BULLETIN: MLM Attorney Jeffrey Babener Told TelexFree It Was Operating Pyramid Scheme Months Before Collapse, But MLM ‘Program’ Continued To Collect Money, Bankruptcy Trustee Says

newtelexfreelogoBULLETIN: (2nd Update 5:26 p.m. EDT Sept. 16 U.S.A.) The court-appointed trustee in the TelexFree bankruptcy case says in court filings that MLM attorney Jeffrey Babener advised TelexFree in August 2013 that it was operating a pyramid scheme.

TelexFree nevertheless continued to collect money, Trustee Stephen B. Darr said.

Just two months earlier — in June 2013 — TelexFree’s Brazilian arm (Ympactus) “was seized by the Brazilian authorities and its operations shut down based upon the allegations that its operations constituted a pyramid scheme,” Darr said.

Between early February 2014 and mid-March 2014 alone, Darr said, TelexFree “took approximately $50,000,000 from new and existing Promoters.”

This occurred while both the SEC and the Massachusetts Securities Division were investigating TelexFree, Darr said.

And, he noted, it also occurred after TelexFree — in the late summer or early fall of 2013 — had retained Robert Weaver, “an attorney with extensive white collar crime expertise, and the firm of Garvey, Schubert, Barer based in Seattle to, upon information and belief, provide legal advice respecting potential and/or ongoing violations of federal and state law.”

“Despite the shutdown of Ympactus on the basis that its business was a pyramid scheme, and being advised in August of 2013 that the Debtors’ business plan was a pyramid scheme, the Principals continued to operate their business in accordance with that scheme throughout 2013 and into March 2014,” Darr said.

Babener not only told TelexFree it was operating a pyramid scheme, he also told the law firm Greenberg Traurig that TelexFree was a pyramid scheme, Darr said.

Greenberg Traurig, Darr said, initially had been retained by TelexFree in early February 2014 to represent the company “in connection with the MSD investigation.”

The law firm then represented TelexFree in its Chapter 11 bankruptcy case. That case was filed in Nevada on April 13, two days before the SEC and MSD brought actions and the FBI and the U.S. Department of Homeland Security raided TelexFree’s office in Massachusetts.

With TelexFree members complaining about high billings from TelexFree’s bankruptcy lawyers and other professionals involved in the bankruptcy case, Darr said that he “has reached an agreement in principle with Greenberg [Traurig] that should resolve the objections of the Trustee and the SEC to the Greenberg fee application.”

(See BehindMLM.com for story on clashes with the Gordon Silver law firm over fees.)

Overall, Darr said, TelexFree had racked up more than $5 billion in liabilities.

If it proves true Babener advised TelexFree it was operating a pyramid scheme, his concerns would appear to be in stark contrast to words MLM attorney Gerald Nehra delivered at a TelexFree convention in California in July 2013.

In May 2014, some TelexFree members accused Nehra of racketeering and turning a blind eye to fraud at TelexFree, alleging he misrepresented TelexFree as a legitimate business and encouraged TelexFree members “unknowingly” to “participate in the evasion of federal and state securities laws.”

Moreover, the plaintiffs alleged, Nehra’s “opinions were packaged and promoted as part of TelexFree’s total ‘post Brazilian shut down package’ to the members of the putative class,” according to the complaint.

Nehra was not merely providing zealous representation to TelexFree, the plaintiffs alleged. Rather, he counseled “TelexFree on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”

Nehra was billed as a “special guest” at a TelexFree rah-rah session in Spain in early March of this year, but appears not to have shown.

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One Response to “BULLETIN: MLM Attorney Jeffrey Babener Told TelexFree It Was Operating Pyramid Scheme Months Before Collapse, But MLM ‘Program’ Continued To Collect Money, Bankruptcy Trustee Says”

  1. Quick note. The trustee today is asking the bankruptcy court for the authority to waive the attorney-client privilege “with respect to certain governmental proceedings.”

    This is in the context of both the SEC civil case and the criminal case brought against James Merrill and Carlos Wanzeler by federal prosecutors in Massachusetts.

    The waiver of the privilege will advance the interests of the bankruptcy estate.” And, trustee Stephen B. Darr argues, “is consistent with the public interest, and will facilitate the recovery of funds for the ultimate benefit of the legitimate creditors . . .”

    Some of the data seized in the case involves communications between TelexFree and “various attorneys” and “consultants” retained by TelexFree at the request of attorneys, Darr says in today’s filing.

    Waiving the privilege would speed up the case and accelerate “securing additional assets of the estate,” Darr says.

    Link current as of the time of this note: