The CFTC announced today that a federal court in Florida has ordered Capital Blu Management, LLC, Donovan Davis Jr, Damien Bromfield, Blayne Davis, and DD International Holdings, LLC (DDIH) to jointly and severally pay restitution of over $2.4 million for commodity pool fraud. Bromfield and Blayne Davis must also each pay over $4.9 million in civil monetary penalties, while Davis Jr and DD IH must pay the same amount.
During the 3-week trial, the CFTC argued that the defendants operated a fraudulent commodity pool, soliciting about $17 million from approximately 100 investors. The money was ostensibly to be used to trade off-exchange foreign currency (forex) futures. Davis Jr. owned DDIH, which was a Capital Blu principal, along with Bromfield and Blayne Davis. Capital Blu managed the forex fund CBM FX Fund, LP.
Capital Blu began soliciting investors for the fund in August 2007. The fraud began when, in August 2008, the fund has sustained $1.8 million in losses. Instead of reporting that loss to the pool’s participants, Davis Jr. ordered the company’s Controller to report a 1.6% gain. Then, the three Principals devised a plan to put the money back by getting new participants, trading aggressively, and continuing to falsify statements. When expenses began to exceed revenue, the defendants began paying the firm’s expenses (including the purchase and operation of a private jet and their own salaries) with money out of the FX fund.
Though the firm met some short term success from April to July of 2008, by August the fund was millions in the hole. Again, unwilling to reveal this to their investors, they once again sendt false statements. Along with those statements, Bromfield and Davis Jr. notified participants they their money would be locked in for a few months. A surprise audit was conducted in 2008 by the NFA after several sources, including an employee, told the regulator that Capital Blu was committing fraud. The NFA shut the firm down.
The judge found that in total, the fund lost $5.4 million and the defendants stole an additional $2.46 million. The restitution and civil monetary penalty were based on those numbers.