SALT LAKE CITY — Federal regulators have accused two Utah men of orchestrating a $3 million investment fraud scheme through their company Blackbird Capital Partners, and one of them faces criminal charges.
The Securities and Exchange Commission filed a complaint in federal court Monday against Andrew D. Kelley, 41, of Draper, and Paul H. Shumway, 47, of Lehi, alleging they operated a Ponzi scheme.
On Wednesday, a criminal complaint against Kelley was unsealed in U.S. District Court alleging securities fraud.
Kelley told one investor in October that he had "screwed up" and lost $6 million, according to an affidavit. He initially blamed the loss on Brexit but then told the investor he used his money to "plug old holes" and pay other investors due to trading losses.
When the investor confronted Kelley about his "pattern of fraud," Kelley told him, "I am delusional. I am a compulsive liar," the affidavit says. Kelley, according to the affidavit, told the investor he could "trade his way out of it" to repay him if he wouldn't report him to authorities.
Kelley and Shumway solicited several investors to put up at least $3.1 million with Blackbird, or through a separate "friends and family" account, which Kelley claimed he managed as a proprietary trading fund, according to the SEC.
The complaint alleges Kelley told investors that he developed an algorithmic software program for Blackbird to invest its own funds to profit the company and investors. Kelley claimed he spent millions of dollars and thousands of hours developing the program that made up to 300 percent returns, the SEC says.
Kelley also told investors he was a family man and faithful member of the LDS Church, the affidavit says.
According to the complaint, Blackbird was supposed to invest money in various security and futures instruments, but investor funds were used to pay returns to earlier investors and for other personal and business expenses.
Judge Tena Campbell froze some of Blackbird's accounts and issued a temporary restraining order against Kelley and Shumway. An evidentiary hearing is scheduled for January.