Alleged TelexFree MLM Ponzi Scheme May Have Polluted Money Flow To Vendors, Contractors AND The Government At Hundreds Of Thousands Of Contact Points

Virtually no one was safe from the TelexFree MLM financial menace, documents suggest. Not even the government.

How far and deep did the alleged TelexFree fraud pollution flow? The answer remains unclear a week after Ponzi- and pyramid allegations were filed against the enterprise, but documents suggest pollution at hundreds of thousands of points of contact across a spectrum of vendors, participants and government agencies.

It may be the largest MLM HYIP fraud in world history.

Records in Nevada show that the state Public Utilities Commission ordered TelexFree to pay for newspaper ads publicizing its application to become a telecom provider on April 9, just four days before the firm filed for bankruptcy protection in the state.

Though regulatory requirements vary from state to state, a firm may be asked to pay an application fee and generally must show it can meet the financial demands of being in the telecom business. Hearings may be scheduled to discuss applications and consider objections to them, thus creating the need to pay for public notices on websites and in newspapers.

Given assertions by regulators that TelexFree was a massive Ponzi and pyramid whose purported telecommunications product masked an epic securities-fraud scheme and contributed very little to its overall operation, it is possible that various TelexFree telecom applications in various states were paid for with Ponzi proceeds and that TelexFree vendors and consultants also were being paid with fraud proceeds.

TelexFree caused Nevada, for example, to be paid a $200 application fee. It caused Minnesota to be paid almost three times that sum, according to records. Given the nature of the TelexFree fraud allegations, an untold number of vendors, government agencies or downstream recipients of TelexFree money could have been paid with Ponzi proceeds.

By some accounts, TelexFree had hundreds of thousands of member accounts — people from all over the world who were being paid by the enterprise  to recruit even more people.

Polluted money flowing to multiple points is one of the key dangers of HYIP Ponzi schemes. On April 17, TelexFree was the top story in the Department of Homeland Security’s daily infrastructure report.

Earlier, on April 5, a TelexFree promo appeared online in which TelexFree marketing executive Steve Labriola claimed the enterprise had picked up “550,000 new customers in [the] U.S.A. alone” since March 9.  Logos of major American media firms rolled on the screen during the Labriola-narrated promo, including the logo of the Las Vegas Review Journal, Nevada’s largest newspaper. The promo implied TelexFree had the backing of the media. Regardless of the suggestion, however, the reality was that a PR news service had caused TelexFree-authored puff pieces to appear on the websites of the prominent media outlets.

Four days later, the Nevada PUC advised TelexFree that the Review-Journal was one of the newspapers in which TelexFree was required to advertise its telecom application. If ever there was a moment of pregnant irony in the MLM sphere, this was it.

The ads, according to the commission, needed to appear in a “minimum one column by three inch ad with black borders on all sides” no later than April 20.

Because TelexFree had asked that its financial reports to Nevada be filed under seal, Nevada Attorney General Catherine Cortez Masto filed a “Notice of Intent to Intervene” in the application process to represent “the public interest,” according to records.

Then-TelexFree President Jim Merrill and TelexFree telecom consultant Joseph Isaacs were copied on the PUC’s April 9 letter that advised TelexFree it was the firm’s responsibility to “contact the newspapers and make timely payment arrangements” for the required telecom-licensing ads, according to Nevada records.

Whether that occurred is unclear.

The PUC warned TelexFree that “your filing may be dismissed for failure to make payments timely.”

TelexFree’s bankruptcy filing occurred four days later, on April 13. Earlier, on April 4, TelexFree — through Florida-based Isaacs — advised the state of Alabama that it needed a hearing scheduled for April 10 to consider its telecom application postponed “for a month” owing to unspecified “scheduling conflicts.”

In Alabama filings, TelexFree contended that it had “total income” of nearly $700 million in 2013 and “net income” of more than $36 million.

Separately, in Minnesota filings in March, TelexFree made the same financial assertions and requested confidential treatment. Minnesota nevertheless published on its website the financial documents TelexFree submitted. Records show that Isaacs’ company sent Minnesota a check for $570 on March 24 to cover filing fees.

