PatrickPretty.com

Month: March 2014

BULLETIN: Federal Judge Freezes At Least 54 Bank/Vendor Accounts Linked By SEC To Alleged WCM777 Ponzi/Pyramid That Targeted Asians And Latinos; Court Authorizes Saturday Depositions And Orders Protection Of Records And Assets To Be Repatriated

BULLETIN: What happens if it is alleged by law enforcement that you’re a Ponzi schemer/affinity fraudster, a business associate of a Ponzi schemer/affinity fraudster or a vendor of a Ponzi schemer/affinity fraudster?

A federal judge has frozen at least 54 bank or financial accounts the SEC has linked to WCM777, an alleged $65 million Ponzi- and pyramid scheme with domestic and offshore conduits.

Accused operator Ming Xu had “authority” over at least 16 of the accounts, according to court filings. Who controlled the others was not immediately clear.

WCM777 was accused of targeting the Asian and Latino communities in a ribald HYIP scam that in part traded on the names of famous businesses, perhaps particularly companies in the hospitality industry. Many immigrants work in the hospitality trades.

Although the asset freeze was made public yesterday, it became known only today how many accounts it affected.

The order has a provision that covers “all accounts at any bank, financial institution or brokerage firm, or third-payment payment processor, all certificates of deposit, and other funds or assets.”

Banks/vendors expressly covered by the order include Bank of America, Wells Fargo, Merrill Lynch, Comerica, HSBC, E*Trade, JPMorgan Chase, Citibank, East West Bank and American Continental.

It also became known today that Krista L. Freitag of E3 Realty Advisors of Los Angeles has been appointed receiver. The receiver already has taken control of at least two websites linked to WCM777, including WCM777.com.

U.S. District Judge Christina A. Snyder of the Central District of California has approved the asset freeze and the appointment of Freitag, a forensic accountant.

Snyder has authorized the SEC to conduct depositions “on two days’ notice” and cleared the agency to perform depositions even on Saturdays.

“Depositions may be taken Monday through Saturday,” according to the order.

And Snyder also authorized the SEC to bypass subpoenas and serve “a deposition notice by facsimile, hand or overnight courier” upon “agents, servants, promoters, employees, brokers, associates, and any person who transferred money to or received money from the bank accounts . . .”

Meanwhile, Snyder ordered Freitag “to conduct such investigation and discovery as may be necessary to locate and account for all of the assets of or managed by Defendants World Capital Market Inc., WCM777 Inc., WCM777 Ltd. d/b/a WCM777 Enterprises, Inc., and Relief Defendants Kingdom Capital Market, LLC; Manna Holding Group, LLC; Manna Source International, Inc.; WCM Resources, Inc., and their subsidiaries and affiliates, and to engage and employ attorneys, accountants and other persons to assist in such investigation and discovery.”

The judge also ordered the defendants and relief defendants not to destroy records and to repatriate assets.

Mar 29, 2014
AFRICAN NATION NOT ON MLM FIRM’S ‘RADAR’: TelexFree Pushes Back On Reports In African Media Of Rwanda Ban And Money-Laundering: ‘Mistaken Identity’

UPDATED 8:45 PM EDT (U.S.A.) Already under investigation in Brazil and Massachusetts and linked to at least one affiliate allegedly involved in an earlier pyramid- and affinity-fraud scheme aimed at the Brazilian community, TelexFree acknowledged in a news release this morning that it had a presence in the economically challenged nation of Rwanda.

But TelexFree said it was not the firm banned from the African country by the Ministry of Trade and Industry on March 14.

TelexFree’s pushback at African media reports came on the same day the SEC announced a pyramid- and Ponzi case against WCM777, another MLM “program.” WCM777, which has some promoters in common with TelexFree, was accused of targeting Asians and Latinos and using multiple names to gather and move money.

A recent ad on an auction site offered 550 TelexFree “AdCentrals” for $16,760, a purported discount of $8,190. The AdCentrals, according to the ad, would provide a “minimum” return of $56,100. Where the ad originated is unclear.

Rwanda, TelexFree claimed, was not even on its “radar” until reports of tax evasion and money-laundering linked to the TelexFree name surfaced in African media.

“As far as we can tell, this has nothing to do with us other than the fact that somebody is making illegal use of our name,” TelexFree said in a news release. “We have in the neighborhood of half a million customers worldwide, and 121 of them are in Rwanda. But we have no connection with P.L.I. Telexfree Rwanda Ltd., the company shutdown in Rwanda. That company allegedly has been in business for 14 years, whereas we just celebrated our second year in business. We’ve checked our records and find no evidence of the names of the persons associated with that company registered as either our customers or agents. Rwanda wasn’t on our radar until this report hit the Internet.”

TelexFree did not say how it defined “customers.” Some promoters have claimed $15,125 sent to the firm returns $57,200 in a year through the purchase of “AdCentrals” offered alongside a VOIP service.

Massachusetts-based TelexFree said it believes the Rwanda matter “to be a case of mistaken identity” and that it had “not been contacted by the Rwandan government.”

Nor does TelexFree “have any reason to believe any action has been taken against it” in Rwanda, the firm said.

TelexFree, an MLM company, says it is in a number of businesses, including VOIP, an Internet telephone system.

Claims in the TelexFree news release were not attributed to a TelexFree corporate officer or executive. Rather, the assertions were attributed only to TelexFree itself. Why the firm chose not to quote an executive to refute the serious allegations in news reports was not immediately clear.

“It’s both the power and the challenge of VOIP,” TelexFREE explained in its news release. “Virtually anyone can register and use the system. The best we can figure out right now is that somebody is using our sales program to channel their own agenda, and that kind of repackaging is strictly prohibited by our Policies and Procedures. Our attorneys are doing all they can to find out what is going on.”

A Facebook site styled “telexfreerwanda” and dubbed “Telexfree Rwanda Team” has been promoting TelexFree since at least Jan. 17.

Here is one of the claims on the Facebook site (italics added):

A 14 year old Company with an Opportunity for YOU to get hired (as a Promoter) and you start getting paid on average 100 US$ each week for 52weeks. JOIN IT.

