THE GAP: The Outrageous Story of how a Confidence Man Reinvented a Classic Con and Left the Mark Holding the Bag

By Matthew B. Cox

This time, however, it was a “long-con.” Using Capital Blu Management as a front, Sebastian had bounced millions of dollars of investor funds off several international banks–from Hong Kong to Belize–until they vanished. Seventeen million dollars that, to this day, is unaccounted for.

[1] Name has been changed

With his web of lies quickly unraveling and a federal indictment looming, Sebastian purchased a first-class ticket out of the country. Leaving his business partner (and nearly one hundred baffled investors) wondering how they’d been so thoroughly duped.

“THE GUY WAS SMOOTH. He looked like Tom Cruise’s better looking younger brother–if that’s possible,” says Donovan Davis during our interview at the low security Federal Correctional Complex in Coleman, Florida. Just outside the window, there are multiple fences topped with razor-sharp concertina-wire and grim faced guards. Not the most auspicious environment for our meeting. It’s where Donovan will be spending the next decade and a half unless he wins a new trial. He’s already lost one.

Donovan, is friendly, well spoken and articulate. Like the thuggish tattooed inmates seated around us he is clad in a dark green cotton blend uniform. He’s tall with a big round belly—what Donovan refers to as his post indictment weight. Unlike his brethren, he is a jovial guy with soft features, a dark complexion and impeccably groomed beard. “It’s facial architecture,” he tells me while rubbing his chin, “specifically designed to create the illusion I still have a jaw-line.”

Meticulously, Donovan goes over the events that led him to prison. He shows me documents to bolster his claims. Sometimes it’s a Memorandum of Interview (MOI) conducted by federal law enforcement, other times it’s a court transcript. Occasionally, he points out the absurdity of the lies told by his co-defendants and laughs at the forged trading statements and emails.

Slowly, over the course of several hours, the complex layers of a massive con are peeled back, revealing an old school big store-style scam known as “The Rag;” a long-con invented in the early 19th century, whereby the victim is roped and steered to a phony brokerage office. There, the confidential agent of a powerful Wall Street syndicate, the insideman, lays out a sure thing stock manipulation scheme for the mark. The victim is duped into believing he’ll be allowed to share in the illicit profits, however, ultimately he’s fleeced and given the blow-off.

Suddenly, it becomes clear. The Rag’s principles had been combined with that of a Ponzi scheme and applied to Capital Blu. All the players are there: the insideman, the roper, the shill and the mark. Then the whole thing begins to stink, and I realize that the tragedy of it all, is that Donovan Davis is sitting in prison.

COMING TO AMERICA. During the 18th century, Donovan’s ancestor’s in India were sold into slavery and shipped to Jamaica to work the sugar estates. Despite several generations of back breaking labor in the fields, that eventually evolved into blue collar careers as truck drivers and mechanics, the Davis family couldn’t escape the poverty of the Jamaican economy.

By 1977, Donovan’s parents had had enough. They arrived in the United States with $50 in their pockets. Their visa was for 30 days. “We bought two pillows–no blanket, no sheets–and slept on the floor of a relative’s house.” Donovan’s mother, Diana, tells me during our interview. “We had no intention of going back to Jamaica. We couldn’t.”

Donovan Davis Jr. was born in 1981, at a point when his parents couldn’t afford a baby. “We were so broke,” says Diana, “we used to share one, three-piece meal at Kentucky Fried Chicken; I’d get the thigh, my husband would get the breast and Don would get the leg… Those first few years were tough.”

The Davis’s dug in and worked hard. They scrimped and saved. In 1986 they bought a ten-year-old Massey Ferguson grading tractor and started D&D Tractor and Truck Service Inc., a site development company; clearing and grading raw land. Over the next fifteen years the company grew into one of the largest development companies in Brevard County, Florida. They were living the American dream.

“Don was always teasing his little brother and making jokes,” says Diana. “He loves to laugh.” She recalls, during an award ceremony at Holy Trinity Middle School, sitting in the school auditorium with several hundred other proud parents as the principal called out the winners: best dressed, hardest workers, best attendance, etc. When he got to most likely to succeed Diana was certain Donovan would be named. “He ended up with class clown… I was so angry, but Don just laughed. He was such a happy kid.”

Just after graduation from Melbourne High School, in 1999, Donovan started working at the family business as a diesel mechanic. He’d been working on the company vehicles with his father since age twelve, rebuilding Caterpillar engines and hydraulic pumps, replacing Mack brakes and fuel injectors. Donovan never minded getting grease underneath his nails.

Over the years he began bidding out jobs and running projects. Ultimately his father moved him into the main office, where Donovan quickly obtained contracts with KB Homes, Mercedes, Lennar Homes, etc. Within a few years business had tripled.

Donovan formed BLM and East Coast Earth Movers in 2002. Essentially BLM leased worthless scrub brush acreage and excavated lakes and ponds. Then East Coast Earth Movers, along with D&D, trucked the dirt out; thereby creating premium waterfront properties that could then be sold to developers. Donovan tells me, shortly after BLM incorporated, they were moving in excess of a million dollars in dirt a month. The money was coming in fast. At twenty-five, he was a millionaire.

“OF ALL THE GRIFTERS, the confidence man is the aristocrat,” according to Dr. David W. Maurer, Professor at the University of Louisville[2] in his book The American Confidence Man. Although the con man is sometimes classified with professional thieves he does no actual stealing. The con man’s trusting victims willingly hand over their money to him. “It’s a point of pride with him that he does not have to steal.

[2] Dr. Maurer is an internationally recognized specialist in Socio-Linguistics and Criminology. His findings into the criminal sub-cultures are widely used by linguists, criminologists, psychiatrists, sociologists andlaw enforcement.

The con man prospers only because of the fundamental dishonesty of his mark; he wants something for nothing. The con man allows the victim to make what appears to be a large sum of money. The victim then puts all his scruples behind him. He closes out his accounts, borrows from his friends and family in a mad frenzy, unaware he is being fattened for the kill.

“Confidence men hold no special hatred or antipathy toward the individuals they fleece,” says Maurer. “They are not [however], the romantic crooks of the movies, nor are they the sinister, cold blooded criminals of the crime-story magazine.”

THE MOVIE, BOILER ROOM[3] inspired Sebastian’s first scam. He’d been working in the currency market for several years—selling futures software and running training seminars—but getting nowhere—working nights as a bartender at Red Lobster and trading stocks during the day. Sebastian was burnt out by summer 2005. The money was okay, however it wasn’t Boiler Room money. He wasn’t living in a penthouse or driving a Mercedes.

Sebastian decided to take more drastic measures to improve his standing.

[3] The 2000 film chronicled a naive young trainee caught up in a high testosterone up-and-coming brokerage firm filled with macho twenty-somethings greedy for success. Eventually the trainee discovers that the company is actually an illegal stock-trading operation that’s under investigation by the FBI.

Now, I can’t tell you if Sebastian knew the origins of the big-con games. Invented prior to 1900, “The Wire,” was the first big store con; a racing swindle which, in the early nineteenth century, evolved into “The Pay-Off,” another racing swindle.[4] By the nineteen twenties, con men had learned to apply these principles to stocks, and “The Rag” was born.

What I do know is this: according to the Florida Department of Law Enforcement (FDLE) investigation reports and the court transcripts I reviewed, Sebastian began searching for marks. Using friends to rope in potential “investors” from their co-workers, friends of friends and family members; promising huge returns—twenty-five percent to forty percent within 30 to 45 days—on their money. All “risk free” and “guaranteed.” JonMichael Perkins, a friend of Sebastian’s, told Dana Welk, who told Brian Beck, et cetera.

[4] Footnote: Both of these long-cons were immortalized in the 1973 Academy Award winning film The Sting; wherein Paul Newman and Robert Redford play a pair of 1930s Chicago con artists, bent on fleecing a big-time racketeer, pitting brain against brawn and pistol.

Like most great con men, Sebastian’s deceptions incorporated bits of his own personal experiences, his standard pitch was to tell potential investors he’d worked for Goldman Sachs —which was untrue—and his father, who had actually worked for the Central Intelligence Agency, was in charge of the agency’s currency manipulation department[5]. That last part, untrue. “As a toddler, growing up in Germany, when other kids were watching cartoons, I was watching the FOREX ticker run across the bottom of the screen and listening to my father work the phones,” Sebastian would say. “Currency trading’s in my DNA.”[6]

[5] In the past, the stock in the confidence game known as The Rag, was all purportedly “bought” on margin–enabling the buyer to purchase and/or control more shares through the use of borrowed funds from a broker, thereby enhancing the leverage to inflate returns and profits, albeit with much more risk. Sebastian theoretically “traded” in the FOREX market on margin, using foreign currency and/or currency forward future contracts as collateral.

[6] FOREX is the Foreign Exchange Currencies market, i.e. a “stock market” for currency, where world currencies are traded. U.S. Dollars, British Pound, Euros, Japanese Yen, etc.

