and investors 

incurred substantial losses.  Howard made desperate attempts to pacify 

investors by falsely claiming he was conducting an audit of a non-existent 

entity. At the same time, Spyglass, Sjoblom and Carter were receiving, 

and rejecting, requests from investors for reimbursement of their license 

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fees. Shortly thereafter, the defendants ceased operations, their phones 

were disconnected or the numbers were changed, and investors were left 

in the dark. 

6. Each of the defendants profited from the scheme.  Howard 

misappropriated nearly $500,000 in investor funds, over $300,000 of which 

he used for personal expenses, including travel, personal and adult 

entertainment, and gifts for his girlfriend.  During the scheme, Spyglass 

earned “licensing fees” (i.e., commissions) of approximately $1,130,000.  

Spyglass then made payments from the investor money of approximately 

$139,260 to Carter, $170,988 to Elliott, and $208,916 to Sjoblom.  Howard 

also received payments of at least $20,400 from Spyglass.        

7. The Commission brings this civil action seeking permanent 

injunctions, disgorgement plus prejudgment and post judgment interest, 

and civil penalties for violations of Sections 10(b) and 15(a) of the 

Securities Exchange Act of 1934 (“Exchange Act” ) [15 U.S.C. §§ 78j(b) 

and o(a)] and Rule 10b-5 [17 C.F.R. § 240.10b-5] thereunder; Sections 

5(a), 5(c) and 17(a) of the Securities Act of 1933 (“Securities Act”) [15 

U.S.C. § 77e(a), e(c) and q(a)]; Section 7(a) of the Investment Company 

Act of 1940 (“Investment Company Act”) [15 U.S.C. § 80a-7]; and Sections 

206(1), (2) and (4) of the Investment Advisers Act of 1940 (“Advisers Act”) 

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[15 U.S.C. §§ 80b-6(1), (2) and (4)] and Rule 206(4)-8 [17 C.F.R. § 206(4)-

8] thereunder. 

JURISDICTION AND VENUE 

8. The Commission brings this action pursuant to the authority 

conferred upon it by Section 20(b) of the Securities Act [15 U.S.C. § 77t(b)], 

Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. §§ 78u(d) and 

78(u)(e)], Section 209(d) of the Advisers Act [15 U.S.C. § 80b-9(d)], and 

Section 42 of the Investment Company Act [15 U.S.C. § 80a-41]. 

9. This Court has jurisdiction over this action pursuant to Section 

22(a) of the Securities Act [15 U.S.C. § 77v(a)], Section 27 of the Exchange 

Act [15 U.S.C. § 78aa], Section 214 of the Advisers Act [15 U.S.C. § 80b-

14], Section 44 of the Investment Company Act [15 U.S.C. § 80a-43], and 

28 U.S.C. § 1331. Venue lies in this Court pursuant to Securities Act 

Section 22(a) [15 U.S.C. § 77v(a)], Exchange Act Section 27 [15 U.S.C. § 

78aa], Advisers Act Section 214 [15 U.S.C. § 80b-14], Investment 

Company Act Section 44 [15 U.S.C. § 80a-43], and 28 U.S.C. § 1391(b)(1) 

& (2). Many of the acts, practices, and courses of conduct alleged in this 

Complaint occurred in this district and one or more defendants reside within 

this district. 

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10. In connection with the transactions, acts, practices, and 

courses of business described in this Complaint, the defendants, directly 

and indirectly, have made use of the means or instrumentalities of 

interstate commerce, of the mails, and/or of the means and instruments of 

transportation or communication in interstate commerce. 

DEFENDANTS 

11. Spyglass is a California corporation with its principal place of 

business in Los Angeles, California.  Between October 2007 and March 

2009, Spyglass operated as a telemarketing firm or boiler room purportedly 

selling equity trading systems. It was owned and operated by defendants 

Carter, Sjoblom and, until August 2008, Elliott.  Spyglass ceased 

operations in March 2009; however, it is still listed with the State of 

California as an active corporation. Spyglass was not registered as a 

broker-dealer or investment adviser with the Commission. 

12. Carter, age 42, is a resident of Torrance, California.  At all times 

relevant to this Complaint, Carter was a co-owner and co-operator of 

Spyglass. Carter was also an owner and primary controller of The Trade 

Tech Institute, Inc. (“Trade Tech”), which purportedly sells licensed 

commodities and futures trading systems via telephone, and which Carter 

continues to own and operate. On information and belief, Trade Tech is a 

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telemarketing firm or boiler room similar to Spyglass.  Carter has never 

been registered as a broker-dealer or investment adviser with the 

Commission or associated with a registered broker-dealer or investment 

adviser. 

13. Sjoblom, age 40, is a resident of Great Falls, Virginia.  In all 

relevant periods, he was a principal and a co-owner of Spyglass and was 

employed by Trade Tech as a sales and customer support representative.  

Sjoblom has not been associated with a registered broker-dealer since 

March 1998. He has not otherwise been associated with any entity 

registered with the Commission. 

14. Elliott, age 30, is a resident of Hermosa Beach, California.  

From October 9, 2007 until August 18, 2008, he was a co-owner of 

Spyglass. In August 2008, Elliott sold his interest in Spyglass back to the 

company. Elliott was also an owner and primary controller of Trade Tech.  

He currently owns and operates a telemarketing firm selling commodities 

and futures trading systems. He has never been registered with the 

Commission in any capacity or associated with any registered entity. 

15. Flatiron Capital is a Delaware limited liability company 

organized on May 23, 2007.  Between December 2007 and May 2008, 

Flatiron Capital had offices in New York City, New York and operated as an 

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investment company, purportedly trading securities through the use of a 

trading system called the Sequence Trading System (“Sequence”).  At all 

times relevant to this action, Howard was a co-managing member of 

Flatiron Capital.  Flatiron Capital is not registered with the Commission in 

any capacity and has never filed a registration statement for its securities 

with the Commission. 