The telecome consulting company of Joseph Isaacs made a payment of $570 to the state of Minnesota to cover TelexFree's filing fees, according to records. Isaccs later would contend he'd been duped by TelexFree, an alleged Ponzi- and pyramid scheme that gathered more than $1.2 billion.

The Florida telecom consulting company of Joseph Isaacs made a payment of $570 to the state of Minnesota to cover TelexFree’s filing fees, according to records. Isaacs later would contend he’d been duped by TelexFree, an alleged Ponzi- and pyramid scheme that gathered more than $1.2 billion.

By April 15, the SEC was in federal court accusing Labriola and other TelexFree executives of fraud. In its complaint, the SEC made a specific reference to the Labriola video with the rolling logos of media companies and claims TelexFree had picked up more than 500,000 customers in less than a month. (The SEC notes a separate publication of the Labriola video on April 6, but the video appears to have been published on a different site a day earlier.)

In addition to the rolling media logos and claims TelexFree had scored more than half a million new customers, the video featured Labriola complaining about negative TelexFree coverage on Blogs and compared the firm’s experience with bad press to that of MLM companies such as Amway and Herbalife. Herbalife, an MLM company that promotes nutrition supplements, also is the subject of a government probe. It has denied wrongdoing.

The precise reason why Herbalife is under investigation is not publicly known. What is known is that part of the investigation reportedly reaches into the state of Massachusetts. (See April 11 Reuters report with a dateline of “New York/Boston.”)

TelexFree had an operation in Massachusetts. The SEC accused the firm of targeting Brazilian and Dominican communities. Hedge-fund manager Bill Ackman has contended that Herbalife is a pyramid scheme that targets vulnerable population groups.

“I know,” Labriola said in the April 5 video. “You’ve heard the Blogs. I’ve heard the Blogs. I hear every day, ‘The Blogs say this, the Blogs say that.’ You know what’s good about the Blogs talking about us? It means we’re growing. Have you heard about Amway? Herbalife? The big companies out there that have achieved their levels — Bloggers hit them all the time. So, the positive thing is [that] Bloggers are talking about us ’cause we’re growing, ’cause you’re growing the business. They will continue to hit companies that are growing.”

TelexFree was in bankruptcy court eight days later, on April 13. Promoters have claimed $289 sent to the firm returned $1,040 in a year and that $15,125 returned $57,200. TelexFree says it is a telecom firm, but also allegedly sold something called “AdCentral” packages that provided a return promoters described as “guaranteed.”

By April 18, according to filings elsewhere, Isaacs had contacted the Washington State Utilities and Transportation Commission and told regulators there that he believed he’d been duped on matters pertaining to TelexFree’s financial affairs, operations and ability to meet the demands of a competitive telecom company.

“It has come to my attention this week that my client TelexFree, LLC, whom has applied for or has recently been approved to provide telecommunications services in your state, has misrepresented their intentions, their business model, their customer base and the source of all of their revenue, income and profits declared on their 2013 financial statements that were provided to this commission for the approval of their petitions (applications in some jurisdictions),” Isaacs wrote.

Included with Isaacs letter to Washington state were copies of fraud complaints that had been filed against TelexFree April 15 by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission.

“Please disassociate my firm with these alleged [TelexFree] crooks,” Isaacs asked Washington state regulators.

As the PP Blog reported on April 15, one of the contentions against TelexFree by the Massachusetts Securities Division was that information TelexFree had provided Massachusetts investigators was at odds with information TelexFree had provided the Washington State Utilities and Transportation Commission.

Massachusetts also alleged that TelexFree was a massive Ponzi- and pyramid scheme that had gathered more than $1.2 billion.

When the SEC sued TelexFree on the same day, the agency contended that TelexFree co-owners James Merrill and Carlos Wanzeler and TelexFree CFO Joseph M. Craft had engaged in securities fraud and that the firm’s telecommunications product served as a front to mask an investment-fraud scheme.

On March 4, 2014, the PP Blog noted that Zeek Rewards, an MLM firm the SEC sued in 2012 amid allegations it had gathered hundreds of millions of dollars through a combined Ponzi- and pyramid scheme, appeared to have a high number of immigrants  in its membership ranks.