He sent several of the marks emails with links to Wikipedia describing the intricacies of the FOREX market. Sebastian told other marks he personally had $225,000 in the currency market and over a quarter of a million in an offshore account, thus giving him $25 million worth of purchasing power through the strategic use of leverage. His marks ate it up.

None of them knew anything about FOREX or the European trader Sebastian said he was working with. Regardless, the investments started trickling in; a thousand here, a thousand there. For two percent commission of each mark’s investment, Sebastian convinced one investor to create a monthly spreadsheet, unaware he was helping Sebastian to deceive the other investors.

On September 26, 2005, Sebastian convinced Stuart Glenn to write him a personal check for$10,000. A little over a week later he got Glenn for another $7,500, then $25,000 and $15,000. Ultimately, he fleeced Glenn for $197,000.

Glenn then introduced Sebastian to his sister, Janet Glenn and she cut him a check for $5,000. Sebastian touched Richard Anderson, his brother, Chris, their sister, her husband and uncle for nearly $45,000. Sebastian swindled Rich Brignole out of $10,000, Steve Vandyke out of $17,600 and Robin Minall out of $27,000—she’d borrowed from her 401K.

Then there was Daniel Ruzzo, Matthew Brice and Todd Iverson, among others. Within months of its inception Sebastian’s Orlando-based FOREX Ponzi began to bloom and it quickly began to produce returns. Unbelievable returns, impossible returns and, as it turned out, fictitious returns.

In short order, Sebastian was wearing expensive suits and driving a luxury vehicle. He blew a considerable amount of money gambling on-line and patronizing local strip clubs. No doubt, finally living the life he felt he was entitled to.

Then, the first returns came due. While simultaneously procuring funds from new investors, Sebastian began paying out returns to the original investors of his confidence game. Unfortunately, he quickly ran low on funds and switched to concocting a variety of excuses to keep his original investors at bay; funds were unavailable as a result of restrictions by the contract. In some cases he told the marks he was in Germany or London and unable to access the market. In other cases, he’d indicate the money had been wired, however, that the financial institution had made a mistake, further delaying the returns. His cell needed a new sim card. Eventually–when it became obvious the marks no longer believed Sebastian’s lies–he just stopped answering their calls.

From September 2005 throughout 2006, Sebastian swindled close to twenty individuals out of an estimated one million dollars.

“KEEP IN MIND,” Donovan tells me, “the whole time Sebastian was pitching these guy on investing…he was working as a bartender at Red Lobster.” Our eyes lock for a split second and we both burst into laugher.

“Red Lobster?”

“Red Lobster,” chuckles Donovan. It’s actually a testament to how slick this Sebastian is. “He can mix you a drink while convincing you that he’s a master FOREX trader.”

AT A PARTY in 2006, as Sebastian’s Ponzi scheme collapsed, he was introduced to Damien Bromfield. Sebastian’s fiancee, Jennifer Cohen, was friends with Damien’s wife. Damien was a thin, light-skinned black, bookish type. Your basic twenty-something tech geek with a degree in computer science. A middle-class suburbanite struggling with debt while dreaming of the good life.

Damien was immediately impressed by Sebastian’s charm and Wall Street savvy. He had Bud Fox[7] good looks and all the trappings of a highly successful trader–a perfectly tailored suit, an exquisite European sports car and a gorgeous arm piece.

[7] The character of Bud Fox, in the movie Wall Street, was played by Charley Sheen.

The hook, however, was Sebastian’s vast knowledge and experience in the FOREX market. “Trading like the big boys is the key to consistent returns,” he said. “I’ve got a guy at Goldman Sachs and–”

“What kind of returns?”

Within weeks, Sebastian provided Damien with a spreadsheet verifying an average six percent monthly return. Shortly after that meeting, Damien invested $50,000.

Unlike Sebastian’s other investors, when Damien asked for his profits, Sebastian suggested they open a hedge fund and an electronic alert service based wealth management firm. “With my experience, your knowledge of computers and contacts, I see us managing billions. We could be the next Berkshire Hathaway.”

“A couple masters of the universe, huh?”

“Yeah, something like that.”

It’s unclear, based on the documents, whether Damien knew his money was gone when they eventually incorporated Capital Blu Management—they went with blue because Sebastian thought it sounded relaxing and decided to remove the “e” to make it sound novel. However, by this point, Sebastian’s Orlando Ponzi scheme investors were leaving nasty voice-mails and emails; accusing him of being a con artist and threatening to contact the authorities. Sebastian was in desperate need of money and Damien knew someone who had it.

“ROPERS EMPLOY VARIOUS methods for flushing their game, but most of them depend solely upon casual contacts to provide them with marks,” says Professor Maurer, PhD. Armed only with a smooth tongue and some notes of psychology, a first-class roper verifies the mark has the necessary cash and steers him toward the insideman. “Although marks may be plentiful, they do not walk heedlessly into the traps of confidence men. They must be stalked for days or even weeks… It’s [crucial] to allow the mark plenty of time to become thoroughly hooked.”

DONOVAN’S NEW LAMBORGHINI Muricelago caught fire within 15 minutes of leaving the Ferrari/Maserati dealership sometime in the summer 2006. The mechanic had improperly installed something or crossed some wires and the 575 horsepower, 12 cylinder, Italian bull began smoking on Interstate 4. Donovan quickly pulled off the road, but all he could do was watch the sleek, teal sports car burn.

The dirt business had been good to him. His net worth was now in the millions and he had all the toys–a huge estate on 40 acres with a garage constantly packed with Porsches, a Ferrari, a Maseratti, etc. He’d travelled extensively on private jets and dated beautiful women. Life was good.

Donovan got the call just after he picked up the Lambo’s replacement–a black on black Porsche 911 Turbo. Damien, a friend of the family, had an unbelievable investment opportunity. “My partner’s a master trader–used to work for Goldman Sachs,” said Damien. “This is easy money.”

“Send me something on it.”

The first email arrived on September 13, 2006; it gave a vague explanation of their strategy and a Wikipedia link describing FOREX. “Sebastian (my biz partner) has been doing this for over 4 years, and has over $2 million in assets between all of his partners.”

The next email arrived 15 minutes later. It contained wiring instructions and stated, “Trust me man this is worth it. Easiest money you ever made…” There was another email a week later, and another.

ON OR ABOUT OCTOBER 1, 2006, a group of Sebastian’s investors showed up at his Orlando residence. Armed with a video camera, they ambushed him at his front door. During the confrontation Sebastian made a vague comment about being the victim of a scam himself. He didn’t know where the money was, but he would get it. He never quite admitted he’d done anything illegal, however, he did plead with them not to call the police and signed an agreement to pay them back.

“October thirteenth,” asked Sebastian, “is [that] the deadline I’ve got?”

“Two weeks!” snapped one of the investors.

Standing in front of his house, Sebastian assured them he’d have the money.

Within days of the confrontation Damien intensified his sales pitch to Donovan. “Easiest money you’ll ever make, bro,” said Damien over and over.

By this point, based on the FDLE investigation, the federal MOI’s and the bank statements, Damien knew he was roping Donovan into a con game. In his defense, according to several MOI’s, Sebastian had convinced Damien he could trade them out of the losses. Still, Donovan wasn’t all that interested. It sounded too good to be true. By October 13, Sebastian hadn’t come up with the investors’ funds, he packed up his bags and his pregnant fiancee, and fled to Naples, Florida.

Damien never did stop calling—he and his parents were friends of the Davis family–and in January 2007, Donovan’s parents suggested he help Damien out. “The poor guy’s trying to start an investment business,” said his father. So Donovan wired him $50,000.

A month later, Donovan logged onto the Capital Blu website, a kickass Bank of America-style website designed by Damien. His fifty grand had earned slightly over six percent. Easy money. Precisely as promised. So Donovan invested another $50,000; and a month later his Capital Blu account showed a balance of slightly over $107,000. He immediately threw another $100,000 into the fund.

Around the same time period, Damien pitched Capital Blu to a dozen of Donovan’s friends and family. The excitement for the investment opportunity spread quickly. Donovan’s best friend invested $50,000, his brother wrote a check for $25,000, his aunt gave Damien $50,000 and his parents handed over another $50,000.

DAMIEN WAS TAKEN off guard on May 21, 27, when he opened the door to his residence. Special Agent Michael Giddens with the FDLE seemed a little irritated; he’d spoken to Damian days earlier, thinking he was a potential victim of Sebastian’s Orlando Ponzi scheme. Damien had defused the situation by stating he hadn’t lost any money with Sebastian nor had he seen him in “forever.” But the agent was back.

He’d looked up Capital Blu on sunbiz.org (the State of Florida’s website listing all registered Florida based corporations) and noticed Damien and Sebastian were partners. The agent asked if Damien wanted to clarify his statement “regarding Sebastian Black.”

“Capital Blu, right, right,” replied Damien. “That never really got off the ground.” They’d already taken in over $2 million by this point and were actively pursuing additional investors.