16. Flatiron Systems was at relevant times a Florida limited liability 

company which was organized on March 24, 2008.  Between April 2008 

and March 2009, Flatiron Systems’ principal place of business was in 

Boynton Beach, Florida and it also operated out of Spyglass’ offices in Los 

Angeles, California. Flatiron Systems operated as an investment company 

that purported to trade securities using a trading system called the 

Pathfinder Trading System (“Pathfinder”).  Howard was the sole managing 

member of Flatiron Systems.  Flatiron Systems was never registered with 

the Commission in any capacity and has never filed a registration 

statement for its securities with the Commission. 

17. Howard, age 31, is a resident of New York, New York.  He was 

a co-managing member of Flatiron Capital and the sole managing member 

of Flatiron Systems.  He is currently employed as marketing director for 

Forex Capital Trading Partners, Inc., a purported introducing broker in the 

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foreign exchange market. Howard has never been registered or associated 

with any entity registered with the Commission.  During the period at issue, 

Howard acted as an investment adviser with respect to Flatiron Capital and 

Flatiron Systems and investors in those entities. 

FACTUAL ALLEGATIONS 

Spyglass Induces Investors to Buy Securities Issued by Howard’s Flatiron 
Capital Using a Trading System as Bait 

18. In 2007, Howard was engaging in the day-trading of stocks in 

downtown Manhattan. At the time, he and another individual he met 

through day-trading stocks decided to raise funds from investors through a 

recently formed company, Flatiron Capital, to trade in securities, preferably 

using an automated trading system. 

19. By late 2007, Howard had made contact with an individual who 

had supposedly developed a trading system which became known as 

Sequence. Among other things, Sequence used signals and alerts that 

had been programmed into a trading platform to identify potential stocks for 

trading. Sequence was not an automated trading system was not a 

computer program and did not use algorithms to identify potential trades. 

20. In late 2007, Howard met Sjoblom through the same individual 

who introduced him to Flatiron Capital.  At the time, Sjoblom was working 

at Trade Tech, the telemarketing firm in Los Angeles, purportedly selling 

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licenses to commodities and futures trading systems.  Shortly thereafter, 

Howard agreed with Sjoblom, to use Spyglass to market Sequence and to 

introduce investors to Flatiron Capital.  Spyglass was set up in the same 

building as Trade Tech but on a different floor.  . 

21. During the relevant period, Spyglass essentially operated as a 

boiler room, employing 10 to 15 telemarketers, some whom wanted to be 

actors, to sell the Sequence system (and later the Pathfinder system as 

discussed below) to investors and to introduce them to the Flatiron entities 

using cold-calling techniques and lead lists. 

22. As indicated above, Carter, Elliott, and Sjoblom co-owned and 

controlled Spyglass. Carter handled all the back office accounting and 

finances for Spyglass. Elliott was in charge of hiring, training, and 

supervising the sales staff until May 2008.  Sjoblom was responsible for 

sales support and customer service, and after May 2008, was also in 

charge of training and supervising the sales staff. In addition to their 

responsibilities as managers, Elliott, and Sjoblom also occasionally made 

sales calls. 

Spyglass Markets the Sequence Trading System and Introduces Investors 
to Flatiron Capital Securities 

23. Beginning in November or December 2007, Spyglass promoted 

the Sequence trading system. During the period at issue, Spyglass 

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referred approximately 66 investors to Howard to purchase securities from 

Flatiron Capital earning “licensing fees” or commissions of approximately 

$380,000 and helping Howard to raise $602,465 in funds for Flatiron 

Capital. 

24. Spyglass telemarketers told investors that they would be given 

a limited opportunity to purchase a license to a proven stock trading system 

– Sequence. Sequence was essentially used to entice investors to place 

funds with Flatiron Capital. Howard allowed Spyglass to charge investors a 

license fee, which essentially constituted a commission, so that Spyglass 

would refer investors to Flatiron.  Spyglass typically charged about $6,000 

per “license”.    

25. Spyglass employed telemarketers who acted as “openers” and 

“closers” in order to market and sell Sequence and to refer investors to 

Flatiron Capital.  The telemarketers worked from scripts that were posted to 

the walls of the Spyglass offices that were written primarily by Sjoblom and 

Elliott, and sometimes reviewed by Howard. 

26. In marketing Sequence and to induce investors to purchase 

Flatiron Capital securities, Spyglass, Carter, Sjoblom, Elliott, and and/or 

telemarketers under their supervision and control falsely claimed or implied 

that: 

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•	 Spyglass had been using Sequence to trade, or monitoring 
trading using Sequence, for more than 10 months and that 
that trading had generated net returns of over 12% or more 
per month. 

•	 Sequence would generate automated trades, that trades 
would be selected using algorithms, or that trades would be 
selected by a computer program. 

•	 Flatiron Capital was a prestigious firm trading institutional 
funds and retirement accounts.   

•	 Flatiron Capital cleared through Morgan Stanley or Goldman 
Sachs. 

•	 Sequence was a limited opportunity designed for high net-
worth individuals. 

27. In fact, these claims were materially false and misleading 

because: 

•	 Spyglass had not been using Sequence to trade, or 
monitoring trading using Sequence, for more than 10 
months. Instead, Sjoblom first learned of Sequence in 
November 2007, at the earliest. Carter and Elliott, as well as 
Sjoblom, knew that Spyglass had not been using Sequence 
to trade, or monitoring trading using Sequence, for more 
than 10 months. In addition, at least Spyglass, Sjoblom and 
Elliot were aware that the information Spyglass received did 
not reflect actual trading. 

•	 Sequence did not generate automated trades, select trades 
using algorithms, or use a computer program that selected 
trades. Rather, Sequence was a system of signals or 
information suggesting potential trades which the trader 
could follow or ignore 

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•	 Flatiron Capital was not a prestigious firm trading institutional 
funds and retirement accounts.   

•	 Flatiron Capital did not clear its trades through Morgan 
Stanley or Goldman Sachs. 

•	 Sequence was not a limited opportunity designed for high 
net-worth individuals.  Instead, it was sold to anyone who 
wanted to buy it. 

28. Spyglass, Sjoblom, Elliott, and Carter each knew or was 

reckless in not knowing that Sequence did not generate automated trades, 

select trades using algorithms, or use a computer program that selected 

trades. 

29. Spyglass, Sjoblom, Elliott, and Carter each knew or was 

reckless in not knowing that Flatiron Capital was not a prestigious firm 

trading institutional funds and retirement accounts, Flatiron Capital did not 

clear its trades through Morgan Stanley or Goldman Sachs, and Sequence 

was not a limited opportunity designed for high net-worth individuals.   