The prompt to “JOIN IT” appears to be a reference to TelexFree itself. And the assertion of a “14 year old Company” appears to reflect similar claims about TelexFree that have appeared on the web since at least July 2013, even though TelexFree says it is only two years old.

American MLMers have made claims similar to the claims on the Facebook site.

Any number of TelexFree affiliates appear to be confused about how long the company has been operating. Last summer, some affiliates claimed nine years. Others said 11 and 13 years.

In addition, the Facebook site says TelexFree can be visited “above Viva Supermarket.” On March 18, RwandaEye reported that the banned Rwandan enterprise operated from the top floor of a Viva supermarket in Remera. At least three links from the Facebook site resolve to the website of TelexFree, suggesting the operator or operators of the Facebook site are TelexFree affiliates.

The Facebook site uses affiliate identifiers such as “innosantana,” “innosanta01” and “innosanta1301.” Here is one example of a URL from the site: http://www.telexfree.com/innosantana

TelexFree did not say whether Haiti was on its radar. At a Boston pitchfest earlier this month, a man claimed from the stage that TelexFree reps recently flew on a “private jet” from the Dominican Republic to Haiti, perhaps the poorest nation in the Western Hemisphere.

TelexFree is based in a shared-office facility in Massachusetts, sharing a suite with at least 25 other firms. Promos have sought to plant the seed that TelexFree occupied the entire structure. The firm has been associated with a growing list of companies in various states, some of which use the name “TelexFree” and others that simply use “Telex.”

A document dated-stamped March 20 and on file at the Idaho Public Utilities Commission claims “[a]pplicant’s legal name is TelexFREE Telephone Company, LLC, with its principal place of business located at 225 Cedar Hill Street, Suite 200, Marlborough, MA 01752.”

That’s also the address of TelexFree Inc. at the shared office facility. There’s also a TelexFree LLC in Nevada.

The Idaho filing stressed in all-caps that TelexFree wanted its financial information kept “CONFIDENTIAL.” In Washington state, the Utilities and Transportation Commission published a document in February that asserted TelexFree LLC had made millions of dollars in intracompany loans to other TelexFree-related enterprises, including to TelexElectric LLLP, Telexfree Financial Inc., TelexMobile and Ympactus.

Filed by a self-identified TelexFree “consultant,” the Washington document also claimed TelexFree LLC had “21,613,289.00” in “Federal Income Taxes Payable” and another “3,924,262.30” in “State/Local Income Tax Payable” on its balance sheet as of Dec. 31, 2013.

Mar 28, 2014
URGENT >> BULLETIN >> MOVING: SEC Takes Down WCM777; Says Purported Opportunity Is ‘Worldwide Pyramid Scheme,’ Ponzi And Offering Fraud; Federal Judge Signs Asset Freeze

URGENT >> BULLETIN >> MOVING: (16th update 5:42 p.m. EDT U.S.A.) The SEC has gone to federal court in Los Angeles, alleging that the WCM777 “program” is a “worldwide” pyramid scheme, a Ponzi scheme and an offering fraud that targeted Asian and Latino communities and gathered more than $65 million.

A federal judge has granted an asset freeze, the SEC said. The agency brought the case in an emergency complaint.

“[Phil Ming] Xu and his entities claimed they were using investor funds to build a strong cloud services company that would then ignite other high-tech companies and ultimately make their investors very wealthy,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office. “In reality, they were operating a pyramid scheme that preyed on investors in particular ethnic communities, leaving them with nothing left to show for their investment.”

Some MLM promoters have pitched WCM777 alongside the TelexFree “program.” TelexFree is not referenced in the SEC complaint. But the complaint does reference a Massachusetts probe into WCM777 last fall. TelexFree has been under investigation by the Massachusetts Securities Division since at least February 2014.

Charged in the SEC’s WCM777 case are WCM777 Inc. of Nevada, World Capital Market Inc. of Delaware, WCM777 Ltd.( dba as WCM777 Enterprises Inc.) of Hong Kong and Ming Xu, also known as Phil Ming Xu, of Temple City, Calif.

Several firms are listed as relief defendants, amid allegations they received ill-gotten gains. These include Kingdom Capital Market LLC of Delaware, Manna Holding Group LLC of California, Manna Source International Inc. of California, WCM Resources Inc. of Texas, Aeon Operating Inc. of Texas and PMX Jewels Ltd. of Hong Kong.

Even as WCM777 was under investigation by state regulators in the United States, the SEC said, the “program” raised “more than $37 million from investors which has been deposited into [the defendants’] Hong Kong bank account.”

During the state-level probes in Massachusetts and elsewhere, “Defendants stopped depositing investor funds into their United States bank accounts, although the WCM777 offering continued,” the SEC alleged.

Xu, the SEC charged, is “involved in all aspects of the fraud.”

From the SEC complaint (italics/bolding/carriage returns added):

The bulk of the investor funds have been used to pay cash for real property purchased in the United States, purchased in many cases with funds transferred through Defendant World Capital Market Inc. (“WCM”), and held in the names of Relief Defendants Manna Holding Group LLC and Kingdom Capital Market LLC, which are affiliated with Defendant Xu.

The properties include two golf courses, a warehouse, vacant land, and several single family homes. Defendants have also used investor funds to play the stock market and to make investments, through intermediary companies, in an oil and gas offering of Relief Defendant Aeon Operating, Inc.

Defendants have also sent investor funds to Relief Defendant PMX Jewels, Limited, which is a rough diamond jewel merchant in Hong Kong, and to Relief Defendant Manna Source International, Inc., which is affiliated with Defendant Xu.

The golf courses were identified as Glen Ivy Golf Club in Corona, Calif., and the Links at Summerly in Lake Elsinore, Calif. To acquire Glen Ivy, WCM777 plunked down $6.5 million in cash, with the money coming from “WCM777 accounts that held investor proceeds,” the SEC charged.