According to statements Sebastian later gave to the authorities, he and Damien were on the phone while Damien brushed off the “misunderstanding.” However, it was clear to Sebastian the authorities were closing in.

Not long after Agent Giddens finished his investigation he handed the results over to the U.S. Attorney’s Office for prosecution.

NEARLY 200 POTENTIAL investors and financial planners were seated in the Ft. Lauderdale Westin Hotel’s large conference room. Their chairs squeezed together like ValuJet econo-seats. There were FOREX account representatives from PFG (Peregrine Financial Group), Saxo Bank and FXCM (FOREX Capital Markets); all pitching their trading platforms, demonstrating software and passing out glossy brochures.

While Sebastian articulately went over how to read charts, trading based on fundamentals, technical analysis, Fibonacci charts, and MacD graphs, his charm and wit captivated even the most seasoned FOREX traders.

Unbeknownst to Donovan, he’d financed the Capital Blu seminar. During a break, Donovan overheard the PFG rep make a comment to another rep regarding Sebastian’s knowledge. “The guy’s got a track record like no one I’ve ever seen.”

Over drinks that night, Damien bragged that PFG was offering to give Capital Blu $30 million to trade. “They told Sebastian to play around with it,” he laughed as he slowly reeled in the mark. “This thing is really taking off.”

By day three of the three-day seminar, Donovan was convinced Sebastian was a savant who’d somehow tapped into the currency market. During the drive back to Melbourne, he called his father and insisted they dump some money into Capital Blu. Within a week they’d wired another$300,000.

“BIG-TIME CONFIDENCE GAMES are in reality, carefully rehearsed plays, in which every member of the cast except the mark knows his part,” explains Professor Maurer, PhD. Every probable reaction has been calculated in advance and the script prepared to meet the victim’s reactions. Every probable objection has a logical rebuttal. He has no choice but to go along.

“The insideman is the star of the cast [and] he must be able to retain the confidence of an intelligent man even after that man has been swindled.” The insideman is frequently forced to vary his play considerably, depending upon his acutely developed grift sense to guide him. “Once the mark is thoroughly convinced he can make a fortune, he’s moved to the big-store.”

THIS COULD BE THE NEXT GOOGLE, thought Donovan, when Damien and Sebastian came to him with the offer to become an owner of Capital Blu. Donovan was told the company was worth $2.6 million, trading $10 million of institutional funds and trading an additional $7 million in LPOA (Limited Power of Attorney) accounts. They provided him with trading spreadsheets and several months of Saxo Bank statements verifying over $2.6 million worth of assets[8].

Despite being a novice to the FOREX industry, Damien and Sebastian were willing to cut Donovan in for a third of the company, for a mere $600,000. His sole duty would be to raise capital.

[8] It’s unclear who fabricated the bank statements or created the spread sheets; Damien, due to his computer science degree, is the logical culprit.

Regardless of his confidence in the company, Donovan went to his attorney, James H. Fallace. He paid Fallace $25,000 to go over Capital Blu’s books and accounts; and to run background checks on Damien and Sebastian.

In mid August, Fallace told Donovan that Capital Blu was a “phenomenal opportunity” and his future partners were “solid guys. Their background searches came back clean.” The lawyer then set up an operating agreement and buy-in agreement.

In addition to Sebastian’s credentials, Capital Blu traded through reputable FOREX firms with the bulk of their trades being made though Saxo, MF Global Holdings and Peregrine Financial Group, Inc. (PFG). Three conservative, financially solid trading companies. Saxo was a cutting edge industry leader, established in 1992, and backed by Denmark’s Saxo Bank; MF Global’s CEO was a former New Jersey governor and U.S. senator, Jon Corzine and the company was valued in the billions. Russell Wasendorf, the CEO of PFG–a massive commodity futures merchant worth an estimated one billion dollars in 2007–was a leader in the securities industry.

The companies Capital Blu did business with were beyond reproach; the equivalent of the gold standard in the FOREX industry.

“It appears to be a great opportunity,” said Fallace. “Everything checks out. That Sebastian’s a really sharp guy.”

On August 20, 2007, Donovan became a 33 percent co-owner of Capital Blu. He immediately set up an office and threw himself into hosting seminars and raising money.

THE TOP FLOOR OF THE UBS building was decked out with rich leather furniture, state-of-the-art computer equipment, modern glass and teak desks. Its staff screamed Wall Street in their grey suits, laptops and briefcases. The office still had that new marble smell when the building’s owner stopped by to have a look at his new tenant’s digs.

Chris Romandetti was a human caricature of Evil Gru[9] with his thick waist, slicked back black hair and pointy nose. He loved to brag about being personal friends with Florida Governor Charlie Crist and U.S. Senator Mel Martinez. “What do you all do here?” he asked Donovan.

[9] Evil Gru (voice by Steve Carrell) is from the movie Despicable Me.

“FOREX trading and account management. Our trader is very good. I can introduce you.” Less than a week later Damien and Sebastian dazzled Romandetti during a meeting. He invested a million into the fund.

Damien and Sebastian then worked out an agreement with Romandetti, whereby he’d receive a two percent commission on all investor-money he brought in; a referral fee for directing his wealthy friends to the company. Romandetti turned around and called a dozen investor friends in his click, whom Sebastian charmed during a second meeting days later–all invested heavily

Approximately the same time, a group of Capital Blu staff flew to Las Vegas, via private jet, for a FOREX seminar. Donovan asked Romandetti if he wanted to join them. There was a lot of gambling, restaurants and strip clubs, but what impressed Romandetti was Sebastian’s reputation among the traders and the CEO’s. Everyone knew and respected him.

“Sebastian was that good,” says Donovan, begrudgingly. “He was smooth…but ruthless. Months after Vegas, at a seminar in Chicago, he and another trader were picked up at the Four Seasons Hotel by a limo. The driver was a woman named Jolita Khalifeh.” Based on Jolita’s deposition, she overheard Sebastian bragging about blowing $20,000 over the last several nights at a gentlemen’s club. “So, she asked what he did for a living and he pitched her–right there in the back of the limo– on investing in the FOREX market,” continues Donovan. “Sebastian told her Capital Blu’s 2007 profits were in excess of one hundred percent. She mentioned having saved twenty-five grand for her kid’s college fund and Sebastian told her, ‘The minimum investment is a hundred thousand dollars, but I like you… I’ll take the twenty-five thousand.’ Fucking ruthless.”

Jolita wired the money to Capital Blu within a month. The first Donovan heard about it was at his sentencing.

THE CURVY SWISS BLONDE slinked against the brass-rail in the bar at the InterContinental Hotel in Geneva. She wasn’t what Sebastian typically went for. If money was his weakness, Asian call girls were his vice, but this was Switzerland. They were hard to come by. “In a pinch”, Sebastian once told Donovan, “a blonde will do.

He ordered her a drink and she asked if he was a guest of the hotel. They both knew she was coming back to his suite.

Sebastian, Damien and several associates had arranged a trip to Slovenia, ostensibly to receive training on a Slovenian designed trading program. Sebastian and Damien, however, ended up travelling to Switzerland. In hindsight, it seems inevitable that the savvy con artist and his roper would end up in a country known for its discreet banking laws.

They spent the day sitting in an opulent office at Julius Baer Bank—a private Swiss banking institution–speaking to an offshore account manager. They sipped tea while learning the ins and outs of international banking.

Although Sebastian would later deny opening an account with Julius Baer, that seems unlikely. At that moment he knew the authorities were investigating his Orlando Ponzi scheme. He and Damien were already stealing from Peter to pay Paul. Most likely, Damien believed Sebastian could trade them out of the hole they were in; however, Capital Blu was Sebastian’s second Ponzi, and he knew better.

The blonde at the bar finished her drink. Sebastian didn’t squawk at the thousand Swiss Francs she quoted for the night–it wasn’t his money–and they headed up to the suite.

Donovan called Sebastian’s cell the following morning. A breathy female voice answered and Donovan asked to speak with Sebastian.

“Hey buddy,” said Sebastian, “how’d you like to wake up to that every morning?”

“Was that Jennifer?” Sebastian had recently married his fiancee, however, Donovan wasn’t aware she’d attended the junket.

“Fuck no!” laughed Sebastian, “she’s just some hooker.”

That was the first inkling Donovan had that Sebastian wasn’t all he seemed. His father had once told him, any man that will cheat on his wife won’t hesitate to screw over another man. But Donovan never considered he’d be that man.

Shortly after that call, in November 2007, Romandetti suggested they (Romandetti and Capital Blu) buy a $2 million Cessna Citation CJ-1. The sleek twin-engine jet seated seven, and, according to Romandetti, it was a must for impressing potential investors. As much as Capital Blu’s staff was travelling, due to the FOREX seminars, the plane made sense; and the clients were impressed.

