This check for nearly $10.4 million is dated April 3, 2014, and is made out to TelexFree Dominicana SRL, according to an SEC exhibit. Redactions by PP Blog.
EDITOR’S NOTE: See story from earlier today on the SEC’s complaint and fraud allegations against the TelexFree “program,” executives and key promoters.
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A Bristol County Deputy Sheriff at the scene of a Tuesday raid by the Department of Homeland Security at TelexFree headquarters in Marlborough, Mass., stopped nearly $38 million in cashier’s checks from leaving the premises in a “bag,” the SEC says in court filings.
On Wednesday, a federal judge froze the money, securing “millions of dollars of funds” and preventing “the potential dissipation of investor assets,” the SEC said.
Joseph H. Craft, TelexFree’s chief financial officer, was at the scene Tuesday and attempted to grab “a laptop and bag,” asserting that he was a TelexFree “consultant” assisting with the firm’s bankruptcy and that the items were “personal items,” the SEC said in an affidavit.
Craft, 50, of Boonville, Ind., is a defendant in the SEC’s TelexFree action announced earlier today. He and several other defendants are accused of fraudulent or deceptive conduct in connection with the purchase or sale of securities, fraud in the offer or sale of securities and the offer or sale of unregistered securities.
He is a certified public accountant, has prepared financial statements for TelexFree and has worked for other MLM companies, the SEC said.
TelexFree, the SEC said, was a massive pyramid scheme that may have more than $1.1 billion in liabilities.
“The Deputy Sheriff told Craft he could not take the laptop and bag and that these items would be subject to the search,” the SEC said in the affidavit. “[Homeland Security Investigations] Agents searched the bag and identified ten Wells Fargo Bank, N.A. cashier’s checks totaling $37,948,296.”
Nine of the checks were dated April 11, 2014, just two days before TelexFree petitioned for bankruptcy in Nevada, according to the SEC affidavit and other court filings.
The nine checks were “remitted to” James M. Merrill, TelexFree’s co-owner and former president. Of the nine, five were made out to TelexFree LLC “totaling $25,548,809, and one was made out to Katia B. Wanzeler,” believed to be the wife of TelexFree co-owner and treasurer Carlos Wanzeler,” the SEC asserted in the affidavit.
The Katia Wanzeler check was for the sum of $2,000,635, the SEC alleged.
A check dated April 3 was “remitted to” Carlos Wanzeler and made out to “TelexFree Dominicana SRL in the amount of $10,398,000,” the SEC alleged in the affidavit.
TelexFree Dominicana SRL’s relationship to TelexFree was not immediately clear.
On April 15, two days after the TelexFree bankruptcy filing and apparently just hours before the raid, Merrill “submitted an unsolicited order to sell $1,150,000 of his mutual fund holdings” and to have the money transferred to a bank in Massachusetts, the SEC said in the affidavit.
“Bank statements show that two companies controlled by Craft received more than $2,010,000 between November 19, 2013 and March 14, 2014,” the SEC said in its complaint.
The SEC complaint also references American MLM attorney Gerald Nehra, though not as a defendant.
Nehra, the SEC said, said in a TelexFree video posted online in August 2013 that “[t]he special ingredient is that you have a real product.”
The product, the SEC said today, was a VOIP system used to mask a massive pyramid scheme that collapsed.
And the video appeared after a TelexFree-related probe in Brazil had begun, according to the SEC complaint.
Carlos Costa, another TelexFree figure not named a defendant in the SEC action, also was referenced in the SEC complaint. Costa is based in Brazil, where an arm of TelexFree has been under investigation amid pyramid-scheme allegations since at least June 2013.
In a video posted online weeks after the Brazilian pyramid probe began, “Costa stated that TelexFree ‘never was, never will be an illegal pyramid because of the sales of the VoiP service,’” the SEC said. “He asserted, ‘We do not depend on everyone coming in in order to pay the people who are already in.’”