Meanwhile, the Links at Summerly was acquired for $1.65 million in cash. Again, the SEC charged, the money to acquire the course “originated from WCM777 accounts that held investor proceeds.”

Along the pyramid and Ponzi path, the SEC charged, WCM777 bought a single-family home in Walnut, Calif., for “$2.4 million in cash,” a single-family home in Monrovia, Calif. for “$980,000 in cash,” a single-family home in Lake Elsinore, Calif., for “$500,000 in cash,” vacant land in New Cuyama, Calif., for “$700,000 in cash,” a warehouse in El Monte, Calif, for “$1,051,750 in cash” and used “$1,456,041.56” to close on the purchase of a single-family home in Monrovia, Calif.

This Monrovia sale never closed, the SEC said.

And “Ming Xu opened an account at a major brokerage firm in June 2013 in the name of WCM,” the SEC charged. “Between June 2013 and January 2014, Defendants deposited a total of $2.155 million into this brokerage account. The cash originated from WCM777 accounts that held investor proceeds.”

Moreover, the SEC charged, WCM777 disbursed $200,000 in investors proceeds to ToPacific Inc., $210,000 to Agape Technology and $230,000 to Media for Christ.

All of these entities, the SEC charged, were “associated or otherwise affiliated” with Xu.

Media for Christ — apparently before Xu’s alleged involvement — found itself at the center of an international firestorm in 2012 over a film production known as “Innocence of Muslims.” (See PP Blog report dated Nov. 21, 2013.)

Among the alarming allegations is that WCM777 falsely planted the seed that it had partnerships “with more than 700 major companies such as Siemens, Denny’s, and Goldman Sachs,” the SEC said.

WCM777 also asserted a false association with Stouffer Hotels and Resorts, a company that “has not been in business since 1996 when it sold its real estate portfolio to another company, and that was then purchased by Marriott in 1997,” the SEC said. “Marriott does not have any relationship with Defendants.”

As the PP Blog reported in October 2013, affiliates of WCM777 helped spread the claims about ties with famous businesses across the web.

Commingling

The WCM777 enterprises “opened and used numerous accounts located at three different banks in the United States, to move and commingle most of the investor proceeds before they were disbursed to third parties,” the SEC said.

It is common for HYIP scams to use banks and payment processors to warehouse proceeds from fraud schemes, a practice that brings national-security concerns into play.

HYIP schemes often also purport to offer interest-earning “packages” while using a “points” system and touting future public offerings, things allegedly in play at WCM777.

From the SEC complaint (italics added):

Through publicly available websites and promotional materials, Defendants offer packages or membership units in “WCM777.” Defendants portray WCM777 as a profitable multi-level marketing venture that sells packages of “cloud media” or cloud services. In the WCM777 offering, Defendants promise investors that they will earn 100% or more returns in 100 days. Defendants represent that the “points” investors receive for their investments will be convertible into equity in initial public offerings (“IPOs”) of “high tech” companies Defendants are purportedly incubating. Defendants have facilitated a “secondary market” in the points they award to investors, and Defendants estimate that $890 million of the points have traded on this market.

But in reality, the SEC said, the WCM777 enterprises “do not realize any appreciable revenue other than from the sale of ‘packages’ of cloud services to investors. WCM777 is not profitable, and is a pyramid scheme. Defendants use some of the investor funds to make Ponzi payments of returns to investors.”

The SEC, which says WCM777 was selling unregistered securities as investment contracts, is seeking the appointment of a receiver, a request the judge has approved.

Like other HYIP schemes, WCM777 preemptively denied it was a “Ponzi scheme.”

“Is WCM777 a Ponzi Game?” WCM777 wrote on its website, before answering its own question, the SEC said. “In summary, we are not a Ponzi game company. We are creating a new business model.”

In reality, the SEC said, “The cash paid to investors were Ponzi payments made with funds received from other investors, and were not paid from net income or profits of the WCM777 enterprise.”

At a 2013 business event in California, Xu was photographed alongside luminaries such as former U.S. Vice President Al Gore and Apple co-founder Steve Wozniak. It is somewhat common for Ponzi schemers to trade on the names and reputations of prominent individuals.

Zhi Liu, another WCM777 executive identified in state-level filings, is not directly referenced in the SEC complaint. There may be an oblique reference, however.

“On January 27, 2014, WCM777 Ltd. filed a lawsuit against a former employee in the Superior Court for the State of California, County of Los Angeles,” the SEC said.

Liu is known as “Tiger.”

A Twitter site under the name of “Dr. Phil Ming Xu” has a March 14 entry that claims, “Tiger created the system and took $30M worth of unauthorized ecash from WCM777. WCM777 sued him.”

As noted above, however, the SEC has alleged that Xu was involved in all aspects of the fraud. And also as noted above, the SEC further alleged that “more than $37 million from investors” had been deposited in a Hong Kong bank account.

Whether Liu had a role in the Hong Kong deposits is unclear. Also unclear is whether Liu remains in the United States or has relocated elsewhere.

In its emergency filing, the SEC said the WCM777 enterprise constituted an “ongoing” fraud.

Read the SEC’s statement and complaint.

Mar 28, 2014
TelexFree Hong Kong Convention?

From rolling promo on TelexFree website.

UPDATED 7:15 P.M. EDT (U.S.A.) The website of TelexFree has been promoting a March 26 (today) “conference” at the Kowloonbay International Trade & Exhibition Centre in Hong Kong, with tickets priced at $150. Whether the event actually took place is unclear. A search of the KITEC website returned no result for TelexFree — on the 26th or any other date.

Whether TelexFree qualified for a listing on KITEC’s events calendar and search index was not immediately clear. It is now March 27 in Hong Kong. The KITEC site showed no March 26 conference events for any sponsor.

Other than a rolling promo on TelexFree’s website, there appears to have been virtually no publicity surrounding the advertised March 26 Hong Kong event.

Separately, the PP Blog has learned that TelexFree may have gathered as much as $270,600 if a Boston confab earlier this month sold out. Tickets to the Boston event were advertised at $164, with capacity originally set at 1,000 before being expanded to 1,650.