The Spyglass Defendants Provided Sales Agreements to Investors that 
Contained Additional Misleading Statements and Omissions 

30. In connection with the marketing of Sequence, interested 

investors were mailed a sales agreement either electronically or through 

the mail system. The sales agreement provided that the “Customer wishes 

to become a client of Spyglass by purchasing access to certain software for 

use in trading equities” and “Spyglass is duly authorized and has the right 

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to sell various software including the System to Customer…”.  “System” 

was defined as the Sequence Trading System. 

31. The Sequence sales agreement further provided that investors 

would have to establish a brokerage account to utilize the trading system.  

The agreement stated that the “Customer hereby agrees to establish a 

brokerage account (“Customer’s Account”) and to execute a limited power 

of attorney granting the brokerage firm at which Customer’s Account is held 

the right to execute for Customer’s Account all trades generated by the 

System.” Investors were also mailed a “Sequence License Receipt” which 

showed the “Brokerage Contact Person” as Howard at Flatiron Capital. 

32. In addition, the sales agreement contained a “Performance 

Based Guarantee.” The Performance Based Guarantee provided that the 

“Customer shall have the right … to request a refund of the purchase price 

if the system fails to generate a net profit … at the conclusion of the one 

hundred and eighty (180) day period.”    

33. The Sequence sales agreement was materially false and 

misleading because: 

•	 Sequence was not a software program, but was rather a 
system of signals or information suggesting potential trades 
which the trader could follow or ignore.  

•	 Trading was not conducted solely through Sequence. 

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•	 Howard and Flatiron Capital were not registered broker-
dealers, or associated with a registered broker-dealer. 

•	 Howard and Flatiron Capital did not set up separate 
brokerage accounts for individual investors, but rather 
invested them with unaffiliated trading companies through 
which their funds were further commingled.  

•	 Spyglass did not set aside funds necessary to meet the 
Performance Based Guarantee. 

34. Spyglass and Sjoblom each knew or was reckless in not 

knowing that Sequence was not a software program.   

35. Spyglass, Carter, Sjoblom, and Elliott each knew or was 

reckless in not knowing that Howard and Flatiron Capital were not 

registered brokers or associated with a registered broker-dealer, that they 

were not going to set up separate brokerage accounts for investors, and 

that funds were not set aside to meet the Performance Based Guarantee. 

Howard and Flatiron Capital Made Additional Misleading Statements and 
Omissions to Investors 

36. After an investor had purchased access to Sequence, the 

Spyglass defendants referred the investor to Howard and Flatiron Capital.  

Howard and Flatiron Capital mailed the investor a package including an 

“Operating Agreement of Flatiron Capital Partners for Sequence Trading 

System”, a Sequence trading agreement, and a Sequence new account 

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application. The package also included a welcome letter from Howard 

which directed investors to send funds to Flatiron Capital. 

37. Among other things, the trading agreement falsely stated that 

Flatiron Capital would assign to the Client (i.e., the investor) one or more 

“Designated Firm Accounts” which would be maintained by Flatiron Capital.  

Similarly, the operating agreement defined “Designated Trading Account” 

as a “separate trading account of the Company’s (proprietary) trading 

account established and maintained for each Member.”  In addition, the 

welcome letter indicated that “all the account information for each account” 

was included in the welcome package.  It further requested that investors 

fill out the paperwork and return it “along with funding for the account.”  In 

fact, investors were not assigned “Designated Firm Accounts.”  Instead all 

investor funds were deposited into a Flatiron Capital bank account and then 

disbursed to accounts at unaffiliated trading companies where the funds 

were comingled with funds of other unrelated investors.  

38. Howard and Flatiron Capital knew that investors were not 

assigned “Designated Firm Accounts” and that, instead, all investor funds 

were deposited into a Flatiron Capital bank account and then disbursed to 

accounts not belonging to Flatiron Capital where the funds were comingled 

with funds of other unrelated investors. 

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39. The Sequence trading agreement also provided that the Client 

would be entered into all trades executed by Sequence.  This statement 

was misleading because the trading agreement implied that investor funds 

would be traded using Sequence.  In fact, as discussed below, trading was 

not limited to those “executed” by Sequence; rather, much of the trading 

was executed by Howard along with others without using Sequence.  

Howard and Flatiron Capital each knew or was reckless in not knowing that 

trading using investor funds would not be limited to those directed by 

Sequence. 

40. The trading agreement further falsely stated that the Client 

would receive 80 percent of the trading profits generated by Flatiron 

Capital, subject to a two percent management charge.  In fact, Howard and 

Flatiron Capital used investor funds in excess of their allotted share to pay 

trading expenses, the business expenses of Flatiron Capital and personal 

expenses of Howard, including rent, personal and adult entertainment, and 

gifts for his girlfriend.   

Howard and Flatiron Capital’s Trading of Investor Funds Was Not Profitable 

41. Instead of placing investor funds into separate brokerage 

accounts, Flatiron Capital and Howard pooled investor funds and placed 

them with certain unaffiliated trading companies that were not registered 

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broker-dealers but which allowed customers to deposit funds into pooled 

accounts and make self-directed trades through those accounts.   

42. While Spyglass and Flatiron Capital had represented that 

trading in stock or equities would be based on the operation of Sequence, 

not all the trading was based on Sequence but, instead, some was 

determined by Howard and others who invested not only in equities, but in 

commodities and other instruments. Flatiron Capital did not keep sufficient 

records to determine which investor funds were traded using Sequence 

and which investor funds were traded by Howard and others. 

43. By March, 2008, it was clear that the trading conducted by 

Flatiron Capital for the investors was not profitable.  As a result, Sjoblom 

told Howard that he was concerned that Spyglass would have to make 

refunds based on the Performance Based Guarantee in the Sequence 

Sales Agreement which provided that Spyglass would refund the license 

fees if Sequence did not deliver profitable trading results after 180 days. 

44. Howard told Sjoblom that he was considering a new trading 

system, the Pathfinder system, being developed by another individual.  

