Birmingham v. Doe

• Decision Date: 05 January 2023
• Docket Number: 21-CV-23472-SCOLA/GOODMAN
• Parties: RYAN BIRMINGHAM, et al., Plaintiffs, v. ALEX DOE; JOHN DOES 1-3; OLGA ABRYKOSOVA, et al., Defendants.
• Court: U.S. District Court — Southern District of Florida

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RYAN BIRMINGHAM, et al., Plaintiffs, v. ALEX DOE; JOHN DOES 1-3; OLGA ABRYKOSOVA, et al., Defendants.

No. 21-CV-23472-SCOLA/GOODMAN

United States District Court, S.D. Florida, Miami Division

January 5, 2023

OMNIBUS REPORT AND RECOMMENDATIONS ON PLAINTIFFS' MOTIONS FOR DEFAULT JUDGMENT

JONATHAN GOODMAN UNITED STATES MAGISTRATE JUDGE

In this nine-count, civil Racketeer Influenced and Corrupt Organizations Act (“RICO”) case, Plaintiffs raise a bevy of claims against 42 Defendants arising from the creation and operation of RoFx, an allegedly fraudulent investment service. [ECF No. 64]. According to a Court-Ordered administrative status report, 26 Defendants have had a Clerk's default entered against them, seven Defendants have not yet been served, three Defendants are in settlement discussions with Plaintiffs, and six Defendants have been dismissed. [ECF No. 221]. Since that administrative status report was filed, the Court dismissed without prejudice six additional Defendants and Plaintiffs filed a notice of voluntary dismissal against three additional Defendants. [ECF Nos. 222; 224-25].^[1] Plaintiffs' motions request that the Court enter a default judgment against the following Defendants: Peter Mohylny (“Mohylny”); The Investing Online; Ester Holdings, Inc. (“Ester Holdings”); Wealthy Developments LP (“Wealthy Developments”) VDD-Trading, Ltd. (“VDD”); Dmytro Fokin (“Fokin”); Ivan Hrechaniuk (“Hrechaniuk”); Manuchar Daraselia (“Daraselia”); Brass Marker s.r.o. (“Brass Marker”); Sergiy Prokopenko (“Prokopenko”) Profit Media Group LP (“Profit Media Group”); Auro Advantages, LLC (“Auro Advantages”); Borys Konovalenko (“Konovalenko”); Mayon Holding Ltd. (“Mayon Holding”); Marina Garda (“Garda”); Mayon Solutions Ltd. (“Mayon UK”); Olga Tielly (“Tielly”); Notus, LLC (“Notus”); Global E-Advantages, LLC (“Global E-Advantages”); Alla Skala (“Skala”)^[2]; Olga Abrykosova (“Abrykosova”); Easy Com, LLC (“Easy Com”); ShopoStar, LLC (“ShopoStar”); Grovee, LLC (“Grovee”); Trans-Konsalt MR Ltd. (“Trans-Konsalt”); Art Sea Group Ltd. (“Art Sea Group”); and Mayon Solutions, LLC (“Mayon USA”). [ECF Nos. 180; 189].

United States District Court Judge Robert N. Scola referred both motions to the Undersigned for a Report and Recommendations. [ECF Nos. 194; 206]. For the reasons set forth below, the Undersigned respectfully recommends that the District Court grant in part and deny in part the motions. By way of summary, however, the Undersigned makes the following recommendations as to each count/Defendant:

Count I (RICO): The Undersigned respectfully recommends that the District Court deny Plaintiffs' request for a default judgment;

Count II (RICO Conspiracy): The Undersigned respectfully recommends that the District Court deny Plaintiffs' request for a default judgment;

Count III (Common Law Fraud): The Undersigned respectfully recommends that the District Court grant Plaintiffs' request for default judgment on Count III in whole against Defendants Mohylny and The Investing Online. Further, the Undersigned respectfully recommends that the District Court grant Plaintiffs Leonov, Zarley, and Parent's request for default judgment against Defendant Ester Holdings and deny Plaintiffs Birmingham's and Hansen's request for default judgment against Defendant Ester Holdings;

Count IV (Conspiracy to Commit Fraud): The Undersigned respectfully recommends that the District Court deny Plaintiffs' request for a default judgment;

Count V (Aiding and Abetting Fraud): The Undersigned respectfully recommends that the District Court deny Plaintiffs' request for a default judgment;

Count VII (Conspiracy to Commit Conversion): The Undersigned respectfully recommends that the District Court deny Plaintiffs' request for a default judgment; Count VIII (Aiding and Abetting Conversion): The Undersigned respectfully recommends that the District Court deny Plaintiffs' request for a default judgment;

Count IX (Unjust Enrichment): The Undersigned respectfully recommends that the District Court grant Plaintiffs' request for default judgment against Wealthy Developments, Notus, Global E-Advantages, Easy Com, ShopoStar, Grovee, Trans-Konsalt, Art Sea Group, VDD, Brass Marker, Profit Medica Group, and Auro Advantages. Further, the Undersigned respectfully recommends that the District Court deny Plaintiffs' request as to all other Defendants.

