BULLETIN: (5th Update 10:06 p.m. EDT U.S.A.) A defense filing by alleged TelexFree co-owner James Merrill may signal a serious divide between Merrill and Carlos Wanzeler, now described by the United States as an international fugitive.
At the same time, new defense filings by Merrill say arguments made in bankruptcy court that suggest TelexFree could restore its business in a new form should be considered at a hearing to free Merrill on bail.
Merrill, 53, of Ashland, Mass., has been detained since his May 9 arrest on charges of wire-fraud conspiracy.
“Indeed, unlike his co-defendant in this case, Mr. Merrill did not attempt to flee or avoid this prosecution, despite clear notice and knowledge of the government’s ongoing criminal investigation,” a lawyer for Merrill said in court filings today.
Government filings have said Wanzeler, 45, of Northborough, Mass., ducked into Canada under cover of darkness on April 15, and flew to Brazil two days later. Like Merrill, Wanzeler was charged criminally with wire-fraud conspiracy on May 9.
Wanzeler allegedly fled into Canada on the same day TelexFree’s headquarters in Marlborough, Mass., were raided. Two days later — on April 17 — he allegedly boarded a plane in Toronto bound for Brazil.
From the defense filing (italics/bolding/carriage returns added):
On May 9, 2014, more than three weeks after execution of the search warrants, the government filed a criminal complaint and arrested Mr. Merrill. He was still here, in Massachusetts, driving his car on Route 9 at the time of his arrest. At no time during the intervening three weeks did Jim Merrill ever attempt or consider fleeing the jurisdiction. Instead, he was in the process of preparing to lawfully defend himself, fully confident in the legal process.
The fact that his co-defendant chose to leave the United States on April 15, 2014, or that Mr. Merrill allegedly spoke to Mr. Wanzeler on that date, facts relied upon extensively by the government at the original bail hearing . . . do not remotely support detention in this case. To the contrary, given the inference the government apparently seeks to draw from the telephone records (i.e., that Mr. Merrill spoke to Mr. Wanzeler on April 15, 2014, and was therefore aware he was leaving the country), the logical conclusion to draw from the government’s suggested inference is that Mr. Merrill deliberately chose to remain in the United States.
In any event, whether they spoke that date or not, and whatever they discussed, the fact of the matter is that Mr. Merrill had the same opportunity as Mr. Wanzeler to leave the country, but he did not do so, with full knowledge he was the subject of a criminal investigation, and fully cognizant that the government believed (rightfully or wrongly) that the company was a massive pyramid scheme . . .
Through his attorney Robert M. Goldstein, Merrill also is arguing that certain claims made in U.S. Bankruptcy Court by interim TelexFree CEO Stuart MacMillan and turnaround specialist William Runge should be considered in a bail application by Merrill.
“Indeed,” Goldstein argued, “Stuart MacMillan, a person with over 25 years of management experience who was hired to serve as Interim Chief Executive of TelexFree in February 2014 . . . has averred under oath his belief ‘that through a revamped model [TelexFree] will be able to leverage their uniquely situated product to provide valuable and dependable services to their customers while ensuring that their operations are profitable.'”
And, Goldstein noted, Runge has contended that TelexFree participants used approximately 11 million minutes of VoIP service in February 2014.
MacMillan was hired by Merrill and Wanzeler on April 13, and also caused Merrill’s resignation and the firing of Wanzeler on April 17, according to bankruptcy court records.
With respect to bail, Goldstein argued, friends and family of Merrill would agree to post real estate as security for his appearance at trial and Merrill himself would agree to house arrest and electronic monitoring.
Today’s defense motion also signals that Merrill may introduce a “reliance of counsel” defense, specifically the counsel of MLM attorney Gerald Nehra.
Some TelexFree members have painted Nehra as a racketeer who helped fraud schemes such as TelexFree and Zeek Rewards thrive. Zeek, the SEC said in 2012, was a Ponzi- and pyramid scheme that had gathered hundreds of millions of dollars.
Nehra also was an expert witness for AdSurfDaily in 2008, asserting that ASD was not a Ponzi scheme. In 2012, ASD President Andy Bowdoin pleaded guilty to wire fraud and admitted ASD was a Ponzi scheme that had never operated lawfully from its inception in 2006.
Merrill’s latest motion to be freed on bail coincidentally occurred on the same day the U.S. Court of Appeals for the 9th Circuit agreed with both a lower court and the FTC that the BurnLounge MLM “program” was a pyramid scheme — despite the fact that a certain percentage of retail sales could have occurred.
In a lawsuit against TelexFree by the SEC, the agency contended that members could make money through TelexFree without selling anything at all because of an attached passive investment scheme in which members were told they were getting paid for posting ads online about TelexFree. The investment program was known as “AdCentral” and was a sham to mask the pyramid scheme, the SEC alleges.
Among other things, the SEC contends that credit-card and banking transactions “indicate that, from August 2012 to March 2014, TelexFree received slightly more than $1.3 million from the retail sale of approximately 26,300 monthly VoIP contracts. During the same period, TelexFree received more than $340 million from hundreds of thousands of investors who purchased AdCentral or AdCentral Family contracts. Through the sale of those one-year contracts, TelexFree effectively promised to pay more than $1.1 billion to the investors who posted the required ads.”
Goldstein argued today that retail sales of TelexFree’s VOIP product may be much higher than the government believes.
“Most critically,” Goldstein argued, “significant doubt exists regarding the accuracy of the government’s main contention—i.e., that TelexFree sales of its VoIP product amounted to approximately 1% of total revenue, and the company therefore constitutes an unlawful pyramid scheme. In fact, the company’s revenue from the sales of its VoIP product may have amounted to more than two hundred million dollars ($200,000,000.00), a sales-to-revenue ratio in line with accepted industry practice and certainly well beyond the 1% figure the government has stressed to the Court.”
NOTE: Our thanks to the ASD Updates Blog.