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SEC: TelexFree’s Sann Rodrigues On YouTube: God Started MLM And Made ‘Binary’; ‘I Am Never Going To Stop This’

Screen shot from section of SEC filing.

(UPDATED 8:21 P.M. EDT U.S.A.) The U.S. Securities and Exchange Commission says in new court filings that accused TelexFree promoter and securities fraudster Sann Rodrigues appeared in an April 16 YouTube video and asserted that “God” made MLM and “binary” and that Rodrigues claims he’s “never going to stop this.”

Rodrigues is now a two-time SEC defendant. He settled charges in 2007 that he was operating a pyramid scheme targeted at the Brazilian community through the purported sale of phone cards.

TelexFree is a combined Ponzi and pyramid scheme with a phone product that masked a massive, underlying fraud that gathered more than $1.2 billion, the Massachusetts Securities Division alleged on April 15. The SEC said the TelexFree scam mainly was targeted at Brazilian and Dominican immigrants.

Fellow TelexFree defendant Faith Sloan, meanwhile, appears to have removed certain videos but nevertheless has invoked “divine authority” elsewhere, according to SEC filings.

On March 15, the SEC alleged, Sloan claimed on her website that the TelexFree compensation plan was changing and was not in final form — “[b]ut is Getting BETTER as Jesus said.”

Sloan, a former promoter of the Profitable Sunrise and Zeek Rewards securities swindles, earlier claimed that the SEC was “picking on” her.

Separately, the agency alleged that TelexFree may be violating a temporary restraining order by putting its website back online.

“It appears that TelexFree and/or one or more of the individual defendants may be improperly using investor funds for that purpose,” the SEC alleged.

Moreover, the SEC said, none of the defendants has submitted the written accounting required under the order.

Sloan and Rodrigues are among four promoters charged by the SEC. TelexFree executives or co-owners James Merrill, Carlos Wanzeler, Joe Craft and Steve Labriola also were charged. The firm and related entities filed for bankruptcy protection in Nevada April 13.

Claims of divine authority or inspiration are not unusual in MLM HYIP frauds. In the 2008 AdSurfDaily case, for instance, accused operator Andy Bowdoin claimed God was on his side and compared the U.S. Secret Service to “Satan” and the 9/11 terrorists.

Bowdoin, who also fraudulently traded on the name of then-President George W. Bush to sanitize the ASD scam, had experience as a securities swindler prior to ASD, according to court records. He is now serving a 78-month term in federal prison for his role in the $119 million ASD swindle. One of his business partners, according to federal records, was implicated by the SEC in the 1990s in three prime-bank swindles, including one that touted a return of 10,000 percent.

Brazil-based TelexFree figure Carlos Costa also routinely invokes God over TelexFree-related issues.

On Dec. 19, 2013, the PP Blog reported that TelexFree puff pieces were appearing in a publication that featured a columnist who asserted Jesus Christ was the person who inspired modern network marketers through his recruitment of 12 disciples.

Ads for an apparent cash-gifting scheme appeared in the same publication.

Images of Jesus Christ also were used in the alleged Profitable Sunrise and WCM777 HYIP swindles.

NOTE: Thanks to the ASD Updates Blog.

Apr 30, 2014
URGENT >> BULLETIN >> MOVING: Interim TelexFree Chief Tells Bankruptcy Judge That He Has Fired Carlos Wanzeler And Caused James Merrill And Joe Craft To Resign

Prior to TelexFree’s bankruptcy filing, this curious graphic was used to promote the “program’s” purported “international convention” in Spain. Red highlight by PP Blog.

URGENT >> BULLETIN >> MOVING: Carlos Wanzeler refused to resign from TelexFree-related entities and has been fired by interim CEO Stuart A. MacMillan, according to new filings in the TelexFree bankruptcy case.

MacMillan also caused the resignations of former TelexFree President James Merrill and interim CFO Joe H. Craft, according to the filings. MacMillan now is controlling the TelexFree businesses.

“Mr. Merrill, Mr. Wanzeler and Mr. Craft no longer have access to the Debtors’ facilities and their access to the Company’s email has been terminated,” MacMillan advised U.S. Bankruptcy Judge August B. Landis of Nevada. “I am the only person authorized to act as a signatory on any bank account that the Debtors have or may have.”

Whether the moves would satisfy the SEC and the U.S. Bankruptcy Trustee, however, was far from clear early this morning. Tracy Hope Davis, the trustee, alleged last week that there were “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.

Among the Davis allegations was that “[t]wo companies controlled by Craft received more than $2,010,000.00 between November 19, 2013 and March 14, 2014.” She also contended that “[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.”

MacMillan advised Landis today that “I did not have a pre-existing relationship with the Company, Mr. Wanzeler or Mr. Merrill prior to this initial engagement by TelexFree.”