BACKGROUND

Plaintiffs' Amended Complaint contains the following counts: (1) Violation of the RICO Act, 18 U.S.C. § 1962(c); (2) RICO Conspiracy, 18 U.S.C. § 1962(d); (3) Common Law Fraud (4) Conspiracy to Commit Fraud; (5) Aiding and Abetting Fraud; (6) Conversion; (7) Conspiracy to Commit Conversion; (8) Aiding and Abetting Conversion; and (9) Unjust Enrichment. [ECF No. 64].

For the underlying predicate acts supporting the substantive RICO count and the RICO conspiracy count, Plaintiffs accuse each Defendant of committing at least two of the following crimes:

(1) money laundering in violation of 18 U.S.C. § 1956(a)(1)(B)(i); (2) money laundering in violation of 18 U.S.C. § 1956(a)(1)(A)(i); (3) money laundering in violation of 18 U.S.C. § 1956(a)(2)(A); (4) money laundering in violation of 18 U.S.C. § 1956(a)(2)(B)(i); monetary transactions in property derived from unlawful activity in violation of 18 U.S.C. § 1957; transportation of stolen, converted, or fraudulently-taken goods, securities or money in violation of 18 U.S.C. § 2314; (6) receipt, possession, concealment, sale, or disposal of stolen, converted, or taken goods in violation of 18 U.S.C. § 2315; and (7) wire fraud in violation of 18 U.S.C. § 1343.

[ECF No. 180, p. 21].

In general terms, Plaintiffs' Amended Complaint alleges the following events transpired:

Between 2018 and 2021, an informal association of Ukrainians (the “RoFx Operators”) operated a phony foreign exchange trading service via RoFx.net -- a website hosted in Jacksonville, Florida. [ECF No. 64, ¶¶ 1, 3-4, 17-18, 121]. The RoFx Operators claimed to have artificially intelligent software that could conduct foreign exchange trading on behalf of customers; the customers needed only to send funds to the RoFx Operators and, in return, the customers were promised passive income. Id. at ¶ 2. The RoFx Operators perpetrated this years-long fraud (the “RoFx Scheme”) using a sophisticated website, an active customer service team, invoices, account statements, foreign exchange activity reported on third-party websites, and promotions via advertisements and sponsored articles -- and even allowed some customers to withdraw limited funds. Id. at ¶¶ 2, 61-125.

Potential RoFx customers could visit the website “RoFx.net” to engage the services of the trading algorithm. Id. at ¶ 63. According to the website, RoFx operated out of the United States, London, and Hong Kong. Customers were able to contact RoFx support via web-based chat, email, and telephone. Id. at ¶¶ 65-66. RoFx's website boasted that its trading algorithm obtained a 92.8% average annual profit since 2009. Id. at ¶ 71, Fig. 1. The website provided customers with data which purported to show how well their investments were doing and offered customers incentives (lower performance fees and higher share of daily profit) for maintaining larger investment balances. Id. at ¶ 73.

RoFx Operators, together with other Defendants, published or caused to be published numerous online articles and reviews in an effort to add legitimacy to their operation. Id. at ¶ 79. For example, RoFx was featured in Reader's Digest, MyFxBook, self-published articles by The Investing Online, Facebook, Reddit, AP News, and Yahoo News. Id. at ¶¶ 80-83, 88.

Via these articles and emails sent to customers, RoFx misled its customers into believing their money was growing and that the company would be expanding via an Initial Public Offering (“IPO”) connected to Warren Buffet's company, Berkshire Hathaway, as well as an Initial Coin Offering (“ICO”), for which its investors would be granted access to a presale. Id. at ¶¶ 87, 89, 91-97. RoFx.net was shut down on or about September 17, 2021, and the RoFx Operators stopped responding to customers. Id. at ¶ 127.

According to Plaintiffs, the entire RoFx platform was a fabrication. Id. at ¶ 102. There was no trading algorithm, there was never a registered company, customers' funds were not being invested on their behalf, the online advertising was fictitious, there was never going to be an IPO or a legitimate ICO, and customers were never free to withdraw their funds. Id. at ¶¶ 102-27.

Instead, Plaintiffs claim, Defendants engaged in an illegitimate enterprise meant to steal the funds of RoFx customers for their own benefit. According to Plaintiffs, the purported RICO participants can be grouped into the following categories:

RoFx Operators: the four currently-unidentified individuals operating the RoFx Scheme.

Promoter Defendants:^[3]companies which contributed to RoFx's false legitimacy by authoring articles, publishing trading activity, and causing RoFx to be featured as a legitimate business on social media.

Company Organizers: individuals and entities creating, acquiring, and transferring Front Companies. Company Organizers also directed the dissolution of Front Companies to further obscure the evidentiary trail linking illicit funds to Defendants.

Front Companies: clean companies -- companies not subject to any particular scrutiny -- able to satisfy Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) requirements and establish bank accounts. Front Companies and their principals established or used existing bank accounts primarily to receive RoFx customer funds, introducing the illicit funds into the financial system for onward movement through the RoFx money laundering network. Front

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