The Honorable Judge John Antoon II of the U.S. District Court for the Middle District of Florida has ordered Capital Blu Management, LLC (Capital Blu) of Melbourne, Fla., Donovan Davis Jr. of Palm Bay, Fla., Damien Bromfield of Ocoee, Fla., Blayne Davis of Naples, Fla., and DD International Holdings, LLC (DDIH) of Palm Bay, Fla., jointly and severally to pay restitution of USD2,463,592.12. Judge Antoon ordered Bromfield and Blayne Davis each to pay a civil monetary penalty of USD4,927,184.24 and ordered Donovan Davis Jr. and DDIH jointly and severally to pay a civil monetary penalty of the same amount.
The federal order, entered on June 9, 2011, also permanently bars all defendants from engaging in any commodity-related activity, including trading and registering with the CFTC.
The order follows a verdict returned on February 3, 2011 against Donovan Davis Jr. and Bromfield by a jury in Orlando, Fla., that heard testimony and arguments for almost three weeks. In 2009, the CFTC charged the defendants with operating a fraudulent commodity pool that solicited approximately USD17 million from about 100 investors purportedly to invest in off-exchange foreign currency futures (see CFTC Press Release 5643-09, April 7, 2009).
According to the evidence adduced at trial, Donovan Davis Jr. (through his wholly owned company, DDIH) and Bromfield were two of the three principals of Capital Blu, a commodity pool operator that managed a foreign currency trading fund called the CBM FX Fund, LP. Donovan Davis Jr. was Capital Blu’s Director of Corporate Affairs and Bromfield was its Director of Operations. The third principal of Capital Blu, Blayne Davis, was the Director of Trading. Because Blayne Davis, Capital Blu and DDIH did not respond to the CFTC’s complaint, the court entered default judgments against them.
According to the evidence presented at trial, Capital Blu began soliciting participants for the CBM FX Fund in August 2007 and ultimately obtained contributions from participants totaling approximately USD17 million. In January 2008, the CBM FX Fund sustained losses of about USD1.8 million. Instead of reporting a loss for the month to the participants, Donovan Davis Jr. instructed Capital Blu’s Controller to report a 1.6 percent gain for January 2008. Thereafter, Bromfield, Donovan Davis Jr. and Blayne Davis developed and implemented a plan to put the money that had been lost back into the CBM FX Fund, which included raising additional funds from new participants, trading aggressively and falsifying statements to participants.
At roughly this same time, Capital Blu’s expenses began to exceed its revenue. At the direction of its principals, Capital Blu began to pay operating expense with money from the CBM FX Fund. These expenses included the purchase and operation of a jet.
After some short-term trading success from April to July 2008, in August 2008 the CBM FX Fund sustained millions of dollars in losses. Instead of reporting these losses, Bromfield and Donovan Davis Jr. again provided participants with falsified statements and reported a 0.16 percent profit for August 2008. Bromfield and Donovan Davis Jr. also sent participants a notice that their funds would be locked up for four months. All the while, Bromfield, Donovan Davis Jr. and Blayne Davis continued to use CBM FX Fund money to pay operating expenses, including their own salaries of USD15,000 per month each. Capital Blu’s operations were shut down after the National Futures Association (NFA) conducted a surprise audit in September 2008 after receiving information from several sources, including an employee of Capital Blu.
During the trial and a subsequent damages hearing conducted on March 2, 2011 before Judge Antoon, the CFTC established that, from January 2008 through September 2008, the CBM FX Fund sustained trading losses of approximately USD5.4 million and defendants misappropriated approximately USD2.46 million of participants’ funds. Judge Antoon ordered the defendants to pay the amount misappropriated as restitution and ordered a civil monetary penalty equal to twice the amount that the defendants misappropriated.