Whether he had a preexisting relationship with Craft was not immediately clear.

Davis is seeking the appointment of a trustee, a process that could put the firm on the path toward liquidation, rather than reorganization under Chapter 11.

The firing of Wanzeler and the resignations of Merrill and Craft, according to MacMillan, occurred on April 17, a day after the SEC alleged that Craft was in the TelexFree office in Massachusetts with nearly $38 million in cashier’s checks and sought to leave the premises with the checks while a federal raid was under way.

News of the management maneuvers came on the same day it was learned that the state of Montana had halted TelexFree, alleging that it was unable to obtain complete and accurate information from the MLM company after months of trying. Other states are questioning TelexFree’s ability to provide telecom service

In a separate filing in bankruptcy court today, TelexFree pledged to “cooperate with the SEC and the Massachusetts Securities Division in their ongoing investigations related to the Debtors and prosecutions against third parties, including the Debtors’ former employees and equity holders of TelexFree Nevada and TelexFree Massachusetts.”

Wanzeler and Merrill are the asserted equity holders. They, along with Craft and TelexFree marketing director Steve Labriola, were charged with fraud April 15 by the SEC. Four alleged TelexFree pitchmen also were charged with fraud.

Despite the pledge to cooperate, TelexFree is resisting the SEC’s bid to transfer the bankruptcy case from Nevada to Massachusetts.

From an assertion today by TelexFree (italics added):

The Debtors chose the Nevada Bankruptcy Court because inter alia TelexFree Nevada, a Nevada entity, is a counter-party to more than 700,000 contracts governed by Nevada law. The Debtors anticipate that nearly all of the claims against the Chapter 11 estates will result from these contracts. Although both Nevada and Massachusetts residents will be asserting some of these claims, the Debtors’ creditor base resides all over the world. Some 90% of the creditors reside outside Nevada and Massachusetts. In fact, approximately three-quarters of the creditors are from foreign countries.

MacMillan also suggested today that Wanzeler and Merrill owned TelexFree Dominicana, a company to which a cashier’s check for more than $10 million was made out just days before the April 13 bankruptcy filing. The check and nine others, including one for more than $2 million made out to Wanzeler’s wife, were seized by federal agents on April 15, after being found in Craft’s possession.

MacMillan said he did not believe that “Mr. Craft was attempting to divert any of the Debtors’ cash or other resources.

“Instead,” MacMillan continued, “he was acting at the direction of Mr. [William] Runge and me to secure the cashier’s checks in a safe and reliable location for the benefit of the Debtors’ constituencies.”

Runge, a turnaround specialist, is TelexFree’s chief restructuring advisor.

MacMillan, in his declaration today, said it was his “understanding” that TelexFree “struggled to maintain a consistent cash management system.

“It is also my understanding that on or about March 14, 2014, Wells Fargo Bank, N.A. . . . notified the Debtors that Wells Fargo was closing their depository account and that the Debtors needed to remove their cash on deposit.”

This may be the cash that was used to acquire the cashier’s checks. Regardless, the account closures signaled serious trouble for TelexFree, which the SEC and the Massachusetts Securities Division alleged have a history of not disclosing important information to members.

The assertion by MacMillan potentially means that TelexFree continued to gather money from both existing participants and new recruits after one of its key vendors notified it that an account was being closed.

Beyond that, if Merrill and Wanzeler owned a company in the Dominican Republic, it could lead to questions about whether they owned other firms in offshore venues and diverted money to those entities.

The same circumstance of account closures by major vendors arose in both the AdSurfDaily Ponzi scheme in 2008 and the Zeek Rewards Ponzi scheme in 2012.

Apr 30, 2014
BULLETIN: Montana Halts TelexFree; State Says Firm Supplied Incomplete, Inaccurate Information And Continued To Operate After Claiming It Had Pulled Out

BULLETIN: The state of Montana has issued a Cease and Desist order to TelexFree, revealing it had been unsuccessfully seeking complete information from the MLM “program” for months and alleging that TelexFree continued to do business in the state after claiming it had pulled out.

The April 23 order was issued by the office of Monica Lindeen, Montana’s Commissioner of Securities and Insurance and state auditor. The state says it suspects TelexFree “may be a pyramid scheme that has already cost Montanans $70,000” and that the firm “appears to have engaged in practices that violate the Securities Act of Montana.”

TelexFree sought to register as a multilevel distribution company in July 2013, but the form submitted to the state was “obsolete and no longer accepted by the [Office of the Commissioner of Securities and Insurance,]” the C&D alleged.

In August 2013, according to the C&D, the state sought a list of “all” TelexFree participants in Montana, specifically requesting their names, addresses, phone numbers, sums paid to TelexFree, sums received from TelexFree, participant starting dates and the names and addresses of individuals sponsoring TelexFree participants in the state.

