The Securities and Exchange Commission is filing fraud charges against DFRF Enterprises for running a Ponzi scheme and pyramid scam that targeted investors belonging to Portuguese and Spanish-speaking communities. According to the regulator, the company claimed to run over 50 gold mines in Africa and Brazil even though its revenues came solely from selling membership interests to investors.
The alleged scammers raised over $15 million, bilking at least 1,400 investors. The owner of DFRF, Daniel Fernandes Rojo Filho, allegedly took over $6 million of this money to pay for personal expenses, including luxury vehicles and other lavish spending.
The regulator contends that in 2014, Filho and others started selling memberships in DFRF. Investors were recruited through a pyramid-like scam, with commissions paid to earlier investors for recruiting new members, much like a Ponzi scheme.
Many of these sales took place through meetings with prospective investors in hotel conference rooms, businesses, and homes, mostly in Massachusetts. The investment opportunity was also promoted on video through the Internet. In less than a year, membership sales rose from under $100,000 in June 2014 to over $4 million for the month of March 2015.
The SEC said that along with several promoters, DFRF made false promises to prospective investors, allegedly telling them that their money would be fully insured, the company had a credit line with a private Swiss bank, and 25% of the “profits” would go to charity work in Africa. According to the Commission, there were no gold mines or insurance, and no money was donated to any African charities. Filho is also accused of falsely claiming that the company was registered with the SEC and that its stock was publicly traded.
The SEC has announced an asset freeze against the operators of the scam. As of now, DFRF has repaid investors $1.6 million.
The SEC has a hotline you can call if you suspect that an investment opportunity is really a Ponzi scam: (800) 732-0330. You can also contact the SEC online and submit your tip. If your losses are substantial you should call an experienced securities fraud law firm to explore your legal options.
With Ponzi scams, fraudsters will usually bring in investors by promising that their money will go into opportunities guaranteed to bring in high returns with hardly any or no risks. What instead ends up happening is that money brought in by new investors is used to pay earlier investors their promised returns to make it seem as if there is revenue. Ponzi schemes eventually fail when too many investors at a time want to cash out or the number of new investors brought in diminishes.
And then there are affinity scams, which are investment schemes that target a specific group of people that share a commonality. Such groups may belong to the same religion, alumni organization, ethnic community, or have something else in common that makes them an identifiable group. A lot of affinity scams are Ponzi scams or pyramid schemes.
Read the SEC Complaint (PDF)