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Category: The Economy

  • SHADES OF ZEEK: Prospective Class-Action Defendant Tells Judge TelexFree Was Operating A Tax Scam

    newtelexfreelogoIn October 2014, federal prosecutors alleged that the Zeek Rewards MLM “program” shut down by the SEC two years earlier was in part a scam that caused “victim-investors to file inaccurate tax returns for phantom income they never actually received.”

    Now, a year later, a member of the TelexFree MLM scheme shut down by the SEC and other agencies last year is telling a federal judge that it appears TelexFree engaged in accounting fraud that caused him to pay taxes on income he never actually received.

    The claim was made in an Oct. 7 defense filing by Daniil Shoyfer, whom private plaintiffs want to make the lead defendant in a class-action case that effectively would sue Shoyfer and 20,000 other alleged TelexFree net winners believed to have collected money directly from recruits.

    Unlike Zeek’s Paul Burks and Dawn Wright-Olivares, alleged TelexFree operators James Merrill and Carlos Wanzeler have not been charged criminally with tax offenses. But the assertion by Shoyfer gives rise to questions about whether they and others could be as the federal probe of the enterprise continues. Merrill and Wanzeler currently face charges of wire fraud.

    Shoyfer, through attorneys from two Boston law firms, says U.S. District Judge Timothy S. Hillman should not permit the plaintiffs to amend the complaint to make him the class-representative. He further contends that “TelexFree has engaged in what appears to be fraudulent accounting practices intending to show that it paid Mr. Shoyfer in excess of $750,000 – however this is simply false.”

    “Although TelexFree credited Mr. Shoyfer with large amounts to his TelexFree account, he never withdrew or had access to the vast majority of these funds,” he contended through counsel.

    Shoyfer did not identify who might have helped TelexFree hatch a bogus accounting scheme. The SEC, in 2014, charged former TelexFree CFO Joseph H. Craft of Boonville, Ind., with securities fraud. Craft is an accountant. In its civil complaint, the SEC alleged Craft “has been the chief financial officer of other multi-level marketing companies” in addition to his work for TelexFree.

    From Shoyfer’s argument (italics added/light editing performed):

    Mr. Shoyfer worked with TelexFree from March of 2013 through April of 2014 . . . Over the course of those thirteen months, Mr. Shoyfer received a total of $122,000 from TelexFree . . . However, Shoyfer also spent many thousands of dollars in expenses in order to make this money from TelexFree . . . Mr. Shoyfer estimates that he paid nearly $60,000 to TelexFree in order to be a part of the MLM (including dozens of purchases of the $1,425 AdCentral Family packages, . . . plus other expenses . . . Contrary to the allegations in the proposed amended complaint, Shoyfer never earned $300,000 per week . . . Mr. Shoyfer cannot afford to be the class representative in this lawsuit: it would almost certainly bankrupt him (again), and it would work an immeasurable hardship on his wife, his daughter, his unborn daughter, his two sons, his father, his sister and others that depend on him.

    The argument describes Shoyfer as a teenager when he fled the Soviet Union for America years ago with his mother to escape “persecution because of their Jewish heritage.”

    Living in the United States, Shoyfer, now believed to be in his forties, eventually became a full-time occupational therapist who started a staffing business in that profession and also dabbled in MLM, according to the argument.

    Shoyfer asserts that he believed TelexFree to be legitimate.

    “Prior to TelexFree closing down and being charged with fraudulent acts, Mr. Shoyfer had no knowledge that TelexFree was engaged in any unlawful, unfair, or improper practices,” his lawyers argued. “To the contrary, Mr. Shoyfer relied upon the statements of TelexFree’s officers and legal representatives that TelexFree was a fully legitimate and legal enterprise . . . Mr. Shoyfer had no reason to believe otherwise (nor did he) until TelexFree and its officers were charged.”

    More from the argument (italics added/light editing performed):

    The defense costs Mr. Shoyfer would have to absorb as the named defendant for the putative defendant class would easily exceed the amounts he received from TelexFree and he, therefore, has no incentive to pay the defense costs of being the named defendant . . . If a defendant class is certified, Mr. Shoyfer intends to opt out of the class . . . Mr. Shoyfer has no interest in being lumped together with 20,000 or so other defendants, some of whom may have known more than he did about TelexFree’s activities and the purported pyramid scheme, and some of whom liked caused Mr. Shoyfer to suffer damages himself.

