U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21473 / April 1, 2010
Securities and Exchange Commission v. Kevin H. Blood, United States District Court for the District of Arizona, Civil Action No. CV 2:10-cv-00731-SRB.
SEC FILES SETTLED CHARGES AGAINST INVESTMENT ADVISER FOR MISREPRESENTING INVESTMENT RISKS AND FAILING TO DISCLOSE A SIDE COMPENSATION AGREEMENT
The Securities and Exchange Commission today filed fraud charges against the majority owner of a former Phoenix, Arizona-based investment advisory firm for misrepresenting investment risks and for failing to disclose a side compensation agreement.
The SEC’s complaint, filed in the United States District Court for the District of Arizona, charges that Kevin H. Blood, of Scottsdale, Arizona, while serving as president and chief executive officer of former registered investment adviser, Capital Wealth Management, Inc. (“CWM”), compiled a $10.2 million investment pool from twenty of his CWM clients and formed a hedge fund, ABC-CWM, Inc. In recommending ABC-CWM to his clients, the complaint alleges that Blood represented to these clients that any investment opportunity that ABC-CWM made would be backed by a legitimate bank guarantee or other form of collateral. Blood also allegedly represented that their principal would never be at risk and that he would not personally profit from any transaction he recommended to them other than his CWM management fee.
The complaint further alleges that in February 2009, Blood recommended that his clients loan the $10.2 million to Adelaide Partners, LLC, which in turn would invest with Amkel Capital, a purported financial services firm based in the United Kingdom. According to the complaint, Blood represented to his clients that ABC-CWM would receive a bank guarantee in exchange for the $10.2 million loan and earn 20% per month for two months. The complaint alleges that in recommending this investment, Blood breached his fiduciary duty to his clients by failing to disclose a side compensation agreement with Adelaide Partners wherein he would receive 85% of any excess profits resulting from the investment. The complaint alleges that Blood then caused Adelaide Partners to transfer the $10.2 million to an Amkel Capital bank account in Switzerland without ever securing a bank guarantee or any other form of collateral. Yet, according to the complaint, from February to April 2009, Blood falsely assured his clients that their funds were safe in an account under Blood’s control. The complaint claims that, in reality, Amkel Capital was a sham operation run by a convicted felon and that Blood’s ABC-CWM clients have yet to receive the return of their $10.2 million investment.
Blood agreed to settle this matter without admitting or denying the allegations in the complaint. Blood consented to a permanent injunction from further violations of Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, as well as Sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-8 thereunder. Based on Blood’s sworn financial statements and other documents and information submitted to the Commission, a civil penalty was not imposed. Blood also consented to the entry of a Commission order that will permanently bar him from association with an investment adviser.
See Also: SEC Complaint