“THE GAP” was created on January 22, 2008, after a devastating loss, where thirty percent of Capital Blu’s capital vanished—approximately $1.8 million—during a trading session with MF Global. Although Capital Blu had been a Ponzi scheme since its inception, Damien still felt Sebastian could trade them out of it. They were reporting false performance numbers to Donovan, who, along with Romandetti, were bringing in significant investor money.

Nevertheless, The Gap kept growing.

Between the MF Global loss, the embezzlement and the company’s expenses, Sebastian knew it was only a matter of time before the Ponzi collapsed. He began looking for a way to separate himself from The Gap. No doubt, Sebastian was hoping to slip out from underneath the loss and leave Damien and Donovan holding the debt[10].

[10] In the past, once rag operators had fleeced the mark, they would give him the blow-off. There were several versions; the most common, incorporated two burly “detectives” barging into the brokerage firm with an arrest warrant for the insideman, the roper (sometimes the bookkeeper) and the mark for insider trading. The insideman would immediately admit his guilt, but insist that the roper and the mark had nothing to do with the crime. The detectives would then release them and the roper would place the, dazed, mark in a cab and get him out of town.

DONOVAN WAS JUGGLING the dirt business while raising money for Capital Blu and setting up a Jamaican seminar. Capital Blu had $11 million and was trading another $7 million in LPOA (Limited Power of Attorney) managed accounts. Donavan was hoping the company’s track record would attract additional investors and allow the company to expand throughout the Caribbean.

Based on the inflated numbers he’d been given—numbers provided by Sebastian and Damien and reported to their investors–over the next several months, the fund ballooned to $16 million. LPOA’s shot up to $25 million and Sebastian was negotiating with PFG to manage another $50 million of institutional funds.

Everything seemed like it was going great. Here’s the thing, periodically, Donovan would hear the term The Gap. He was led to believe that The Gap represented the difference between Capital Blu’s current account value, versus its liquidation value based on its current position in the market. It was a standard industry term, according to Damien and Sebastian. So Donovan didn’t think anything of it. However, Damien and Sebastian constantly seemed concerned about The Gap.

DESPITE THE MULTIPLE EMAILS and transcripts, it’s unclear precisely when Sebastian entered negotiations with Assistant U.S. Attorney Roger Handberg of the Orlando U.S. Attorney’s Office. However, by early 2008 he’d convinced the federal prosecutor to allow him to enter into a pretrial diversion agreement; whereby Sebastian consented to make full restitution to his Orlando Ponzi victims and, in exchange, AUSA Handberg agreed not to indict him.

Sebastian convinced the assistant U.S. attorney he could only do this, however, by working in the exact same field–FOREX Trading–that had allowed him to fleece his victims to begin with. Remarkably, AUSA Handberg bought it.

Within weeks, Sebastian incorporated shadow versions of Capital Blu Management LLC, called Capital Blue Inc. and Capital Blue Limited. He also incorporated another company called Nakano Capital Advisers LLC and yet another called Nakano Advisers Limited. He then opened a slew of offshore accounts, contacted several companies Capital Blu was trading through and switched the wiring instructions; thereby diverting Capital Blu’s commissions, incentives and rebates to his own corporate accounts.

By April 2008, Sebastian was siphoning off Capital Blu profits and rerouting them to his attorney, to pay off the victims of his first Ponzi. But it didn’t stop there.

“THE BIG STORE must have the protection and cooperation of a bank,” says Professor Maurer, PhD. Once the banker has tasted these easy profits, he seldom quits unless he thinks there is a chance he’ll be caught. Most of the time when he realizes what is happening, he longs for a larger share of the spoils. “Fixing the bank has many obvious advantages to the con man. It provides that the mark’s property can be liquidated and his assets transferred without delay.”

ACCORDING TO NUMEROUS documents[11], it appears that Sebastian engineered an ingenious method to drain Capital Blu investor monies under the guise of trading options, selling naked puts—the riskiest off all option trades—using client funds as collateral to secure the trades.

He then entered into an agreement with Russell Wasendorf, at PFG, to divert the premiums earned by the sales of the put options (thus laundering nearly six hundred thousand untraceable dollars in less than six months) to his Nakano corporate account at Regions Bank in the U.S. That’s verified.

[11] The reader should know that the following is based on emails between PFG and Sebastian, their signed agreement, the belief of Donovan’s attorneys in combination with a FOREX expert’s opinion and a tad bit of supposition.

Keep in mind, Sebastian also had accounts in Australia, Belize, Germany, the Cayman Islands, the Philippines, etc. Based on numerous bank records, it appears that roughly $4.9 million in illicit funds flowed into (and back out of) a single anonymous Chase Bank account, believed to be a PFG segregated customer account. A segregated account, which was used to bounce millions between PFG’s U.S. Bank account, Nakano’s Regions Bank account, an account with Commerzbank in Germany, and what’s believed to be a pseudonymous[12] account at Julius Baer Bank and the Bank of China, where the funds vanished.

[12] Per the grand jury transcripts, Sebastian’s wife, Jennifer, had by then already committed bank fraud in Florida by using her foreign national mother’s identification to obtain fraudulent loans. Thus, it’s reasonable to believe Jennifer may have opened the foreign accounts in her mother’s name; thereby shielding the true owner’s identity.

THE 2008 FINANCIAL CRISIS hit the currency market hard. On August 8, the Dollar rose sharply, breaking a key technical indicator–the equivalent of financial Armageddon–triggering massive “losses” to Capital Blu’s margin account at PFG. Five million dollars evaporated within hours.

The losses were so massive that PFG made a margin call. Capital Blu immediately wired them a million dollars which promptly disappeared into the abyss. When Sebastian and Damien couldn’t come up with additional funds, Wasendorf closed out Capital Blu’s positions. Six million dollars gone. However, Sebastian and Damien didn’t tell Donovan they’d lost the money, instead, they led him to believe the positions were still open, an “open-equity drawdown” in financial parlance. Between the money Sebastian had stolen, and the trading losses, Capital Blu was essentially insolvent. The Gap had swallowed them all and Donovan didn’t even know it.

“THE MOST DISTURBING PART,” recalls Donovan, “is that PFG turned out to be a Ponzi scheme itself. Wasendorf, we now know, had never made one single trade. The money wasn’t lost, it was sitting in his account at U.S. Bank in Cedar Rapids, Iowa.” Like a set of Russian dolls, one small doll sitting inside another, sheathed by a larger doll, submerged in the bowels of an even larger doll; each swallowing the smaller doll. Sebastian’s Orlando Ponzi scheme had morphed into Capital Blu and had been gobbled up by PFG.

“That’s insane,” I reply. “A Ponzi, inside a Ponzi, inside a Ponzi.” There was no need for the margin call, Wasendorf just saw the opportunity to steal Capital Blu’s investors’ funds, and he took it. “He stole the money Sebastian was planning to steal. It’s insidious.”

“IF THE INSIDEMAN handles the blow-off properly, the mark hardly knows that he has been fleeced,” say Professor Maurer, PhD. “No good insideman wants any trouble with the mark.” He wants him to lose his money and walk away. The grifter wants to avoid law enforcement at all cost.

Sometimes a mark realizes he’s been swindled and contacts the police. The heat is turned on and the con men may have to go on the lam for a while; cease operations in that city or wait for things to blow over. Despite knowing the cost of the game and “a well-developed sense of professional honor among con men, they sometimes step over the line—dangerous as that may be—and double-cross their partners.”

FROM DAMIEN’S POINT of view, Sebastian had made catastrophic trading errors and there was no way the “master trader” could get them out of it. Damien knew it was only a matter of time before Donovan found out and contacted the authorities. He immediately began covering his tracks.

Donovan got the call from Damien in early August. He’d uncovered evidence that Sebastian was embezzling; and according to Damien, it appeared that it had been going on for sometime. Damien emailed proof that $115,000 in commissions from PFG had been diverted to Nakano.

Damien was certain there was more theft, however, he wasn’t sure exactly how much money had been taken. That was good enough for Donovan.

He arrived at Capital Blu’s Naples office on August 29, 2008, armed with a termination letter, a UHaul truck and four movers. Donovan had arranged for an employee to get Sebastian out of the office. While the movers emptied the space of its contents, Sebastian stumbled through the front door, intoxicated. “What the hell’s goin’ on,” he asked. “What’re you doing?”

Donovan thrust the letter at him, “We’re firing you; you’ve been stealing.”

Sebastian glanced around at the remaining items in the office and asked, “Where’s the black file cabinet?” Donovan told him the file cabinet was Capital Blu property and it was in the back of the truck. Sebastian scoffed, “I’m on the next plane to Australia,” and he stumbled off.

The next morning Donovan and Damien sifted through the contents of the black file cabinet. The first thing Donovan found was a bill from Sebastian’s criminal defense attorney Mark Horowitz. Damien acted as shocked as Donovan to see that Sebastian appeared to be embroiled in some type of criminal case. Then there was Sebastian’s personal and corporate bank account statements. At a glance they showed deposits—Capital Blu funds that had been diverted to Sebastian–from PFG, Gain Capital, FXCM, etc.