Faith Sloan as shown in a YouTube video promoting TelexFree, an alleged pyramid scheme that “mainly targeted Dominican and Brazilian immigrants in the U.S.,” the SEC said.
URGENT >> BULLETIN >> MOVING: (19th Update 5:45 p.m. ET U.S.A.) The U.S. Securities and Exchange Commission (SEC) has filed charges against the alleged TelexFree pyramid scheme and a federal judge has granted an asset freeze.
TelexFree was a sham to mask an investment scheme known as “AdCentral” in which affiliates were told they could earn money without selling anything as long as they placed “meaningless ads” for the the program’s VOIP product on the Internet “and recruit[ed] others to do the same,” the SEC charged.
The TelexFree “program” was targeted mainly at “Dominican and Brazilian immigrants in the U.S.,” the SEC alleged.
One of its key promoters, Sanderley Rodrigues de Vasconcelos, also known as Sann Rodrigues, has a history of both pyramid-scheming with telephone products and affinity fraud, the SEC said.
On March 9, after TelexFree had received subpoenas on Jan. 22 and Feb. 5 from the Massachusetts Securities Division, according to assertions in TelexFree’s bankruptcy case filed earlier this week, TelexFree changed its compensation scheme. The Securities Division is the state-level regulator in Massachusetts and is overseen by Commonwealth Secretary William Galvin.
Galvin filed a state-level civil action against TelexFree on Tuesday that alleged an epic Ponzi and pyramid scheme that had gathered more than $1.2 billion. Records now show the SEC was in court on the same day, filing a federal case under seal and seeking an asset freeze. A federal judge granted the freeze yesterday, and the seal was lifted today, the SEC said.
“Prior to the rule change on March 9, 2014, there was no requirement that AdCentral promoters actually sell any VoiP packages in order to receive their weekly payments,” the SEC charged. “Indeed, TelexFree and its promoters repeatedly emphasized that AdCentral members did not have to sell anything — they simply had to post the internet ads. The slogan repeated over and over was “everybody gets paid weekly.”
Named defendants in the SEC’s action are TelexFree Inc., TelexFree LLC, TelexFree co-owner James Merrill of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler of Northborough, Mass., TelexFree CFO Joseph H. Craft of Boonville, Ind., and TelexFree’s international sales director, Steve Labriola of Northbridge, Mass.
Also charged were four individual promoters: Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa of Lynn, Mass., Randy N. Crosby of Alpharetta, Ga., and Faith R. Sloan of Chicago.
How much they allegedly earned was not immediately clear.
The SEC is the top securities regulator in the United States.
“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,” said Paul G. Levenson, director of the SEC’s Boston Regional Office. “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.”
Named a relief defendant as the alleged recipient of fraud proceeds from TelexFree was TelexFree Financial Inc. of Coconut Creek, Fla.
“It was incorporated by Craft on December 26, 2013,” the SEC alleged. “Its officers and directors are Wanzeler and Merrill, and Wanzeler is its registered agent. On December 30 and December 31, 2013, it received wire transfers totaling $4,105,000 from TelexFree, Inc. and TelexFree, LLC.”
Also named a relief defendant was TelexElectric LLLP of Las Vegas. “It was formed on December 2, 2013,” the SEC charged. “Its general partners are Wanzeler and Merrill. Financial statements prepared by Craft indicate that TelexFree made a $2,022,329 ‘loan’ to TelexElectric.”
In addition, Telex Mobile Holdings Inc. of Las Vegas was named a relief defendant.
“It was incorporated on November 26, 2013,” the SEC alleged. “Its officers are Wanzeler and Merrill. Financial statements prepared by Craft indicate that TelexFree made a $500,870 ‘loan’ to Telex Mobile.”
The PP Blog reported the existence of asserted TelexFree intracompany loans on March 9.
Craft, the SEC said, “has been the chief financial officer of other multi-level marketing companies.”
The Boston Globe is reporting this afternoon that during a raid of the TelexFree Massachusetts office Tuesday by the FBI and the Department of Homeland Security, Craft “tried to leave the scene with a laptop and cashier’s checks totaling nearly $38 million.”