Montana also requested “copies of all agreements, solicitation documentation, sales materials, marketing materials, brochures, any policy and procedure manual, any customer receipt, and any other information made available to prospective participants,” according to the C&D.

At the same time, the state asked TelexFree for information on start-up kits and a list that would include dates, times and locations of recruitment or demonstration sessions or TelexFree meetings in the state since Jan. 1, 2012, according to the C&D.

In October 2013, according to the C&D, an attorney for TelexFree provided the state an “incomplete spreadsheet of Montana” TelexFree participants and a “link” to the TelexFree website, which purportedly contained the marketing/sales material Montana requested two months earlier.

The attorney, who was not identified in the C&D, also advised the state that TelexFree did not use start-up kits and further advised authorities that a TelexFree participant in Billings was holding meetings twice a week, according to the order.

TelexFree ignored some spreadsheet fields and provided incomplete or inaccurate information on “all consideration paid to date by at least one participant,” according to the C&D.

The state then notified TelexFree that it needed to file the correct form to operate in Montana, according to the C&D.

In late October, TelexFree notified the state through the attorney that it was “in the process of gathering information to re-submit their application and, in the meantime, had ceased offering the TelexFREE program in Montana.”

But despite TelexFree’s claim it had stopped operating in the state, Montana “subsequently received information to the contrary,” according to the C&D.

One TelexFree participant, for example, made five purchases in the state after TelexFree claimed it no longer operated there, according to the C&D.

By February 2014, according to the C&D, the attorney informed the state TelexFree would not resubmit the application and again stated the firm was not operating in Montana.

As of April 23, 2014, according to the C&D, Montana had identified at least 34 participants in the state, saying it believed “more Montana participants may exist.”

The C&D accuses TelexFree of operating an MLM unlawfully in Montana, withholding facts and lying about ceasing its operations there. The document also cites fraud actions filed against TelexFree April 15 by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission. Meanwhile, the C&D notes that TelexFree filed for bankruptcy in Nevada earlier this month.

TelexFree says it is a VOIP firm. Montana noted that the TelexFree “software could be used for unlimited calls to landlines and mobile phones to about 70 countries for a fixed monthly price of $49.90. A VOiP competitor, Vonage, sells a similar product for $12.99 a month.”

Apr 29, 2014
WANTING MORE: From Zeek To TelexFree

TelexFree pitchman Tom More. From YouTube.

(UPDATED 10:13 A.M. EDT APRIL 30 U.S.A.) Back in October 2012, two California members of the collapsed Zeek Rewards MLM “program” filed a self-written pleading with the federal judge presiding over the Zeek Ponzi- and pyramid case in North Carolina.

Just two months earlier — in August 2012 — the U.S. Securities and Exchange Commission had filed an emergency complaint against Zeek to halt its operations. At the time, the SEC described Zeek as a scam that had gathered about $600 million. Over time, the number swelled to about $850 million.

One of the core allegations in the Zeek case was that Zeek’s “advertising” component in which members spammed ads all over the Internet was a sham to help mask Zeek’s massive fraud scheme and the sale of unregistered securities. The 2008 AdSurfDaily Ponzi scheme ($119 million) had a similar “advertising” component and a daily payout rate somewhat on par with Zeek, which duped members into believing they’d receive an average return of about 1.5 percent a day.

The California Zeek members advised Senior U.S. District Judge Graham C. Mullen that Zeek had left them “on the verge of financial devastation.”

They were lured into the scheme based on suggestions it was legal and that members were accumulating wealth, according to the pleading. And the former Zeek members claimed that Zeek pitchman Tom More had acquired “over a million VIP points.”

In March 2014, Zeek receiver Kenneth D. Bell sued alleged Zeek winners and insiders based in the United States, alleging their gains had come from Zeek victims. The complaint against the named winners includes “a Defendant Class of Net Winners” who effectively are being sued in a prospective class action.

Listed as one of the thousands of “Net Winners Who Received $1,000.00 or More” from Zeek was Thomas A. More of Newport Beach, Calif.

In July 2013, Newport Beach became a staging ground for the alleged TelexFree Ponzi- and pyramid scheme, which the Massachusetts Securities Division (MSD) alleged had gathered more than $1.2 billion and told members they were getting paid for posting ads on the Internet. MSD filed an action against TelexFree two weeks ago today. So did the SEC.

When the SEC went to federal court in Massachusetts on April 15 to file a Zeek-like emergency complaint against TelexFree, the agency pointed to the Newport Beach TelexFree rah-rah session. There is a video of the event titled “TelexFree Corporate Speakers at Newport Beach Extravanganza.”