    The argument further contends Shoyfer is a good son and sibling who sends between $200 and $300 each month to both his father in Russia and his sister in Lithuania. He also has paid support of about $2,000 a month since 2008 for two children from his first marriage. Shoyfer now has a child with his second wife, with another child on the way.

    In June 2015, The PP Blog reported that Shoyfer also was promoting a scheme known as MyAdvertisingPays — or MAPS, for short. MAPS resembles the AdSurfDaily Ponzi scheme, a $119 million fraud uncovered by the U.S. Secret Service in 2008.

    Kenneth D. Bell, the Zeek receiver, has raised questions about MLMers moving from one fraud scheme to another.

    NOTE: Our thanks to the ASD Updates Blog.




     

  • BOOKMARK EConsumer.Gov: 34-Nation Coalition Takes Online Complaints About Pyramid Schemes And Other Cross-Border Scams

    recommendedreading1Modern scams that use the Internet can mushroom, creating victims in huge numbers in multiple countries. Let today be the day you bookmark EConsumer.gov. The PP Blog has placed a link in the right sidebar.

    The United States and 33 other countries are members of the International Consumer Protection and Enforcement Network or ICPEN.

    From the U.S. Federal Trade Commission in a news release published Oct. 13, 2015, and titled, “FTC and Consumer Protection Agencies from 33 Other Countries Unveil Updated Econsumer.gov Website”:

    “Increasingly, we live in a cross-border world in which consumers buy goods and services from around the globe, so the Econsumer.gov website is a valuable means of detecting and combating unlawful practices that are occurring across national boundaries,” said Nisha Arora, ICPEN president and senior director of the U.K. Competition and Markets Authority. “I encourage anyone who has encountered a problem that crosses national borders to send the details to econsumer.gov.”

    ICPEN is hosting a meeting for member-nations in the United Kingdom Oct. 13-16. Manchester is the host city.

    How big can the schemes get? The TelexFree scheme, for instance, allegedly generated more than $3 billion in transactions and potentially created more than 1 million victims globally in about two years of operation. (See Oct. 7 motion by court-appointed trustee Stephen B. Darr titled “MOTION BY CHAPTER 11 TRUSTEE FOR ENTRY OF ORDER FINDING THAT DEBTORS ENGAGED IN PONZI AND PYRAMID SCHEME AND RELATED RELIEF.”

    “Consumer complaints filed through econsumer.gov are entered into Consumer Sentinel, a complaint database maintained by the FTC, and are made available to enforcers and regulators in countries with participating agencies,” the FTC said. “Those agencies may use the complaints to investigate cross-border issues, uncover new scams, pursue regulatory or enforcement actions, and spot consumer trends.”

  • URGENT >> BULLETIN >> MOVING: Zeek Receiver Sues MLM Attorney Gerald Nehra

    breakingnews725URGENT >> BULLETIN >> MOVING:  (7th Update 8:33 p.m. EDT U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid-scheme case has sued MLM attorney Gerald Nehra and his law firm and law partner.

    Named defendants are Nehra as an individual and as a member of the Nehra and Waak law firm of Michigan, and Richard W. Waak. Like Nehra, Waak is named as an individual and as a member of the firm. The two lawyers’ individual professional LLCs also are named.

    The 21-page complaint by Zeek receiver Kenneth D. Bell is dated Sept. 21 and alleges damages of at least $100 million. A section of the complaint quotes a July 22, 2012, email from Waak that reads, “I have primary responsibility for the Zeek Rewards account with our law firm.”

    The SEC moved against Zeek a month later, in August 2012, alleging a massive Ponzi- and pyramid scheme. At least three Zeek executives, including alleged operator Paul R. Burks of North Carolina, later were charged criminally. Two of the executives — Dawn Wright-Olivares and her stepson Daniel Olivares — have pleaded guilty.