A court-appointed receiver’s listing of alleged Zeek Ponzi winners living in the United States showed about 45 people with the last name of “Johnson” and about 52 with the name of “Smith.” By contrast, the document listed about 67 people with the name of “Wang,” about about 61 with the name “Tran,” and about 146 with the name of “Nguyen.” (See story and Comments thread.)

The document raises questions about whether American MLM firms are targeting immigrants and selling an improbable tale of riches to them. The TelexFree probe has led to similar questions.

There also may be concern across U.S. government agencies that some MLMers simply move from one fraud scheme to another. Multiple TelexFree members, for instance, appear to have been members and winners in the Zeek scheme. And some alleged Zeek winners also were participants in the AdSurfDaily MLM Ponzi scheme that collapsed in 2008.

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14 Responses to “Alleged TelexFree MLM Ponzi Scheme May Have Polluted Money Flow To Vendors, Contractors AND The Government At Hundreds Of Thousands Of Contact Points”

  1. Are you trying to infer that anyone outside of the inner workings of TelexFREE knew they were operating a large ponzi scheme? They ripped off and lied to so many including the consulting firms they hired along the way.

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  2. Dominican agencies probe TelexFree ‘ponzi scheme’
    http://www.dominicantoday.com/dr/local/2014/4/22/51221/Dominican-agencies-probe-TelexFree-ponzi-scheme

    Justice Ministry anti-money laundering unit director Germán Miranda said the Office Prosecutor and the financial authorities will meet Wednesday morning to coordinate the investigation and possible confiscation of properties.

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  3. Also:
    Slow action on TelexFree could prove costly
    http://www.bostonglobe.com/business/2014/04/21/long-telexfree-probe-followed-fraud-charge-brazil/qVrMsi833hvFslPt02V94N/story.html

    A good point is made:

    SEC officials acknowledge investigating the company for some time. They say their methodical approach was needed to gather enough facts that would convince a judge to freeze a company’s financial accounts.
    No doubt it takes time to make cases like these. But in the interim, a lot of people continued to send their money to TelexFree.
    In some small countries, regulators instead issued earlier public fraud warnings about the company. That’s not the way things work here.
    The deliberate approach of state and federal investigators may still pay off, but only if the government can recover millions of dollars and return them to investors. That outcome is far from a sure thing.

    I’m not sure that the warnings issued by “small countries” (Brazil a small country?) stopped this obvious ponzi scheme. It would be better if these schemes could be stopped before they get so big.

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  4. Thanks for pointing that out Tony. Too many like to assume nobody is doing anything about scams just because they are not included in the loop

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  5. US Ambassador to Dominican Republic said if it’s guilty authorities will do all it can. The subject was brought up at a press conference on something else. It *seems* to suggest US will cooperate with any investigations.

    http://hoy.com.do/embajador-ee-uu-revela-investiga-con-autoridades-dominicanas-a-telexfree/

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  6. K. Chang: US Ambassador to Dominican Republic said if it’s guilty authorities will do all it can. The subject was brought up at a press conference on something else. It *seems* to suggest US will cooperate with any investigations.

    http://hoy.com.do/embajador-ee-uu-revela-investiga-con-autoridades-dominicanas-a-telexfree/

    Thanks, K. Chang. Google translation to English:

    http://translate.google.com/translate?hl=en&sl=es&tl=en&u=http%3A%2F%2Fhoy.com.do%2Fembajador-ee-uu-revela-investiga-con-autoridades-dominicanas-a-telexfree%2F

    Patrick

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  7. From the Boston Globe article provided by Tony.

    How does a business that was shut down as a fraud by a judge in Brazil manage to flourish in the United States for another 10 months, operating from a small office in Marlborough, of all places?
    This is the first question the Boston Globe reporter Steven Syre’s asks in his article sounding a bit pissed that it took 10 months for the SEC to step in to shut Telexfree down. 10 months to put together a case against a ponzie scheme that spans the world isn’t as easy as writing about how it should have been handled faster after the fact. I think it’s to early to already be criticizing the investigation especially by those of us, myself included, that have never had the arduous legal challenge that I’m sure this case has presented. Largest Ponzie scheme in History might make ya think it would take some time to get the case together.
    Rather than busting Mr. Galvin’s ass so soon…..
    I pose a question to Mr. Syre’s, I still have the naive “old school” thinking that news papers and reporters are our watch dogs. Where were you? This wasn’t just in Mr. Galvins back yard,it was in your back yard too.
    The only reporter that acknowledged and wrote a story about Telexfree early on was a fellow from one of the small town local news papers. His name is Scott Oconnell. I wrote him a letter….thanking him for taking notice.

