URGENT >> BULLETIN >> MOVING: TelexFree Was Ponzi Scheme Selling Unregistered Securities, Accused Former Interim CFO Says

From a defense filing by Joseph Craft today.

URGENT >> BULLETIN >> MOVING: (5th update 7:33 P.M. EDT U.S.A.) In a defense filing in the SEC’s securities fraud case against him, former TelexFree interim CFO Joseph Craft says he concluded TelexFree was a Ponzi scheme selling unregistered securities.

The acknowledgement, which appears to be the first concession from the TelexFree inner circle that the enterprise engaged in fraud, potentially pits Craft against other TelexFree defendants and others who may have inside knowledge of the scheme. Craft paints himself in the filing as an outsider who was misled by insiders.

Craft, 50, came to the Ponzi/securities conclusion in “approximately March” 2014, according to the filing. TelexFree filed for bankruptcy protection the following month. The SEC immediately sued, the Massachusetts Securities Division (MSD) filed a civil-fraud action and federal agents raided TelexFree headquarters in Marlborough, Mass. It later became known that the U.S. Department of Homeland Security had conducted an undercover investigation into TelexFree’s operations beginning at least by October 2013.

Alleged TelexFree managers or executives James Merrill and Carlos Wanzeler later were indicted on criminal charges of wire fraud and wire-fraud conspiracy.

Filings in the TelexFree bankruptcy case say Craft was appointed TelexFree CFO on April 13. Why he’d accept the appointment from Merrill and Wanzeler at an emergency board meeting on a Sunday night in April after concluding TelexFree was a Ponzi scheme in March was not immediately clear in defense filings.

Tracy Hope Davis, the U.S. Bankruptcy Trustee when the TelexFree bankruptcy case was filed in Nevada, expressed concerns about what happened during that meeting.

Craft, a certified public accountant in Boonville, Ind., was charged civilly by the SEC in April, two days after the bankruptcy filing. So were seven others, including Merrill and Wanzeler, former executive Steve Labriola and four alleged promoters. The scheme gathered more than $1.2 billion, MSD alleged.

TelexFree also was charged civilly. Craft became TelexFree’s accountant in July 2012, according to the defense filing.

Craft “denies that he was a principal or insider in the enterprise at any time, and says that he performed honest and legitimate accounting services for the corporations named in the Complaint,” the defense filing reads in part. “He denies that he assisted any wrongful activity. He was kept in the dark about the true nature of the enterprise’s activities and was a victim of misrepresentations for most of the time that he served as TelexFree’s accountant. He was not an insider, employee, owner, principal or promoter.”

And, according to the filing, “[i]n 2013 and 2014” while performing accounting services for TelexFree, Craft “relied on the advice of the defendant enterprises’ counsel in all material respects.”

The former CFO did not identify the counsel. One TelexFree lawyer, MLM attorney Gerald Nehra, has been accused of racketeering by some TelexFree members.

Other Highlights Of Defense Filing

Craft admitted he was aware a Brazilian state court in Acre had suspended TelexFree’s Brazilian affiliate (Ympactus) in June 2013, but says he “was told that the suspension was improper and was going to be overturned.”  He did not say who advised him the Acre action would be overturned.

He “denies that he was involved in any way in ‘running a huge Ponzi and pyramid scheme.’ He was not involved in company operations. He was not a company principal or someone who was correctly informed about many of the [details] of the company’s true operations.”

Craft admits that he “compiled an unaudited, informal financial statement” that was filed with MSD in 2013. But the statement, he says, was “based entirely on information provided by corporate officers.”

“At the time of preparing the compilation Mr. Craft had been misinformed about the company’s activities and material information was withheld by company officers,” according to the defense filing.

The SEC has said TelexFree’s VOIP service was a front to mask a billion-dollar fraud scheme.

NOTE: Our thanks to the ASD Updates Blog.