Despite the fact that Pathfinder was not fully developed, Sjoblom and 

Howard decided to market Pathfinder to investors through Spyglass and 

Howard’s newly-formed entity, Flatiron Systems. 

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Sjoblom and Howard Induce Existing Flatiron Capital Investors to Transfer 
their Funds from Sequence to Pathfinder using a Misleading Offer Letter 

45. In March 2008, Sjoblom drafted a letter for Spyglass to send to 

existing Flatiron Capital investors and he sent it to Howard for Howard’s 

approval. The purpose of the letter was to market the Pathfinder system 

and to induce existing Flatiron Capital investors to move their investments 

to the new entity, Flatiron Systems, and a new ostensible trading system, 

Pathfinder. Howard agreed that Spyglass should issue the letter and in 

April 2008, the letter was sent to Sequence investors. 

46. The Pathfinder System Offer letter directed investors to fill out 

an enclosed form and send it to Howard at Flatiron Systems.  The form 

authorized Howard to transfer the investors’ funds from Sequence to 

Pathfinder. Some but not all of the Sequence investors agreed to transfer 

their funds. 

47. The Pathfinder System Offer letter falsely represented that: 

•	 “Recently the Sequence system has done an excellent job of 
holding fast during the extraordinarily tough market 
conditions” but that “the reversals that are constantly 
occurring during the day while the markets are trading cause 
for an overall flat result on Sequence”. 

•	 Pathfinder was “[a] system that can do extremely well in 
these market conditions and has proved itself in every way” 
and that “[r]esults from January, February, and March 2008 
are stellar” resulting in returns ranging from 23.5% per 
month to over 100% per month. 

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48. The letter was materially false and misleading because: 

•	 Sequence had not done an excellent job of holding fast 
during the extraordinarily tough market conditions.  Nor was 
there “an overall flat result [using] Sequence.”  In fact, 
Flatiron Capital was suffering trading losses.   

•	 At the time the Pathfinder System Offer letter was sent to 
investors, Pathfinder was incomplete, had not proven itself in 
any way, and had not generated any actual returns. 

49. Sjoblom, Carter, Elliott, and Howard all knew or were reckless 

in not knowing that Flatiron Capital was suffering trading losses.  Sjoblom 

and Howard each knew or was reckless in not knowing that Pathfinder was 

incomplete, had not proven itself in any way, and had not generated any 

actual returns.   

Spyglass Markets Pathfinder and Introduces Investors to Flatiron Systems 
Securities 

50. By April 2008, Spyglass began to cold-call investors to market 

the new trading system, Pathfinder.  During the period at issue, Spyglass 

referred approximately 126 new investors to purchase securities from 

Flatiron Systems, earning “licensing fees” or commissions of approximately 

$750,000 and raising $1,548,000 in capital for Flatiron Systems. 

51. Sjoblom, Elliott, and Carter participated in drafting the sales 

scripts that were used by the Spyglass telemarketers to market Pathfinder 

and to locate investors to refer to Flatiron Systems.  The scripts were 

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placed on the walls of Spyglass’ offices and telemarketers continued to use 

cold-calling techniques and lead lists to locate investors.   

52. In marketing Pathfinder and to induce investors to purchase 

Flatiron Systems securities, Spyglass, Carter, Elliott, Sjoblom, and/or 

telemarketers under their supervision and control falsely claimed or implied 

that: 

•	 Pathfinder had been trading live for over a year and that that 
trading had generated returns of an average of 20% or more 
per month. 

•	 Pathfinder would generate automated trades, that trades 
would be selected using algorithms or that trades would be 
selected by a computer program. 

•	 Flatiron Systems was a prestigious and reputable firm.  

•	 Flatiron Systems cleared through Morgan Stanley or 
Goldman Sachs. 

•	 Pathfinder was a limited opportunity. 

53. These representations were materially false and misleading 

because: 

•	 Pathfinder was not completed at the time Spyglass began 
selling it. Even in January 2009, when Spyglass was making 
its last sales, Pathfinder had been in existence for less than 
a year. Pathfinder never generated returns in excess of 20% 
per month. 

•	 Pathfinder did not generate automated trades, select trades 
using algorithms, or use a computer program that selected 

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trades. Rather, Pathfinder was a system of signals or 
information suggesting potential trades which the trader 
could follow or ignore. 

•	 Flatiron Systems was not a prestigious or reputable firm. 

•	 Flatiron Systems did not clear its trades through Morgan 
Stanley or Goldman Sachs. 

•	 Pathfinder was not a limited opportunity.  Instead, it was sold 
to everyone who wanted to buy it. 

54. Spyglass, Sjoblom, Elliott, and Carter each knew or was 

reckless in not knowing that the above statements and misrepresentations 

were materially false and misleading. 

The Spyglass Defendants Provided Sales Agreements to Investors that 
Contained Additional Misleading Statements and Omissions 

55. Similar to the procedures established relating to the Sequence 

system, the Spyglass defendants provided a written sales agreement to 

investors who were interested in Pathfinder.  In fact, the Pathfinder sales 

agreement was nearly identical to the Sequence sales agreement.   

56. The Pathfinder sales agreement provided that the “Customer 

wishes to become a client of Spyglass by purchasing access to certain 

software for use in trading equities;” and “Spyglass is duly authorized and 

has the right to sell various software including the System to Customer…”.  

“System” was defined as the Pathfinder Trading System. 

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57. The Pathfinder sales agreement further provided that investors 

would have to establish a brokerage account to utilize the trading system 

and trade equities.  The agreement stated that the “Customer hereby 

agrees to establish a brokerage account (“Customer’s Account”) and to 

execute a limited power of attorney granting the brokerage firm at which 

Customer’s Account is held the right to execute for Customer’s Account all 

trades generated by the System.” Investors were also mailed a “Pathfinder 

License Receipt” which showed the “Brokerage Contact Person” as 

Howard at Flatiron Systems. 

58. In addition, the Pathfinder sales agreement contained a 

“Performance Based Guarantee.”  The Performance Based Guarantee 

provided that the “Customer shall have the right … to request a refund of 

the purchase price if the system fails to generate a net profit … at the 

conclusion of the one hundred and eighty (180) day period.”    

