One of the best ways to avoid falling subject to Forex scams is to familiarize yourself with some of the biggest foreign exchange scams in history. One prominent case to be aware of is that of the fraudulent Forex firm Capital Blu Management. More than 100 customers were scammed out of a collective $17 million or so. Let's take a closer look at this FX scam.
How the Capital Blu Management scam worked
The Capital Blu Management scam dates back to September 2007. During that time, the company was soliciting customers to invest their money into what they were calling CBM FX Fund, LP.
The scheme operated through the CapitalBlu.com website that has been defunct for a long time now, of course.
Some of the people involved with operating this scam, that is its main perpetrators, included:
- Blayne S. Davis from Naples, Florida
- Donovan G. Davis, Jr. from Palm Bay, Florida
- Damien L. Bromfield from Ocoee, Florida
The US Commodities Futures Trading Commission (CFTC) reported:
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 $17 million. In January 2008, the CBM FX Fund sustained losses of about $1.8 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.
The firm continued to report each month of that year through August that returns were positive (sometimes gains as high as 7% per month were reported). Every month, however, the firm was losing money.
The firm was not just losing money through poor investments, either. Investors' funds were also being used for:
- Operations costs to keep the scam going
- A Las Vegas trip
- Other vacations
- Luxury cars
- Strip club visits
- A private jet costing $2 million
- Other assorted personal expenses
Have you ever noticed how often Forex scammers seem absolutely unable to resist buying a private jet? It seems to be on every FX fraudster's wishlist.
In any case, clients continued to believe that their accounts were showing gains, when in fact, their money was being siphoned into these ostentatious purchases.
How the scammers were brought to justice
The reason the false reports of net gains ceased abruptly after August 2008 was because that was when the scammers were caught. The NFA audited Capital Blu out of the blue (see what we did there?). Of course, they discovered sufficient evidence of fraud to shut the company down.
A 2014 press release on this subject from the US Attorney's Office says that customers lost $11 million. Other publications we have seen covering the scam report the higher number of $17 million (including the press release from the CFTC).
What happened next? Originally, the case was being handled in FL. But it was sent over to the US Attorney's Office for the District of Columbia. In 2014, that office wrote that the US Secret Service, the IRS, and authorities in FL were cooperating as a joint task force to investigate.
Previously, the CFTC pursued litigation. In 2011, the CFTC wrote that a judge handed down a restitution sentence along with a civil monetary penalty. Restitution was equal to the amount stolen. The penalty was double that amount.
We have not seen any more updates on this case.
What can we learn from the Capital Blu case?
You now are familiar with the details of the Capital Blu Case. But those who do not learn from history are doomed to repeat it. So, the question is, what can we take away from this case that will help prevent us from falling for future Forex scams?
Comingled funds
We did not find a whole lot of tangible details about how Capital Blu deceived its investors, nor about the red flags that investors should have caught.
But one we did find was that the firm was placing all of investors' funds into a single merged account, rather than keeping individual funds in individual accounts.
If you encounter a firm that is doing this, that is a sign you are dealing with a dishonest company. Your funds should stay in an individual account.
Untrustworthy reviews
Something else that is interesting to look at is reviews for Capital Blu. On some sites, there are thousands of reviews for Capital Blu, and still an average of 3 stars, even after the firm has been marked as a scam on the review page.
A lot of the reviews that brought down the rating are from after the reveal that Capital Blu was conning its investors. In other words, before those 1-star ratings were posted, the stars for this firm were even higher.
Think about that. If you were to have casually checked the ratings and reviews for Capital Blu as a would-be investor back in the day, you might have seen a rating of 4 stars or more, and been convinced that the firm was a trustworthy one.
Here are paraphrases of some claims from 5-star reviews from back when the firm was still operating:
- Capital Blu was "audited."
- Capital Blu was "great," and some customers had nothing negative to share about the company.
- This company had a "great" track record.
- Some customers reported being "bemused" by negative comments, and believed those posting them were simply ignorant.
- Some customers even shared their supposed gains, sometimes quite substantial, i.e. "over 27%." We even saw one who claimed to have visited their physical location and met their team in person.
Were these reviews fake, or were they just from ignorant customers who also got scammed? There is no way to be sure. We would guess the former, but the latter is entirely possible.
In any case, you should be cautious when you read reviews for a foreign exchange firm you are thinking about investing with. Do not take everything automatically at face value.
Results can be doctored
The last takeaway from the Capital Blu case is simply that just because a firm is reporting gains, that does not always mean that the gains are real. If investors try to withdraw from firms reporting false gains, they may run into mysterious snags trying to get their money out. There may also be rumors of wrongdoing that emerge before the law catches up with scammers. Be alert to such possibilities.
By taking a cautious, vigilant approach to researching currency trading companies, and by keeping a close eye on what is going on with those companies and your investments after you do get started, you can protect yourself from scams like Capital Blu.
