On 16 May 2022, SFC issued a press release of the court order for fraudsters of a Pyramid/Ponzi scheme to compensate investors in HK.  The following is a gist of the actions taken against the perpetrator.  (The press release will also be available from Reglex’s Enforcement Database  when Reglex launches later this year).

Background

Daniel Fernandes Rojo Filho (‘Filho’) was the founder and main perpetrator who made various claims including that DFRF Enterprises LLC or DFRF Enterprises, LLC (‘DFRF’) was listed on a US Exchange and he was offering people the chance to invest in a membership programme. It was claimed that investments in its shares will triple in value within 30 days and returns will be up to 15% per month.  Investments were also insured so that the investors’ “principal is guaranteed and safe”.  Members would be issued with a Visa Debit Card where profits can be accessed. 

Three promotional videos targeting Hong Kong investors were released. The company had a dedicated official website for Hong Kong and an address in Nathan Road, Tsim Sha Tsui.  In these videos which included live interviews with Filho, he solicited and urged investors to join the programme to buy shares at US$15.06 per share “when it is already worth US$64.17” (assumed to be traded on 6 May 2015, the day after DFRF purportedly became a listed public company in the US).

DFRF, Filho and two other accomplices were found to have breached HK licencing requirements as they did not have any regulatory licenses to carry out these marketing and sales activities, and the Court of First Instant granted orders that the scheme compensate the victims.

The fraud operated from June 2014 to May 2015, and DFRF raised more than US$15m from more than 1,400 investors worldwide.  In Hong Kong, a total of 333 individuals and amounts invested (as far as SFC could identify at the time) were US$3,335,541.35 and HK$117,000.  Not surprisingly, only about 10.6% of the money in Hong Kong (HK$ 2.8m or US$356,000 approx) will be recoverable following Mareva injunctions on the HK accounts held by accomplices Valdes and Sealand Trading.

Regulatory Actions Taken

Back in January 2010, Filho was named as a target in a federal civil forfeiture proceeding in Florida arising from allegations about drug trafficking, money laundering and a Ponzi Scheme.  In August 2010, a default judgment was entered against him; and he consented to civil forfeiture of more than US$25 million held in bank accounts in the names of his minor children and two businesses that he controlled.

Four years later, in the summer of 2014, Filho started meeting prospective investors from Massachusetts and in October 2014, he started to promote the scheme through videos to the public on the internet (Facebook and Youtube channels).  He started targeting Hong Kong in March/April 2015. 

In May 2015, Canada’s British Columbia Securities Commission (“BCSC”) issued an Investor Alert to warn the public not to buy any membership or securities from DFRF or their associates.  BCSC also wrote to SFC and provided information of investments that might have been made by 306 HK residents.  SFC contacted these individuals to attend interviews or complete Questionnaires, and received responses from 18 individuals.  The responses showed an additional 27 individuals had also been deceived.

Filho was arrested in Florida on 21 July 2015 for fraud charges filed by the US Attorney’s office.  However, in November 2018, the US court dismissed criminal charges on the ground that he was ‘psychiatrically incompetent to stand trial and non-restorable in the foreseeable future’.  He was then released from prison.  The US DOJ informed the US court that they believed he posed a financial danger to the public and in May and October 2019, SEC obtained final judgements in their civil proceedings against DFRF, Filho and Valdes (Heriberto C Perez Valdes) under which they were restrained from committing further breaches of the US securities regulations, and ordered to pay various sums in disgorgement as well as civil penalty (See Note 1 below).

BCSC also commenced actions in Canada, and in April 2021 entered into settlement agreements with Monita Chan and Marie Joy Vincent (accomplices) who paid a total sum of CAD$141,500 in settlement agreements with BCSC.

Back in Hong Kong, off the back of BCSC’s communication, SFC wrote to the investors on the list provided by BCSC, and obtained Mareva injunctions to freeze the monies held in two bank accounts of accomplices. SFC also took them to Court for breaches of the Securities & Futures Ordinance, and fraudulent and reckless misrepresentations (to induce others to acquire or subscribe for securities). The court ordered compensation and appointed administrators to receive and return the proceeds to HK investors.

Reglex comments

Following Filho’s (assumed) first foray into the law court in 2010, he went on to mastermind another fraudulent scheme in 2014 and 2015.  In 2018, the US Courts dismissed criminal charges filed by the US Attorney’s Office against him.  He was released from prison in 2018 and is ‘now a free man’.

Yet there is no doubt to the HK Court of First Instance in HK that “Filho was the mastermind behind the whole scheme and DFRFs were his corporate vehicles used to perpetuate the scheme”.  As the Deputy High Court Judge said “In the circumstances, it was not a fanciful concern that he may repeat yet again the same or substantially similar fraudulent scheme in the future.” The US government too believed Filho posed a financial danger to the public.

Yet actions taken (and can be taken) by the various law enforcement officers and regulators are all constrained by parochial and jurisdictional limitations.  Also, I observed that it is often the mules who get caught, not the mastermind at the top of the food chain.

As for Filho, whilst one Court considered him psychiatrically incompetent, another thinks he is likely to repeat another fraud.  It is surely not too cynical to believe that Filho was perhaps looking to get away with the big one?  The sad truth is, he is free to look for another country where investors are vulnerable enough to fall into old tricks used in more powerful ways (via social media, Whatsapp, email, etc) to reach ordinary hardworking folks.  It is very difficult for law enforcement bodies to bring perpetrators to task as scamming is a faceless crime.  Fraudsters are normally not known and operate through associates who are also either unknown or outside their jurisdiction. 

Once an investor falls victim; in most cases, they will lose all their investments.   Disgorgement and financial penalties did not stop Filho, and he even escaped imprisonment as it was ruled that he was not mentally competent to stand trial since his delusional disorder “renders him unable to assist properly in his own defence….” (See Note 2). 

So how can we ask an investor to be ‘vigilant’ when information about these schemes and their perpetrators are not easy to find especially from a foreign country?

It is of course right that the investor must take the first responsibility to do their own due diligence and understand the red flags (see next issue).  Scammers do not discriminate and will target anyone; so the ‘it won’t happen to me syndrome’ needs to be dispelled.  A case in point is Hong Kong.  Despite SFC proactively writing to the 306 investors named by BCSC, only ½% responded.  Not helping or responding to a regulator is like putting one’s head in the sand as the dollars fly out of a victim’s bank account never to be seen again. 

There is an argument to explore if there can be some stronger global co-operation to charge fraudulent schemes under a global ‘law’ or standards so that we can quickly handcuff the fraudsters, return the money to its rightful owners, and not leave fraudsters too much room to freely move on to defraud someone else somewhere else.  When fraudsters cross national borders, they become out of reach for local enforcement bodies.  While regulatory co-operation to notify each other is a great first step, we (consumers, banks, regulators, jurisprudence, etc) need to make extra joint efforts as scams become even more rampant and bold.

In the meantime, Reglex will explore how it can be of help.  Scammers undermine our society, so we will do our part to raise awareness about the evil tricks used by these unexposed but increasingly sophisticated criminals to exploit society’s vulnerabilities.  We hope we can provide a helpful reference space for investors in APAC wishing to protect themselves especially since fraudulent schemes can involve non-existent profits, non-existent assets, non-existent lines of credit, non-existent insurance policy, non-existent public offering of ‘registered’ stock by individuals and corporates who are neither authorised nor licensed for their investment activities, etc.