    From the receiver’s complaint (italics added):

    By virtue of their knowledge of [Zeek operator Rex Venture Group]  and ZeekRewards and their legal expertise, Nehra and Waak knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and a Ponzi scheme. Despite this knowledge, Nehra and Waak encouraged investors to participate in the scheme by knowingly allowing their names to be used in providing a false façade of legality and legitimacy and gave improper legal advice that allowed the scheme to continue far longer than it would have without the Defendants’ support. Nehra and Waak’s improper and negligent actions, which breached their fiduciary duties to RVG and assisted RVG’s Insiders to breach their fiduciary duties, caused significant damage to RVG.

    Nehra and Waak also face the prospect of private litigation flowing from the alleged TelexFree Ponzi- and pyramid scheme.

    In a complaint filed May 3, 2014, plaintiffs accused Nehra of counseling TelexFree “on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”

    He further was accused of encouraging unknowing TelexFree members to “participate in the evasion of federal and state securities laws.”

    The Zeek receiver made similar claims against the lawyers.

    “With their inside knowledge of multi-level marketing schemes and access to RVG’s Insiders, Nehra and Waak knew or should have known that insufficient income from the penny auction business was being made to pay the daily ‘profit share’ promised by ZeekRewards,” Bell alleged.

    “The Defendants knew or should have known that the money used to fund ZeekRewards’ distributions to Affiliates came almost entirely from new participants rather than income from the Zeekler penny auctions. Further, based on their inside knowledge and access, Nehra and Waak knew or should have known that the alleged ‘profit percentage’ was nothing more than a number made up by Burks or one of the other Insiders. Rather than reflecting the typical variances that might be expected in a company’s profits, the alleged profits paid in ZeekRewards were remarkably consistent, falling nearly always between 1% and 2% on Monday through Thursday and between .5% and 1% on the weekends, Friday through Sunday.”

    Nehra also was a figure in the 2008 AdSurfDaily Ponzi scheme story, opining that ASD was not a Ponzi scheme despite remarkably consistent returns. ASD operator Andy Bowdoin later pleaded guilty to wire fraud and acknowledged his company was a Ponzi scheme and never operated lawfully from its inception in 2006.

    Like Bowdoin, Zeek’s Burks is accused of making up numbers to dupe participants. In TelexFree-related matters, class-action lawyers argued that “Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”

    Zeek receiver Bell accused Nehra and Waak of  turning a “blind eye” to incredible claims by Zeek and of suggesting cosmetic changes to language instead of “recommending substantive changes that would make the program lawful.”

    At least one alleged TelexFree promoter accused by the SEC last year of securities fraud has alleged she was duped by both the company and Nehra. That claim was made by veteran HYIP Ponzi pitchwoman Faith Sloan.

    NOTE: Our thanks to the ASD Updates Blog.

     

  • FEDS: ‘Achieve Community’ Scam Raked Victims In More Than 140 Countries; Justice Department’s ‘Mega Victim Case Unit’ Called To Duty

    achievelogoUnlike the boffo web-based schemes of TelexFree, Zeek Rewards and AdSurfDaily, the “Achieve Community” scam in which participants were told they’d glean returns of 700 percent did not perform well (relatively speaking) at the MLM Pyramid/Ponzi Scheme Box Office.

    Achieve’s haul topped out at about $6.8 million, with alleged unfunded liabilities in the range of $50 million.

    What’s particularly alarming about U.S.-based Achieve is that, though small in dollar volume and victims’ count compared to its larger fraud kin,  it still reached into more than 140 countries.

    Federal prosecutors from the office of U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina now say Achieve created about 10,000 victims, “including more than 4,000 located outside the United States.”

    The U.S. victims’ count also presented a logistical challenge — enough of one, at least, for the Justice Department to assign its “Mega Victim Case Unit” to the Achieve matter.  The unit helped prosecutors contact U.S. victims.

    As the PP Blog reported in July 2015, prosecutors established a web page for victims. Authorities now say “[a]pproximately 229 victims including 29 located in foreign countries have provided details of their victimization. . .”

    When a federal crime is committed, prosecutors said, victims  have “[t]he right to reasonable, accurate, and timely notice of any public court proceeding . . . involving the crime or of any release or escape of the accused,” and “[t]he right to be reasonably heard at any public proceeding in the district court involving release, plea, sentencing, or any parole proceeding.”

