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  • FAITH SLOAN: Blame TelexFree, Merrill, Wanzeler, Labriola And Nehra, Not Me

    Faith Sloan in a TelexFree promo. Source: YouTube
    Faith Sloan in a TelexFree promo. Source: YouTube.

    UPDATED 8:55 P.M. EDT U.S.A. Veteran HYIP huckster Faith Sloan told a federal judge presiding over the SEC’s TelexFree case that she is a victim of the company and was duped by TelexFree executives James Merrill, Carlos Wanzeler and Steve Labriola.

    And, the former Noobing, Zeek Rewards and Profitable Sunrise pitchwoman asserted, she also was duped by MLM attorney Gerald Nehra, a lawyer for TelexFree.

    Sloan was among four TelexFree promoters charged with fraud by the SEC. Four executives also were charged.

    “Sloan believed what Defendants Carlos Wanzeler, James Merrill, Steve Labriola and their attorney, Gerald Nehra, had told her, until TelexFree continued to miss the deadlines for the launch of its new products, which were to be the foundation of TelexFree’s growing business going forward into 2014,” Sloan said in court filings through her attorney.

    Those new products, Sloan said, included “MyFinancialAdvantagePlan,” “Mobile App,” “TelexCommerce” and “TelexMobile.”

    Taking a swipe at Nehra, Sloan contended that she and fellow promoters were “excited” about TelexFree after Nehra “had stood on the stage and publicly announced that TelexFree was ‘on a solid legal ground’, because they were selling a real product.”

    Nehra made the remark at a TelexFree rah-rah fest in Newport Beach, Calif., in July 2013, according to YouTube videos. The remarks followed a June 2013 action in Brazil in which certain TelexFree assets were frozen and new registrations were suspended, amid pyramid-scheme allegations.

    Sloan did not say why she continued to promote TelexFree with serious pyramid allegations on the table, except to suggest that Nehra’s remarks paved the way for her to continue with TelexFree. Nor did Sloan say whether her experience promoting Noobing, Zeek and Profitable Sunrise provided her any clues that something could be amiss at TelexFree.

    MLM attorney Gerald Nehra offering remarks about TelexFree; Source: YouTube.
    MLM attorney Gerald Nehra offering remarks about TelexFree; Source: YouTube.

    Sloan was not charged in the Noobing, Zeek and Profitable Sunrise cases. Regulators say Noobing, an HYIP that targeted people with hearing impairments, was attached to a government-grants swindle. It effectively was shut down by the FTC.

    Zeek, meanwhile, was an $850 million pyramid- and Ponzi scheme, and Profitable Sunrise was a cross-border securities swindle effectively run by a ghost that potentially raked in tens of millions of dollars. Both “programs” collapsed after SEC actions.

    In April 2014, the SEC described TelexFree as an epic, billion-dollar cross-border pyramid and Ponzi-swindle that engaged in securities fraud and the sale of unregistered securities. All four of the “programs” offered returns that bested Bernard Madoff on orders of between 20 and 70 to one on an annualized basis.

    Regulators have been warning about HYIP schemes for years, saying they offer returns that are too good to be true and make cosmetic tweaks to dupe the masses.

    Many such schemes proliferate because serial promoters turn blind eyes to obvious markers of fraud such as preposterous interest rates, a presence of a “program” on Ponzi-scheme forums, the presence of other serial fraud promoters and fractured relationships with payment vendors during the course of the fraud. The schemes pay commissions to unlicensed promoters to sell securities to recruits and typically have an illegal investment arm attached.

    When a scheme collapses, serial promoters disingenuously point fingers of blame back at management. Though the blame is deserved, it ignores the promoters’ roles in driving dollars to scams.

    Sloan also today accused Merrill and Labriola of threatening to boot her from the “program” after she made unflattering remarks about it — after she’d been in the “program” for a year or so and suddenly realized something was wrong at TelexFree.

    “In response to her public complaints, Labriola, with the approval of the Defendant, Merrill, threatened to terminate Sloan’s relationship with TelexFree shortly before they filed for bankruptcy protection on April 13, 2014,” Sloan contended in a “verified” memorandum of law filed by her attorney. The document seeks to have the charges against Sloan dismissed.