 

 

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11 Responses to “URGENT >> BULLETIN >> MOVING: TelexFree Was Ponzi Scheme Selling Unregistered Securities, Accused Former Interim CFO Says”

  1. Of course he only concluded it was a Ponzi Scheme in March/2014.
    That’s why he tried to flee with 38 millions in APRIL/2014… :o)

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  2. And what rock was Craft living under?
    I’ve learned that because someone passes the bar exam doesn’t mean there all that smart. I’ve met many lawyers that I’ve wondered how they tie their shoes in the morning. ( and not to sound like a lawyer hater I’ve met some really incredible ones )
    He had to have had some suspicions when he looked into the background of Telexfree. He says they told him that the Brazil issue was going to be taken care of and wasn’t a concern?
    Did he continue to follow the story?
    20 minutes of looking at the promotions on the internet would have given him a clue.
    How about the fact that so many banks had stopped doing business with Telexfree?
    That didn’t raise some red flags for him?
    How about the fact that tax forms weren’t being sent out in 2014? Another red flag?
    And last but not least… the cherry on the cupcake is….he tried to walk out of the Telexfree office with millions of dollars in checks when the office was raided. If he was soooo innocent he would have handed the checks over saying….hey…I got all this booty in my bag…ya mean these guys aren’t on the up and up?
    What a Crafted load of crap he’s weaving.

    He’s another that sold his reputation in hopes of making a lot of money since he thought it was dealing with the little stupid people of the world that don’t know any better and don’t count. In his world “Don’t matter and don’t count” is the key to how these professionals make their behavior ok in their minds.

    What he didn’t know was that the little people do count.
    They may not get all their money back, and the dreams they thought would come true may not come true, but they will have satisfaction that these characters that feed on their communities will be stopped.
    Galvin in Mass is on a roll to shut these scams down. Boston Strong!!!!
    Advice to scammers? Don’t mess with an American Irishman. Especially if he’s from Boston. : )

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  3. Quick note: Seen on a Facebook site last night, as translated from Portuguese to English by Google Translate:

    * No evidence has been raised to date against [TelexFree.]
    * We’re just blocked today by political interests.

    From other parts of the translation that were a bit cloudy, it appears the apparent TelexFree “supporter” also was arguing:

    * The government doesn’t understand MLM and, even if it does, all businesses are pyramid schemes.

    Here, we’ll point you to this:

    http://patrickpretty.com/2014/06/03/bulletin-feds-say-telexfree-has-disturbingly-cult-like-quality-sec-accuses-faith-sloan-of-lying-to-court/

    In the United States, a judge already has observed that the government appears to have a strong case against Merrill. That judge already has observed evidence the apparent TelexFree supporter says has not been raised.

    Here’s a quote by the judge from court filings on June 3:

    “There’s evidence, and I certainly think it’s persuasive, that the defendant had a key role in a massive Ponzi scheme.”

    Patrick

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  4. Castilho TV is part of the counter-information machine used to manipulate all the news in order to maintain the herd controlled.

    They have a website, a facebook page, and a youtube channel.

    Last nite Castilho posted his own lunatic interpretation of Joe Craft’s document.

    He insisted that in not a single given moment Joe admits it is a ponzi scheme. He also quick skipped all the paragraphs that could embarrass him for saying this…lol

    Then I decided to make a video myself debunking all the fallacies.

    I’m not as popular as him but hopefully some folks from his herd will watch my video and start wondering if Castilho maybe could be lying ‘for a second’…lol

    For the brazilian viewers, this is my video: http://youtu.be/Y27SvyTOFeo

    …and this is Castilho’s video: http://youtu.be/eoya_eIt6VA

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  5. Patrick,

    What happens with Crafts ” My Financial Advantage” that had partnered up with Telexfree to sell financial advice to it’s promoters and also allow them to sell MFA for a commission? ( hardy har har )I wonder if the money earned through that will be considered ill gotten gains since MFA hitched it’s wagon to an illegal scheme. One could go as far as to say any MFA packages purchased by a Telexfree promoter or sheeple could possibly have used tainted Telexfree money for the purchase and therefore Craft has to return it.
    Kind of ironic isn’t it? A financial advisor that can’t recognize a Ponzie scheme? I don’t think anyone will be hiring him to soon. He wiped out any reputable professional history he may have had.
    Telexfree….changing lives.
    Wonder what Joe thinks about how Telexfree has changed his life?