    When a case with a large number of victims such as Achieve presents itself, it becomes a practical impossibility to contact each and every person who has been defrauded. Because of this, prosecutors have asked a judge to approve  a plan that provides “notification to victims who reside in other countries through the internet by posting details about the case and relevant victim impact forms on the United States Attorney’s Office website.”

    And there are other logistical challenges when victims of a U.S. crime hail from other countries, prosecutors said.

    “Because each country has its own procedures and requirements for contacting persons located in its territory, contacting each foreign victim directly is not practical or advisable,” prosecutors said. “Due to sovereignty concerns, many countries limit or prohibit foreign government officials from directly contacting persons within that country’s borders. This case’s 4,000+ foreign based victims hail from over 140 different countries.”

    So, Internet notice is the thing.

    We’ll conclude this column with a question: If Achieve created a need for the Justice Department to bring in its  “Mega Victim Case Unit,” what sort of need will the TelexFree case create? There may be on the order of 1 million victims in that scheme.

    Watch for a special PP Blog editorial tomorrow.

    Achieve’s Kristi Johnson is scheduled to be sentenced Nov. 19. Matters pertaining to her alleged colleague Troy Barnes appear to be unresolved.

    NOTE: Our thanks to the ASD Updates Blog.

     

  • Banks Should Have Googled Daniel Fernandes Rojo Filho, Attorney Tells Bloomberg Business

    recommendedreading1 (1)The lede in a story this morning by Neil Weinberg of Bloomberg Business:

    “The U.S. requires banks to know their customers. Looks like several big ones, including Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co., may have missed getting acquainted with Daniel Fernandes Rojo Filho.”

    Here’s a link to the story, titled “Ponzi Suspect’s 17 Accounts Raise Questions Over Bank Safeguards.”

    The PP Blog first wrote about Filho in May 2010 in the context of the deeply disturbing Evolution Market Group/ FinanzasForex scheme. Money was linked to the narcotics trade.

    As we reported more than five years ago (italics added):

    Research by the PP Blog suggests the purported investment program was so sordid that promoters even claimed some of the funds were being used for the “humanitarian” purpose of assisting kidnapping victims in Colombia. In a sickening display of marketing theatrics, a claim was made that investors could “adopt” kidnapping victims for a payment of $1,000 and that the company would set aside $500 in corporate funds for each victim so that their families could have bright futures if the victims ultimately were released by their captors.

    The HYIP scheme allegedly was associated with an entity known as Evolution Market Group (EMG), which purportedly had a Forex component known as FinanzasForex. Investigators alleged in January that there were schemes within schemes in a tangled web of domestic and international deception that featured dozens of bank accounts, shell companies and various fronts for money-laundering enterprises, including companies purportedly in businesses such as real estate and car washes.

    The scheme was so corrupt, according to court filings, that some investors were told that, in order to leave the program whole, they had to recruit new investors, have the new investors pay them directly — and use the proceeds from the new investors to “recover” their initial outlays.

    “If the banks had just Googled this guy, they would have known enough to stay away,” Evans Carter, a Framingham, Massachusetts-based attorney, told Bloomberg.

    Filho’s name later would surface in the preposterous DFRF Enterprises’ scheme that has led to civil and criminal charges against him. The SEC has linked Filho to TelexFree figure Sann Rodrigues. Those ties may prove to be more troubling as the litigation winds its way through the courts.

    See BehindMLM.com story dated today: “Sann Rodrigues laundered assets through DFRF Enterprises.”

  • REPORT: Vemma Europe Ltd. In ‘Provisional Liquidation’

    Oct. 7, 2015, screen shot of Vemma.es by PP Blog.
    Oct. 7, 2015, screen shot of Vemma.es by PP Blog.

    3RD UPDATE 4:11 P.M. EDT U.S.A. There is a Twitter report in Spanish dated today that Vemma Europe Limited has been put in “provisional liquidation” and that the High Court of Ireland has appointed a provisional liquidator to verify claims.