The video includes “comments” by TelexFree co-owners or executives James Merrill, Carlos Wanzeler and Steve Labriola, according to the SEC complaint.

One of Merrill’s comments, according to the video, was to thank “Tom” for putting together the “fabulous” July 2013 Newport Beach event, which occurred about a month after a court in Brazil froze TelexFree-related assets in that country and imposed a registration ban.

Among Merrill’s other comments, according to the video, was that “large corporations” for which he once provided services “squeeze you . . . until there’s nothing left.”

“They squeeze the employees until there’s nothing left,” Merrill said. “They use you up.”

Although the precise context of a follow-up remark by Merrill was unclear, the Zeek executive suggested that the government of Colombia “feared” network marketers and the “freedom” they represented.

Merrill next set his sights on the U.S. government.

Indeed, he went on to quiz an audience member (“Jay”) about whether Jay could “help the U.S. government with their credit, ’cause I don’t think anybody else . . .” Merrill’s remark appears to be related to a credit-repair service TelexFree had in the offing before it filed for bankruptcy April 13 in Nevada..

“No, he doesn’t want their business,” Merrill said at the Newport Beach “extravaganza,” answering his own question months ahead of the bankruptcy filing. He then suggested that the U.S. government, like the Colombian government, “feared” TelexFree and members of its MLM.

He added, “Those corporations fear your success because they can no longer squeeze you, they can no longer squeeze your wallet.”

Many HYIP “programs” advance conspiracy theories and paint the government as a bogeyman. The JSSTripler/JustBeenPaid “program,” for instance, described U.S. government workers as “part of a criminal gang of robbers, thieves, murderers, liars, imposters.”

JSS/JBP offered a return (precompounding) of 730 percent a year — more than Zeek, more than AdSurfDaily, more than TelexFree. In TelexFree, members said, $289 returned $1,040 in a year, $1,375 returned $5,200 and $15,125 returned $57,200.

Regulators have been warning for years that HYIPs switch forms and put on new disguises. The core scam, however, remains largely the same: claims that average people will become rich by posting ads or clicking on them or by doing nothing at all because visionary business leaders are running the “program.”

The Internet has opened the door to all sorts of viral scams, but electronic virality is not the only concern. Hotel conventions for MLM HYIPs are held in city after city. Madrid, Boston, Newport Beach and other cities were on the TelexFree tour. Certain pitchmen were taped in individual cameos.

TelexFree California organizer Tom More, late of Zeek, had such a cameo.

Here is part of what he said: “Bust and move on this now. Run, don’t walk. Get started today.”

TelexFree appears to have supplanted Zeek as the largest HYIP scam in U.S. history. It likely is the largest in world history.

Apr 29, 2014
MLM WATCHDOG: Phil Piccolo Is Scamming Again

(2ND UPDATE 3:26 P.M. EDT U.S.A.) Rod Cook, who publishes the “MLM Watchdog” and was threatened with a $40 million lawsuit by the AdSurfDaily Ponzi racketeers in 2008, is reporting that veteran swindler Phil Piccolo is back on the prowl.

This time, Cook reports, it’s with a cobra-venom product sold at MyNyloxin.com. The product is positioned as a pain reliever, and Piccolo is calling himself “Felice Angelo.”

Piccolo is known as “the one-man Internet crime wave.” If there’s a Piccolo signature, it’s his ability largely (though not exclusively) to remain in the shadows while engineering scams within scams or within dubious “opportunities” in which an affiliate’s success chances are exceptionally low going in. Piccolo appears to be particularly keen on “programs” ostensibly in the health-maintenance and electronic-technology fields. The “programs” may remain in “prelaunch” phase virtually indefinitely while gathering cash and gaining a head of steam.

“[P]hil is selling his stock to individuals and giving it away as incentives under the table illegally and running $500 co-ops scamming people out of their money,” Cook reports about Piccolo’s MyNyloxin activities.

Based on the PP Blog’s research, Piccolo also is known to engage in anonymous shilling and to leave thousands of orphaned affiliate links of his onetime recruits all over the web as a means of corralling the earnings of people duped into placing the links before they fled the programs because they weren’t getting paid.

PP Blog reader Tony H. noted on March 4 that a “Piccolo Felix Angelo” was listed as a “winner” in the $850 million Zeek Rewards Ponzi-scheme and was being sued by the court-appointed receiver.

As the PP Blog previously has reported, Piccolo has a history of threatening websites that report on his scams. Part of his MO features appeals to religious faith. These incongruously have been mixed with suggestions he can summon leg-breakers if the need arises.

Piccolo claims to hail from New York. He is known to operate in the region of Boca Raton, Fla., and to participate in scams that try to create the illusion of scale — perhaps by using Photoshop to make the scamming firm’s name appear on a large building, for example.

