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Recent SEC Releases
Thursday
Jul022015

SEC Busts Gold-Mining Ponzi/Pyramid Scheme Targeting Spanish-Speaking Victims

The Securities and Exchange Commission filed civil fraud charges against a Massachusetts company and its principals and promoters, arguing the company was a massive Ponzi and Pyramid scheme that raised at least $15 million from primarily Spanish and Portuguese-speaking victims.  DFRF Enterprises LLC, a Florida company, and DFRF Enterprises, LLC, a Florida company, along with Daniel Fernandes Rojo Filho, Wanderley M. Dalman, Gaspar C. Jesus, Eduardo N. Da Silva, Heriberto C. Perez Valdes, Jeffrey A. Feldman, and Romildo Da Cunha were charged with multiple violations of federal securities laws in a complaint that was filed today in Massachusetts federal court.  The Commission is seeking injunctive relief, disgorgement of ill-gotten gains along with prejudgment interest, and civil monetary penalties.

According to the Commission's complaint, Daniel Fernandes Rojo Filho ("Filho") began pitching memberships in DFRF to victims in the Spanish and Portuguese-speaking communities in Massachusetts, Florida, and other areas throughout the world.  In a sales pitch primarily made through internet videos, victims were told that DFRF owned more than 50 gold mines throughout Brazil and Africa (including reserves in Brazil alone valued at over $4 billion) that collectively produced 13-16 tons of gold monthly and realized a return of over 100% on each kilogram it produced.  The sales pitch also claimed that DFRF used a credit line with a Swiss bank to triple its available funds, that DFRF donated 25% of its profits to African charities, and that investors could realize a 15% monthly return - an annual return of nearly 200%.  Recently, the defendants claimed that DFRF was registered with the Commission.

DFRF used multiple methods to attract potential investors, including hosting a public event on a cruise ship in the Boston Harbor in October 2014.  DFRF also provided incentives to investors and promoters that attracted additional investors to DFRF, including promised 10% referral bonuses as well as additional bonuses for investors that invested more than $10,000.  Potential investors were promised that their investments were fully insured.  

In early 2015, a newspaper published an article detailing a recent class action lawsuit filed against DFRF and Filho in a Massachusetts court.  Ironically, Filho denied the allegations that DFRF was a fraudulent scheme and instead suggested that the plaintiffs had confused DFRF with TelexFree - a massive alleged Pyramid and Ponzi scheme that was also based in Massachusetts and which is the subject of multiple criminal and civil regulatory actions.  

DFRF has also sought to attract investors with promises that its stock was set to become publicly-traded and that current investors would have the ability to covert their membership interests into stock options at approximately $15.00 per share.  Filho later claimed that DFRF was already public, but that it would not begin trading until the conversion process was finished.  Last month, Filho claimed that, while he was withholding the stock symbol for DFRF for investors' "protection," the "value" of its stock had already surpassed $64 per share.  

However, according to the Commission, 

There are no gold mines, no gold reserves, or no gold operations. DFRF bank documents indicate that none of the investors' money has been used to conduct gold mining, and DFRF has received no proceeds from gold mining operations.

Moreover, DFRF's claims about its gold production and reserves are easily disproven by referencing the U.S. Geological Survey.  At the current market price of $3.77 million per metric ton, the combined gold reserves of Brazil and Mali are worth approximately $39 billion - much lower than the $1.4 trillion in reserves that DFRF claims to have.  Nor has the Commission been able to find any evidence that DFRF spent any money on charitable activities in Africa or elsewhere.  Instead, the Commission alleges that DFRF was able to pay the outsized returns it advertised through orchestrating a massive Ponzi and pyramid scheme that attracted significant attention after it began using internet videos to solicit investors.  In addition to using investor funds for the payment of purported "returns," Filho is also accused of siphoning more than $6 million out of DFRF for a lavish lifestyle that included a fleet of luxury automobiles such as a 2014 Rolls Royce, a 2014 and 2014 Lamborghini, and a 2006 and 2012 Ferrari.  