    From Sloan’s motion (italics added):

    Sloan became a “promoter” of TelexFree early in 2013. Sloan attended public webinars (web-based seminars) along with thousands of other TelexFree “promoters”. During those webinars, Sloan was told by TelexFree leaders that they were growing a company based on remarkable new products such as the “MyFinancialAdvantagePlan” (MFA), “Mobile App” “TelexCommerce” and “TelexMobile”, which was built on the backbone of Sprint, Verizon, and T-Mobile. All these products were due to be launched during the last quarter of 2013. The Mobile App was touted as being on a par with “WhatsApp”, which had been purchased by Facebook for 19 billion dollars. Based on what she was told by her fellow Defendants, Sloan and her fellow “promoters” were excited about the future of TelexFree, especially after the companies’ lawyer, Gerald Nehra, had stood on the stage and publicly announced that TelexFree was “on a solid legal ground”, because they were selling a real product.

    Sloan’s troubles aren’t limited to the SEC case. She’s also a defendant in at least three prospective class-action lawsuits that allege fraud and racketeering.

    Nehra is accused in the class-action complaints of turning a blind eye to TelexFree’s fraud to line his own pockets and dupe the masses.

    In the Legisi HYIP Ponzi case, HYIP figure Matthew John Gagnon tried a defense similar to Sloan’s defense in the SEC civil case. It didn’t work.

    Gagnon was held civilly liable and eventually was charged criminally for making a secret deal with Legisi to promote its scam, which had payouts similar to TelexFree, Noobing, Zeek and Profitable Sunrise. He was sentenced to five years in federal prison.

    Like the criminal side of the TelexFree case, the Legisi case was brought after an undercover investigation.

    NOTE: Our thanks to the ASD Updates Blog.

  • TelexFree Telecom Application Rejected By Nevada Public Utilities Commission

    The Nevada Public Utilities Commission has rejected TelexFree's telecom application. Image source: PUC document. Red highlight by PP Blog.
    The Nevada Public Utilities Commission has rejected TelexFree’s telecom application. Image source: PUC document. Red highlight by PP Blog.

    Nevada, the state in which TelexFree operated an alleged $1.2 billion pyramid- and Ponzi scheme through a mailbox and filed its initial Chapter 11 bankruptcy petition, has rejected the company’s application to become a telecom provider.

    The Nevada Public Utilities Commission denied the application in an order dated June 2. The staff of the PUC pressed for the denial last month, noting that TelexFree filed for the license on April 1 but then declared bankruptcy only 12 days later. The staff also said it was aware TelexFree had been charged civilly with fraud by the U.S. Securities and Exchange Commission and that its assets had been frozen. At the same time, the staff said it was aware TelexFree also is the subject of state-level civil action by the Massachusetts Securities Division.

    Former TelexFree President James Merrill currently is jailed on a criminal charge of wire-fraud conspiracy. That charge was filed May 9. Merrill continues to seek his release on bail. Carlos Wanzeler, Merrill’s TelexFree business partner, also was charged criminally with wire-fraud conspiracy last month. U.S. federal prosecutors have described him as an international fugitive.

    TelexFree faces challenges to its license in other states. The firm says on its website that it “has suspended all business activity.”

    A U.S. Bankruptcy Judge in Nevada transferred the TelexFree petition to Massachusetts last month, after the SEC argued the state was TelexFree’s nerve center. Litigation against the firm is centered in Massachusetts, although a prospective class-action lawsuit against TelexFree and alleged managers, promoters and vendors also has been filed in federal court in the Eastern District of North Carolina.

    At least two civil actions against TelexFree, including the one in North Carolina, allege violations of the federal racketeering (RICO) statute. There also is active TelexFree-related litigation in Brazil. An alleged promoter of TelexFree was arrested in Uganda last month and paraded in front of TV cameras.

    In the United States, the SEC has referred to a number of TelexFree-related promos on YouTube. HYIP schemes are notorious for using social media to gain a head of steam. The actions by various governments and private litigants show that promoters are not insulated from prosecution and can become defendants in cases that allege fraud.

    With its assets frozen, whether TelexFree has the resources to address lawsuits and licensing challenges in multiple jurisdictions remains an open question. Individual promoters named in complaints could rack up high legal bills, with the company unable or unwilling to provide assistance.

    Because some of the actions name “Doe” defendants, it is possible that other TelexFree promoters will find themselves with the need to hire attorneys at their own expense. Named promoters so far include Faith Sloan, Sann Rodrigues, Randy Crosby and Santiago De La Rosa.

