10 Years Later, Case of M. David Howell's Ponzi Scheme Nears End

by Gwen Moritz  on Monday, Oct. 29, 2012 12:00 am  

M. David Howell Jr.

Six weeks later, the checks that had been paid to investors like clockwork for at least seven years started to bounce. After three more weeks, Howell was dead at age 54.

The Discovery

On Thursday, Oct. 17, 2002, the Arkansas Securities Department ordered Mace David Howell Jr. of Little Rock to stop selling unsecured promissory notes like the $15 million worth that regulators believed he had sold to at least 16 customers in Arkansas, Tennessee and Texas.

It was a quick action by the Securities Department, which had received its first complaint about Howell on Monday of the same week and had formally begun its investigation on Tuesday. The first order represented the tip of Howell's iceberg, but time was of the essence because Howell seemed to have vanished.

On Wednesday, Oct. 16, Bank of America had filed a lawsuit in Pulaski County Circuit Court revealing that, during the first week of that month, it had honored 25 checks totaling more than $2 million even though Howell's account was depleted. On Oct. 8, BOA had stopped honoring checks, and investors who were then unable to locate Howell began looking to the ASD for help.

Howell, it turned out, had spent a week at the Betty Ford Center, a substance abuse rehabilitation center at Rancho Mirage, Calif., then checked into the Peninsula Hotel in Beverly Hills. There, on Oct. 23, he died of a drug overdose.

The Scheme

The Securities Department has since destroyed most of its investigation files, in compliance with its paperwork policy. According to a 2004 Arkansas Democrat-Gazette report, the ASD determined that Howell claimed to have developed an uncanny strategy that balanced short-term day trading and long-term arbitrage investing.

In reality, according to the Democrat-Gazette article, he lost millions on commodities futures between 1995 and 2002, and was heavily investing in plain-vanilla S&P 500 index funds during the slide that started before and accelerated after the 9/11 terrorist attacks in September 2001.

Desperate, he was collecting cash as quickly as he could, offering annualized returns of 40 and 50 percent in the spring and summer of 2002, the promissory notes filed as proof of claims in probate court showed. But his trading account lost $1.8 million in April 2002, $1.1 million in May and $3 million in June, according to the newspaper account.

Meanwhile, he wrote $36.6 million worth of checks to his investors during the first nine months of 2002. By the end, he was paying out more than $6 million a month.

Howell also spent lavishly on himself and his family, and the Democrat-Gazette reported that he paid more than $1 million to casinos in 2002 alone.

 

 

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