Another part of Piccolo’s MO includes suggestions that “opportunities” he pitches soon will “go public” or already are part of public companies. In the TextCashNetwork scheme, for instance, the Piccolo group suggested that TCN was part of Johnson & Johnson, the famous pharmaceutical company.

Meanwhile, Piccolo scams may feature claims that people who send in large sums of money will receive a preposterous return, a marker that the “programs” are vulnerable to charges they are selling unregistered securities as investment contracts. If a Piccolo-associated scheme loses its payment conduits, recruits have been encouraged to wire money via Western Union.

Piccolo scams also have featured claims that celebrities such as billionaire Donald Trump and entertainment icon Oprah Winfrey were on the ships he helped steer. Such was the case with a scam known as Data Network Affiliates — DNA, for short.

DNA claimed to be in the business of assisting the Amber Alert system of rescuing abducted children. It later claimed to be in the cellphone, offshore “resorts” and mortgage-assistance businesses. DNA was targeted at churches, with prospects told they had the moral obligation to enroll the faithful.

Piccolo also was associated with a business known as “One World One Website” (OWOW) that suggested a bottled-water product could cure cancer and had been vetted by the National Institutes of Health.

Over the years, Piccolo has pushed products such as a purported license-plate “spray” positioned as a means of helping motorists escape traffic tickets at camera-monitored intersections. Perhaps most notoriously, Piccolo has pitched a purported “magnetic” product that purportedly could help medical patients escape limb-amputation procedures while at once helping gardeners/farmers produce tomatoes at twice their normal size. The scam also included a claim that the “magnetic” product could help dairy herds increase milk production.

Perhaps most infamously, the Piccolo group in the DNA scam traded on the name of Adam Walsh, a child who’d been abducted and murdered. Piccolo employs anything that “works,” even the memory of a slain 6-year-old.

Piccolo scams typically also feature the presence of MLM huckster Joe Reid. The scams also may include suggestions that affiliates should enroll as a means of qualifying for tax write-offs. In a typical Piccolo scam, an increase in Alexa rankings is positioned as asserted proof of an MLM “program’s” legitimacy. The Piccolo scams also typically feature a link to Google’s translation tool, potentially as a means of picking off nonspeakers of English.

Some Piccolo scams have featured the registrations of shell companies in Wyoming.

In 2010, the PP Blog was accused by an apparent Piccolo apologist of being a shill for Israel and spreading “Islamophobia.” This claim was made after the Blog reported that the FBI had stopped a plot to detonate a bomb at a Christmas tree lighting ceremony in Portland, Ore.

Also see: Nov. 13, 2011, PP Blog story: ‘TEXT CASH NETWORK’: RED FLAGS GALORE: New ‘Opportunity’ Linked To Ponzi Boards And To Phil Piccolo-Associated ‘Firms’: Hype, Vapid Claims, Alexa Charts, Launch Countdown Timer, Brand Leeching — And Possible Ties To Long-Running SEC Case

Also see this Jan. 16, 2014, comment by PP Blog reader and RealScam.com moderator Glim Dropper. The comment appears below an Aug. 30, 2013, PP Blog story titled, “Zeekers Targeted In New Scheme With Ties To Piccolo Organization.”

Apr 27, 2014
Zeek Ponzi-Scheme Figure T. LeMont Silver Now Spokesman For Florida ‘Expat’ Lifestyle In Dominican Republic

Florida “Expat” and Zeek Rewards Ponzi-scheme figure T. LeMont Silver yuks it up in the Dominican Republic. Source: YouTube.

(UPDATED 9:33 A.M. EDT, APRIL 27 U.S.A.) T. LeMont Silver, a pitchman for the $850 million Zeek Rewards Ponzi scheme and the OneX pyramid scheme, is now a spokesman for the “Florida Expat” lifestyle in the Dominican Republic, which recently has been rocked by what the U.S. Securities and Exchange Commission describes as the collapse of the TelexFree pyramid scheme.

The Massachusetts Securities Division has described TelexFree as a “financial pariah” that gathered more than $1.2 billion.

Whether Silver ever had a position in TelexFree is unclear, and he is not referenced in any TelexFree-related court files. What is clear is that the court-appointed receiver in the Zeek case sued Silver in March 2014, alleging that Silver was a Zeek “net winner” of more than $1.71 million.

Karen Silver, Silver’s wife, also is an alleged Zeek winner. In her case, the receiver says she received “more than $600,000.”

Kenneth D. Bell, the Zeek receiver, wants the money returned, saying it came from Zeek victims.

Like her husband, Karen Silver has emerged as a fan of the “Florida Expat” lifestyle in the Dominican Republic.