    It is known that the U.S. Department of Homeland Security opened an undercover probe into TelexFree by at least October 2013.

    One TelexFree huckster, according to court records, told an undercover agent that “he [the huckster] had earned $1,600,000 as a TelexFree promoter, without selling a TelexFree product.”

    Precisely how many TelexFree promoters interacted with undercover agents is unclear.

    In 2010, the U.S. Department of Justice said it had “begun increasingly to rely, in white collar cases, on undercover investigative techniques that have perhaps been more commonly associated with the investigation of organized and violent crime.”

    The 2008 AdSurfDaily Ponzi probe began as an undercover operation. Such techniques also have been used in penny-stock cases and cases involving “carding.”

  • 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: Feds Say TelexFree Has ‘Disturbingly Cult-Like Quality’; SEC Accuses Faith Sloan Of Lying To Court

    telexfreelogoBULLETIN: (12th Update 9:50 p.m. EDT U.S.A.) In resisting former TelexFree President James Merrill’s latest bid to make bail in the criminal case against him, federal prosecutors said today that TelexFree “has a disturbingly cult-like quality.”

    Meanwhile, in separate action in the SEC’s civil case against TelexFree, the agency has accused alleged TelexFree pitchwoman Faith Sloan of lying to a federal judge in a declaration that asserted she did not hear about the TelexFree action until weeks after it had been filed.

    Although Merrill attorney Robert Goldstein argued yesterday that TelexFree may have much higher retail-sales numbers than the government believes from its VOIP product — somewhere on the order of $200 million — the office of U.S. Attorney Carmen Ortiz countered today that TelexFree owed $5 billion to its promoters when the scheme collapsed.

    Prosecutors also argued that U.S. Magistrate Judge David Hennessy made the right call last month when he ruled Merrill should continue to be jailed.

    The “massive amount of revenue the company received between February 2012 and April 2014 did not come from its VOIP product selling like hotcakes, but from an ongoing influx of investor dollars, which it then paid out in commissions.

    “Becoming a TelexFree ‘promoter’ cost $340 or $1425, depending on the level of buy-in,” prosecutors continued. “But once someone signed up they were able, for example, to make a guaranteed 200% to 300% annual return on their investment for doing basically nothing and without selling a single VOIP product.”

    Merrill knew it was a sham while TelexFree members accorded him “rock star status,” prosecutors contended.

    Thousands of promoters “remain fanatically loyal to the company which, despite the bankruptcy and three government enforcement actions, they see as helping hard working people make a little money on the side,” prosecutors argued.

    From prosecutors’ argument that Merrill should remain jailed (italics/carriage returns added/light editing performed):

    As the government emphasized at Merrill’s detention hearing, understanding the risk of releasing him requires understanding the unique aspects of the TelexFree phenomenon. It is these aspects that ultimately convinced the Magistrate Court that this case is unlike the general run of white collar cases.

    First, like many “multi-level marketing” companies, TelexFree has a disturbingly cult-like quality. Egged on by the company itself, promoters spoke of “reaching their dreams” and being “100% TelexFree.” TelexFree’s promoter extravaganzas – in the United States, Brazil and Spain, among other places – were recorded and posted on YouTube. These events had a “boisterous . . . rock concert atmosphere,” at which crowds of promoters cheered James Merrill when he took the stage . . .

    Merrill would have the crowd “do the wave.” As the “American face” of TelexFree, crowds of foreign promoters lined up to have their pictures taken with Merrill; his wife conceded that he was “treated like a minor celebrity.” . . .  In or about November 2013, TelexFree rented a cruise ship and invited thousands of promoters to join a cruise off the coast of Brazil. Merrill addressed the crowd of (at least) hundreds from the promenade deck, helicopter hovering in the background.

    Second, thousands of these promoters do not live in the United States, but in Canada, the Caribbean, and Central and South America . . . Thousands remain fanatically loyal to the company which, despite the bankruptcy and three government enforcement actions, they see as helping hard working people make a little money on the side.

    Many TelexFree promoters, at least the earlier ones, made substantial sums from their involvement.