Donovan turned to Damien and said, “What the fuck; there’s over a million dollars here…”

Damien did some quick calculations in his head and replied, “Yeah, that sounds about right.”

There were additional transfers from FOREX merchants for $9, $25, $5, etc. and , a $600,000 wire from an investor out of Arizona that Donovan had never heard of. It also appeared that Sebastian was blowing money on breast augmentations and new cars while simultaneously wiring funds to multiple offshore accounts. Within an hour, Donovan had discovered that Saxo Bank, which he’d been told contained $7 million of Capital Blu investor funds, had a zero balance. The statements he’d been shown, were forgeries.

Donovan immediately called Jim Fallace—the corporate attorney that had vetted Sebastian and Damien over a year earlier—and told him about the potential embezzlement of Capital Blu’s funds. Fallace contacted Brian Phillips, a federal criminal attorney who scheduled a meeting with the U.S. Attorney’s Office. As chance would have it, Philips contacted Assistant U.S. Attorney Roger Handberg.

At approximately the same time Sebastian was boarding a flight for Australia in September 2008, the National Futures Association (NFA) showed up at Capital Blu’s office in Melbourne, FL.

Despite Capital Blu having already ceased all business activities, and Donovan explaining he had already contacted the government, three days after the NFA left, they notified Donovan that Capital Blu’s trading accounts had been frozen.

On October 9, 2008, Donovan and his lawyer, Brian Phillips, met with AUSA Handberg, an investigator with the FDLE and the Secret Service at the U.S. Attorney’s Office in Orlando. Over the course of several hours Donovan laid out everything he’d discovered. Less then a week later he repeated the story at a second meeting.

“I wasn’t worried,” Donovan tells me. “I hadn’t done anything criminal. My only concern was locating Capital Blu’s clients’ money.” Unfortunately due to the NFA suspension, it was impossible to access the bank or trading records necessary to retrace the funds–no one at the FOREX merchants would return calls or emails.

SEBASTIAN’S STAY in Australia was brief, according to his MOI’s. He had over a dozen offshore bank accounts holding significant amounts of money. So in early 2009, he flew to Manila International Airport in the Philippines and then to Hong Kong, China.

It’s an unlikely coincidence that Hong Kong City’s financial center contained branches of Julius Baer Bank and the Bank of China—two very secretive, international financial institutions. I see Sebastian strolling into the Bank of China, sporting a Brioni suit, and casually asking the manager if they could speak in private. Once alone, I’d like to think he further secured the stolen funds, but I can’t be one hundred percent certain. However, there is no other plausible scenario.

Here’s what I’m sure of, while in Hong Kong, Sebastian stayed at one of the city’s luxury hotels, probably the Mandarin Oriental. Over the next week he visited several gentlemen’s clubs. The night before his return to Australia, Sebastian picked out three exquisite Asian call girls from over two dozen and bedded them until daybreak, nearly missing his flight.

ON MARCH 23, 2009, the Commodities Futures Trading Commission (CFTC) filed a massive civil lawsuit against Donovan, Damien, Sebastian and Capital Blu. The company’s accounts were frozen along with Donovan’s personal accounts; and Judge John Antoon appointed Louis Freeman as Receiver for the CFTC litigation.

“Freeman’s resume indicated that he was an attorney with vast experience as a receiver,” said Judge Antoon, regarding Freeman. “As it turned out, confidence in Freeman was severely misplaced.” He was systematically devaluing the companies under his receivership, liquidating their assets and pilfering the companies excess funds while simultaneously destroying vital records. He stole from numerous estates, “including that of Capital Blu.”

Within months of Capital Blu being placed under Freeman’s control the FBI raided his office and subsequently indicted him for mail fraud. However, according to the government, Freeman had already stolen in excess of $3.5 million of Capital Blu’s money and destroyed evidence in an effort to conceal his crimes—including Capital Blu’s server.

Ultimately, Freeman plead guilty and was sentenced to ten years in federal prison.

DONOVAN’S HEAD was still swirling when AUSA Handberg requested a third interview. He and Phillips met with the federal prosecutor on June 23, 2009. At this meeting however–despite Donovan being the first to contact the government after discovering Sebastian’s crime and there being no evidence indicating he’d had any knowledge of what Sebastian had done–Handberg all but accused him of lying.

“I haven’t done anything,” replied Donovan. “This is the second FOREX Ponzi scheme Sebastian’s run–”

“I don’t need to hear anything else about Sebastian,” growled the AUSA. Handberg had been the assistant U.S. attorney responsible for allowing Sebastian to continue working as a trader to pay off the victims of his first scam. “I know all about Sebastian.”

“If you knew about Sebastian’s fraud in 2006, why’d you let ‘im keep going?” asked Donovan. “God knows how much damage he’s done this time.”

“Alright,” snapped Handberg, “this meeting’s over.” Donovan and his lawyer were asked to leave. According to Donovan’s calculations, there was roughly $17 million missing, and the government didn’t seem to care.

SEBASTIAN WAS LYING in a chaise lounge near the pool, working on his tan, at his father’s upscale apartment complex in Perth, Australia. I’m fairly sure the confidence man was enjoying a cold beverage as the Australian sun beat down on him—baking and darkening his fair skin. At that moment Sebastian must have felt he’d pulled off the perfect long con—even if Damien had screwed up the blow off and Donovan had ended up with the incriminating contents contained in the black file cabinet. Sebastian had still managed to leave nearly one hundred baffled investors wondering where their money had gone and he’d left his partners holding the bag. All of the trading numbers were fake and most of the bank statements had been destroyed. I pulled it off, he must have thought. They’ll never put it together.

Whether Sebastian knew he’d utilized the principles of The Rag, altered them in such a way to spawn The Gap, a new big-con scheme; whereby the insideman leaves the mark on the hook for the booty, is not clear. Here’s what I’m certain of, on November 18, 2009, Qc`_qrg_l was already thinking about his next con when he entered the elevator on the mezzanine floor. He immediately noticed the two plain clothed investigators with the Australian Securities and Investments Commission and his grift sense kicked in.

According to the Proof of Service, Sebastian muttered something to the effect,

“I forgot something,” did an about face and exited the lift.

The investigators weren’t fooled. Seconds later, they stopped him near the pool, flashed their credentials and requested his name.

“David,” he replied.

“David who?” asked one of the investigators; knowing fully well he was speaking to Sebastian Black, based on the photograph provided by U.S. law enforcement. “It’s important that I know who you are,” continued the investigator. “Can you please tell me you’re full name?”

Sebastian told the agents he was visiting a girlfriend. “I don’t want to cause her any problems.”

“There’s no need for any trouble. I just want to know who you are…”

“I need to speak with someone,” said Sebastian, ignoring the question. The Investigators followed him to the lobby entrance. His heart must have been banging away inside his chest as he dialed the number 89 on the intercom system, knowing this was it. He was about to be arrested, flown back to the U.S. and locked away in a federal prison. When his father’s voice squawked out of the speaker, Sebastian gasped, “Dad, they got me.”

As it turned out, Sebastian was not getting arrested. He was simply being served with a subpoena in regards to the CFTC lawsuit. In his mind, the near miss only further bolstered Sebastian’s confidence. Within days he boarded a plane to Canada. Within weeks he’d set up his next scam.

“THERE’S A THRILL about big-con work which no other branch of the grift can duplicate,” says Professor Maurer, PhD. Each mark is a new challenge to the confidence man’s ingenuity; and, perhaps most importantly, the stakes for which he plays are very high. “Consequently, once a con man ‘arrives’ in his profession, he usually remains a con man until he dies.”

ACCORDING TO DONOVAN, while he was trying to rebuild his life–between preparing for the CFTC civil trial and operating the controls of a hydraulic excavator–Sebastian was in Vancouver, Canada. The confidence man had setup AMG Capital, a currency trading hedge fund; he quickly shored up a mark and convinced him to rope in several other marks.

“We found out later,” recalls Donovan, “he convinced this guy in Canada–a web designer–to mortgage his house for over half a million bucks and invest it into AMG.” Once the money was wired to Sebastian’s offshore corporate account, Sebastian told his investor that he’d lost the money during trading. He then checked out of his hotel and vanished. The corporate suite was vacant and, within days, the business’ phone number had been disconnected…the email account closed. The web designer was frantically looking for Sebastian and his investment, but he was gone. “There’s gotta be more victims in Canada; [Sebastian’s] like a hurricane he doesn’t take out a single house, he takes out neighborhoods.”

Even if the web designer could have located Sebastian, there was little civil or criminal recourse; the corporation wasn’t registered in Sebastian’s name nor was its bank account located in Canada.

SEBASTIAN HANDED THE U.S. CUSTOMS agent his passport at the Intercontinental Airport in Houston, Texas. It was Sunday night, July 18, 2010 and he’d just flown in from Vancouver. He wasn’t concerned. As far as Sebastian knew, the fallout from The Gap had been limited to the CFTC’s civil lawsuit. Nothing criminal had been filed. There were no state or federal warrants for his arrest that he knew of.[13]

[13] Whether Sebastian knew there was a warrant for his arrest is in dispute according to his detention examination hearing transcript. It is, however, highly unlikely.