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  8. website telexfree return?

    http://www.telexfree.com/

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  9. I want to see them in the chain also here where I live has 4 people who promoted this should go to jail too!

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  10. Here’s a slightly better article that said Ambassador Brewster will have US authorities cooperate with DR authorities on TelexFree investigation:

    http://www.7dias.com.do/portada/2014/04/22/i162446_estados-unidos-investiga-con-republica-dominicana-estafa-telexfree.html

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  11. There is a disturbing report in Dominican media that a person despondent over TelexFree has left a suicide note to his family and that police have been notified. Twitter mentions of this report have mushroomed over the past several minutes.

    Patrick

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  12. Carlos: Are you trying to infer that anyone outside of the inner workings of TelexFREE knew they were operating a large ponzi scheme?

    Not gonna play a shill game with you, “Carlos.” Your IP matches one that appeared yesterday in a certain email communication I received at 3:32 p.m. EDT. It wasn’t from “Carlos.”

    I put a soft block on “Carlos” two days ago; I began to suspect shilling because of a claim made by “Carlos” in a post here that remains unpublished. The situation reminded me very much of what happened at Quatloos:

    http://www.quatloos.com/Q-Forum/viewtopic.php?f=5&t=2653&start=80

    In answer to your question above:

    Actually, I think X number of people in position to plumb the TelexFree money cow did so while engaging in willful blindness. Among the things they chose to ignore/downplay were the pyramid probe in Brazil, the death threats against a prosecutor and judge, the presence of the “program” on the Ponzi boards, the presence of known HYIP scammers, the similarity to Zeek and ASD, the incongruous nature of the “program” in general and civil and even criminal actions against previous participants in such schemes.

    I’m also thinking that’s why Paul G. Levenson, a top SEC official, said this on the date (April 17) the fraud action was announced:

    “This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work. Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.”

    It’s also my personal opinion that any consultant worth his salt would have seen many instances of check-waving in TelexFree promos and concluded that TelexFree easily could go the way of FHTM — that is, to the MLM boneyard.

    Certainly any person who claims to have taken down FHTM would have noticed TelexFree check-waving, given that it was an element in the FHTM case.

    I’ll also note — and this is meant as a general comment and is NOT directed at you in any way, shape or form — that the PP Blog’s security software has recorded 354 break-in attempts since Feb. 16, 2014. In other words, these attempts occurred during a period of heavy reporting on TelexFree and other “programs.”

    On [Sunday], while doing TelexFree research, my computer was hit with malware. It took the better part of a day to clean it, leading to the delay in the publication of two stories.

    Reporting on these “programs” creates safety concerns. I’m thinking that you’ve probably already noticed that one or more of the HYIP racketeers are trying to put a chill in Oz over his TelexFree reporting and that the same thing happened to K. Chang when he was reporting on Zeek.

    I’m really not keen on games of shilling, especially after what happened at Quatloos with respect to FHTM. You are more than welcome, however, to come though the front door and to have your say. I suggest you use the name typed into my contact form yesterday — 13 minutes after the comment from “Carlos” above.

    You are in a stinking shithole of an industry segment, “Carlos.” It is hurting people across the world and creating an untenable security condition.

    “Carlos” is done here. Use the name in the contact form yesterday or be gone.

    Patrick

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  13. Ah,,,,,so it is isaacs. No one in their right mind would go to bat for him with his scamming track record

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  14. I live in Uganda and under the new plan i had recruted 3 of my siblings,three of my friends.My husband had put in about $5000 close to 4weeks before telexfree closed.The day it closed is the day he expected to make his first withdrawal from telexfree.My siblings,friends and i never withdrew anything.We live in Uganda,East Africa,will we ever recover anything?Can anyone help the thousands of people in Uganda who have lost millions to recover atleast what they invested?

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