59. The Pathfinder sales agreement was materially false and 

misleading because: 

•	 Pathfinder was not a software program but was rather a 
system of signals or information suggesting potential trades 
which the trader could follow or ignore.   

•	 Trading was not limited to stocks or equities, but instead 
included commodities, futures, and risky off-market 
investments. 

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•	 Howard and Flatiron Systems were not registered broker-
dealers or associated with a registered broker-dealer. 

•	 Howard and Flatiron Systems did not set up separate 
brokerage accounts for individual investors, but rather 
invested them with unaffiliated trading companies through 
which their funds were further commingled.   

•	 Spyglass did not set aside funds to meet the Performance 
Base Guarantee. 

60. Spyglass, Sjoblom, Elliott, and Carter each knew, or was 

reckless in not knowing, that Pathfinder was not a software program.   

61. Spyglass and Carter each knew that trading was not limited to 

equities because Carter requested that investor funds be invested in off-

market investments. 

62. Spyglass, Carter, Elliott, and Sjoblom each knew or was 

reckless in not knowing that neither Howard nor Flatiron Systems were 

registered broker-dealers or associated with a registered broker-dealer.   

Howard and Flatiron Systems Made Additional Misleading Statements and 
Omissions to Investors 

63. Similar to the procedure that was established for Sequence, 

after an investor had purchased access to Pathfinder, the Spyglass 

defendants referred the investor to Howard and Flatiron Systems.  

Thereafter, Howard caused an investor package to be mailed to the 

prospective investors through an administrative assistant hired by Carter 

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and located at the Spyglass offices.  The package included an “Operating 

Agreement of Flatiron Systems for Pathfinder Trading System”, a 

Pathfinder trading agreement, and a new account application.  The 

package also included a welcome letter from Howard and funding 

instructions. The welcome letter instructed investors to return the signed 

documents to the Flatiron Systems administrative assistant at Spyglass 

and to send funds to accounts controlled by Howard.  

64.  The Pathfinder welcome letter from Howard falsely stated that 

“[w]e at Flatiron Systems … believe that the Pathfinder System will 

continue to have the incredible success we have seen throughout the 

year.” In fact, Pathfinder had not had “incredible success seen throughout 

the year.” It either was not ready for trading or was generating poor 

returns. 

65. Flatiron Systems, Howard, Spyglass, Carter, Elliott, and 

Sjoblom each knew or was reckless in not knowing that Pathfinder had not 

had “incredible success seen throughout the year” and was either not ready 

for trading or was generating poor returns. 

66. Among other things, the Pathfinder trading agreement falsely 

represented that Flatiron Systems would assign to the Client (i.e., the 

investor) one or more “Designated Firm Accounts” which would be 

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maintained by Flatiron Systems. Similarly, the Pathfinder Operating 

Agreement defined “Designated Trading Account” as a “separate sub-

account of the Company’s (proprietary) trading account established and 

maintained for each Member.” In fact, investors were not assigned 

separate accounts. Nor did Flatiron Systems have a proprietary trading 

account. Instead all investor funds were deposited into a Flatiron Systems 

bank account and then disbursed to accounts belonging to unaffiliated 

trading companies where the funds were comingled with funds of other 

unrelated investors. 

67. Howard and Flatiron Systems each knew or was reckless in not 

knowing that investors were not assigned separate accounts or sub-

accounts and that, instead, all investor funds were deposited into a Flatiron 

Systems bank account and then disbursed to accounts not belonging to 

Flatiron Systems where the funds were comingled with funds of other 

unrelated investors. 

68. The Trading Agreement also provided the Client would be 

entered into all trades executed by Pathfinder.  This statement was 

misleading because while the Pathfinder trading agreement implied that 

investor funds would be traded using Pathfinder; as discussed below, 

trading was not limited to those “executed” by Pathfinder and trades were 

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executed by Howard and others involving equities, commodities, futures, 

and off-market investments. Howard, Flatiron Systems, and Carter each 

knew or was reckless in not knowing that trading using investor funds 

would not be limited to those directed by Pathfinder.   

69. The Pathfinder trading agreement further falsely stated that the 

Client would receive 80 percent of the trading profits generated by Flatiron 

Systems subject to a two percent management charge.  In fact, Howard 

and Flatiron Systems used investor funds to pay trading expenses, the 

business expenses of Flatiron Systems, and personal expenses of Howard, 

including rent, personal and adult entertainment, and gifts for his girlfriend.   

Howard’s and Flatiron Systems’ Trading of Investor Funds Was Not 

Profitable 

70. Similar to the investor funds associated with Flatiron Capital, 

Howard and Flatiron Systems deposited the funds they received from 

investors into pooled accounts with certain unaffiliated trading companies 

that were not registered broker-dealers but which allowed their customers 

to deposit funds into pooled accounts and make self-directed trades 

through those accounts. 

71. While Flatiron Systems and Spyglass had represented that 

trading would be limited to stocks or equities and be based on the 

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operation of Pathfinder, not all the trading was in equities or based on 

Pathfinder. Howard and several others also traded investor funds.  Among 

other investments, Howard allowed some investor funds to be used to trade 

in oil and gas futures. In addition, at least $250,000 of investor funds was 

used by Howard, at Carter’s request, to fund a private placement 

connected to Carter and a business venture of Carter’s.   

72. Flatiron Systems did not keep sufficient records to determine 

which investor funds were traded using Pathfinder and which investor funds 

were traded without using Pathfinder. 

73. Howard’s and Flatiron Systems’ trading and investments of 

investor funds was not profitable and investors incurred significant losses. 

The Scheme Unravels and Howard Falsifies Account Statements and 
Makes False and Misleading Lulling Statements  

74. By mid-2008, it was clear that both Sequence and Pathfinder 

were not profitable trading systems, and investors were suffering losses.  In 

addition, some investors were reaching the 180 day time period for the 

Performance Based Guarantee. In June, 2008, at the request of Spyglass, 

Carter, and Sjoblom, Howard “subsidized” several investors, falsifying their 

account statements to reflect higher results than actually occurred. 

