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Tag: TelexFree bankruptcy

  • Office Of U.S. Trustee Says It Will Challenge Fee Applications In TelexFree Bankruptcy Case

    newtelexfreelogoUPDATED 12:32 P.M. EDT U.S.A. A component of the U.S. Department of Justice has informed U.S. Bankruptcy Judge Melvin S. Hoffman that it will object to fee applications filed by two firms assisting Stephen B. Darr, the court-appointed trustee in the TelexFree bankruptcy case in Massachusetts.

    In court filings yesterday, the office of U.S. Trustee William K. Harrington did not say precisely why it intended to challenge the billings. The two firms assisting Darr are Mesirow Financial Consulting LLC and Murphy & King, Professional Corporation, a law firm.

    Harrington’s office said it will file a formal objection tomorrow with the assent of both Mesirow and M&K. Hoffman approved the request of Harrington’s office to file on June 5, instead of the original deadline of June 3. A hearing is scheduled June 10 to consider the applications and objections to them.

    Mesirow is seeking $1,629,430, plus $20,942.56 in expenses incurred from June 5, 2014 through Feb. 28, 2015. M&K is seeking $1,307,858.50, plus $36,116.25 in expenses from June 6, 2014 through March 31, 2015. Both firms have said in court filings that they have assisted Darr in the recovery of more than $17 million so far.

    Read the motion by Harrington’s office to object to the fee applications.

    Read other filings in the TelexFree bankruptcy case. (The fee applications are Court Docket Nos. 0599 and 0598, both filed May 5, 2015.)

    Visit the website of the U.S. Trustee.

  • BULLETIN: Stephen B. Darr Appointed TelexFree Trustee

    Stephen B. Darr, senior managing director of Mesirow Financial Consulting LLC of Boston, has been appointed trustee in the TelexFree bankruptcy case.

    The appointment was made by William K. Harrington, the United States’ Trustee, based on the order of U.S. Bankruptcy Judge Melvin S. Hoffman. The office of the U.S. Trustee is the bankruptcy watchdog arm of the U.S. Department of Justice.

    News of Darr’s appointment first was Tweeted by Timothy J. Durken, an attorney writing about the TelexFree case.

    Here is a link to a Darr bio brief.

    Here is a link to a website of Cornell University Law School that includes information on the duties of trustees.

  • BULLETIN: Judge Issues Order That Directs Justice Department’s Bankruptcy Watchdog To Appoint Trustee Over TelexFree Case

    breakingnews72BULLETIN: U.S. Bankruptcy Judge Melvin S. Hoffman of the Massachusetts Central Division in Worcester has ordered the appointment of a trustee in the TelexFree Chapter 11 bankruptcy case.

    The U.S. Trustee, the U.S. Department of Justice’s watchdog arm in bankruptcy cases, pressed for the appointment last month.

    “There are reasonable grounds to suspect that the members of the governing board who selected the Debtors’ new executives participated in actual fraud, dishonesty and criminal conduct in the management of TelexFree,” the U.S. Trustee argued last month.

    Notice of  Hoffman’s order appeared this morning on the TelexFree bankruptcy website. (Court Docket: #0234.)

    Based on the order, Jordan Maglich of PonziTracker.com is reporting that “TelexFree’s vision of emerging from bankruptcy with new products and revenue streams appears dismal at best.”

    For days, some TelexFree affiliates have been planting the false seed in various web reports that the appointment of a trustee means that TelexFree had been cleared of pyramid- and Ponzi charges. That simply is not the case.

    From PonziTracker (italics added):

    Now that an independent trustee will be appointed, he/she will follow Section 1106, which includes the filing of a statement of investigation, as soon as practicable, that includes “any fact ascertained pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor…”  Additionally, the trustee may recommend the conversion of the case to another Chapter under the Bankruptcy Code, including a liquidation under Chapter 7.

    See April 23 PP Blog story: BULLETIN: U.S. Trustee Says ‘Compelling Evidence Of Fraud’ And ‘Reasonable Grounds’ To Believe ‘Criminal Conduct’ Occurred On Road To TelexFree Bankruptcy Filing

    See May 1 PP Blog story: BULLETIN: Trustee: ‘It Appears That [TelexFree’s] Merrill, Wanzeler, And Craft Have All Fallen Down The Rabbit Hole And Are Now Expecting The [Bankruptcy] Court To Follow’

    James Merrill, one of TelexFree’s co-owners, was jailed in the United States May 9 on criminal charges of wire-fraud conspiracy. Carlos Wanzeler, another co-owner, allegedly fled to Brazil through Canada after U.S. federal agents raided TelexFree’s headquarters and seized computer equipment elsewhere on April 15.

    Like Merrill, Wanzeler was charged with wire-fraud conspiracy. The U.S. Justice Department has deemed him a fugitive.

    Joe Craft, TelexFree’s CFO, was appointed by Merrill and Wanzeler to that post on April 13, the same day TelexFree declared bankruptcy. On April 15, the SEC accused Craft of securities fraud. Court records show Merrill and Wanzeler are under criminal investigation for securities fraud and money laundering.