He was unaware that the Secret Service had missed him a month earlier, on June 21, in California. They’d intended to arrest the elusive fugitive at Los Angles International Airport during a scheduled flight to Singapore and on to China. However, in typical fashion, Sebastian’s grift sense told him something wasn’t right and he hadn’t shown up for the flight—once again eluding the authorities—leaving the agents standing at the terminal.

I like to imagine Sebastian was waiting at the Custom’s desk, flirting with an attractive female passenger standing in line—oblivious to the fact that his passport had triggered a Customs’ TECS alert—when multiple agents approached him. They firmly requested he step into an adjacent interview room where he was thoroughly searched and promptly handcuffed. But, that’s all supposition.

What I do know is, based on a detainment request placed on his passport in U.S. Customs’ database, Sebastian was arrested and taken to the federal holding center at the local county jail.

DURING THE CFTC CIVIL CASE’S deposition of Damien, in late 2010, Donovan learned that his original investment of $50,000–prior to becoming a partner in Capital Blu–was divided between Damien and Sebastian; and that $47,000 of his aunt and uncle’s $50,000 investment had gone directly into Damien’s personal account. Donovan’s parents and brother’s investments were divvied up. Very little of any of the initial money Capital Blu had raised from Donovan and his family was traded in the FOREX market.

Throughout the three-day trial Donovan plead the fifth. According to his attorney, there was no benefit to him denying the allegations. There was no evidence proving he’d done anything wrong. In fact, Damien had provided testimony along with an affidavit that stated Donovan was only in charge of customer relations. “[Donovan] had nothing to do with brokerage accounts or trading or other such investment activities,” said Damien. “[Sebastian alone] was in charge of trading and handling brokerage accounts and all investment activities.”

However, Capital Blu’s certified public accountant, Beth Courtney–the prosecution’s star witness–testified that in early February 2008, Damien wanted her to report a false inflated investor statement[14], which she had refused to do. She and Damien then had a telephonic conference with Brent Gillette and Bart Mallon, Capital Blu’s attorneys, where Damien asked about using client funds to pay expenditures. “[Mr. Gillett] said, Damien, you can never use the funds’ money except for trading on behalf of the investors…” Beth testified. “He told Damien that he had another client who had taken fund money” and that client had been charged criminally.

[14] This would have been shortly after the losses Capital Blu incurred on January 22, 2008 on account of Sebastian’s flawed trading activity.

“Did [Damien Broomfield] tell you that he talked to Donovan Davis?” asked the prosecutor.

“Yes,” replied Beth. “[He] relayed the information to both Don and Sebastian.” She then testified that she’d personally spoken to Donovan about the altered statements via cell phone, while he was in Jamaica.

“With the exception of Beth’s perjured testimony,” says Donovan, “There’s no evidence proving that call ever took place; because it didn’t. It’s a lie.”

Unfortunately, Donovan was lumped in with Sebastian and Damien. Between Beth’s statements, the testimony of multiple angry investors and the discovery of Damien’s own theft of Capital Blu funds, all three were found liable for $2.4 million in restitution, fined $4.7 million and barred from ever trading again.

At sentencing Judge Antoon accused Donovan of showing little remorse for his involvement. “I’m not sure how I could’ve showed remorse,” explains Donovan, “I plead the fifth; and I’m not sure why I would feel remorse; I was the victim of two con men. I lost nearly two million dollars of my family’s money when Capital Blu went under.”

SEBASTIAN’S DEFENSE during his trial for the Orlando Ponzi scheme had the advantage of being unique, albeit, absurd. Over the course of two days, beginning on March 7, 2011, he blamed the loss of his investors’ money on his European business partner, Richard Ellis; a phantom fallguy conspirator, the existence of which could never be proven.

Despite Sebastian’s charm and charisma, in less than an hour the jury found him guilty of wire fraud.

“Essentially [the defendant] fabricated this international man of mystery, who was responsible for the whole scheme,” said the assistant U.S. attorney, during Sebastian’s sentencing. “Mind you, he provided…no bank accounts. He had no phone records. He had no emails.” Nor had any of Sebastian’s “investors” met Mr. Ellis. His whole defense was a lie. “And the coup de grace, so to speak, is that the defendant then took money that he earned from another scheme, called Capital Blu…and paid the victims [of the Orlando scheme]. “A Ponzi on top of another Ponzi scheme. “[He’s] a person of incredible sophistication. He’s got charisma [and] the brains to make a much bigger crime at some point.”

After listening to the prosecutor advocate for a four-year sentence, the federal judge only gave Sebastian three years.

RUSSELL WASENDORF, SR., the CEO of Peregrine Financial Group pulled his Chevrolet Cavalier convertible to a stop in front of PFG’s massive glass and steel phallic-like headquarters. It was July 9, 2012 in Cedar Falls, Iowa. He slipped the Cavalier into park and exited the vehicle with a ten-foot section of lightweight hose and duct-tape. Wasendorf had a secret, a secret he’d been keeping for over twenty years. He slipped the hose into the Chevy’s tailpipe and taped it up airtight. Then he funneled the hose through a hole he’d cut into the convertible’s soft-top.

For twenty years—since the inception of PFG–Wasendorf had actually been running a Ponzi scheme. He’d pulled it off by forging bank records, falsifying earnings statements and U.S. regulators’ reports. He’d accomplished this by opening a P.O. Box in the name of U.S. Bank and re-directing the Financial Industry Regulatory Authority (FIRA), National Futures Association (NFA) and the Commodities Futures Trade Commission (CFTC) auditors requests for account verifications. Wasendorf was then able to verify non-existent funds “held” in PFG’s accounts.

During random audits the scheme had nearly been exposed multiple times over the years, but he’d continually bamboozled the regulators with clever stories and nominal fines. However, the following Friday, Wasendorf had checked his “U.S. Bank” P.O. Box and found a letter from the CFTC. Within weeks the agency would be shifting to online access balance verifications; thereby eliminating Wasendorf’s ability to outwit the CFTC’s regulators. It was over.

Wasendorf slipped into the Chevy’s driver’s seat, closed the door and the cabin began to slowly fill with deadly carbon monoxide.

He’d been juggling figures and lies for twenty years; and it was all about to hit the floor. Nearly half a billion dollars had flowed through PFG’s coffers. There was less than $6 million in the company’s bank accounts. Over $200 million was gone–including millions of Capital Blu’s clients’ money.

He placed a detailed suicide note on the passenger seat. Wasendorf then swallowed a handful of sleeping pills, took several swigs of vodka and breathed in a deep lungful of the poisonous air. It’ll all be over soon, he must have thought, as he drifted into the darkness…and it would have been, had one of his employees not loved his job so much that he showed up early that morning.

The next day–after Wasendorf had been taken to the hospital and arrested–his son, and the president of PFG, placed the company in bankruptcy.

“Since the early 1990s the defendant operated a futures commission merchant, as a mere mechanism to commit fraud,” said the assistant U.S. attorney at Wasendorf’s sentencing. For 20 years the PFG Ponzi scheme grew and grew. Ultimately, Wasendorf was entrusted with $376 million; the vast majority of which was gone. He’d blown $215 million of investor money, embezzled from more than 13,000 victims. Wasendorf had spent it on an immaculate penthouse in Chicago, a flashy corporate jet, multiple luxury homes and several failed businesses. “Neither the defendant nor his business from PFG’s infancy ever made a legitimate nickel.”

Wasendorf was sentenced to fifty years in federal prison.

During roughly the same time frame, former New Jersey Governor, U.S. Senator and Chief Executive of Goldman Sachs and then-current CEO of MF Global, Jon Corzine, was trying to explain to the CFTC where $1.6 billion of his clients’ investments had disappeared to. “I’ve never directed anyone to dip into customer funds,” Corzine has been quoted. Still, the money was missing, yet, somehow the ex-governor and senator negotiated with the U.S. attorney’s office and federal regulators to pay a hefty fine and walk away without having to face incarceration.

“A RAT merits undying contempt by professional criminals,” says Professor Maurer, PhD. While it’s hardly necessary to explain that a stool pigeon or police informant is a criminal pariah, it’s worth mentioning that a criminal facing a stiff prison sentence is likely to testify for the prosecution. “Some stool pigeons will say anything to beat the rap and save their skin.”

THE MIDDLE DISTRICT of Florida’s U.S. Attorney’s Office eventually transferred the investigation from Orlando to the District of Columbia; and both Donovan and Damien’s attorney’s advised them an indictment was inevitable.

In early September 213, Damien called Donovan, and requested they meet at Damien’s house. At the meeting he said, “What if we found (Damien made air quotes) some emails and turned them over to the prosecutors?” At this point the Receiver had destroyed the server and Damien knew there was no way to authenticate the emails without the server. “Emails that placed all the blame on Sebastian and exonerated us.”