    Third, TelexFree itself exists in several foreign countries, including Canada, Brazil, the United Kingdom and the Dominican Republic. According to Canadian corporate filings, Merrill and Wanzeler are the directors of TelexFree Canada . . . the Facebook page for which lists 7,691 “likes” and shows dozens of supportive messages, all written after the bankruptcy and enforcement actions were filed. Merrill and Wanzeler are also the directors of TelexFree’s Dominican entity. This is nothing, however, compared to TelexFree’s presence in Brazil, where thousands of Brazilian promoters took to the streets in June 2013 when the Brazilian government sued TelexFree’s Brazilian entity for running a pyramid scheme.

    Even though Goldstein argued yesterday that Merrill — unlike his TelexFree co-defendant Carlos Wanzeler — remained in the United States to face justice after the April 15 raid at TelexFree headquarters, prosecutors asserted that evidence exists that Merrill and Wanzeler were “like brothers.”

    Wanzeler, they argued, “has access to substantial funds and has been Merrill’s close friend for 20 years.”

    “According to bank records, in February 2013, Wanzeler gave Merrill a check for $865,000, using funds drawn from TelexFree’s Brazilian operations,” prosecutors said. “In December 2013 – around the time he withdrew $3,000,000 for himself – Merrill authorized the transfer of about $7,000,000 to Wanzeler from TelexFree accounts. The real risk here is not Merrill fleeing to Brazil, but Wanzeler helping him from that location.”

    And, they continued, “TelexFree has substantial assets overseas. The government has managed to freeze millions of dollars in United Kingdom and Singapore accounts, but various accounts remain unfrozen. There is a TelexFree account in Cayman with the Royal Bank of Canada. It remains unfrozen and the account balance is unknown. Similarly, the government has seized a $10,000,000 cashiers’ check made out to TelexFree Dominicana SRL – TelexFree’s Dominican entity – but no Dominican accounts are frozen. Finally, in or about 2013 Merrill and Wanzeler traveled to Singapore, where we know there are three accounts in the names of TelexFree and Carlos Wanzeler. One of these accounts is frozen, but not the other two.”

    Merrill, prosecutors said, had traveled to Brazil four times since 2008, and also has ventured to Spain and Japan.

    But TelexFree’s “network of supporters is not just overseas,” prosecutors argued. “[Merrill] knows several TelexFree promoters in the United States who made substantial sums with the company, and would be in a position to assist him.”

    These things and more make Merrill a flight risk, prosecutors asserted, noting he potentially faces an effective sentence of life in prison in the United States.

    Hennessy, who ordered Merrill jailed last month, already has spoken to these issues, prosecutors contended. From prosecutors,  quoting the judge at an earlier hearing (italics added):

    There’s evidence, and I certainly think it’s persuasive, that the defendant had a key role in a massive Ponzi scheme. He faces 20 years in jail [on the single charge in the complaint], and there’s something unique to this case that I haven’t really seen in other cases where as a result of his participation in TelexFree, and in the alleged Ponzi scheme, the crime itself has created for the defendant a type of world outside the United States to which the defendant belongs. There are associates outside the United States, including the defendant’s close friend and former business partner, Carlos Wanzeler. There are bank accounts outside the United States, and it’s unclear how much money is in those accounts and whether the defendant has either direct signatory authority over those accounts or has the ability to instruct others to withdraw money from those accounts for the defendant.

    “In short,” prosecutors argued,  “Judge Hennessy concluded that this was not the usual white collar case essentially because, unlike the usual white collar defendant, Merrill (a) potentially faces life in prison, and (b) should he decide to flee, a preponderance of the evidence shows that he has somewhere to go, and the means to go there . . .  As the Magistrate Court found, in several countries there are ‘promoters who may be willing to assist the defendant.’”

    And, prosecutors argued, the judge expressed concern not only that Wanzeler could help Merrill flee, but that “Wanzeler might have a more personal stake in Merrill not being available to the government.”

    As for Sloan, the SEC said she was playing fast and loose with the truth.

    The PP Blog reported on April 25, eight days after news of the lawsuit broke on an international basis, that the SEC asserted it had spoken to Sloan on April 17 and advised her she was being sued. Sloan, the SEC contended, wanted to know back then why the agency was “picking on” her.

    Faith Sloan. Source: YouTube.
    Faith Sloan. Source: YouTube.

    But Sloan now maintains she first learned of the case in “late May,” according to the SEC.