A video dated Jan. 16, 2014, and posted on YouTube features the Silvers being interviewed on the subject of their decision to move to the Dominican Republic. The logo of an enterprise known as DRESCAPES rolls on the screen.

The website of DRESCAPES says its clients will “Survive the Collapse of Fiat Currencies, Including the Dollar & Euro.”

“In our opinion, it’s time to take proactive steps to protect your assets and provide a safe fallback position for your family,” the site ventures.

Prior to relocating to the Dominican Republic, Silver told his downline in a failed MLM “program” known as GoFunPlaces to take advantage of “low-hanging fruit” (other disaffected GoFunPlaces members) and become recruiters for a “program” known as Jubimax. The “programs” ultimately accused each other of fraud.

In the “Expat” video, Silver says he pays his housekeeper in the Dominican Republic $175 a month and that she does an “excellent” job. How many hours she worked to earn her wages was unclear.

Many MLM “programs” sell dreams of riches to low-wage workers. Tens of thousands of Dominicans are believed to be members of TelexFree, which filed for bankruptcy in Nevada April 13.

In March, prior to the April bankruptcy filing, a TelexFree pitchman explained at a convention in Boston that he’d recently been a passenger with other TelexFree pitchmen on a “private jet” that had flown from the Dominican Republic to Haiti. The jet purportedly was met at the airport by “the Prime Minister of Haiti’s motorcade,” which triggered “high-fiving.”

“I felt like a rockstar,” the man said.

Disaffected TelexFree members are now “low-hanging fruit” for other MLM “programs.” Many pitches have been targeted at them.

The SEC said last week that TelexFree mainly targeted Dominican and Brazilian immigrants in the United States.

Apr 26, 2014
BULLETIN: Massachusetts Securities Division Issues TelexFree Complaint Form; Commonwealth Secretary William Galvin Publishes Brochure On How To Steer Clear Of Pyramid Schemes
William Galvin. Source: State brochure on avoiding pyramid schemes.

BULLETIN: (UPDATED 5:56 P.M. EDT U.S.A.) The Massachusetts Securities Division (MSD) has published a complaint form for TelexFree investors. Massachusetts Commonwealth Secretary William Galvin, who oversees MSD, also has published a brochure titled, “Illegal Pyramid Schemes Disguised as Multi-level Marketing Businesses (MLMs).”

Galvin’s investigators alleged on April 15 that TelexFree was a combined Ponzi- and pyramid scheme that had gathered more than $1.2 billion and sold unregistered securities. In November 2013, MSD alleged that WCM777, another “program” promoted in the state, also had sold unregistered securities. The U.S. Securities and Exchange Commission (SEC) later sued WCM777, alleging it was a “worldwide” pyramid scheme that had gathered at least $65 million. Likewise, the SEC has brought fraud allegations against TelexFree.

Both WCM777 and TelexFree were targeted at specific population groups, according to the allegations. Online promos show that the schemes had promoters in common and that prospects were encouraged to buy in at higher levels to receive higher payouts. Both “programs” were positioned as technology suppliers — TelexFree in VOIP and WCM777 in “cloud” computing.

As Galvin’s brochure notes (italics added):

In many illegal schemes the promoter spends little time explaining the product because the product is ancillary to the overall scheme. Recent schemes have involved products related to internet services, mobile marketing platforms, app sales, cloud computing services, and voice-over-internet applications.

These are just three of the bullet points in a warning by Galvin’s office today:
- Don’t invest because your friends tell you it’s a good investment — use your own judgment and make your own decision.
- Be wary of promoters who urge the purchase of higher positions in the distribution network to immediately increase payouts.
- Be wary of promoters who urge quick establishment of distribution networks by adding family members, children, pets, etc.
There are plenty more. Read the online warning here. Download the PDF of the brochure. Access the TelexFree complaint form here.
Apr 25, 2014
FROM COURT FILINGS: TelexFree Promoter Faith Sloan To SEC: ‘Why Are You Picking On Me?’

Faith Sloan. From YouTube.

(3nd Update 9:16 A.M. EDT, May 11, 2014 U.S.A.) When contacted by the U.S. Securities and Exchange Commission April 17 by phone, alleged TelexFree promoter and securities swindler Faith Sloan shot back, “Why are you picking on me? There are bigger promoters than me.”

The assertion is contained in new SEC filings dated yesterday in the agency’s Ponzi- and pyramid case against TelexFree, which filed for bankruptcy protection April 13 and was sued by state and federal regulators on April 15.

Sloan, whom the SEC says is 51 and lives in Chicago, is a former promoter of the Zeek Rewards “program” (1.5 percent a day, not including “compounding”), and Profitable Sunrise (up to 2.7 percent a day, not including “compounding”). She also promoted the collapsed Noobing HYIP scheme that became popular after the collapse of the AdSurfDaily HYIP Ponzi scheme (1 percent a day) in 2008.