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75. In December 2008, Howard sent a false and misleading letter to 

investors for the purpose of lulling them and concealing the fraudulent 

scheme. The letter falsely represented, among other things, that: 

•	 “[T]rading has been voluntarily halted by [Howard] so that a 
voluntary, independent audit can be performed of the 
accounting done by Pathfinder Trading Technologies, LLC 
and the accounting firm hired by Pathfinder Trading 
Technologies, LLC which has been managing the 
statements to members of Flatiron Systems, LLC.” 

•	 The audit was initiated “as a result of noticing what may be 
possible discrepancies by the accounting firm and/or 
Pathfinder Trading Technologies, LLC in recent statements 
that have been received.” 

•	 The audit would take no longer than 60 days.  

•	 After the audit was completed either “the accounts will all be 
closed and your [sic] will promptly receive your remaining 
distribution” or “you will have your choice to close your 
account and take the remaining funds in distribution or 
continue trading through a different LLC…” 

76. The December 2008 letter was materially false and misleading 

because: 

•	 There was no audit. 

•	 Pathfinder Trading Technologies, LLC did not exist.   

•	 Howard and Flatiron Systems did not stop trading voluntarily 
but rather because their trading had been unsuccessful, 
resulting in the loss of a significant portion of the investors’ 
money. 

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•	 Flatiron Systems did not set up brokerage accounts for 
individual investors but instead pooled investor funds. 

77. Howard and Flatiron Systems each knew or was reckless in not 

knowing that the December 2008 letter was materially false and 

misleading. 

78. In March 2009, Howard drafted another lulling letter that made 

additional false statements.  The letter falsely stated, “[a]fter meeting with 

the accountants we were forced to realize that the audit procedures … are 

taking much longer than expected.” The letter went on to state, “[w]ith the 

total collapse of the U.S. capital markets, and subsequent equities market 

decline, public accounting firms are very overburdened with work … I 

assure you that my attorneys’ [sic] and accountants have been diligently 

working on every aspect of this.” 

79. Howard’s statements in the March 2009 letter were false.  In 

truth, Howard never met with or hired accountants to perform an audit.  In 

addition, Howard never hired attorneys for an audit.  Howard and Flatiron 

Systems each knew or was reckless in not knowing that the March 2009 

letter was materially false and misleading.   

Flatiron Systems and Spyglass Shut Down 

80. In early 2009, soon after the March lulling letter, Howard and 

Flatiron Systems ceased business operations, their phone numbers were 

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disconnected or changed, and investors were no longer able to contact 

them. 

81. As it became evident that the Pathfinder investment had been 

unprofitable, investors began contacting Spyglass in increasing numbers 

and requesting refunds of the license fee they had paid as provided in the 

Performance Guarantee provisions of the Sales Agreement.  However, 

Spyglass had not reserved any of the sales proceeds to cover refunds.  

Only a few investors were granted refunds by Spyglass and some of those 

investors received only partial payments.  

82. By early 2009, Spyglass, Sjoblom, and Carter had stopped all 

communications with investors, closed their offices and disconnected their 

telephones. 

Defendants Received and Misappropriated Investor Funds 

83. Spyglass received approximately $380,000 from its sales of 

Sequence and approximately $750,000 from its sales of Pathfinder for 

“licensing fees” or commissions. 

84. Between December 2007 and February 2009, Spyglass paid 

Carter $139,260. 

85. Between December 2007 and February 2009, Spyglass paid 

Sjoblom $208,916. 

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86. Between December 2007 and February 2009, Spyglass paid 

Elliott $170,988. 

87. Howard deposited investor funds in his personal bank account 

and used checks and debit cards for the Flatiron Capital or Flatiron 

Systems bank account holding investor funds to pay personal expenses 

such as rent and to buy clothing, jewelry for himself, a necklace from 

Tiffany’s for his girlfriend, and flowers for his girlfriend.  Howard also spent 

large amounts of investor funds for entertainment, including adult 

entertainment, often in the company of Carter, spending as much as 

$5,000 per night. 

88. Between December 2007 and February 2009, Howard 

misappropriated or misused almost $500,000 in investor funds. 

89. Between December 2007 and February 2009, Spyglass paid 

Howard $20,400. 

Howard, Flatiron Capital and Flatiron Systems Sold Unregistered Securities 

90. Section 5 of the Securities Act prohibits any offers, directly or 

indirectly, to sell a security unless a registration statement for that security 

has been filed with the Commission.  A registration statement is 

transaction specific. Each sale of a security must either be made pursuant 

to a registration statement or fall under a registration exemption. 

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91. Howard, Flatiron Capital, and Flatiron Systems sold securities 

in the form of LLC membership interests in Flatiron Capital and Flatiron 

Systems to investors referred to them by Spyglass using the mails or 

systems of interstate commerce.  Flatiron Capital securities were offered 

and sold in at least 38 states and Flatiron Systems securities were offered 

and sold in at least 24 states.  The membership interests in Flatiron 

Capital and Flatiron Systems were investment contracts, which are 

securities under federal law. At the time of the offers and sales of the 

securities in Flatiron Capital and Flatiron Systems, there were no 

registration statements filed or in effect for them and no registration 

exemption applied to sales of those securities.   

Spyglass, Sjoblom, Carter, and Elliott Acted as Unregistered Broker-
Dealers 

92. Section 15(a)(1) of the Exchange Act prohibits a broker or 

dealer from using jurisdictional means such as the telephone or mails to 

effect transactions in securities unless the broker or dealer is registered 

with the Commission. Section 3(a)(4) of the Exchange Act defines a 

“broker” as any person who is engaged in the business of effecting 

transactions in securities for the accounts of others.   

93. Sjoblom, Carter and Elliot, the principals of Spyglass, hired and 

controlled a sales force to solicit investors nationwide by telephone.  

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Spyglass’s sales force actively recruited investors, advised them on the 

merits of an investment with Flatiron Capital or Flatiron Systems, and then 

put them in contact with Howard to complete the transaction.  Spyglass and 

its principals were compensated for each transaction that they helped to 

complete. 

94. In some instances, Sjoblom and Elliot personally recruited 

investors, advised them on the merits of an investment with the Flatiron 

entities, and then put them in contact with Howard to complete the 

transaction. Sjoblom and Elliot received additional compensation for each 

individual transaction that they personally helped to complete. 