    “The bottom line is simple: Sloan has known about this case since April 17,” the SEC alleged today. “She was told how to get a copy of the Complaint but refused to provide an address where the Commission could serve her pursuant to Rule 4. On May 6, she was served with the Summons, the Complaint, and the April 16 Order. Her assertion —made under penalties of perjury —that she did not hear about the case until late May is a flagrant falsehood.”

    NOTE: Our thanks to the ASD Updates Blog.

    Also see May 6, 2014, PP Blog post: EDITORIAL: TelexFree, Rabbit Holes And Vomit

  • BULLETIN: Merrill May Be Turning Against Wanzeler

    James Merrill. Source: YouTube
    James Merrill. Source: YouTube

    BULLETIN: (5th Update 10:06 p.m. EDT U.S.A.) A defense filing by alleged TelexFree co-owner James Merrill may signal a serious divide between Merrill and Carlos Wanzeler, now described by the United States as an international fugitive.

    At the same time, new defense filings by Merrill say arguments made in bankruptcy court that suggest TelexFree could restore its business in a new form should be considered at a hearing to free Merrill on bail.

    Merrill, 53, of Ashland, Mass., has been detained since his May 9 arrest on charges of wire-fraud conspiracy.

    “Indeed, unlike his co-defendant in this case, Mr. Merrill did not attempt to flee or avoid this prosecution, despite clear notice and knowledge of the government’s ongoing criminal investigation,” a lawyer for Merrill said in court filings today.

    Government filings have said Wanzeler, 45, of Northborough, Mass., ducked into Canada under cover of darkness on April 15, and flew to Brazil two days later. Like Merrill, Wanzeler was charged criminally with wire-fraud conspiracy on May 9.

    Wanzeler allegedly fled into Canada on the same day TelexFree’s headquarters in Marlborough, Mass., were raided. Two days later — on April 17 — he allegedly boarded a plane in Toronto bound for Brazil.

    From the defense filing (italics/bolding/carriage returns added):

    On May 9, 2014, more than three weeks after execution of the search warrants, the government filed a criminal complaint and arrested Mr. Merrill. He was still here, in Massachusetts, driving his car on Route 9 at the time of his arrest. At no time during the intervening three weeks did Jim Merrill ever attempt or consider fleeing the jurisdiction. Instead, he was in the process of preparing to lawfully defend himself, fully confident in the legal process.

    The fact that his co-defendant chose to leave the United States on April 15, 2014, or that Mr. Merrill allegedly spoke to Mr. Wanzeler on that date, facts relied upon extensively by the government at the original bail hearing . . . do not remotely support detention in this case. To the contrary, given the inference the government apparently seeks to draw from the telephone records (i.e., that Mr. Merrill spoke to Mr. Wanzeler on April 15, 2014, and was therefore aware he was leaving the country), the logical conclusion to draw from the government’s suggested inference is that Mr. Merrill deliberately chose to remain in the United States.

    In any event, whether they spoke that date or not, and whatever they discussed, the fact of the matter is that Mr. Merrill had the same opportunity as Mr. Wanzeler to leave the country, but he did not do so, with full knowledge he was the subject of a criminal investigation, and fully cognizant that the government believed (rightfully or wrongly) that the company was a massive pyramid scheme . . .

    Through his attorney Robert M. Goldstein, Merrill also is arguing that certain claims made in U.S. Bankruptcy Court by interim TelexFree CEO Stuart MacMillan and turnaround specialist William Runge should be considered in a bail application by Merrill.

    “Indeed,” Goldstein argued, “Stuart MacMillan, a person with over 25 years of management experience who was hired to serve as Interim Chief Executive of TelexFree in February 2014 . . . has averred under oath his belief ‘that through a revamped model [TelexFree] will be able to leverage their uniquely situated product to provide valuable and dependable services to their customers while ensuring that their operations are profitable.’”

    And, Goldstein noted, Runge has contended that TelexFree participants used approximately 11 million minutes of VoIP service in February 2014.

    MacMillan was hired by Merrill and Wanzeler on April 13, and also caused Merrill’s resignation and the firing of Wanzeler on April 17, according to bankruptcy court records.

    With respect to bail, Goldstein argued, friends and family of Merrill would agree to post real estate as security for his appearance at trial and Merrill himself would agree to house arrest and electronic monitoring.

    Today’s defense motion also signals that Merrill may introduce a “reliance of counsel” defense, specifically the counsel of MLM attorney Gerald Nehra.