In 2012, the SEC shut down Zeek, alleging a combined Ponzi- and pyramid scheme that had collected hundreds of millions of dollars and potentially had affected hundreds of thousands of people. In 2013, the SEC filed charges against Profitable Sunrise, effectively alleging it was being operated by a ghost from a “mail drop” in England and had used a pyramid scheme to defraud thousands of people potentially out of tens of millions of dollars. Money allegedly was diverted on a cross-continental basis, with investors left holding the bag.

The Federal Trade Commission (FTC) effectively shut down Noobing in 2009, after alleging a related firm under an umbrella company had orchestrated a government-grants swindle. Noobing in part was targeted at people with hearing impairments. The enterprise was based in Kansas, and had an offshoot in Nevis. [May 11, 2014, edit.]

Like TelexFree and other schemes, Noobing had a strong presence on YouTube. The SEC says in court filings that it has watched lots of TelexFree promos on YouTube.

Any number of HYIP fraud-scheme promoters wrongly have believed that no individual liability can attach as a result of their participation in such schemes. The TelexFree case — like the Legisi HYIP case before it — demonstrates the falsity of the belief. Legisi promoter Matthew John Gagnon first was sued by the SEC. He later was charged criminally by the U.S. Secret Service and federal prosecutors in Michigan.

Like the AdSurfDaily HYIP Ponzi case, the Legisi case was initiated in 2008 and began with an undercover probe in which government agents interacted with participants and kept notes of the contacts. Gagnon, who had a secret deal with Legisi’s operator to promote the scheme, was sentenced to five years in federal prison. Legisi operator Gregory McKnight was sentenced to 15 years.

It is known that there is a parallel criminal investigation into the activities of TelexFree. The mechanics of that probe and whether it dovetailed with state and federal civil investigations into TelexFree are unclear.

What is clear is that Sloan was not pleased when an SEC investigator informed her by phone on April 17 that she’d been charged with fraud, according to court filings by the SEC.

Sloan first wanted to know if the investigator was state [Massachusetts Securities Division] or federal [SEC]. When the investigator informed Sloan he was with the SEC, she responded that the agency was “picking on” her and implied it should go after bigger fish.

Eight TelexFree managers or promoters (including Sloan) have been sued, according to SEC filings.

“Sloan then asked where she could find the complaint,” the SEC investigator asserted in an affidavit. “I walked her through the SEC website and to the location of the press release and the complaint.”

Sloan then said, “I need to speak to my lawyers,” according to the affidavit.

The SEC investigator then asked Sloan if she had counsel. “Sloan did not respond” to the question, according to the affidavit.

Whether TelexFree will provide Sloan a lawyer is unclear. Any number of accused fraud promoters over the years have been left in the lurch by “management” or “corporate” when “programs” have been sued.

The SEC investigator asked Sloan for her home and email addresses, according to the affidavit. Sloan refused to provide them.

“You just sued me,” she responded, according to the affidavit. “You must know everything about me so you can figure it out.”

It remained unclear this morning whether Sloan had hired counsel or responded to the complaint, which charged her with securities fraud and selling unregistered securities.

But in the HYIP sphere, the small fish are what create the bigger fish — and “small” appears no longer to provide much cover in HYIP-related prosecutions and lawsuits.

Kenneth D. Bell, the court-appointed receiver in the Zeek case, has filed lawsuits against thousands of Zeek winners. The lawsuits are in the form of a class-action, with the threshold for being sued set at only $1,000, according to court filings.

NOTE: Our thanks to the ASD Updates Blog.

Apr 25, 2014
BULLETIN: TelexFree’s Telecom License At Risk In Minnesota; Department Of Commerce Asks PUC To Deny Embattled MLM Firm Authority To Operate

Screen shot: Part of a letter from the Minnesota Department of Commerce to the state Public Utilities Commission.

BULLETIN: The Minnesota Department of Commerce has asked the state Public Utilities Commission to deny TelexFree’s authorization to provide long-distance service in the state.

Minnesota regulators now are questioning whether TelexFree financial and background information submitted to the state to gain telecom authority was accurate. The PUC granted the authority on April 18, after the Department of Commerce recommended approval of the application.

But a Department of Commerce letter and attachment to the PUC dated yesterday asks the agency to mothball TelexFree “until it demonstrates that the information provided in its application is accurate.”

The move comes on the heels of TelexFree’s April 13 bankruptcy filing in Nevada and fraud charges filed against the firm on April 15 by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission.

In the letter and attachment from the Department of Commerce, the agency asked the PUC to question whether TelexFree was in any financial position to provide service in Minnesota and whether “any other factors” exisited that could be relevant in determining its suitability to operate in the state.

