The Department of Justice moved on October 1st to halt discovery in the Securities and Exchange Commission's civil case against DFRF Enterprises, citing potential interference with a related criminal prosecution of founder Daniel Filho. This filing came just days after a September 29th scheduling conference where the SEC laid out a timeline for the civil litigation.
The SEC had proposed deadlines for initial disclosures by October 29th, fact discovery by May 31, 2016, and expert disclosures through September 30, 2016, with summary judgment motions due by October 30, 2016. These dates suggested the commission felt confident in its Ponzi scheme case. Initial disclosures typically reveal a defendant's legal strategy and supporting evidence.
However, the DOJ's intervention changes the immediate trajectory. The Department of Justice, though not a party to the SEC's suit, appeared at the September 29th hearing. Court notes indicate a motion to stay discovery was anticipated. Filho, the primary target, faces wire fraud charges and has not yet secured legal representation in either the criminal or civil matters. DFRF Enterprises and another defendant, Valdes, are also without counsel and are in default in the SEC's action.
Both federal agencies have been investigating DFRF for an alleged investment fraud scheme. The SEC initiated its civil action on June 30, 2015, while a grand jury indicted Filho on three counts of wire fraud on August 5, 2015. The DOJ argues that allowing civil discovery to proceed could compromise the criminal case. Filho could potentially exploit the civil process to undermine the concurrent criminal proceedings.
The DOJ contends that a stay would also create efficiencies. The civil and criminal complaints are based on many of the same facts. A conviction in the criminal case could establish Filho's liability in the civil suit, simplifying the SEC's task. This mirrors a strategy employed by the DOJ in the TelexFree civil case, where a similar motion led to a stay of civil proceedings pending the outcome of criminal charges against its owners. That decision effectively paused the civil litigation.