    Some TelexFree members have painted Nehra as a racketeer who helped fraud schemes such as TelexFree and Zeek Rewards thrive. Zeek, the SEC said in 2012, was a Ponzi- and pyramid scheme that had gathered hundreds of millions of dollars.

    Nehra also was an expert witness for AdSurfDaily in 2008, asserting that ASD was not a Ponzi scheme. In 2012, ASD President Andy Bowdoin pleaded guilty to wire fraud and admitted ASD was a Ponzi scheme that had never operated lawfully from its inception in 2006.

    Merrill’s latest motion to be freed on bail coincidentally occurred on the same day the U.S. Court of Appeals for the 9th Circuit agreed with both a lower court and the FTC that the BurnLounge MLM “program” was a pyramid scheme — despite the fact that a certain percentage of retail sales could have occurred.

    In a lawsuit against TelexFree by the SEC, the agency contended that members could make money through TelexFree without selling anything at all because of an attached passive investment scheme in which members were told they were getting paid for posting ads online about TelexFree. The investment program was known as “AdCentral” and was a sham to mask the pyramid scheme, the SEC alleges.

    Among other things, the SEC contends that credit-card and banking transactions “indicate that, from August 2012 to March 2014, TelexFree received slightly more than $1.3 million from the retail sale of approximately 26,300 monthly VoIP contracts. During the same period, TelexFree received more than $340 million from hundreds of thousands of investors who purchased AdCentral or AdCentral Family contracts. Through the sale of those one-year contracts, TelexFree effectively promised to pay more than $1.1 billion to the investors who posted the required ads.”

    Goldstein argued today that retail sales of TelexFree’s VOIP product may be much higher than the government believes.

    “Most critically,” Goldstein argued, “significant doubt exists regarding the accuracy of the government’s main contention—i.e., that TelexFree sales of its VoIP product amounted to approximately 1% of total revenue, and the company therefore constitutes an unlawful pyramid scheme. In fact, the company’s revenue from the sales of its VoIP product may have amounted to more than two hundred million dollars ($200,000,000.00), a sales-to-revenue ratio in line with accepted industry practice and certainly well beyond the 1% figure the government has stressed to the Court.”

    NOTE: Our thanks to the ASD Updates Blog.

  • Appeals Court Agrees with FTC: BurnLounge Was A Pyramid Scheme

    breakingnews72UPDATED 10:12 A.M. EDT (JUNE 3) U.S.A. The U.S. Court of Appeals for the 9th Circuit today agreed with both a lower court and the Federal Trade Commission: BurnLounge was a pyramid scheme.

    Much to the dismay of some MLMers, the case demonstrates that a company that makes some retail sales still can be a pyramid scheme if rewards derived by participants largely came from recruitment, not from product sales.

    “We agree with the district court that BurnLounge was an illegal pyramid scheme in violation of the [Federal Trade Commission Act] because BurnLounge’s focus was recruitment, and because the rewards it paid in the form of cash bonuses were tied to recruitment rather than the sale of merchandise,” a three-judge panel ruled.

    The panel further ruled that the lower court did not err when it admitted testimony by Peter Vander Nat, an FTC expert who holds a doctorate in economics and an advanced degree in mathematics. BurnLounge had sought to strike the testimony.

    Circuit Judge Morgan Christen wrote the opinion for the panel, which unanimously found BurnLounge was a pyramid scheme.

    U.S. District Judge George H. Wu of the Central District of California made the pyramid ruling in 2012, ordering the company, CEO Juan Alexander Arnold and other pitchmen to pay about $17 million.

    Read the 2014 Appeals Court ruling which, among other things, discusses the applications of the Omnitrition International Inc. and Koscot Interplanetary Inc. pyramid cases on the BurnLounge case.

    Precisely what percentage of retail sales defeats charges of pyramid-selling remains an open question, with courts choosing to look at how the MLM business operates in practice, rather than how an MLM firm may spin things.

    In BurnLounge, Wu found that the the program’s bonus system was “a labyrinth of obfuscation” that resulted in a “93.84% failure rate for all Moguls,” all of whom were required to pay a fee to become Moguls and earn cash rewards, according to the appeals panel.

  • Say It Ain’t So, Lefty! Phil Mickelson’s Name Surfaces In Insider-Trading Probe

    The Wall Street Journal and the New York Times are reporting tonight that golfer Phil Mickelson’s name has surfaced in an insider-trading probe that also involves billionaire investor Carl Icahn and Las Vegas sports bettor William “Billy” Walters.