    The SEC has alleged that Craft was in possession of nearly $38 million in cashier’s checks on April 15, the date of the federal raid. One of the checks alegedly was for more than $2 million and was made out to Katia Wanzeler, the wife of Carlos Wanzeler.

    See May 20 PP Blog report: Realty Firm Linked To Carlos And Katia Wanzeler Also Linked To Former TelexFree CFO Joe Craft

    Earlier this week, the SEC linked Carlos Wanzeler to millions of dollars in real-estate acquisitions allegedly made with TelexFree investors’ money. The agency, in turn, linked Wanzeler, his wife or Merrill to companies external to TelexFree, including at least three firms allegedly formed by Craft.

    “[Carlos Wanzeler] made most of the acquisitions using companies under his control including: (i) JC Real Estate Management Company LLC, a Nevada limited liability company that was formed in July 2012 with Wanzeler and [James] Merrill as managers; (ii) Above & Beyond the Limit, LLC (“Above & Beyond”), a New Mexico limited liability company that [Joe] Craft formed for Wanzeler in September 2012, (iii) CNW Realty State, LLC, a Nevis corporation that was formed in October 2012 with Above & Beyond as manager; (iv) KC Realty State LLC, a Florida limited liability company that Craft formed in October 2012 with Katia Wanzeler as manager; (v) Acceris Realty Estate, LLC, a Massachusetts limited liability company that Craft formed in February 2013 with Katia Wanzeler as manager; and (vi) Makeover Investments LLC, a Florida limited liability company that was formed in July 2013 with Marilza Wanzeler, Wanzeler’s 65-year-old mother, as a manager.”

    In April, the SEC linked Craft to other TelexFree-related entities.

  • BULLETIN: TelexFree Chapter 11 Case Now In Hands Of Massachusetts Court

    breakingnews72BULLETIN: The TelexFree Chapter 11 bankrupcy case filed in Nevada last month now has been formally transferred to Massachusetts and has been assigned to U.S. Bankruptcy Judge Melvin S. Hoffman of the Central Division in Worcester.

    U.S. Bankruptcy Judge August B. Landis of Nevada ordered the case transferred to Massachussetts earlier this week. The SEC argued successfully for the transfer, saying the state was the “nerve center” of TelexFree.

    TelexFree is alleged by the Massachusetts Securities Division and the SEC to be a massive Ponzi- and pyramid scheme.

    Like the Nevada court, the Massachusetts court has established a TelexFree information page. Click here.

    Hoffman already has issued the first order since the transfer — a status conference May 27 at 2 p.m. in Courtroom 3 of Donohue Federal Building in Worcester.

    Housekeeping chores such as transferring docket records from Nevada are under way. Until the transfer is complete, Hoffman has authorized attorneys involved in the case to file emergency pleadings from Boston, Springfield or Worcester.

  • BULLETIN: PonziTracker.com: Judge Moves TelexFree Bankruptcy Case To Massachusetts And Suspends Proceedings Until Transfer Occurs

    BULLETIN: (4th Update 3:28 p.m. EDT U.S.A.) U.S. Bankruptcy Judge August B. Landis of Nevada has transferred the TelexFree Chapter 11 case to Massachusetts, PonziTracker.com reported at 2:27 p.m.

    At 2:34 p.m., PonziTracker reported that Landis has suspended all proceedings in the case until the transfer to Massachusetts can be completed.

    Click here.

    The SEC sought the transfer to Massachusetts last month, arguing that the state was TelexFree’s “nerve center” and that the bankruptcy filing in Nevada on Oct. 13 was a “transparent attempt to avoid Massachusetts, where their ‘business’ and numerous witnesses are located and where various government agencies have been investigating their fraudulent conduct.”

    Also see follow-up story by PonziTracker.

  • BULLETIN: U.S. Trustee Says ‘Compelling Evidence Of Fraud’ And ‘Reasonable Grounds’ To Believe ‘Criminal Conduct’ Occurred On Road To TelexFree Bankruptcy Filing

    breakingnews72BULLETIN:  (11th Update 2:35 p.m. EDT U.S.A.) The United States’ trustee who serves the region (Nevada) in which TelexFree’s bankruptcy case was filed on April 13 has alleged there are “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.

    Trustee Tracy Hope Davis, who works for a division of the U.S. Department of Justice, says in Bankruptcy Court filings that the court should appoint a Chapter 11 trustee because “[t]here is compelling evidence of fraud, dishonesty and gross mismanagement of the affairs of the TelexFree debtor entities, TelexFree, LLC, TelexFree, Inc. and TelexFree Financial, Inc.

    Davis was appointed trustee of the region by U.S. Attorney General Eric Holder in November 2013.

    The motion by Davis cites separate fraud actions against TelexFree filed April 15 by the Massachusetts Securities Division (MSD) and the U.S. Securities and Exchange Commission (SEC). MSD is the state-level securities regulator in Massachusetts. The SEC is the top securities regulator in the United States.

