B.C. residents fined almost $1M for roles in U.S.-based Ponzi scheme

Gold bars are shown. (Shutterstock.com)

Three B.C. residents have been ordered to pay nearly $1 million in penalties for their roles in an elaborate fraud that U.S. regulators described as both a Ponzi and a pyramid scheme.

In a discipline decision issued this week, a panel of the B.C. Securities Commission ordered Sabrina Ling Huei Wei, Justin Colin Villarin and James Bernard Law to pay a combined total of $955,718 in administrative penalties and other fines. 

The trio was also banned from participating in the province's financial markets for varying lengths of time.

THE FRAUD

The penalties follow a previous decision from the BCSC panel, in which it concluded that the three had solicited investors in the province for a scheme that promised large returns on gold mining operations in Africa and Brazil that didn't actually exist. 

Two other B.C. residents, Monita Hung Mui Chan, of Burnaby, and Marie-Joy Vincent, of Surrey, admitted to participating in the scheme and were fined in settlements negotiated with the BCSC in 2021. 

Wei, Villarin and Law "solicited investors, organized events and sold membership units" in U.S. based companies incorporated in Massachusetts and Florida, according to the BCSC ruling.

The conduct occurred in 2014 and 2015.

"Investors were promised extraordinarily high, no-risk returns on supposedly lucrative gold mining operations in Mali and Brazil," the commission said in a news release announcing the sanctions.

"In reality, none of the investments were used for gold mining, (the companies) received no proceeds from gold mining, and (their) only source of money was investors."

The fraud was orchestrated by Daniel Fernandes Rojo Filho, a Brazilian national living in Florida, according to the BCSC.

The U.S. Securities and Exchange Commission says the fraud raised more than US$15 million from more than 1,400 investors, and the BCSC found 137 people with B.C. connections lost a total of C$1.5 million to the scheme.

The companies, both known as DFRF, promised investors monthly returns of 15 per cent, as well as 10 per cent commissions on memberships purchased by people they referred to DFRF, according to the BCSC panel's previous decision. 

Filho – and people who promoted the companies on his behalf in YouTube videos and at seminars – also claimed that the investments were insured and that DFRF would soon be going public.

SEC judgments against Filho and several others totaled more than US$12 million, according to the BCSC.

LAW'S PUNISHMENT

In its decision on penalties, the panel rejected arguments made by each of the three individuals.

The panel concluded that Law's conduct was the least serious, "because it was not shown that Law had knowledge of the fraud."

Still, the panel was unpersuaded by his argument that he was careful to differentiate between his historical experience and what investors could expect from DFRF during presentations he made.

"The words actually spoken by Law would naturally be taken by any audience as an endorsement for the description that gold was so plentiful in the region where DFRF was claiming to earn its revenue that the enormous returns DFRF appeared to be offering were plausible," the panel wrote.

Law was ordered to pay a $150,000 penalty and banned from participating in investment markets for 20 years.

VILLARIN'S PUNISHMENT

The panel concluded that Villarin was aware of the fraudulent nature of the DFRF investment scheme, despite his continued assertion that he was not.

"In common with Law, and to a greater extent because of his higher level of knowledge, Villarin’s conduct is serious because of the harm which resulted to individual investors and because fraudulent Ponzi schemes undermine confidence in financial markets," the panel wrote.

Villarin was ordered to pay a $200,000 penalty, plus $15,718 he obtained through his participation in the scheme. The panel also banned him from participating in investment markets for 25 years.

WEI'S PUNISHMENT

"Wei’s conduct was more serious than either Law’s conduct or Villarin’s conduct," the panel wrote in its decision.

"As our findings establish, Wei took on the role of a leader and coordinator for the DFRF fraud in British Columbia. She did so during a period when she should reasonably have known of the fraud and she continued after she had actual knowledge of the fraud."

In her defence, Wei argued that the BCSC's executive director had been unable to prove that investors made their decisions based on presentations she gave, an assertion the panel found had "some weight."

"Certainly, the case against Wei would have been more serious if it had been established that a significant proportion of DFRF investors invested based directly on presentations made by Wei," the panel wrote.

"However, these submissions miss the main point. Wei helped refine what British-Columbia-based presentations should look like. She organized presenters, she co-ordinated with Filho and his accomplices, she placed herself at the front of the room as an authority figure, and she emphasized her own credibility in support of Filho’s efforts to extract investment funds from British Columbia based investors."

The panel ordered Wei to pay the largest administrative penalty of the group, at $500,000. It also ordered her to pay another $90,000, representing the money she gained from the scheme.

The panel also banned Wei from the financial markets for life.

The bans imposed on Wei, Villarin and Law include the following restrictions. They cannot:

• Trade in or purchase any securities or derivatives, except for in their own accounts
• Become or act as a director or officer of any issuer or registrant
• Become or act as a registrant or promoter
• Advise or otherwise act in a management or consultative capacity in connection with activities in the securities or derivatives markets
• Engage in promotional activities by or on behalf of an issuer, security holder or party to a derivative, or another person that is reasonably expected to benefit from the promotional activity
• Engage in promotional activities on their own behalf in respect of circumstances that would reasonably be expected to benefit them
• Rely on any exemptions set out in the Securities Act, the regulations or a decision.

The panel also imposed these same conditions, for life, on Filho and his associate Heriberto C. Perez Valdes, under its authority to reciprocate orders by securities regulators in other jurisdictions.