95. Spyglass, Sjoblom, Carter and Elliot were not registered with 

the Commission as broker-dealers and they were not affiliated with any 

broker-dealers at the time of the offers and sales of Flatiron Capital or 

Flatiron Systems securities. 

Flatiron Capital and Flatiron Systems Failed to Register as Investment 
Companies 

96. Flatiron Capital and Flatiron Systems were investment 

companies. Section 3(a)(1) of the Investment Company Act  defines 

“investment company” to include “any issuer which – (A) is or holds itself 

out as being engaged primarily, or proposes to engage primarily, in the 

business of investing, reinvesting, or trading in securities.”  The only 

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business that Flatiron Capital and Flatiron Systems proposed to engage in, 

and did engage in, was the investing, reinvesting, or trading in securities.   

97. Section 3(c) excludes several categories of businesses from 

the definition of investment company; however, Flatiron Capital and Flatiron 

Systems do not fall within any of these categories.  Specifically Flatiron 

Capital and Flatiron Systems are not excluded under Sections 3(c)(1) and 

(7) of the Investment Company Act because their securities were sold in 

public offerings to individuals who were not “qualified purchasers”.   

98. Section 7(a) of the Investment Company Act prohibits 

investment companies from, among other things, offering or selling 

securities through interstate commerce unless they are registered under 

the Act. As previously described, Flatiron Capital and Flatiron Systems 

securities were offered to investors nationwide. Flatiron Capital securities 

were offered and sold in at least 38 states and Flatiron Systems securities 

were offered and sold in at least 24 states. 

99. Although required to do so, neither Flatiron Capital nor Flatiron 

Systems registered with the Commission as an investment company at any 

time. 

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Howard Was an Investment Adviser to Flatiron Capital and Flatiron 
Systems 

100. Section 202(a)(11) of the Investment Advisers Act defines the 

term “investment adviser” to mean any person who, for compensation, 

engages in the business of advising others, either directly or through 

publications or writings, as to the value of securities, or who, for 

compensation and as part of a regular business, issues or promulgates 

analyses or reports concerning securities.   

101. Howard was a managing member of both Flatiron Capital and 

Flatiron Systems.  Howard initially shared management responsibilities with 

a co-manager at Flatiron Capital and then later took on all of the 

responsibilities. At Flatiron Systems, Howard was the sole managing 

member and exercised complete control.  As a managing member of 

Flatiron Capital and Flatiron Systems, Howard directed the investments by 

the funds; investing their assets in equities, commodities and private 

placements. 

102. Howard advised Flatiron Capital and Flatiron Systems on the 

value and trading of securities in exchange for compensation. Howard 

received approximately $36,000 in compensation from Flatiron Capital and 

approximately $281,000 from Flatiron Systems. 

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103. Therefore, Howard was an investment adviser to Flatiron 

Capital and Flatiron Systems as defined under Section 202(a)(11) of the 

Investment Advisers Act. 

CLAIMS FOR RELIEF 

FIRST CLAIM
 
Against Howard, Flatiron Capital and Flatiron Systems 


Fraud in the Offer or Sale of Securities 

Violations of Section 17(a) of the Securities Act 


[15 U.S.C. § 77q(a)] 


104. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Flatiron Capital, Flatiron Systems and Howard have, directly or 

indirectly, with scienter, in the offer or sale of securities, by use of the 

means or instruments of transportation or communication in interstate 

commerce or by use of the mails, employed a device, scheme, or artifice to 

defraud in violation of Section 17(a)(1) of the Securities Act. 

105. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Flatiron Capital, Flatiron Systems and Howard have, directly or 

indirectly, in the offer or sale of securities, by use of the means or 

instruments of transportation or communication in interstate commerce or 

by use of the mails obtained money or property by means of untrue 

statements of material fact or by omissions to state material facts 

necessary to make the statements made, in light of the circumstances 

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under which they were made, not misleading in violation of Section 17(a)(2) 

of the Securities Act. 

106. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Flatiron Capital, Flatiron Systems and Howard engaged in 

transactions, practices, or courses of business which have been or are 

operating as a fraud or deceit upon the purchasers of securities in violation 

of Section 17(a)(3) of the Securities Act. 

107. Unless restrained and enjoined defendants Flatiron Capital, 

Flatiron Systems and Howard will, in the future, violate Section 17(a) of the 

Securities Act. 

SECOND CLAIM
 
Against All Defendants
 

Fraud in the Purchase or Sale of Securities 

Violations of Section 10(b) and Rule 10b-5 of the Exchange Act 


[15 U.S.C. § 78j(b) and 17 C.F.R. § 240.10b-5] 


108. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Spyglass, Carter, Sjoblom, Elliott, Flatiron Capital, Flatiron 

Systems and Howard have, directly or indirectly, with scienter, by use of 

means or instrumentalities of interstate commerce or of the mails, or of any 

facility of a national securities exchange, used or employed, in connection 

with the purchase or sale of a security, a manipulative or deceptive device 

or contrivance in contravention of the rules and regulations of the SEC; 

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employed devices, schemes or artifices to defraud; made untrue 

statements of material fact or omitted to state material facts necessary in 

order to make the statements made, in light of the circumstances under 

which they were made, not misleading; or engaged in acts, practices or 

courses of business which operated or would operate as a fraud or deceit 

upon any person, in violation Section 10(b) of the Exchange Act and Rule 

10b-5 thereunder. 

109. Unless restrained and enjoined defendants Spyglass, Carter, 

Sjoblom, Elliott, Flatiron Capital, Flatiron Systems and Howard will, in the 

future, violate Section 10(b) of the Exchange Act and Rule 10b-5 

thereunder. 

THIRD CLAIM
 
Against Howard
 

Fraud by an Investment Advisor 

Violations of Sections 206(1), (2) and (4) and Rule 206(4)-8 of the 


Advisers Act 
[15 U.S.C. §§ 80b-6(1), (2) and (4) and 17 C.F.R. § 275.206(4)-8] 

110. As a result of the conduct alleged in paragraphs 1 through 103, 

defendant Howard, while acting as an investment adviser, has, directly or 

indirectly, with scienter, by use of the means or instruments of interstate 

commerce or by use of the mails, employed devices, schemes, or artifices 

to defraud clients or prospective clients; engaged in transactions, practices, 

or courses of business which operated or operate as a fraud or deceit upon 

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any client or prospective client; and engaged in acts, practices, or courses 

of business which are fraudulent, deceptive, or manipulative. 