TelexFree is under investigation in Massachusetts, its home state. It’s also under investigation in Brazil, amid pyramid-scheme allegations. TelexFree recently got kicked out of Rwanda.

Mar 26, 2014
MORE MLM WHACK-A-MOLE: (1) Quebec Securities Regulator Issues Warning On Karatbars International; (2) Cross-Border Colleagues Follow Suit; (3) Former Zeek Ponzi Scheme Pitchman Defends ‘Program’ As Others Push It Alongside TelexFree

Source: Online pitch for Zeek.

UPDATED 12:21 P.M. EDT (MARCH 28, U.S.A.) Whack-A-Mole. Here’s the latest disturbing incarnation: On March 20, the Autorité des marchés financiers (AMF) published a warning on a gold “program” known as Karatbars International GmbH. BehindMLM.com spotlighted the warning yesterday.

From the AMF warning (bolding added): “With the company’s ‘Affiliates’ program, investors can make Internet-based purchases through Karatbars plans and they are encouraged to recruit two other Affiliates. These Affiliates are in turn encouraged to recruit two other Affiliates each, and so on. Affiliates are lured by the possibility of earning large payouts, in particular through a percentage of amounts collected from the Karatbars plans and gold products purchased by referrals.”

After AMF published its warning, the International Organisation of Securities Commissions (IOSCO) republished it. So did the Financial Markets Authority of New Zealand (FMA).

These things apparently meant little to former Zeek Rewards’ pitchman Lloyd Merrifield, who “defended” Karatbars International on BehindMLM. Zeek was an international Ponzi scheme that gathered at least $850 million, according to court records.

You’ll see a reference to Merrifield in the Comments thread below this Dec. 17, 2010, PP Blog story: “URGENT >> BULLETIN >> MOVING: Secret Service Has Seized More ASD Cash; Forfeiture Complaint Filed Today Against Bank Accounts Controlled By Erma ‘Web Room Lady’ Seabaugh And Robyn Lynn Stevenson.”

ASD (AdSurfDaily) was an international Ponzi scheme that gathered at least $119 million, according to court records. Meanwhile, you’ll also see a reference to Merrifield below this June 25, 2009, PP Blog story about AdViewGlobal, an ASD reload scam: “AdViewGlobal ‘Surf’ Firm Suspends Member Cash-Outs, Threatens Media With Copyright-Infringement Lawsuits.”

AdViewGlobal was an international Ponzi scheme that gathered an unknown sum before vanishing mysteriously in 2009. U.S. federal prosecutors linked it to ASD in April 2012.

Merrifield also was a pitchman for Ad-Ventures4u (ADV4U), an ASD-like HYIP scam tied to shiny-object scam known as “TradingGold4Cash.” And why not Tazoodle, a search-engine “program” whose “board” consisted of former ASD members who had the big idea they were going to unseat Google? Yep. Merrifield was there, too.

Along with ADV4U and Tazoodle, Merrifield pitched something called “20Clicks” as part of an overall package known as “The Golden Eggs.” (In 2009, the 20 Clicks website said it was “Powered by USHBB.com.” USHBB later was associated with the Zeek Rewards Ponzi scheme and is listed as a “winner” in a document assembled by the court-appointed receiver in the Zeek Ponzi/pyramid case.)

At least one HYIP pitchfest site that describes Merrifield as a “featured speaker” for Karatbars International has led cheers for “programs” such as AdHitProfits and MyFunLife and BannersBroker — and an emerging darling known as FlexKom. The site also has pushed “ProfitClicking,” one of the JSSTripler/JustBeenPaid reload scams linked to former ASD pitchman Frederick Mann.

Mann, among other things, may have ties to the “sovereign citizens” movement.

Merrifield, perhaps ignoring this 2010 FINRA warning on HYIP schemes and social media, pitches Karatbars International on YouTube and coaches viewers to line up recruits via craigslist.

Source: YouTube

On BehindMLM, Merrifield says he’s been “in the Investment Banking industry for over 35 years.”

As always, HYIP “programs” and similar ventures that may lack licensing in individual jurisdictions across the world raise the prospect that banks and payment processors are coming into possession of funds tainted by fraud. In some cases, those funds have circulated between and among various schemes.

A quick Google search shows that some pitchmen are promoting Karatbars International alongside TelexFree, a “program” under investigation in North America, South America and Africa. TelexFree also has been promoted in concert with the WCM777 MLM scam.

From a video pitch that simultaneously pushes Karatbars International and TelexFree.

Mar 26, 2014
UNBELIEVABLE: Bundle Of 550 TelexFree ‘AdCentrals’ Advertised For $16,760, A Purported Discount Of $8,190; Purchaser Will Receive ‘Minimum’ Guaranteed Payout Of $56,100 — And Maybe Even $110,000, Pitch Claims

UPDATED 12:14 P.M. EDT (U.S.A.) Being under investigation in Brazil and Massachusetts and getting kicked out of Rwanda apparently isn’t viewed in MLM La-La Land as a strong-enough clue that it’s time to give up the TelexFree ghost.

Or maybe it is — and the TelexFree-related fire sales have begun. It wouldn’t be the first time that members of an HYIP tried to sell their holdings while regulators were circling.

At least in the United States, one of the TelexFree issues is whether the purported “opportunity” is selling unregistered securities as investment contracts. That’s bad enough.

But things potentially could get worse. Individual TelexFree members now may be creating bundles of securities and fueling even more questions about a dangerous TelexFree black market.

An ad for a package of 550 TelexFree AdCentrals appears on a site known as “TripleClicks.” The asking price? $16,760.

Good grief.

The bundle, according to the ad, ships from the United States.

“You Save: $8,190.00 (33%),” the ad contends.

