SEC v. DFRF Enters. LLC: An Alleged $15M Fraud Scheme Promising Opportunities to Invest in Gold Mines

In SEC v. DFRF Enters.. LLC, D. Mass., No. 1:15-cv-12857, complaint unsealed (July 2, 2015), the Securities and Exchange Commission (the “Commission”) demanded a jury trial based on allegations against defendants DFRF Enterprises LLC (a Massachusetts company), DFRF Enterprises, LLC (a Florida company)(collectively, “DFRF”), Daniel Fernandes Rojo Filho, Wanderly M. Dalman, Gaspar C. Jesus, Eduardo N. Da Silva, Heriberto C. Perez Valdes, Jeffrey A. Feldman, and Romildo Da Cunha (the “Defendants”). The Commission alleged violations of (a) Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, (b) Section 17(a) of the Securities Act of 1933 (“Securities Act”), and (c) Sections 5(a) and 5(c) of the Securities Act, seeking injunctive relief, disgorgement plus prejudgment interest, and penalties. 

According to the allegations in the complaint, Filho during the Summer of 2014 began selling “memberships” in DFRF through meetings with prospective investors, which mostly took place in Massachusetts. Since October 2014, Filho promoted DFRF primarily through videos made available to the public on the Internet. Starting in March 2015, the Defendants claimed DFRF had registered with the Commission, was about to become publically traded, and investors could convert their membership interests into stock options at $15.06 per share. By June 2015, Filho claimed, while public trading had not begun, the value of DFRF stock exceeded $64 per share.  From June 2014 to May 2015, according to the SEC, DFRF raised more than $15 million and has only paid about $1.6 million back to investors, using money from other investors.

According to the complaint, while recruiting investors, Defendants claimed DFRF owned more than fifty gold mines in Brazil and Africa and made a 100% gross return on every kilogram it produced. The SEC also alleged Defendants told investors DFRF had a credit line with a Swiss private bank to triple its available funds, offered a 10% credit to investors who recruit new members, and paid 15% per month back to investors. Lastly, the SEC alleged Defendants claimed investors’ money was fully guaranteed by a worldwide insurance company. As the complaint alleges:

The investors' money has not been used to conduct gold mining, pay for a credit line, purchase insurance, or endow charitable activities. DFRF has received no proceeds from mining operations or any credit line. To date, DFRF has paid approximately $1.6 million back to investors. Because it has no independent source of revenue, it is apparent that, in classic Ponzi scheme fashion, DFRF is using money from some investors to pay other investors.

Based on these allegations, the Commission filed a complaint against DFRF in the federal district court of Massachusetts, requesting the court (1) enter a temporary restraining order; (2) grant a preliminary injunction; (3) grant an order freezing all assets; and (4) grant an order for other equitable relief.  Furthermore, the Commission requested the court enter a permanent injunction restraining the Defendants and their agents from directly or indirectly engaging in the conduct described above, or in conduct of similar effect.

Since the filing of the complaint, the SEC announced that Mr. Filho was “criminally charged with defrauding investors.”  https://www.sec.gov/litigation/litreleases/2015/lr23310.htm  see also https://www.justice.gov/usao-ma/us-v-daniel-fernandes-rojo-filho-dfrf-enterprises-llc-dfrf

The primary materials for this Complaint can be found at the DU Corporate Governance Website.