    Reports say Mickelson was approached today by the FBI at the Memorial golf tournament hosted by Jack Nicklaus in Dublin, Ohio. The SEC also is investigating.

    The news has thundered across the sports, entertainment and financial worlds,  with early reports appearing on ESPN.com,  Golf.com, Variety.com, HollywoodReporter.com,  CNBC.com and CNN/Fortune/Money.

    Early Twitter reactions ranged from sarcastic bemusement and indignation to resignation and disbelief.

  • 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.

  • Effort To Fete Two-Time SEC Pyramid Defendant And Alleged Racketeer Sann Rodrigues In Brazilian Senate Hall Reportedly Thwarted

    Sann Rodrigues. From a promo for a March TelexFree event in Spain at which Sann Rodrigues was feted.
    Sann Rodrigues. From a promo for a March TelexFree event in Spain at which Sann Rodrigues was feted.

    Politicians appear to have spared themselves some embarrassment, but MLM had another La-La Land PR train wreck today.

    iG (Brazil) is reporting that an effort to honor accused TelexFree pitchman and two-time SEC defendant Sann Rodrigues in a Brazilian Senate hall today was thwarted. The effort to fete Rodrigues appears to have been staged by a Brazilian MLM cheerleader, who reportedly also wanted Rodrigues named to the Multilevel Marketing Regulatory Agency of Brazil, which is not a government arm despite its name.

    The effort collapsed when iG contacted a Senate member, iG reported.

    From a translation from Portuguese to English by Google translate (italics added):

    The event was canceled after the iG contacting the office of Senator Cicero Lucena (PSDB-PB), which had made the reservation request the auditorium Petronio Portella Senate at the request of Regino Barros.

    An assessor’s office reported that such requests are common and that senators do not participate in drawing up the list.

    Earlier this month Rodrigues was accused of racketeering by TelexFree members suing the enterprise and several individuals, including accused TelexFree Ponzi schemers James Merrill and Carlos Wanzeler and MLM attorney Gerald Nehra.

    TelexFree staged a March 1 and March 2 awards ceremony in Madrid, Spain, at which Rodrigues was feted. Nehra also was feted, but appears not to have shown up to accept the award.

    Merrill, Wanzeler and Steve Labriola, another TelexFree SEC defendant, also were feted at the Madrid event. Merrill was jailed in the United States two months later, and Wanzeler allegedly fled to Brazil and became a fugitive.

    The massive TelexFree pyramid- and Ponzi scheme began to collapse on March 9, just a week after the Madrid event, according to court filings and other documents.

    “Rodrigues used investor funds to buy expensive automobiles, including a Lamborghini, a Ferrari, and two Mercedes Benz,” the SEC charged in an amended TelexFree complaint earlier this week. (See May 27, 2014, PP Blog story.)

    In 2006, Rodrigues was named an SEC defendant in a complaint that charged he operated a pyramid scheme involving phone cards. The phone-card scheme was targeted at the Brazilian community, the SEC said at the time.

    In April 2014, he was named one of eight individual defendants in the SEC’s TelexFree action.

    TelexFree also offered a communications product and, like the 2006 Rodrigues scheme, was targeted at the Brazilian community. TelexFree also targeted Latinos, according to records.

     

     

     

  • Zeek Receiver Proposes Date For First Interim Distribution

    Zeek receiver Kenneth D. Bell.
    Zeek receiver Kenneth D. Bell.

    Kenneth D. Bell, the receiver in the Zeek Rewards Ponzi- and pyramid case, has asked a federal judge to set Sept. 30 as the date of the first interim distribution to victims. Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina must approve the proposal and other scheduling logistics proposed by Bell. Victims with allowed claims would be paid by check.

    Bell, according to the proposal, believes that approximately $320 million held by the receivership estate is enough to provide victims “a total recovery in regard to their investment into the ZeekRewards Scheme of at least 40%” when the initial distribution occurs.

    Some money must remain in reserve, however, to continue to fund the receivership as it pursues recoveries from alleged insiders, “winners” and “others who benefited from or improperly facilitated the ZeekRewards Scheme.” Other distributions would occur over time, as more money flows to the receivership.

    If Mullen approves the proposal, some money could be in the hands of tens of thousands of Zeek victims by early fall.