    The PP Blog has observed a message on a Vemma.es domain that identifies the provisional liquidator as “Mr Ken Fennell of Deloitte.” Deloitte’s website identifies a man by that name as a “[p]artner in our restructuring services” who has more than “20 years’ experience in restructuring and insolvency assignments.”

    Separately, a motion docketed Oct. 2 by the former receiver in the FTC’s pyramid-scheme and deceptive-advertising case against Vemma asserted that Vemma had been considering bankruptcy options in the United States and that Vemma had failed “to disclose to the Court that its Australian subsidiary has recently been placed into the Australian equivalent of a Chapter 7 liquidation proceeding.”

    The FTC sued Vemma in August.

    Robb Evans & Associates, the former receiver, is now the court-appointed monitor in the FTC case — as the agency and Vemma continue to clash after a federal judge allowed it to reopen last month but put it under severe restrictions.

    See Oct. 3 story at BehindMLM.com.

    NOTE: Our thanks to the ASD Updates Blog.

     

  • PICTURE STORY: Attempted Candle-Snuffing

    The PP Blog writes about Ponzi schemes, pyramid schemes, securities fraud, cross-border scams (transnational crime) and issues pertaining to economic and national security.

    This Blog has been here for you since 2008, through 2,738 articles. The graphic below shows blocked malicious login attempts here over just the past small handful of months. Be it random bots or individuals attacking WordPress sites in general or the PP blog in specific, it’s easy enough to see it all as attempts to blow out a candle and make the world a darker place.

    Among the current leaders in attempted candle-snuffing here are IPs that appear to originate in Iraq, Pakistan, Ukraine, the Czech Republic and the Netherlands.

    We do wonder about such things, for the same reason we wonder about how ISIS has come into possession of so many Toyota trucks.

     

    mallogin10062015small

     

  • 2 Of 3 Wire-Fraud Counts Against DFRF’s Filho Pertain To YouTube Videos; Feds Busy With Search Warrants

    Daniel Filho in a YouTube pitch for DFRF.
    Daniel Filho in a YouTube pitch for DFRF.

    EDITOR’S NOTE: See related story yesterday.

    Pitching your HYIP fraud scheme on YouTube and deceiving your audience en masse? You might need a good attorney: Two of the three wire-fraud counts against alleged DFRF Enterprises operator Daniel Fernandes Rojo Filho pertain to YouTube pitches.

    One, allegedly uploaded on Oct. 20, 2014, is titled “Primeiro Evento DFRF.” The other, allegedly uploaded on May 9, 2015, is titled “DFRF Entrevista Stock Market Registration and Card With CEO Daniel Filho.” The third wire-fraud count involves “a wire transfer of $1.8 million from an Eastern Bank account ending in 7206, in the name of DFRF Enterprises, LLC, to a Citibank account ending in 4458, in the name of DFRF Enterprises, LLC,” according to an indictment returned Aug. 5.

    The video below has the same title of second one referenced in the indictment, but may be a copy:

    Some HYIP promoters may not know that making false claims on YouTube can result in criminal charges of wire fraud and potentially decades in prison. Filho is alleged to have been at the helm of a $23 million Ponzi- and pyramid scheme.

    From the Filho indictment.
    From the Filho indictment.

    Other records show criminal investigators have been busy executing search warrants — no fewer than six of them, including ones that suggest there could be criminal actions coming against one or more others.

    These warrants, according to docket entries, involve at least three mobile phones with numbers in the regions of Orlando and Tallahassee, Fla., and San Francisco. The Feds also have sought “GPS Location information” for a “Rolls Royce Ghost,” plus information on AOL and .com (dotcom) email addresses with DFRF links.

    The SEC, among other agencies, has been warning for years about scams spreading on YouTube and other social media. Here is one such warning.

    NOTE: Our thanks to the ASD Updates Blog.

  • BULLETIN: FTC Alleges Vemma’s Boreyko Violated Order After Judge Entered Preliminary Injunction

    breakingnews725BULLETIN: (3rd update 10:17 p.m. EDT U.S.A.) The Federal Trade Commission has gone to federal court in Arizona, alleging that Vemma CEO B.K. Boreyko violated a court order within 11 days after a federal judge imposed a preliminary injunction against the MLM company.