In its complaint, the SEC said that “on April 11 (just before TelexFree filed for bankruptcy), Merrill and the wife of Wanzeler obtained cashier’s checks in the total amount of $25,552,402. The checks are payable to TelexFree, LLC.”
Citing information it had received from a bank, “TelexFree, LLC sent $10,389,000 to an entity known as TelexFree Dominicana, SRL,” the SEC alleged. Records suggest this transaction occurred on April 3, 2013.
And federal “wire transfer records show that Wanzeler wired $3.5 million to the Oversea-Chinese Banking Corporation in Singapore on January 2, 2014, the SEC alleged.
“The Commission has not yet been able to obtain a complete set of statements from the defendants’ banks, brokerage firms, and credit card payment processing services,” the SEC said in its complaint. “However, the information available to date, from bank records and other financial records as well as from statements made by various defendants, indicates that Merrill and Wanzeler, who had sole authority to transfer TelexFree corporate funds until the bankruptcy filing, have caused more than $30 million to be transferred from TelexFree operating accounts to themselves and to affiliated companies in the past few months.”
Merrill received $3,136,200 on Dec. 26 and Dec. 27, 2013, the SEC alleged, citing bank statements. On the same dates, Wanzeler “received $4,317,800,” the SEC alleged.
Again citing bank statements, the SEC alleged that approximately $14.3 million “was transferred to newly-created brokerage accounts in the name ofTelexFree, LLC” in December 2013. The complaint outlines other money routes prior to the bankruptcy filing, which seeks the “authority to reject all existing AdCentral contracts” with TelexFree promoters.
The PP Blog reported on Monday that TelexFree was seeking to reject the contracts.
SEC investigators, according to the fraud complaint, plucked a number of online videos featuring TelexFree’s top promoters.
“When telling his success story in an internet video on March 13, 2013, Rodrigues stated, ‘Just place your ads every day and everyone gets paid weekly,’” the SEC charged. “He also asked and answered the following question: ‘What company in the country, in the world, you can make money . . . you don’t need to sell anything? Now it exists. TelexFree.’”
In April 2013, Crosby was quoted in a video as saying, “What if you were with a company that would pay you just to advertise the service? . . . They’re paying us to advertise the service. It’s just that simple.”
He added that members do not have to “worry about selling to the public,” the SEC charged.
Just two months after the Profitable Sunrise action, Sloan allegedly was flogging TelexFree.
“Sloan stated in an internet video on June 12, 2013, ‘Place your ads, and you go about your day,’” the SEC charged.
“You do that for seven days a week, you get paid every single week,” the SEC continued, quoting Sloan.
She added, “You don’t have to build,” the SEC charged. “You don’t have to sell.”
Like similar schemes before it that had collected hundreds of millions of dollars — AdSurfDaily, Zeek Rewards, Imperia Invest IBC, Pathway To Prosperity and Profitable Sunrise — TelexFree had a presence on well-known Ponzi scheme forums such as TalkGold and MoneyMakerGroup.
And what about the photos showing Merrill posing in front of a large building In Massachusetts? The SEC said they were part of the scheme to defraud.
From the SEC’s complaint (italics added):
The “Founder” section of the TelexFree website includes a photo of Merrill standing in front of a large three-story building, with the caption “Mr. Merrill in front of the headquarters of Telexfree in the USA.” At least two versions of the marketing presentation on the company website contained a photo of Merrill and a photo of the same building with the caption “The Company HS: United States.” The use of the building photo is misleading. TelexFree, Inc. does not own or occupy the entire building. In fact, it originally shared a single suite (consisting of a receptionist, conference rooms, and cubicles) with 28 other companies. Only in December 2013 did it move into its own suite, which occupies a portion of the first floor. TelexFree, LLC has no physical office at all, just a mailing address in Nevada.
From the SEC’s statement on the TelexFree case (italics added):
According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites. The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters. As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.