“You have emails that say that?” asked Donovan, not quite understanding the significance of Damien’s air quotes. He’d never seen any email exonerating him nor did he have any knowledge any existed. “Why didn’t you turn ’em over during the civil trial?”

“No,” replied Damien. “I don’t have them…yet.” He then told Donovan that his attorney had lots of emails that were never used. However, during the conversation it became obvious Damien was thinking about manufacturing emails and providing them to the government.

Donovan immediately informed him, “I don’t want any part of that,” and left the residence. At this point Donovan was one hundred percent certain Damien had been in on the con. Before he’d even pulled out of Damien’s driveway he was on the phone with his criminal defense attorney Andrew Chmelir, “Damien’s talking about faking emails; you gotta get a hold of the Feds.”

Within a week Donovan and Chmelir met with DC Assistant U.S. Attorney Ephraim “Fry” Wernick and IRS Agent Ronald “Butch” Searle at the U.S. Attorney’s Office in Orlando. Wernick suggested Donovan work with Agents Searle to record Damien discussing his plan.

Over the next week Agent Searle called Donovan several times to discuss the operation; an appointment was scheduled with Damien and everything seemed fine. Then, the day before the meeting, with no explanation, AUSA Wernick cancelled the operation. Regardless, Donovan kept his appointment and recorded everything using his iPhone.

Over the course of several recordings, during multiple meetings, Damien confirmed Donovan had nothing to do with, or knowledge of, the Capital Blu Ponzi scheme. They discussed numerous issues during the course of these meetings–brokerage statements, trades, investors, etc–including Damien’s plan to falsify emails exonerating him and Donovan [15]. The following is a brief composite of those meetings.

[15] Excerpts from recording transcripts. The reader should know that both Donovan Davis and Damien Broomfield are Jamaican and at times the dialogue transitions between English and patois.

“I’m pissed off at you [because], I came in as an investor,” said Donovan, during their first appointment; a meeting to discuss emails Damien had miraculously “found” days earlier. “I put my money in there (Capital Blu), and people invested because of who I was…that was my job, really.” He rubbed his lower jaw and asked Damien why he hadn’t caught Sebastian stealing earlier? “Were you sleeping at the wheel?”

“It wasn’t my job to catch Sebastian, it wasn’t my job to double-check Sebastian.”

“No, no, no, let me just go through this.”

As the two went over the newly discovered emails–emails Donovan was certain Damien had fabricated–Donovan asked, “Remember when I was at the house the first time? And you said ‘What if me (I) find some emails’…”

“Un-huh,” grunted Damien.

“And I said, ‘Like, find what?’ and you were like (Donovan made air quotes, mimicking Damien’s earlier air quotes), ‘Like, find them’… Remember that?”

“Yeah, replied Damien, “but that was a bad idea… that was stupid.”

“What I’m asking you is… These aren’t what you made?”

“This is all, this is all legit emails.”

“[B]ecause you made them, I don’t want to be caught up in this shit… So that little idea that you had about making that shit?”

“I don’t even know why I said that.”

According to Donovan, over the course of these meetings, Damien was subtly trying to nudge him toward accepting a plea and shifting all the blame to Sebastian. However, Donovan didn’t know precisely what Sebastian had done.

“Damien… if I’m going to be prosecuted, I can’t lie.”

“[R]emember this,” Damien replied, slightly frustrated, “it’s not about what’s true or not true, meaning, for arguments sake, somebody takes a plea deal, right? [L]ike Sebastian…what I’m saying is, anybody put in that position can say anything, it doesn’t have to be true, he’s just going to say something that helps the prosecution get to where they need to go…”

“You mean lying to the Feds?” asked Donovan, feigning confusion. “People lie to the Feds?”

“What do you mean?” replied Damien. “People do it all the time.”

During the same conversation, regarding the emails Damien informed Donovan that he’d let him look over the emails, but he wanted to discuss them with his attorney first. This led to an exhaustive argument.

“Damien, you know what? You didn’t lose two million dollars,” griped Donovan. “[A]nd I can’t even see shit that can vindicate me?” Donovan began complaining that he was being blamed for every single thing that had gone wrong at Capital Blu, despite the fact he hadn’t traded client funds or been responsible for the numbers or statements. “My name is the only one in the newspapers and the blogs… I’ve been had [and I’m getting blamed for everything].”

Eventually that conversation mutated into concerns regarding their potential indictment; which played out over several phone calls.

“[M]y concern is you gonna go and say, ‘Well, Don [did] the trading’,” said Donovan. “Or you’ll say, ‘Well, Don dealt with the numbers, Don posted the numbers.’…”

“No,” replied Damien, “I’m not going to make up nothing.” Later Damien voiced his concerns that Donovan might take a plea and Donovan replied, “[A]ll I did was fucking do the seminar and (inaudible), brought in money… Sebastian did the trading, you paid the bills, you did the automation for the company…”

“[It] comes down to are you fighting it or are you possibly entertaining pleading?”

“Let me ask you a question,” replied Donovan, “did you ever see me commit fraud or do anything bad in Capital Blu?”

“No,” admitted Damien. “I never saw you do anything in terms of anything what we’re being charged with criminally…”

“The first time I saw fraud, what happened? What did I do?”

“Yeah, we did all the stuff to address it, and fire [Sebastian] and secured everything…”

“So,” asked Donovan, “how could I take a fucking plea when I didn’t do anything?”

After every meeting Donovan immediately emailed the file to Chmelir; his attorney then forwarded them to the U.S. Attorney’s Office in Washington D.C.

Suddenly, on October 15, 213, Donovan received a text from Damien stating: I can’t talk to you anymore. You’ve been recording our conversations. Two days later, on October 17, Damien signed a plea agreement with the government. Four months later, on February 26, 2014, Sebastian and Donovan were indicted for conspiracy, money laundering, wire fraud and mail fraud.

In August 2014, Sebastian pled guilty to the Capital Blu Ponzi scheme and shortly after, he was sentenced to nine years. Nine years on top of the three years he’d been sentenced to for the Orlando Ponzi scheme. Twelve years to be served in the Federal Bureau of Prisons.

“I DIDN’T DO ANYTHING WRONG,” says Donovan, “so obviously, I never even considered making a deal. When I realized Capital Blu was a scam I went straight to the U.S. prosecutor’s office. I cooperated. I took, and passed, a polygraph–conducted by Richard Keiffer, one of the FBI’s own experts.”

“THOSE WHO DO TIME on confidence charges are prosecuted very hard; most of them are convicted as a result of interference by the Federal Government,” says Professor Maurer, PhD. Of those who are tried, few are convicted; of those who are convicted, even fewer ever serve their full sentences. “Con men are always talking themselves into and out of all kinds of complications.”

The government methodically asserted this strategy throughout the trial by presenting Damien’s manufactured emails, misrepresentations and perjured testimony. At one point Damien actually broke with the script and accidentally informed the jury that Sebastian “was diverting funds from Capital Blu into Nakano—”

“Real quick,” interrupted AUSA Wernick, “what type of funds…”

“Mainly, client funds.” That was a major problem for the government’s case. So, the following day the assistant U.S. attorney told the court that the diverted client funds were in fact, commission money that was actually due back to Capital Blu, that Sebastian was diverting to his new company, Nakano.

“[W]e all know Damien Bromfield lied in your courtroom yesterday,” said Donovan’s attorney, Chmelir.

“Your Honor,” replied Wernick, “I’m not sure that Damien Bromfield was fully aware that was a lie.”

When Damien was later asked if he was aware that Qc`_qrg_l had a pervious criminal case, regarding the Orlando Ponzi scheme, he denied any knowledge of it. Despite the fact that the government knew Damien had spoken to the FDLE investigator regarding the scheme and Qc`_qrg_l had stated in his MOI that Damien knew of his Orlando Ponzi and there were numerous emails verifying his knowledge, Wernick said nothing, thus allowing Damien to testify falsely. Damien then denied knowing Sebastian’s criminal lawyer, thus derailing Donovan’s defense strategy showing that Capital Blu had been a Ponzi from the very beginning.

Damien was then asked, “Do you know Roger Handberg?” The original Orlando federal prosecutor which Damien had met with on multiple occasions, he replied, “I don’t know,” which derailed Donovan’s defense strategy even further. It was such an obvious lie, when Damien denied knowing Handberg, AUSA Hooks and Fuhr actually hunched over in an attempt to suppress their laughter.

Days later, as Chmelir questioned Damien regarding the ever widening gap, suggesting Sebastian was draining Capital Blu’s client funds to pay off the victims of his Orlando Ponzi scheme, Wernick misinformed the court stating, “Your Honor, that’s not the case. We have traced the money.” The government insisted that the funds Sebastian stole were Capital Blu commissions and not client funds; a complete departure from what the AUSA told the grand jury and the judge in Sebastian’s trial. A misrepresentation to the court. A lie. “So we fully disagree with  that fact, this money was fully traceable.”