    Boreyko contacted certain affiliates on an unknown date with Vemma  “sales or marketing material” in violation of U.S. District Judge John J. Tuchi’s Sept. 18 order prohibiting such contact “without prior delivery to the FTC and a five (5) day period for the FTC to review the materials,” the agency argued.

    The violation occurred “a mere eleven days or less” after Tuchi’s Sept. 18 order, the FTC contended,

    “FTC staff recently located two Facebook postings by self-proclaimed Vemma Affiliates that include a message from Defendant Boreyko outlining details about Vemma’s new compensation plan . . . ,” the FTC argued. “The postings assert that Vemma has doubled its Auto-delivery discount from 10% to 20% and will be having a ‘Customer Thank You Sale,’ and attaches a revised price list of Vemma products . . . None of the information contained in the messages had been disclosed to the Monitor or the FTC before being disseminated.”

    Prior to today’s FTC argument, Vemma asserted (yesterday) that “it is clear that the FTC’s interpretation of what constitutes ‘new marketing or sales materials’ and the scope of its authority to dictate the content of communications by the Corporate Defendants under the Order extends far beyond the intended scope of the Order.  Furthermore, the persistent objections by the FTC to any communications that the Corporate Defendants propose or send is preventing Vemma from restarting operations as permitted by the Order and causing it irreparable harm.”

    NOTE: Our thanks to the ASD Updates Blog.

    More later . . .

  • BRIEF: DFRF’s Daniel Fernandes Rojo Filho Indicted; Feds Establish Victims’ Page

    Arrested and jailed in July, alleged Ponzi schemer Dniel Fernandes Rojo Filho earlier was tooling around in this gold Lamborghini. From a YouTube video. Highlights by PP Blog.
    Arrested and jailed in July, alleged Ponzi schemer Daniel Fernandes Rojo Filho earlier was tooling around in this gold Lamborghini. From a YouTube video. Highlights by PP Blog.

    Federal criminal prosecutors in the office of U.S. Attorney Carmen M. Ortiz of the District of Massachusetts have moved to stay discovery in the SEC’s civil case against DFRF Enterprises and alleged Ponzi- and pyramid-scheme operator Daniel Fernandes Rojo Filho.

    Initially charged in July 2015 via criminal complaint with wire fraud,  Filho was indicted by a grand jury on Aug. 5 and charged with three counts of wire fraud. Prosecutors have established a page here and are soliciting information from potential victims.

    In essence, criminal prosecutors are arguing that a stay is warranted as a means of assuring Filho does not use the relaxed discovery standards in the civil action to gain an unfair advantage in the criminal case.

    As of yesterday, Filho  did not have counsel in either the civil case or the criminal case, prosecutors said.

    They also thumb-nailed the criminal allegations. From prosecutors’ motion to intervene in the civil case (italics added):

    The investment pitch that Filho and others gave was, in sum and substance, as follows: By sending DFRF as little as $1,000—or as much as an individual wanted to invest—and becoming a DFRF “member,” potential investors could share in the large profits DFRF was generating through highly profitable gold-mining operations in Africa. Investor money would first be sent to a private bank in Switzerland, where the money would be “leveraged” or increased. DFRF would then invest “member” money in the gold-mining operations, resulting in even greater profits, of approximately, or up to, 15% per month. “Members’” investments would be 100% insured and they could get their principal investment returned anytime they wanted.

    According to the Indictment, many of the representations that Filho and others working at his direction made were false and misleading. For example, DFRF never transmitted any investor money to a private Swiss bank and never transmitted any investor money to gold-mining operations in Africa. The Indictment also alleges that Filho concealed his scheme in various ways, such as distributing debit cards, which “members” could purportedly use to withdraw funds, but which did not actually work. In Ponzi-scheme-like fashion, Filho also recycled money provided by some investors to pay other investors who were expecting their principal or returns thereon.

    Investigators have tied Filho to Sann Rodrigues, a figure in the TelexFree pyramid- and Ponzi case.

    Criminal prosecutors successfully intervened in the SEC’s civil case against TelexFree, believed to be one of the largest pyramid- and Ponzi schemes in U.S. history and to have gathered on the order of $1.8 billion through the firm’s MLM program.