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  6. An add on to my last question. On the My Financial advantage site if you want to “join” , wich is the term they use instead of “purchase” the following comes up.

    Referrer Id should not be empty. In order to enroll for our services you must be referred by an active account executive or representative of My Financial Advantage. Please contact the person that referred you to our site to obtain their MFA Marketing site information, so you can properly complete your enrollment.

    So I’m guessing thist means you can’t just go to the site and purchase the product? I have to be referred? Hmmmmm sounds like there may be somthing fishy.

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  7. Dorothy: ” My Financial Advantage”

    Heard it described on YouTube as “this mission, this ministry, this revolution.”

    In terms of pitches, it reminded me of the “3 Hebrew Boys” in South Carolina. They had a purported debt-relief “ministry.”

    Memory Lane:

    http://patrickpretty.com/2012/05/16/bulletin-victims-of-3-hebrew-boys-forex-ponzi-swindle-that-devolved-into-sovereign-citizen-sideshow-will-get-back-46-cents-on-the-dollar/

    I seem to recall you recently mentioned the “private jet” the TelexFree man bragged about in March. The 3 Hebrew Boys had one of them, too. Not sure if they toured Haiti with it, though.

    Patrick

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  8. Dorothy: Wonder what Joe thinks about how Telexfree has changed his life?

    Not sure. He filed his answer to one of the adversary proceedings in the bankruptcy case yesterday. There were approximately 31 utterances of attorney/client privilege, all related to allegations against Gerald Nehra.

    Patrick

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  9. PatrickPretty.com: Not sure. He filed his answer to one of the adversary proceedings in the bankruptcy case yesterday. There were approximately 31 utterances of attorney/client privilege, all related to allegations against Gerald Nehra.

    Forgot to mention that, in paragraph 615 of the adversary proceeding, a prospective class action that alleged RICO (among other things), the plaintiffs alleged this:

    “As direct and proximate result of the false and misleading advertisements disseminated by said defendants, Investors paid artificially inflated prices for worthless membership interests in the investment during the Class Period.”

    Craft replied, “Denied. Further, the plaintiffs fully recovered their ‘investments’ through benefits received from the TelexFree entities and are not owed anything.”

    Patrick

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  10. PatrickPretty.com: Not sure. He filed his answer to one of the adversary proceedings in the bankruptcy case yesterday. There were approximately 31 utterances of attorney/client privilege, all related to allegations against Gerald Nehra.

    Patrick

    Hi Patrick.

    That didn’t work out well for John Gotti. Don’t think it will fly here either. Cutler got disqualified from representing him. Nehra isn’t representing Craft to begin with. Nehra will be a witness against him just like Cutler was against Gotti.

    http://www.nytimes.com/1991/07/27/nyregion/judge-disqualifies-gotti-s-lawyer-from-representing-him-at-trial.html

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  11. PatrickPretty.com: Forgot to mention that, in paragraph 615 of the adversary proceeding, a prospective class action that alleged RICO (among other things), the plaintiffs alleged this:

    “As direct and proximate result of the false and misleading advertisements disseminated by said defendants, Investors paid artificially inflated prices for worthless membership interests in the investment during the Class Period.”

    Craft replied, “Denied. Further, the plaintiffs fully recovered their ‘investments’ through benefits received from the TelexFree entities and are not owed anything.”

    Patrick

    Can’t wait to see what evidence supports that.

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