The Commission also alleges that DFRF paid more than $300,000 to Sanderley Rodrigues de Vasconcelos, who is also a defendant in the TelexFree enforcement action brought by the Commission last year.  

A copy of the Commission's complaint is below:

 

comp-pr2015-139

 

Tuesday
Jun302015

Financial Adviser Gets 25-Year Sentence For $10 Million Ponzi Scheme

A chorus of clapping and cheering erupted after a Minnesota former financial adviser was sentenced to serve the next twenty-five years in federal prison for using his registered investment advisory business to defraud dozens of his clients out of more than $10 million in an elaborate Ponzi scheme.  Sean Meadows, 42, received the sentence from U.S. District Judge Susan Richard Nelson after previously pleading guilty to seven counts of wire fraud, three counts of mail fraud, and one count of money laundering.  Prosecutors had been seeking a 30-year sentence, while Meadows' lawyer sought a 10-year term.

Meadows operated Meadows Financial Group ("MFG"), which provided financial management and asset planning services to clients and also sold various insurance and investment products. Beginning sometime in 2007, Meadows began soliciting clients to invest in an MFG investment vehicle - typically a bond - that would provide an annual return of up to 10%.  Investors were told that their funds would be used to purchase bonds, real estate, or other legitimate investments, and Meadows represented that the investment would be both safe and liquid.  In total, Meadows raised more than $13 million from over 50 MFG clients.

However, the investment touted by Meadows was neither safe nor liquid, and the promised returns were possible only by using funds invested by new investors - a classic hallmark of a Ponzi scheme.  In addition to using investor funds to pay returns to existing investors, Meadows lived a life of luxury that included the payment of personal expenses including credit card bills, the purchase of vehicles, gambling trips to Las Vegas, and over $100,000 in payments to various adult entertainment businesses in Minnesota and Las Vegas.  Authorities peg total losses to victims at approximately $10 million.  A court-appointed receiver has returned approximately $3 million to victims.  

A copy of the indictment is below:

 

080514-Meadows

 

Thursday
Jun252015

Convicted Ponzi Promoter Arrested For Drowning Pet Rabbit

A Florida man who previously served prison time for soliciting investors for Lou Pearlman's massive $300 million Ponzi scheme has found himself again in trouble with the law after surveillance video showed him drowning a rabbit in a hotel pool.  Steven B. Rodd, 49, was arrested by Tampa police after he was observed tossing a rabbit into a hotel pool and watching it drown.  If convicted, Rodd could face up to five years in state prison as well as a fine of up to $10,000.

Rodd has a long history of being implicated in Florida Ponzi schemes.  During 1999, Rodd and others solicited investors for LinkTel Communications, Inc. ("LinkTel"), which promised investors annual returns ranging from 12% to 14% through a payphone leaseback venture.  The Securities and Exchange Commission later accused LinkTel of being a large Ponzi scheme that raised over $6 million from several hundred investors.  Rodd was later charged by the Commission with violating securities laws in connection with his role with LinkTel and agreed to be permanently barred from the securities industry.  According to the St. Petersburg times, Rodd was associated with at least six fraudulent schemes.

However, LinkTel paled in comparison to the massive $300 million Ponzi scheme run by former boy band mogul Lou Pearlman that unraveled in early 2007.  Rodd, along with others, solicited investors for the Employee Investment Savings Account (EISA), which was represented as an investment by Pearlman-owned Transcontinental Airlines.  An EISA investment promised annual returns exceeding 6% and targeted retirees and elderly investors by falsely claiming that the investment was FDIC-insured and that he did not receive sales commissions.   In total, Rodd sold over $32 million in EISA investments to hundreds of Florida investors.  The investments later turned out to be worthless when Pearlman's scheme collapsed, and a court-appointed bankruptcy trustee has returned just pennies on the dollar to scammed victims.

Rodd was indicted for his role in Pearlman's fraud in 2011 and was later sentenced to a 36-month prison term.  