    About 175,000 claims have been filed, and “approximately 150,000 Claim Determinations have been issued by the Receivership Team,” Bell advised the judge, noting that about 25,000 claims remain under review.

    NOTE: Thanks to the ASD Updates Blog. Read Bell’s proposal for the first interim distribution here.

  • MAYA ANGELOU: 1928-2014: A Statement By The President Of The United States

    Maya Angelou. Source: Wake Forest University News Center.
    Maya Angelou. Source: Wake Forest University News Center.

    A statement by Barack Obama, the President of the United States, on the passing of Maya Angelou:

    When her friend Nelson Mandela passed away last year, Maya Angelou wrote that “No sun outlasts its sunset, but will rise again, and bring the dawn.”

    Today, Michelle and I join millions around the world in remembering one of the brightest lights of our time – a brilliant writer, a fierce friend, and a truly phenomenal woman. Over the course of her remarkable life, Maya was many things – an author, poet, civil rights activist, playwright, actress, director, composer, singer and dancer. But above all, she was a storyteller – and her greatest stories were true. A childhood of suffering and abuse actually drove her to stop speaking – but the voice she found helped generations of Americans find their rainbow amidst the clouds, and inspired the rest of us to be our best selves. In fact, she inspired my own mother to name my sister Maya.

    Like so many others, Michelle and I will always cherish the time we were privileged to spend with Maya. With a kind word and a strong embrace, she had the ability to remind us that we are all God’s children; that we all have something to offer. And while Maya’s day may be done, we take comfort in knowing that her song will continue, “flung up to heaven” – and we celebrate the dawn that Maya Angelou helped bring.

    A statement by Bill Clinton, former President of the United States:

    With Maya Angelou’s passing, America has lost a national treasure; and Hillary and I, a beloved friend.

    The poems and stories she wrote and read to us in her commanding voice were gifts of wisdom and wit, courage and grace.

    I will always be grateful for her electrifying reading of “On the Pulse of Morning” at my first inaugural, and even more for all the years of friendship that followed.

    Now she sings the songs the Creator gave to her when the river “and the tree and the stone were one.”

    Our deepest sympathies are with Guy and his family.

    A statement by George W. Bush, former President of the United States:

    Laura and I are saddened to learn of the death of Maya Angelou. She was among the most talented writers of our time. Her words inspired peace and equality and enriched the culture of our country. We are grateful for the work she leaves behind, and we wish her the peace she always sought.

    A statement by Nathan Hatch, president of Wake Forest University:

    Maya Angelou has been a towering figure — at Wake Forest and in American culture. She had a profound influence in civil rights and racial reconciliation. We will miss profoundly her lyrical voice and always keen insights.

    A statement by Eric Holder, Attorney General of the United States:

    I was deeply saddened to learn of the passing of Maya Angelou, a true national treasure whom I have admired greatly for many, many years.

    Dr. Angelou was much more than a literary genius, a chronicler of Jim Crow, and a witness to history.  Through her extraordinary work, she captured the tenacity of the human spirit and spoke of harsh realities in the most evocative, moving, and lyrical of ways.  Over the course of a career spanning some of the most tumultuous decades of the last century, she taught us how to rise above ‘a past that’s rooted in pain.’  She gave voice to a people too often shut out of America’s public discourse.  She displayed remarkable courage in the face of tremendous adversity.  And she inspired generations to overcome life’s greatest challenges – through her extensive writings, her performances, her advocacy, her educational work, and her principled activism.

    For my family and me, Maya Angelou will always be much more than a great American and an icon in world literature.  She is the namesake of one of my daughters, who met her as a young girl and celebrated her twenty-first birthday just one day before the elder Maya was lost to us.  Although our hearts are filled with grief at the news of her passing – a sorrow made all the more acute by the knowledge that we shall not see her like again – she will continue to be a source of strength and inspiration.  She will endure in the singular body of work she leaves behind.  And she will live on in the shining example that guides our steps forward and fuels the work that remains.

    We have lost a legend, a trailblazer in the truest sense, and one of the guiding lights of the 20th century.  Yet despite our heartache and our pain, Maya Angelou will always be with us.  Her voice will continue to console, to challenge, and to inspire us.  We bid her farewell today.  But we know that, even now, ‘into a daybreak that’s wondrously clear,’ still she rises.