    “In response to subpoenas issued by the MSD in January and February, 2014, TelexFree changed its compensation plan so that promoters would now be required to sell its VoIP product in order to qualify for the payments that TelexFree had previously promised to pay them,” Davis alleged. “The rule change has generated a storm of protests from promoters who cannot recover their money. The change has also caused a precipitous decline in investor revenue which has pushed TelexFree into bankruptcy.”

    Meanwhile, the Davis motion cites an SEC complaint and emergency motion in Massachusetts federal court on April 15 that successfully sought an asset freeze against alleged TelexFree co-owners James Merrill and Carlos Wanzeler and TelexFree CFO Joseph Craft (and others), along with a Temporary Restraining Order.

    “Millions of additional investor funds received by TelexFree are presently unaccounted for,” Davis alleged. “Fortunately, the TRO was granted by the District Court for the District of Massachusetts and all of the Debtors’ accounts have been frozen pending a preliminary injunction.”

    As a result of TelexFree, Davis alleged, “[t]wo companies controlled by Craft received more than $2,010,000.00 between November 19, 2013 and March 14, 2014.” Millions more allegedly went to Merrill and Wanzeler.

    Among the assertions by Davis:

    • The Debtors did not disclose that several banks and at least one payment processor stopped doing business with them, apparently due to concerns about the legality of its multi-level marketing program.
    • It appears that part of the reason for the Debtors’ cash flow problems was the diversion of funds to insiders.
    • Craft was caught “holding the bag” when the U.S. Department of Homeland Security was executing a search warrant at TelexFree headquarters in Massachusetts on April 15.

    “When Craft was caught ‘holding the bag’ during the execution of the HSI search warrant on April 15, 2014, nine of the ten cashier’s checks that were confiscated were dated April 11, 2014 and were remitted to Merrill,” Davis asserted. “Of these checks, five were made out to TelexFree, LLC totaling $25,548,809.00, and one was made out to Katia B. Wanzeler (Wanzeler’s wife) in the amount of $2,000,635.00. The tenth check, dated April 3, 2014, was remitted to Wanzeler and was made out to TelexFree Dominicana SRL in the amount of $10,398,000.00.”

    Davis also expressed concern about a TelexFree board meeting that occurred in the hours leading up to the bankruptcy filing. (See April 21 PP Blog story that references the same meeting.)

    From the Davis motion to appoint a trustee (italics added):

    The minutes of the special meeting of the Board of Managers of TelexFree, LLC held on April 13, 2014, indicate that Merrill and Wanzeler comprise the entire Board of Managers (the “Board”). . . At this meeting, Merrill and Wanzeler selected Craft and [Stuart] MacMillian as the Debtors’ “Authorized Persons,” empowered to execute and file pleadings on behalf of the Debtors, to employ counsel and other professionals (including Craft’s accounting firm), and to exercise signature authority over the Debtors’ accounts. Although the minutes include language revoking any prior signature authority of other individuals, there is no language stating that Merrill and Wanzeler are stepping down from the Board or that anyone else is stepping up to serve as their replacements. On information and belief, the new interim CFO and CEO still report to and take direction from the Board which is still comprised of 2 individuals – Merrill and Wanzeler.

    And, Davis alleged, “Merrill, Wanzeler, Craft, and possibly others have engaged in securities fraud, withheld material information from investors, and improperly diverted millions of dollars of estate property to themselves or their entities, as set forth in the SEC Complaint and Memorandum.”

    In the trustee’s view, according to the allegations, “[t]he modus operandi of Merrill and Wanzeler and their cohorts suggests that it is more likely than not that anyone handpicked by them to manage their wholly owned companies will be another cohort.”

    Davis asserted “on information and belief” that there have been “no allegations to date regarding the involvement of MacMillan (the new CEO) or [William] Runge (the new CRA) in the Debtors’ Ponzi scheme, neither is there any indication that these interim officers are truly independent of the fraud of ‘former’ management.”

    And, Davis continued, “[t]he only way to ensure honest and independent management of these Debtors going forward is for the Court to direct the United States Trustee to appoint a Chapter 11 trustee.”

  • TelexFree Says It Seeks Bankruptcy

    Carlos Costa displays the flag of Medeira while announcing TelexFree is seeking bankruptcy protection.
    Carlos Costa displays the flag of Madeira while announcing TelexFree is seeking bankruptcy protection.

    UPDATED 7:21 A.M. ET Jan. 21, 2013, to correct misspelling. With pyramid-scheme probes under way in multiple Brazilian states and affiliates also filing actions against the company, TelexFree says it is seeking bankruptcy protection in Brazil. Early details are sketchy.

    Here’s TelexFree executive Carlos Costa making the announcement while waving the flags of Portugal and Madeira and referencing God:

    TelexFree operates in Brazil through Ympactus Comercial Ltd. The firm has U.S. arms in Massachusetts and Nevada. Affiliates appear to have established TelexFree-related firms in Florida and California.