111. Among other things, Howard made untrue statements of 

material facts and omitted to state material facts necessary to make the 

statements made, in the light of the circumstances under which they were 

made, not misleading, to any investor or prospective investor in pooled 

investment vehicles; and Howard otherwise engaged in acts, practices, or 

courses of business that are fraudulent, deceptive, or manipulative with 

respect to any investor or prospective investor in the pooled investment 

vehicle. 

112. Unless restrained and enjoined defendant Howard will, in the 

future, violate Section 206 of the Advisers Act. 

FOURTH CLAIM
 
Against Spyglass, Carter, Sjoblom and Elliott
 

Aiding and Abetting Fraud by an Investment Advisor 

Aidng and Abetting Violations of Section 206(4) 


and Rule 206(4)-8 of the Advisers Act 

[15 U.S.C. § 80b-6(4) and 17 C.F.R. § 275.206(4)-8] 


113. As a result of the conduct alleged in paragraphs 1 through 103, 

defendant Howard, engaged in violations of Section 206(4) of the Advisers 

Act and Rule 206(4)-8 thereunder. 

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114. Spyglass, Carter, Sjoblom and Elliott, with scienter, provided 

substantial assistance to Howard’s violations of Section 206 (4) of the 

Advisers Act and Rule 206(4)-8 thereunder. 

115. Unless restrained and enjoined defendant Spyglass, Carter, 

Sjoblom and Elliot will, in the future, aid and abet violations of Section 

206(4) of the Advisers Act and Rule 206(4)-8 thereunder. 

FIFTH CLAIM
 
Against Howard, Flatiron Capital and Flatiron Systems
 

Unregistered Sale of Securities 

Violations of Sections 5(a) and 5(c) of the Securities Act 


[15 U.S.C. §§ 77e(a) and e(c)] 


116. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Flatiron Capital, Flatiron Systems and Howard have, directly or 

indirectly, made use of the means or instruments of transportation or 

communication in interstate commerce or of the mails to offer and sell 

securities, and carried or caused to be carried through the mails, or in 

interstate commerce, by means or instruments of transportation, such 

securities for the purpose of sale or for delivery after sale, when no 

registration statement had been filed or was in effect as to such securities 

in violation of Section 5(a) and 5(c) of the Securities Act. 

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117. Unless restrained and enjoined, defendants Flatiron Capital, 

Flatiron Systems and Howard will, in the future, violate Sections 5(a) and 

5(c) of the Securities Act. 

SIXTH CLAIM
 
Against Spyglass, Carter, Sjoblom and Elliott
 

Offers and Sales of Securities by an Unregistered Broker-Dealer 

Violations of Exchange Act Section 15(a) 


[15 U.S.C. § 78o(a)] 


118. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Spyglass, Carter, Sjoblom and Elliott have, while not registered 

as or associated with a broker or dealer made use of the means or 

instruments of interstate commerce to induce or attempt to induce the 

purchase or sale of, a security in violation of Section 15(a) of the Exchange 

Act. 

119. Unless restrained and enjoined defendants Spyglass, Carter, 

Sjoblom and Elliott will, in the future, violate Section 15(a) of the Exchange 

Act. 

SEVENTH CLAIM
 
Against Flatiron Capital and Flatiron Systems
 

Offers and Sales of Securities by an  

Unregistered Investment Company 


Violations of Investment Company Act Section 7(a) 

[15 U.S.C. § 80a-7] 


120. As a result of the conduct alleged in paragraphs 1 through 103, 

defendants Flatiron Capital and Flatiron Systems have, while not registered 

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as an Investment Company, have made use of the means or instruments of 

interstate commerce to induce or attempt to induce the purchase or sale of 

a security in violation of Section 7(a) of the Investment Company Act. 

121. Unless restrained and enjoined defendants Flatirons Capital 

and Flatiron Systems will, in the future, violate Section 7(a) of the 

Exchange Act. 

PRAYER FOR RELIEF 

WHEREFORE, the Commission respectfully requests that this Court:  

Find that defendants Spyglass, Carter, Sjoblom, Elliott, Flatiron Capital, 

Flatiron Systems and Howard committed the violations alleged;  

I. Enter an Injunction, in a form consistent with Rule 65(d) of the 

Federal Rules of Civil Procedure, permanently restraining and enjoining 

defendants Spyglass, Carter, Sjoblom, Elliott, Flatiron Capital, Flatiron 

Systems and Howard, his or its agents, employees, and all persons in 

active concert or participation with them, from violating, directly or indirectly, 

the laws and rules alleged in this Complaint;  

II. Order that defendants Spyglass, Carter, Sjoblom, Elliott, 

Flatiron Capital, Flatiron Systems and Howard disgorge all ill-gotten gains, 

including pre- and post-judgment interest, in the form of any benefits of any 

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kind received as a result of the acts and courses of conduct in this 

Complaint; 

III. Order that defendants Spyglass, Carter, Sjoblom and Elliott pay 

civil penalties, including post-judgment interest, pursuant to Section 21(d) 

of the Exchange Act [15 U.S.C. § 78u(d)] and Section 209(e) of the 

Adviser’s Act [15 U.S.C. § 80b-9(e)]; 

IV. Order that defendant Howard pay civil penalties, including post-

judgment interest, pursuant to Section 20(d) of the Securities Act [15 

U.S.C. § 77t(d)], Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)] 

and Section 209(e) of the Adviser’s Act[15 U.S.C. § 80b-9(e)]; and 

V. Order that defendants Flatiron Capital and Flatiron Systems 

pay civil penalties, including post-judgment interest, pursuant to Section 

20(d) of the Securities Act [15 U.S.C. § 77t(d)], Section 21(d) of the 

Exchange Act [15 U.S.C. § 78u(d)] and Section 42(e) of the Investment 

Company Act [15 U.S.C. § 80a-41(e)]; and 

VI. Order such other relief as is necessary and appropriate.  

Respectfully Submitted 

David J. Van Havermaat 
Attorneys for Plaintiff 

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