It goes on to say this (italics added):

1) you will pay 16,760$ to get a value of 24,950$ of voip subscription that you can use by your self
2) you will earn up to 110,000$ in one year (minimum guarantee 100% 56,100$ only posting 55 adtext for day)
3) You will get a lot of Vpoints that will be useful for your SFI Business
4) you will be refunded 100% if within about 18 weeks you will not have fully recovered the money spent initially. If of course you did all needed to get back money (it mean 30 minutes copy and paste everyday without sponsoring or sale nothing at all)

so nothing to loose here but only to get…

How the “refunding” would be accomplished wasn’t explained. The ad suggests, however, that TelexFree would “repurchase” the packs over time.

In addition, the ad contends that BehindMLM.com, a site that reports on emerging MLM frauds, has “what I believe is a more skeptical perspective on what is going on behind the Telexfree name.” The ad that bundles TelexFree “AdFamily” packs then asks and answers its own question:

“Does Telex Free Work? I confidently say it works, with Capital Y as in Yes! You see this company has a track record already.”

Visit BehindMLM.com. Among other things, BehindMLM has reported on money-laundering allegations involving TelexFree.

Mar 24, 2014
TelexFree, WCM777 (Etc.) — In Pictures

California-based WCM777, an MLM “program,” got booted out of Massachusetts in November 2013, amid allegations of securities fraud and affinity fraud targeted at the Brazilian community through hotel pitchfests. WCM777, purportedly operated by Ming Xu and recruiting affiliates to conduct business over the Internet, later got booted out of California. In addition to the Brazilian community, WCM777 targeted people who speak Spanish and people who speak Chinese, perhaps Christians in particular.

Massachusetts launched a probe into TelexFree, another MLM “program” associated with hotel pitchfests and affiliate recruitment over the Internet, at least by Feb. 28 of this year — probably sooner, given the nature of WCM777. TelexFree largely is targeting speakers of Portuguese and Spanish, perhaps Christians in particular. It also has an affiliate presence in India and Africa (at least).

Although the schemes do not appear to have common ownership, both WCM777 and TelexFree offered plans that encouraged recruits to buy in at higher levels to get higher “earnings.” Affiliates of each scheme appear to have engineered subschemes in which their recruits could buy in at higher levels than the “programs” themselves advertised, potentially introducing a second layer of fraud.

What this means, in essence, is that neither TelexFree nor WCM777 may know their real bottom lines and that the firms created an environment that encouraged back-alley, illegal sales of securities and secret deal-making among individual promoters. Individuals ostensibly acting as brokers for TelexFree and WCM777 could be cherry-picking cash and not even sending it to the “program” operators. In short, certain people could be creating personal and organizational underground economies and fleecing TelexFree and WCM777 even as they fleece their own marks and recruits.

Hidden members of both “programs” may be getting paid in cash by their upline sponsors or ostensible brokers, with no record of their participation — even if they supplied cash or an equivalent to join the “programs.”

The only safe assumption in HYIP Ponzi Land is that any system that can be abused will be abused. That’s why these “programs” necessarily must be viewed through the lens of national security.

Presented below are some screen shots that demonstrate promotional ties between TelexFree and WCM777. In certain instances, the websites pictured below are promoting not only TelexFree and WCM777, but also other “programs.” One of them, for instance, is promoting the almost indescribably insidious and bizarre Banners Broker “program.”

As always is the case in HYIP investigations, the concern is that banks locally, regionally, nationally and internationally are being used by corporate scammers first as warehouses to store illicit proceeds — and later, by individual promoters at potentially thousands and thousands of locations, as virtual ATMs that provide the service of offloading the “earnings” of the promoters.

The interconnectivity of these schemes endangers local, regional, state, provincial and national economies. In many cases, promoters engage in willful blindness and simply move to another MLM HYIP scam when the current “hot” one encounters regulatory intervention or craters on its own.

It’s often the case that promoters plant the seed that a scheme has been endorsed by a government or that a corporate registration is surefire “proof” that no scam exists. Social media invariably is used to help a scheme proliferate or achieve Internet virality.

One of the shots below is from a YouTube video in which a TelexFree promoter seeks to plant the seed that TelexFree is backed by the Better Business Bureau. The narrator’s words in the video suggest he sought to plant the same seed about WCM777 but had to backtrack when he discovered a BBB listing that referred to WCM777 as a Ponzi scheme.

“Today we’re going to compare two of the most dynamic companies out there taking over right now,” the narrator said.

After recording a search of the BBB site for a TelexFree listing and finding one, the narrator suggested that the listing alone was proof that TelexFree was not a scam. He thereafter performed a search for WCM777 and found a Ponzi reference, thus triggering what appeared to be backtracking from his earlier claims that TelexFree and WCM777 were “dynamic companies.”

It also could be the case, we suppose, that he already knew about the WCM777 Ponzi listing before performing the search and that the design all along was to get people to go with TelexFree because WCM777 was a scam. Even under that interpretation, however, the video still demonstrates the underhandedness within the HYIP sphere.

The HYIP sphere always screams incongruity. Keeping that in mind, we’ll point out that one of the screen shots below shows TelexFree executive James Merrill in the same affiliate-manufactured frame as Massachusetts Commonwealth Secretary William Galvin. It was a clear bid to suggest that because TelexFree was registered as a corporation in Massachusetts, the “program” couldn’t possibly be a scam.

That is hogwash, of course. Galvin did not endorse TelexFree when his office approved a corporate registration. Besides, Galvin — as Commonwealth Secretary — oversees both the Massachusetts Corporations Division and the Securities Division. The Securities Division is probing TelexFree and possibly can rely on various documents in the Corporations Division to help investigators connect dots.

Beyond that, the website from which the screen shot promoting TelexFree by marrying images of Merrill and Galvin was taken also is promoting WCM777. Also shown below is an image from the same site in which Merrill is shown posing beside a giant SUV. Contrast that image against the image of Merrill posing in front of a large Massachusetts building as though TelexFree were its only occupant. TelexFree promoters have used the same approach, planting that seed that TelexFree owns the building and has a large physical presence in the United States.

That’s hogwash, too. TelexFree was an occupant of Suite 200 at a Regus center in Marlborough, along with dozens of other companies.