Tuesday
Jun232015

NY Financial Advisor Gets 4.5 Years For $1.9 Million Ponzi Scheme

A Long Island financial advisor was sentenced to serve the next 55 months in federal prison after previously pleading guilty to operating a Ponzi scheme that caused nearly $2 million in losses to clients and friends.  Paul Sullivan, 50, received the sentence from U.S. District Judge Leonard D. Wexler after pleading guilty to wire fraud.  In addition to the prison sentence, Judge Wexler ordered Sullivan to pay $1.9 million in restitution and serve three years of supervised release after completion of his sentence.

Sullivan, a previously-licensed financial advisor, used funds entrusted to him by his clients for various unauthorized investments that later resulted in significant losses.  When confronted by those clients, Sullivan attempted to avoid any potential ramifications by promising those investors that he would completely reimburse their losses.  Instead, Sullivan pitched a different group of clients to invest in what he characterized as "private investment opportunities" that, in reality, were simply the transfer of those client funds to the previously defrauded investors. 

During a subsequent client meeting that was recorded by a hidden camera, Sullivan admitted to using client funds to repay other client investment losses and stated that "what I did was completely illegal, completely wrong...everything I've done was wrong, was illegal, I have nothing to say."

Sullivan was arrested in July 2012 and subsequently pleaded guilty in July 2013. 

Tuesday
Jun232015

Colorado Woman Charged With $7 Million "Triple Algorithm" Ponzi Scheme 

North Carolina authorities have filed criminal charges against a Colorado woman on allegations that she operated a massive Ponzi scheme that duped over 10,000 victims out of at least $7 million under the guise that a "lifetime income plan" could deliver annual gains exceeding 700%.  Kristine L. Johnson, of Aurora, Colorado, was charged with one count of wire fraud conspiracy in an information filed in the Western District of North Carolina.  Johnson has agreed to plead guilty to the charge, and could face up to twenty years in prison.

Johnson and Troy Barnes, of Riverview, Michigan, operated Work With Troy Barnes Inc. ("WWTB"), which was subsequently rebranded as "The Achieve Community" ("Achieve") in April 2014.  Johnson served as CFO of WWTB and Achieve and was responsible for day-to-day activities.  Achieve solicited investors to purchase "positions" costing $50 each that in turn promised a pay-out of $400 per position in the subsequent three-to-six month period - a return of 700% and an annualized return exceeding 1000%. In a short video on Achieve's website, Johnson touted Achieve as a "lifetime income plan," and explained:

How are we a lifetime income plan? It’s simple. Every $50 position you purchase, you make $400. With two positions, you make $800. With five positions, you make $2,000. Want to go bigger? With twenty positions, you make $8,000. With one hundred positions, you make $40,000. This is limitless.

Barnes made similar claims, narrating a different Achieve video claiming that Achieve “will teach you how to take $50 and turn it into thousands of dollars, and that’s a fact.”  Investors that questioned Achieve's ability to pay such exorbitant returns were assured that Achieve utilized a "triple algorithm" and "matrix" created by Johnson and Barnes.  Johnson attempted to explain the "3-D matrix" as follows:

I thought, what can I do, what can I make, what can I design, that has only what works and none of what doesn’t, and one day, honestly this is what happened, I just saw it. I just saw it in my head. This matrix is 3D, which is why we can’t put it on paper. It’s a triple algorithm. And I can’t for the life of me tell you why I could figure that out in my head. But I could.

Investors were encouraged to re-invest their returns, with Barnes assuring investors that such a strategy would make it "very easy to make six figures."  In total, Achieve took in at least $6.8 million from investors.

However, despite its claims that it was "not a pyramid scheme," both civil and criminal authorities alleged that Achieve was a pure Ponzi and pyramid scheme.  For example, Achieve's sole source of revenue allegedly originated from investor contributions.  Nor were any profits derived from legitimate business activities; rather, Achieve used funds contributed from new investors to make principal and interest payments to existing investors.  Johnson admitted to taking more than $200,000 in investor funds for her own personal use.  

Despite Barnes' prominent role in the suit filed by the Securities and Exchange Commission, he is named in the criminal information only as an unindicted co-conspirator, suggesting that he may have cooperated with authorities.  

The criminal charging document filed against Johnson is below.  Special thanks to Don at ASDUpdates.

Doc 1 (6) by jmaglich1

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