SHADES OF ZEEK: Prospective Class-Action Defendant Tells Judge TelexFree Was Operating A Tax Scam

In October 2014, federal prosecutors alleged that the Zeek Rewards MLM “program” shut down by the SEC two years earlier was in part a scam that caused “victim-investors to file inaccurate tax returns for phantom income they never actually received.”

Now, a year later, a member of the TelexFree MLM scheme shut down by the SEC and other agencies last year is telling a federal judge that it appears TelexFree engaged in accounting fraud that caused him to pay taxes on income he never actually received.

The claim was made in an Oct. 7 defense filing by Daniil Shoyfer, whom private plaintiffs want to make the lead defendant in a class-action case that effectively would sue Shoyfer and 20,000 other alleged TelexFree net winners believed to have collected money directly from recruits.

Unlike Zeek’s Paul Burks and Dawn Wright-Olivares, alleged TelexFree operators James Merrill and Carlos Wanzeler have not been charged criminally with tax offenses. But the assertion by Shoyfer gives rise to questions about whether they and others could be as the federal probe of the enterprise continues. Merrill and Wanzeler currently face charges of wire fraud.

Shoyfer, through attorneys from two Boston law firms, says U.S. District Judge Timothy S. Hillman should not permit the plaintiffs to amend the complaint to make him the class-representative. He further contends that “TelexFree has engaged in what appears to be fraudulent accounting practices intending to show that it paid Mr. Shoyfer in excess of $750,000 – however this is simply false.”

“Although TelexFree credited Mr. Shoyfer with large amounts to his TelexFree account, he never withdrew or had access to the vast majority of these funds,” he contended through counsel.

Shoyfer did not identify who might have helped TelexFree hatch a bogus accounting scheme. The SEC, in 2014, charged former TelexFree CFO Joseph H. Craft of Boonville, Ind., with securities fraud. Craft is an accountant. In its civil complaint, the SEC alleged Craft “has been the chief financial officer of other multi-level marketing companies” in addition to his work for TelexFree.

From Shoyfer’s argument (italics added/light editing performed):

Mr. Shoyfer worked with TelexFree from March of 2013 through April of 2014 . . . Over the course of those thirteen months, Mr. Shoyfer received a total of $122,000 from TelexFree . . . However, Shoyfer also spent many thousands of dollars in expenses in order to make this money from TelexFree . . . Mr. Shoyfer estimates that he paid nearly $60,000 to TelexFree in order to be a part of the MLM (including dozens of purchases of the $1,425 AdCentral Family packages, . . . plus other expenses . . . Contrary to the allegations in the proposed amended complaint, Shoyfer never earned $300,000 per week . . . Mr. Shoyfer cannot afford to be the class representative in this lawsuit: it would almost certainly bankrupt him (again), and it would work an immeasurable hardship on his wife, his daughter, his unborn daughter, his two sons, his father, his sister and others that depend on him.

The argument describes Shoyfer as a teenager when he fled the Soviet Union for America years ago with his mother to escape “persecution because of their Jewish heritage.”

Living in the United States, Shoyfer, now believed to be in his forties, eventually became a full-time occupational therapist who started a staffing business in that profession and also dabbled in MLM, according to the argument.

Shoyfer asserts that he believed TelexFree to be legitimate.

“Prior to TelexFree closing down and being charged with fraudulent acts, Mr. Shoyfer had no knowledge that TelexFree was engaged in any unlawful, unfair, or improper practices,” his lawyers argued. “To the contrary, Mr. Shoyfer relied upon the statements of TelexFree’s officers and legal representatives that TelexFree was a fully legitimate and legal enterprise . . . Mr. Shoyfer had no reason to believe otherwise (nor did he) until TelexFree and its officers were charged.”

More from the argument (italics added/light editing performed):

The defense costs Mr. Shoyfer would have to absorb as the named defendant for the putative defendant class would easily exceed the amounts he received from TelexFree and he, therefore, has no incentive to pay the defense costs of being the named defendant . . . If a defendant class is certified, Mr. Shoyfer intends to opt out of the class . . . Mr. Shoyfer has no interest in being lumped together with 20,000 or so other defendants, some of whom may have known more than he did about TelexFree’s activities and the purported pyramid scheme, and some of whom liked caused Mr. Shoyfer to suffer damages himself.

The argument further contends Shoyfer is a good son and sibling who sends between $200 and $300 each month to both his father in Russia and his sister in Lithuania. He also has paid support of about $2,000 a month since 2008 for two children from his first marriage. Shoyfer now has a child with his second wife, with another child on the way.

In June 2015, The PP Blog reported that Shoyfer also was promoting a scheme known as MyAdvertisingPays — or MAPS, for short. MAPS resembles the AdSurfDaily Ponzi scheme, a $119 million fraud uncovered by the U.S. Secret Service in 2008.

Kenneth D. Bell, the Zeek receiver, has raised questions about MLMers moving from one fraud scheme to another.

NOTE: Our thanks to the ASD Updates Blog.