Finally, before observing the shots below, recognize that MLM itself — never a stranger to scandal — may be on the verge of experiencing a PR and legal crisis of unprecedented proportions.

People have harshly criticized hedge-fund manager Bill Ackman for attacking Herbalife. Among his contentions is that Herbalife is a pyramid scheme that targets vulnerable populations. Say what you will about Ackman’s Herbalife claims, but it is crystal clear that affinity fraud and the viral looting of impoverished/disadvantaged people have existed in the MLM realm for a long time and continues to be seen. One might even be inclined to say a market-making fraud blueprint exists within MLM: mow down one affinity cluster or population group and then move to another.

At a minimum, “programs” such as TelexFree and WCM777, which clearly have positioned themselves as wealth recipes for immigrants and vulnerable populations, can help Ackman shape and inform his Herbalife hypothesis.

James Merrill is TelexFree’s president and thus an MLM executive. TelexFree and Merrill, to date, have played into virtually every MLM stereotype that exists — everything from private jets, monster SUVs and stretch limos to business registrations and mail drops in Nevada.

Most disturbingly, though, Merrill represents an American MLM company that has been banned in Rwanda, an African nation that is trying to reverse poverty and receives aid from the World Bank. It’s hard to conceive that MLM — particularly American MLM — could card a worse PR disaster. Regardless, one could be in the offing.

Picture Story

1.

A TelexFree promoter who also promoted WCM777 extends the myth that TelexFree has a large physical presence in the United States and plants the seed that Massachusetts Commonwealth Secretary William Galvin endorsed TelexFree. Galvin’s office is investigating TelexFree after previously booting WCM777 from the state.

2.

A promoter simultaneously pitches TelexFree and WCM777. This shot is from the same site described in the photo above. The site may be based in Ecuador.

3.

This shot is from the same two sites described in the captions above — and features TelexFree President James Merrill posing with a giant SUV.

4.

This shot was taken on the same site described in the three preceding captions above. In this fourth shot, a person promoting both TelexFree and WCM777 claims that the purported parent company of WCM777 provided a loan of $20 million to a restaurant chain that sells Mexican food. The PP Blog has deleted an image of the chain’s logo that appears in the WCM777 promo. The same site plants the seed that WCM has provided hundreds of millions of dollars in loans to jewels of American business.

5.

This site features promos for various purported “opportunities,” including TelexFree and WCM777. Though not shown in the photo, the site also is promoting the uber-bizarre Banners Broker “program.” The site may be based in Italy.

6.

This site also is simultaneously promoting TelexFree and WCM777.

7.

This YouTube site describes TelexFree and WCM777 as “dynamic companies” and plants the seed that TelexFree is endorsed by the Better Business Bureau.

Mar 22, 2014
In Face Of International Probes And Legal/PR Disaster In Africa, TelexFree Launches PR Campaign That Only Raises More Questions

From Google News search results.

UPDATED 9:24 A.M. EDT (MARCH 22 U.S.A.) TelexFree, alleged to be a pyramid scheme using a VOIP product as a front to mask an investment program, has been under investigation in Brazil since at least June 2013. There’s also an ongoing securities probe in Massachusetts. The government of Rwanda, meanwhile, has announced it booted a TelexFree enterprise after a joint investigation with the African nation’s central bank sparked money-laundering concerns.

Yes, Rwanda has banned TelexFree, something that might set a new standard of embarrassment for an American MLM company. Though the timing may be coincidental, Rwanda did this after a TelexFree pitchman suggested to troops in Boston on March 9 that TelexFree has so much free cash laying around that the two-year-old business can saddle up a “private jet” for trips to Hispaniola and Haiti, perhaps the poorest nation in the Western Hemisphere.

Just a week earlier, promos for a TelexFree convention in Spain bragged that the firm was holding a “Gala Dinner” in Madrid and providing “direct Limo Service” to its recruiting stars. TelexFree also sponsors a professional soccer club in Brazil.

One can hardly blame Rwanda if it is protecting its dignity while wondering what happened to the cash gathered from Rwandan affiliates. And because Uganda has signaled it may follow Rwanda’s lead, the imagery in African media of out-of-touch, greedy American MLMers may not be at its zenith. From a PR perspective, these things couldn’t be happening at a worse time for MLM. Herbalife, an industry stalwart, is under investigation by the U.S. Federal Trade Commission.

There have been rumors for days that Massachusetts-based TelexFree was hiring a CEO. That appears not to have happened. Or, if it has happened, TelexFree hasn’t expressed it clearly in print.

There is a new hand on board, according to a TelexFree news release issued this morning. But nowhere does the release describe the new hand — former MLM telecom executive Stuart A. MacMillan — as TelexFree’s CEO or even as a TelexFree executive. Instead, MacMillan is described in terms that suggest he’s freelance management talent “[s]peaking on behalf of TelexFREE.”

MacMillan doesn’t even get a mention until the tail end of the sixth paragraph of this morning’s release. Instead, the company booted out of Rwanda and under investigation on at least three continents led with an underwhelming headline that highlighted MLM without calling it MLM. “TelexFREE Chooses Tradition of Direct Selling Phone Service.”

So, TelexFree, which says it is a professional communications company, buried whatever news it had and hasn’t made it clear that MacMillan has a title, let alone real decision-making authority. And even if he does have authority, how much of it extends to the overall TelexFree operation is unclear.

There’s a TelexFree LLC based in Nevada that has been denied registration as a telecommunications company in Washington state. Then there’s TelexFree Inc., which operates from Massachusetts. In Florida, there’s a TelexFree International Inc. that was registered on March 14. Also in Florida there’s a TelexFree Tax Service registered March 14, and a TelexFree Financial Inc. registered Dec. 26. Other companies in Florida also use the name TelexFree. So do at least three companies in California.

In Nevada, at least two companies that appear to have ties to TelexFree have been registered since November. These include Telex Mobile Holdings Inc. and TelexElectric LLLP.

Leading With ‘The Gipper’

The opening line of the news release release fondly harkens back to the “mid-1980s” and the phone-sector deregulation that occurred during “the Reagan Administration.”

It could be worse, we suppose. WCM777, an MLM firm kicked out of Massachusetts and California and under investigation on at least two continents for advertising preposterous returns, tried its hand at channeling both President Reagan (of California) and President Kennedy (of Massachusetts) with rhetorical references to a “City upon a Hill.”

President Reagan finished his second and final term as President in January 1989, more than 25 years ago. He died in 2004. Even his political opponents wept.

Now, TelexFree appears to be suggesting that the deregulation he favored during his years in the White House has put the firm on the success track and inspired it to sell Internet telephony to “Brazilian and Hispanic expatriate communities.”

One of the things that happened during the Reagan administration — and this is not a knock on the President, whom we admired — was that doors opened for phone companies to compete on long-distance pricing. Over time, consumer-pleasing downward pressure on prices and lower margins put some firms at death’s door. One of those firms was Excel Communications, an MLM company that formerly employed MacMillan.

A separate release issued today describes TelexFree as an enterprise that “booked 10,859,669 minutes of VOIP calls” last month. It’s a hollow claim, rather like a husband bragging to a wife on Saturday morning that he’d just trimmed 10.8 million blades of grass in the front yard — while conveniently forgetting to mention that a John Deere did all the heavy work.

What TelexFree conveniently is forgetting is that the issue with it is whether the people who used those 10.8 million minutes it “booked” last month would purchase the VOIP service if it were not attached to an “opportunity” affiliates describe as something that could retire government, corporate and consumer debt if the regulators would just leave it alone.

Moreover, the release does not mention that Sann Rodrigues, previously described as the firm’s top pitchman, was accused by the SEC before TelexFree even came into existence of being a pyramid-huckster who roped Brazilians into an affinity-fraud scheme involving a phone-related product.

“You say you haven’t heard of TelexFREE?” the second release queries. “Then you probably aren’t one of the more than 1 million Portuguese-speaking residents of the Commonwealth of Massachusetts.”

It goes on to say that “[b]efore TelexFREE, Portuguese speakers calling home to Brazil or Portugal were paying high international rates or suffering the frustration of trying to teach elderly parents how to use Skype…after they taught them how to get online.

“In large part due to those frustrations and expenses, Brazilian and Hispanic expatriate communities are embracing the simplicity and economy of TelexFREE.”

Most curious of all in the second release was a TelexFree claim that it “wasn’t until about two years ago that we found a niche community that expressed such overwhelming need for our product.” That’s particularly strange, given that Rodrigues hails from Portuguese-speaking Brazil, as do Portuguese-speaking TelexFree executives Carlos Wanzeler and Carlos Costa.

Rodrigues and Wanzeler, at least, have been pitching phone products to Portuguese-speakers for years. Rival Skype is available in multiple languages, including Portuguese.

Like the first release, the second release doesn’t mention that promoters of TelexFree have claimed that $15,125 sent to the firm fetches back more than $57,000 in a year and that smaller sums of between $289 and $1,375 also virtually triple or quadruple in a year.

The first release, however, at least hints that MacMillan recognizes some in-house problems at TelexFree.

“I see my responsibility as establishing internal governance and an expansion of the products and services,” the release quotes him as saying. “Like so many entrepreneurial companies in the tech space, TelexFREE has been growing so fast, it hasn’t had much time for management. I’ve been brought in to spend that time and to provide that experience, including an end-to-end review of methodologies and controls.” (Emphasis in original.)

Whether MacMillan has the authority to ground the “private jet” to which executives and top reps apparently have access when flying to the Dominican Republic and Haiti was not addressed in the news release. Nor did the release say whether MacMillan planned to eliminate the appearances of limousines in various TelexFree promos or do away with sea-cruise pitchfests.

James Merrill remains TelexFree’s president, according to the second release.

From the second release (italics added):

When asked about the success of the company, President and co-founder Jim Merrill replies, “We have been in VOIP telecommunications for more than a decade; but it wasn’t until about two years ago that we found a niche community that expressed such overwhelming need for our product. Combined with a distribution method that takes our services to them economically, our growth has been exponential.”

It’s as though promising to pay $1,040 on $289, $5,200 on $1,375 and $57,200 on $15,125 — in a year, no less — had nothing to do with it.

Reagan would have thought it madness and advised House Speaker Tip O’Neill that someone was trying to soil that beautiful Massachusetts city upon the hill. And Kennedy would have called TelexFree’s business practices “a wholly unjustifiable and irresponsible defiance of the public interest.”

Mar 21, 2014
Washington State Rejects TelexFree Bid To Register As Telecommunications Firm

The Washington State Utilities and Transportation Commission has rejected a bid by TelexFree LLC to register as a telecommunications company.

TelexFree LLC is not registered as a corporation in Washington state and therefore is ineligible to be registered as a telecommunications firm in the state, the commission said in a finding dated March 13.

How the order will affect TelexFree reps in Washington state was not immediately clear this evening. Also unclear is whether TelexFree LLC will encounter similar problems in other U.S. states. TelexFree LLC is part of an enterprise that already is offering a VOIP product and says it is expanding into cell phones, apps, credit repair and financial advice.

“THE COMMISSION REJECTS the application and petition of Telexfree, LLC, in its entirety,” the order reads in part.

TelexFree LLC’s rejected filing was submitted Feb. 13 by Joseph Isaacs, a “consultant” from Palm Harbor, Fla., according to the state. A “Telexfree LLC Balance Sheet” is listed on the state’s website as part of the submission. The balance-sheet document “properties” lists “JoeCraft” as the author.

As the PP Blog reported on March 9, the balance sheet claims TelexFree LLC has provided millions of dollars in loans to other TelexFree enterprises.

One loan, according to the document, was for more than $3.8 million and went to an entity known as Telexfree Financial Inc. Another loan of more than $2.022 million went to an entity known as TelexElectric LLLP.

In addition, the Washington state document lists a loan of more than $500,000 to an entity known as TelexMobile. Another loan of more than $291,800 went to an entity described as Ympactus. A TelexFree-related entity known as Ympactus Comercial Ltd. is based in Brazil.