What’s even more shocking is that the government had failed to disclose evidence that Russell Wasendorf had never made any of Capital Blu’s trades and all of their investors’ funds had been lost in the PFG Ponzi scheme; still, Wernick asked Damien, “if someone from PFG were to testify that…that money was actually commission money and incentive money and not investor money, how would that affect your understanding of what that $580,000 was?”

“Well, then that would have been profits that Capital Blu should have received.”

“[Not] investor money?” Instead, it would simply be Sebastian stealing from Capital Blu.

Once the government rested, Chmelir informed the Judge he was moving for an acquittal on all counts.

“Did you find any criminal law in any of the circuits on the point?” asked Judge Mendoza. “They certainly would be persuasive authority.”

“No,” admitted Chmelir. Donovan’s attorney had based his entire defense on a theory that wasn’t recognized in criminal cases. “Nothing that helps me…”

“I appreciate your candor.”

DURING THE TRIAL, Sebastian was locked up in a freezing cold U.S. Marshals’ holding cell waiting to be called as a government witness. He’d been debriefed, regarding the Capital Blu Ponzi scheme, by AUSA Wernick and Agent Searle over two years earlier, while at the Federal Correctional Institution in Bastrop, Texas.

One of the more interesting aspects of the interviews, according to the MOIs, is the fact that Sebastian admitted to having several offshore accounts at HSBC Bank in the Philippines, Provident Bank in Belize, Lloyds of London Bank in the U.K. and Saxo Bank in Denmark—all of which are subject to U.S. reporting. However, he didn’t mention the existence of the PFG segregated customer account at Chase Bank.

In addition, he admitted to traveling with Damien to Slovenia and Geneva, Switzerland, in 27, to meet with the owners of several private banks–anonymous private banks that are exempt from U.S. reporting–but, he denied opening any accounts. Sebastian went onto say, currently, he had no assets, which was highly unlikely. Yet, neither the U.S. prosecutor nor the agent pressed Sebastian on the subject. They didn’t ask him about his trip to Hong Kong or the missing money.

While the confidence man sat in the cold concrete box trying to eat a bologna sandwich with his wrists shackled, Donovan was upstairs sitting at the defense table, listening to Damien and the prosecutors, characterize him as a co-conspirator. Helplessly watching his attorney botch the trial.

Chmelir never questioned the authenticity of the emails or the PFG trading records, nor did he attempt to impeach Damien’s testimony by introducing the conversations Donovan had recorded.

Testifying against Donovan was Sebastian’s only hope of reducing his sentence, via a Rule 35 motion for cooperating against his co-conspirator, or in this case lying and corroborating Damien’s testimony. As it turned out, nearly a year earlier, AUSA Wernick had duped Sebastian into pleading guilty, bamboozling him into believing he’d allow Sebastian to testify against Donovan. But Wernick never called him. He left Sebastian sitting in the frigid holding cell throughout the trial. Chilling.

DURING CHMELIR’S CLOSING, he showed the jury the government’s own chart, describing Capital Blu as a Ponzi scheme from the start. “They stalked him. They lured him and they had to keep him. He’s the second largest investor,” he said. Without Donovan, the whole scam would have folded. “Everybody thought they were making millions…including Donovan Davis, Jr. and everybody else at Capital Blu.”

He reminded the jury there were no emails from Donovan representing fake numbers. However, there were dozens between Damian and Sebastian. “[T]he facts show [Donovan Davis, Jr.] didn’t know what the heck was going on, because he kept putting money in.” The evidence showed he pumped $140,000 in before becoming a partner. Then his family pumped in $1.6 million. Right up to the end, he invested. Two months before Donovan fired Sebastian he put another $300,000 into the fund. “Based on good faith,” explained Chmelir, “even if Donovan

Davis, Jr., used poor judgment, acted foolishly and relied upon Sebastian Black and Damien Broomfield, he’s not guilty…” The government wanted the jury to ignore all of the lies, the perjury, all the false statements to police officers and to the federal prosecutors. “You can’t do that… [T]he verdict should be not guilty.”

During the government closing, despite the prosecutions’ knowledge that the Receiver had destroyed the server, Wernick told the jury, “‘[T]he only evidence of a server being taken in this case is the server in Naples on August 29, 2008, which Donovan Davis, Jr. picked up…” He then said, “Now, these emails that are obviously about what they’re talking about on their face, [Damien] Broomfield merely told you what they meant, what The Gap was, how they were lying to the investors.” In contradiction to the prosecution’s opening statement Wernick declared, “There’s no evidence the defendant invested a dime, not in Capital Blu…so when you keep hearing the defendant put up his own money, he never invested a dime.”

Despite all the contradictions, deceptions and lies, on May 14, 2015, the jury found Donovan guilty. At sentencing on August 27, U.S. District Judge Carlos Mendoza seemed as baffled by the jury’s decision as the defense when he told Donovan’s attorney, “Quite frankly, I don’t know if the government could have proven their case against your client without the cooperation of Damien Bromfield. Without question, the jury accepted at least some of his testimony as true.” Despite the questionable verdict, Judge Mendoza sentenced Donovan to 17 years in prison.

A TRAGEDY OF FICTION would typically end at Donovan’s sentencing, but this isn’t where the story ends. In many ways, this is the turning point.

Despite Damien’s cooperation, at his sentencing, on September 24, 2015, the government requested the court impose a sentence of 70 months. A much more severe sentence than he had counted on. Damien was handcuffed right there in the courtroom and marched off to a holding cell.

The moment the heavy steel-barred door slammed shut Damien began complaining to the only other occupant–Thiago Correa, a convicted drug dealer. According to Thiago, Damien told him he’d testified against his co-defendant, declaring he’d “told them (the U.S. prosecutors) what they wanted to hear.”

More specifically, days later, while at Orange County Corrections, awaiting transport to a federal prison, Damien vented his anger regarding his deal with the government. According to Ronald Grocoff, Damien stated “I did everything the government wanted me to say, even stuff that wasn’t true, just to get a conviction on Don. [T]hey told me I’d be able to self-report and a lot less time in exchange for that…I should have never lied on Don because the government didn’t keep their part of the deal.”

Damien told his cell-mate, Donald Easter, “I did what the government wanted, I lied to convict Donovan, and I was supposed to get home confinement and supervised released (probation)…” and that the government had given him a story he had to claim was true or he would go to prison for 20 years. Matthew Colaprete stated that he heard Damien claim “I done all this stuff for the government, lied about my co-defendant, [but I] got screwed…” Matthew further heard Damien say that Donovan “should just understand that I had to lie because I wasn’t going to jail for twenty years.”

In several letters written by Sebastian, in an attempt to compel AUSA Wernick to honor promises made to him in exchange for his testimony–testimony Wernick never allowed him to give–Sebastian stated, “You made promises to me… There’s no way you can be proud, or your superiors think that what you’ve done is ethical or moral.” In the same letter Sebastian asked, “What makes you (Wernick) any different than the ‘fraudsters’ you claim to prosecute?”

“THE DC PROSECUTORS used a known liar to convict me of a crime I’m innocent of,” says Donovan. He is currently petitioning the U.S. District Court in Orlando, Florida to grant him a new trial. “A fair trial, without the use of perjured testimony and prosecutorial misconduct.”

Donovan spends the bulk of his time reading the documents that both the government and his own lawyer were too inept to review—slowly piecing together the scam that cost him $2 million and 17 years. “There’s seventeen million missing,” he tells me. We know how much money was reportedly lost in bad trades by Sebastian, Damien and Wasendorf–although those figures are in question–and how much money the receiver stole. Assuming these figures can be believed, that leaves over $5 million the government never accounted for. “Based on my estimate,” continues Donovan, “there’s between six and ten million sitting in offshore accounts, controlled by Sebastian.”

“IN THE BIG-STORE, records and accounts are usually very sketchy and kept in code, but never the less effective and accurate,” according to Professor Maurer, PhD. The amount of the score is never written down, however the roper, the manager and even the boost may have an idea. “Only the insideman knows precisely how much was taken, and this information may be jealously guarded from the other con men.”

WEEKS AFTER Donovan’s trial, Sebastian was handcuffed and shackled for his transport back to the Federal Correctional Institution in Bastrop, Texas. He was bussed to Jacksonville’s international airport. Like penguins, Sebastian, along with over a hundred other inmates, waddled his way aboard the “Con Air” Boeing 737—the tight steel manacles digging into his wrists and ankles.

I’m not sure if Sebastian sat between a couple tattooed skinheads convicted of manufacturing meth or gold toothed crack dealing gang members. However, I do know he was not wearing one of his signature Brioni suits and suspenders. He did not sit in first-class. He did not have a Sambuca on the rocks, his favorite anisette liqueur, or even a flat soda. There were no attractive flight attendants to flirt with, only angry, glaring-eyed marshals armed with shotguns.

What I’m certain of is that Sebastian Black will be released in April 2021; that there’s millions of dollars in missing Capital Blu funds; and that this is not his last con.