    Though allegedly smaller than TelexFree with an estimated haul of about $23 million, DFRF allegedly targeted some of the same affinity groups targeted by TelexFree.

    NOTE: Our thanks to the ASD Updates Blog.

  • BULLETIN: SEC Calls U.S. Fine Investment Arts Inc. (USFIA) A ‘Worldwide Pyramid Scheme’ Tied To ‘Gemcoins’

    breakingnews725BULLETIN: (7th update 3:26 p.m. EDT U.S.A.) An SEC complaint against USFIA Inc. first reported on Tuesday by the Sierra Madre Tattler and BehindMLM.com now has become public, with the SEC calling the venture a “worldwide pyramid scheme” that gathered on the order of $32 million while claiming it was backed by amber mines and duping MLM participants into believing they’d score big through a purported cryptocurrency known as Gemcoins.

    Among the deceptions, according to the SEC, was that “the United States government has purchased 70% of the Gemcoins in circulation.”

    The SEC complaint follows by less than two months a complaint by the FTC that called Vemma, another MLM program, a pyramid scheme.

    “We allege that the defendants’ false claims of riches that investors would realize from USFIA’s amber mining activity never materialized,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “In reality, as alleged in the complaint, the defendants were operating a fraudulent pyramid scheme that left many investors with nothing.”

    Here’s how the SEC described the action, which has led to asset freezes ordered by U.S. District Judge R. Gary Klausner of the Central District of California (italics added):

    This is an action brought to halt an ongoing securities offering fraud perpetrated by defendant Steve Chen, and various purported business entities that he operates and controls including defendants US Fine Investment Arts, Inc. (“USFIA”), Alliance Financial Group, Inc. (“AFG”), Amauction, Inc., Aborell Mgmt I, LLC, Aborell Advisors I, LLC, Aborell REIT II, LLC, Ahome Real Estate, LLC, Alliance NGN, Inc., Apollo REIT I, Inc. Apollo REIT II, LLC, Amkey, Inc., US China Consultation Association (“USCCA”), and Quail Ranch Golf Course, LLC. All of these entities are co-located in an office building owned by one of Chen’s business entities, Apollo REIT II, LLC, located in Arcadia, California.

    “In the face of growing investor unrest, and negative publicity in the press, Chen was interviewed by the Arcadia Police Department on September 15, 2015, regarding his operation of USFIA,” the SEC alleged. “Immediately after that interview, Chen attempted to wire $7.5 million out of USFIA’s bank account at Bank of America to a bank in the Peoples Republic of China. The wire was broken down into two parts, and $3.5 million was sent abroad, while the remainder is still held by the bank.”

    What about the amber? Some investors received some, and discovered it was “practically worthless,” the SEC alleged.

    USFIA sold unregistered securities in tiers and tied them to a recruitment scheme, the agency charged.

    “USFIA also represented that it had an extensive bonus and award system to encourage investors to recruit additional investors,” the SEC charged. “As set forth in its written investor ‘Compensation Program,’ investors could choose from five different ‘packages’ ranging in amounts of$1,000, $2,000, $5,000,$10,000 and $30,000. Depending on the type of package purchased by a downstream investor, the recommending investor would receive a 10% ‘Recommendation Award,’ and an additional ‘binary”‘reward based on sales of an investor’s downline investors. Investors would also receive a ‘Recurring Bonus’ generated by different ‘generations’ of downstream investors, ranging from 5% to 20%.”

    As was the alleged circumstance with Vemma, USFIA allegedly used showy automobiles to lure prospects. At USFIA, prospects also allegedly were lured with the prospect of owning a dream home on a golf course.

    Though USFIA initially claimed investors would score through an IPO, the IPO never materialized. Investors then were told they’d receive gemcoins, “some type of digital currency,” the SEC alleged. The gemcoins purportedly were backed by amber holdings in the Dominican Republic and Argentina.

    Chen and USFIA issued “outlandish statements” to dupe the masses, the SEC charged.

    Read the SEC complaint.

    See the Tattler’s coverage (Tuesday into Wednesday). See BehindMLM’s coverage.