TelexFree executive Carlos Costa is associated with Ympactus. Costa said yesterday that TelexFree had been assessed a tax penalty in Brazil of about $30 million.

The government of Rwanda has announced that a TelexFree enterprise has been banned in the African nation after a joint probe with Rwanda’s central bank. Rwanda said it was concerned that the enterprise posed a money-laundering risk. TelexFree, which operates in Massachusetts as TelexFree Inc., is under investigation in its home state. Brazilian prosecutors have called TelexFree a pyramid scheme.

The order in Washington state leaves open the door for TelexFree LLC, which is based in Nevada, to reapply for telecommunications registration if it gets properly registered as a corporation in Washington.

TelexFree LLC appears to have 14 days from March 14 to challenge the order. March 14 was the date the order was posted on the state’s website.

Mar 18, 2014
Government Of Rwanda, Citing Pyramid And Money-Laundering Concerns, Bans TelexFree Enterprise After Joint Probe With Nation’s Central Bank

The Ministry of Trade and Industry of the Republic of Rwanda has announced that a TelexFree enterprise has been banned in the country after a joint investigation with the National Bank of Rwanda, the nation’s central bank.

Central banks control monetary policy in their respective countries. Other examples of central banks include the Bank of Canada, Banco Centro do Brasil and the U.S. Federal Reserve.

The move by the Rwandan government and the central bank may mark the first public effort to choke off TelexFree.

Whether TelexFree headquarters in the United States had direct/indirect or no control over the operation in Rwanda was not immediately clear. Nor was it clear whether any help from TelexFree’s U.S. or Brazilian operations would be forthcoming.

Kanimba Francois, Rwanda’s Trade and Industry Minister, signed the order, specifically naming an entity known as P.L.I Telexfree Rwanda Ltd.

How many other TelexFree-related enterprises may be operating in Rwanda wasn’t immediately clear. In theory, a single distributor could recruit tens, hundreds or even thousands of affiliates, with those affiliates creating even more.

TelexFree has thrived, based on assertions that sums sent to the firm triple or quadruple in a year.

Separately, Uganda is signaling that it may follow Rwanda’s lead. The Twitter site of Richard Kabonero, Uganda’s ambassador to Rwanda, has published the Rwanda ban signed by Francois.

A Tweet attributed to Kabonero read, “like [all] good ponzi schemes the people who get in first make the money but eventually they fold.”

@tumksivan @KakandeAlex @tomddumba like alll good ponzi schemes the people who get in first make the money but eventually they fold

— Richard Kabonero (@richardkabonero) March 18, 2014

Following a common theme when a government moves against an MLM “program,” a fellow Tweeter asserted that Kabonero was jealous because he wasn’t earning money in TelexFree.

RwandaEye, an online financial publication, is reporting that TelexFree operated from the second floor of a supermarket in Remera.

TelexFree is under investigation in Brazil, amid pyramid allegations. The “program” also is under investigation in the U.S. state of Massachusetts.

News of the Rwanda ban after the joint probe with the central bank came while some TelexFree affiliates were complaining about not getting paid and poor response to customer-service issues.

On March 14, this message appeared on a Facebook site dubbed “TelexFreeInUSA” (italics added/quoted section verbatim except as noted):

Hello, i opened an account the 27/2/20014 and i payed invoice for a family pack (amount 1425$) the 10/03/2014. In ewallet i recived this message from TelexFree near my payed invoice: “Invoice Number [deleted by PP Blog] Voided as per management request. Package is no longer available”.

!!! AT THIS MOMENT MY ACCOUNT IS NOT ACTIVATED, I HAVE NOT RECIVED A REFUND FROM TELEXFREE, ANYONE ANSWER TO MY EMAILS AND MY SUPPORT REQUESTS !!!

Efforts to get a refund have failed so far, the poster claimed. Many TelexFree affiliates have claimed that purchases of “family packs” generate guaranteed income. Sales of “packs” are typical of HYIP Ponzi schemes.

Mar 18, 2014
REPORT: TelexFree Subjected To $30 Million (U.S.) Tax Penalty In Brazil

During this video, TelexFree executive Carlos Costa reportedly talked about a $30 million tax penalty. Costa also showed off the award provided him in Spain earlier this month. Costa appears not to have accepted the award in person, according to a video of the March 1 and 2 event in Madrid. (See related story at bottom of this post.)

UPDATED 9:46 P.M. EDT (U.S.A.) The video below of TelexFree executive Carlos Costa is in Portuguese. In this particular circumstance, the Google facility to translate captions from Portuguese to English didn’t do much to aid our comprehension. Perhaps one of our readers skilled in both Portuguese and English could provide a summary below of Costa’s remarks. It would be appreciated.

Jornal.US News Service has a story here (in Portuguese) that references the video. The Portuguese translation by Google of the article says TelexFree has been subjected to a penalty by a Brazilian tax authority of “70 million reais.” That’s about $30 million (U.S.).

We are treating this information as nonfinal, which means we may update/amend this PP Blog post as the circumstance becomes more clear and more information becomes available.

If the penalty sum is accurate, it’s hard to see how this is good news for TelexFree reps, particularly amid Ponzi/pyramid concerns elsewhere about TelexFree. That’s because Ponzi/pyramid schemes already are under financial stress before taxation even is taken into consideration.

Beyond that, TelexFree has been tinkering with its compensation plan. Given the tax circumstance, questions now can be raised not only about whether TelexFree is engaging in the sale of unregistered securities in many countries, but also whether the compensation tinkering is designed somehow to minimize cash outflow by making it harder for members to qualify to get paid.

News of the tax penalty comes only days after TelexFree charged affiliates $164 to attend a function in Boston. At the Boston event, a man selling a TelexFree-related credit-repair program talked about being on a “private jet” with others in TelexFree and flying from the Dominican Republic to Haiti.

See related story.

Separately, BehindMLM.com is reporting that TelexFree has been banned in Rwanda.

Mar 17, 2014