What MLMers/Network Marketers Can Learn From BCSC’s ‘Bossteam’ Case And Similar Cases — Including The SEC’s DFRF Enterprises Action

ponziblotterLet’s say you’re an MLMer or network marketer. Your email inbox begins to fill up with offers for a scheme that purports to be an “advertising program” favored by famous brands. Spammers are trying to blast their way into your social-media accounts.

The messages: You’re going to be rich in no time. Beyond that, you’re going to receive valuable shares in a startup.

This was Bossteam E-Commerce Inc. — and it was a noxious Ponzi fraud whose “Inc.” designation was meaningless and served as a reminder that a corporate registration is not proof no scam is occurring.

AdSurfDaily ($119 million) was an “Inc.” running a fraud. Bernard Madoff was at the helm of an LLC involved in the largest Ponzi scheme in U.S. history. (NOTE: MLMers/network marketers should think about these things that next time they point to an “Inc.” or “LLC” designation” as proof of legitimacy. TelexFree, accused of operating a combined Ponzi- and pyramid scheme that gathered on the order of $1.8 billion, was both an “Inc.” and an “LLC.” Rex Venture Group “LLC” operated the Zeek Rewards scheme believed to have gathered on the order of $897 million. At one point in time, promoters of ASD, TelexFree and Zeek pointed to corporate registrations as proof no scam was occurring. The same thing happened with DFRF Enterprises, currently in the news.

As the PP Blog reported in May 2012, the Bossteam “program” surfaced in British Columbia and allegedly sold memberships for up to $5,000 each. Prospects allegedly were told they’d get paid for clicking on ads and could exchange purported “private” shares through a purported “internal trading platform.”

But “Bossteam committed fraud when they created the false impression that Bossteam members and well-known local and international businesses were paying Bossteam to advertise on its websites,” a panel of the British Columbia Securities Commission found in a decision dated yesterday. “This was untrue, as the majority of ads appearing on Bossteam’s websites were associated with Bossteam’s own accounts, and not to accounts for parties that had paid Bossteam to post their links.(NOTE: Bossteam is hardly alone in this category. Remember EAdGear?)

ASD, Zeek and TelexFree also had purported “advertising” elements.

It gets worse — and MLMers/network marketers need the learn from this history.

From the BCSC panel’s decision yesterday (italics/bolding added/spacing approximated):

The panel found that each of the respondents breached the Act by:

  • distributing securities of Bossteam without first having filed a prospectus, contrary to section 61(1);
  • engaging in conduct that perpetrated a fraud on those who purchased securities of Bossteam, contrary to section 57(b);
  • withholding information concerning the sale of securities of Bossteam in response to a demand for production issued under section 144 of the Act, contrary to section 57.5; and
  • attempting to conceal or withhold information concerning the sale of securities of Bossteam by instructing others to deny Bossteam had offered such securities to the public and to refer to the concept of online trading as being planned for the future, contrary to section 57.5.

Put another way, Bossteam first ripped off its members and then tried to draft them into an international conspiracy to cover up the fraud scheme.

The decision involved the conduct of Bossteam, Guan Qiang Zhang (also known as Victor Zhang) and Yan Zhu (also known as Rachel Zhu).

Among the panel’s conclusions was that “Zhang contravened section 57.5 of the Act by attempting to conceal information concerning the sale of Bossteam securities when he instructed others to stop referring to Shares as shares and instead call them consumer credits.”

It is common for HYIP scammers to try to tweak language to skirt securities laws. Both before and after the tweaks, the scammers may seek to dupe the fleeced masses into doing the same thing — a circumstance that leads to a flood of misinformation on the web.

One of the classic fraudulent tweaks occurs when a scheme purports to be morphing from a private offering into one that soon will trade on one or more public stock exchanges. Here is part of what the BCSC said in its May 2015 Investor Alert on the DFRF scheme.

The BCSC has become aware that [Daniel Fernandes Rojo] Filho is offering investments to British Columbians with returns of up to 15% per month. Filho is also promising that DFRF will soon be listed on a public stock exchange, after which the value of members’ investments will triple within 30 days. Members will continue to receive up to 15% per month on their investment. These returns are economically impossible. Also, when selling securities, it is illegal to represent that those securities will be listed on an exchange without certain conditions being met.

Daniel Fernandes Rojo Filho also has been cited in filings as Daniel Fernandez Rojo Filho.

The SEC announced its action against Filho, DFRF and others last week. Here is part of what the agency said (italics added):

The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses.  DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded.  As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

And from the SEC’s complaint (italics added):

Since late March 2015, the defendants have claimed that DFRF is registered with the Commission, its stock is about to become publicly traded, and current investors may convert their membership interests into stock options at $15.06 per share. At first, Filho represented that public trading would start in mid-April 2015. Since then, he has announced several delays and offered various excuses. On June 17, 2015, he claimed that, although public trading has not begun, the value of DFRF stock now exceeds $64 per share.

DFRF and Bossteam were not precisely alike, but both schemes allegedly were offering frauds that operated as Ponzi schemes and duped investors with talk of  trading shares. Bossteam allegedly lined up about $14 million, with DFRF coming in at about $15 million.

Bossteam has been cease-traded. Zhang and Zhu have been banned from the British Columbia securities trade. Fines and disgorgement against the pair total $28 million.

Many current online HYIP schemes share a common story of above-market returns, with shared wealth being enjoyed by the masses. These may be advanced as private or public offerings, with references to in-house platforms or public stock exchanges. The term “IPO” also is used in some schemes.

In recent years, the schemes have led to losses that cascade across the globe. The schemes may be positioned as “offshore” and therefore safe or even guaranteed. There may be accompanying claims prestigious banks or insurance companies provide financing or a guarantee against losses.

Among the SEC defendants in the DFRF case is Heriberto C. Perez Valdes, 46, of Miami. The SEC alleged that he is a manager of a Massachusetts DFRF entity “with responsibility for “all administrative and executive work.'”

The agency further alleged that Valdes also is “an administrator of Platinum Swiss Trust, a purported Swiss private bank that is not actually authorized to conduct banking activities in Switzerland. (Emphasis added.) “He has made materially false and misleading statements about DFRF in public meetings and videos posted on the internet.”

How deep did the deception go? Perhaps deep into Boston Harbor.

“On October 16, 2014, DFRF sponsored a public event on a cruise ship in Boston harbor,” the SEC alleged. “Several videos of the event were posted on the internet. In one video, Filho states that DFRF makes a gross profit of 100% on its gold production in Africa, it needs the investors’ money to ‘leverage’ its credit line in Switzerland and triple its available funds, it pays 15% per month to investors (but cannot promise to do so without violating the law), and the investors’ money is fully insured. In a second video, Valdes states that the investors’ money is held in Switzerland and is fully guaranteed.”

Like other schemes (including TelexFree), an insurance company was said to provide DFRF members a safeguard against losses.

Here is part of what the SEC alleged against DFRF defendant Jeffrey A. Feldman, 56, of Boca Raton, Fla. (Italics added.)

He is the sole officer and director of Universal Marketing Group, Inc., a Florida corporation. He claims to be the U.S. representative of Accedium Insurance Company (“Accedium”), which is based in Barbados and London. In July 2007, he filed for personal bankruptcy. In 1998, he was found guilty of fraud and forgery for having received $2.5 million in premiums from a rental car chain for insurance policies that he did not actually obtain. In 1996, the state of Florida revoked his license to sell insurance after he pleaded no contest to charges that he submitted false insurance claims for losses he supposedly suffered from Hurricane Andrew. He has made materially false and misleading statements about DFRF in public meetings and videos posted on the internet.

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