Among the considerations in granting a telecom license is “the extent to which the applicant has had any civil, criminal, or administrative action taken against it in connection with the applicant’s provision of telecommunications services,” the Department advised the PUC.

“A certificate to provide local facilities-based service must not be granted unless the applicant establishes that it has the financial, technical, and managerial capability to provide the services described in its petition consistent with the public interest,” the Department said.

In asking the PUC to deny TelexFree’s authority, the Department pointed to an April 18 email from “TELEX FREE’s former [telecom-registration] representative, Joseph Isaacs.”

The Isaacs’ email, the Department said, “indicates that TELEXFREE provided false and misleading information to the Department in its application for certification to provide long distance service.”

From the Department’s assertions to the PUC (italics added):

The allegedly misleading information provided in TELEX FREE’s application relate to the basic filing requirements of Minn. Rules pts. 7812.0300, subpt. 2 (E, F, and N): civil and administrative action pending, financial statements, and information relating to the technical, managerial and financial capabilities of TELEX FREE in support of its application for certification. The allegedly misleading information in the TELEX FREE’s application relate to the decision criteria in Minn. Rules pt. 7812.0300, subpt. 2 (C, D, and H).

If the Department had known this information, it would not have recommended approval of the application for certification to provide long distance service, without further investigation.

TelexFree operates as an MLM. Some of its members now are asking a federal bankruptcy judge to “bail out” the “program.”

Beyond that, the U.S. Trustee for the region in which TelexFree filed its bankruptcy petition (Nevada) said in court filings that “[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.”

TelexFree LLC was the entity granted authority to operate in Minnesota on April 18.

Tracy Hope Davis, the trustee, also alleged there are “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.

Challenges to its authority to provide telecom services could affect TelexFree’s ability to persuade a bankruptcy judge that it could continue as a going concern. Litigation against TelexFree is occurring at both the state and federal levels, and the firm also might face the prospect of class-action lawsuits from its distributors.

The Massachusetts Securities Division alleged on April 15 that information provided investigators in that state did not agree with information provided the Washington State Utilities and Transportation Commission.

In Nevada, meanwhile, Attorney General Catherine Cortez Masto has posted a notice to intervene in TelexFree-related matters before that state’s Public Utilities Commission.

Records in Nevada show that TelexFree’s pending telecom application in the state potentially could be denied for failure to advertise its application in newspapers as required by the state.

Although ads did appear in two newspapers, they did not appear as required in three others, records show.

Apr 24, 2014
URGENT >> BULLETIN >> MOVING: SEC Enters TelexFree Nevada Bankruptcy Fray — Plus Confirmation That U.S. Attorney’s Office Part Of Probe

URGENT >> BULLETIN >> MOVING: (Updated 6:24 P.M. EDT U.S.A.) The U.S. Securities and Exchange Commission has entered the TelexFree fray in Nevada Bankruptcy Court and has petitioned the judge to transfer the case to Bankruptcy Court in the Central District of Massachusetts, an area that is a potential TelexFree stronghold. The Central District covers communities such as Worcester, Ashland, Framingham, Holliston, Bellingham, Franklin and Medway.

In a filing, the SEC also noted that the FBI and Department of Homeland Security are involved in a separate TelexFree probe led by the office of U.S. Attorney Carmen M. Ortiz. How long that probe has been under way was unclear in the filing.

SEC lawyers asserted Massachusetts was the “nerve center” of TelexFree and that TelexFree’s “late Sunday” 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.”

“[U]ntil [April 15], the U.S. Attorney’s Office was operating in secret,” the SEC advised a federal judge in Massachusetts last week, according to a transcript provided the Nevada Bankruptcy Court. “We couldn’t reveal ourselves without tipping things, so we had to wait until the search warrant was executed [on April 15.]”

TelexFree nevertheless knew the regulators were coming and started moving money, the SEC said.

One SEC investigator advised the Massachusetts judge who granted an asset freeze that he’d personally viewed “several hours” of TelexFree-related YouTube videos and performed transcription work before the SEC filed its fraud complaint last week, according to the transcript.

“[T]here are plenty of examples of each of those people helping to promote the scheme and helping to explain how great it is, how much money you can make for virtually no effort, and without — they’re all active enough, these people — well [James] Merrill, [Carlos] Wanzeler, and [Steve] Labriola are officers, they certainly know this,” the SEC investigator advised the Massachusetts judge.

The Massachusetts judge granted an asset freeze on April 16.

Apr 23, 2014
BULLETIN: U.S. Trustee Says ‘Compelling Evidence Of Fraud’ And ‘Reasonable Grounds’ To Believe ‘Criminal Conduct’ Occurred On Road To TelexFree Bankruptcy Filing
BULLETIN: (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.”
Apr 23, 2014