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  • BULLETIN: PonziTracker.com: Judge Moves TelexFree Bankruptcy Case To Massachusetts And Suspends Proceedings Until Transfer Occurs

    BULLETIN: (4th Update 3:28 p.m. EDT U.S.A.) U.S. Bankruptcy Judge August B. Landis of Nevada has transferred the TelexFree Chapter 11 case to Massachusetts, PonziTracker.com reported at 2:27 p.m.

    At 2:34 p.m., PonziTracker reported that Landis has suspended all proceedings in the case until the transfer to Massachusetts can be completed.

    Click here.

    The SEC sought the transfer to Massachusetts last month, arguing that the state was TelexFree’s “nerve center” and that the 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.”

    Also see follow-up story by PonziTracker.

  • EDITORIAL: TelexFree, Rabbit Holes And Vomit

    "man vomiting icon" download provided by OpenClipart.org.
    “man vomiting icon” download provided by OpenClipart.org.

    TelexFree, an alleged $1.2 billion Ponzi- and pyramid scheme targeted at immigrants, is an exceptionally dangerous MLM malignancy and criminal enterprise. The SEC, the Massachusetts Securities Division and the U.S. Department of Justice have an obligation to society at large to treat TelexFree with maximum legal prejudice and to annihilate it.

    This, we believe, is happening.

    MSD has filed an action. The SEC has filed an action. The office of the U.S. Trustee, the Justice Department’s watchdog arm in bankruptcy petitions, is seeking to intervene in TelexFree’s Chapter 11 case in Nevada. On Friday, Jordan Maglich of PonziTracker.com reported that the SEC asserted at a key bankruptcy hearing that federal prosecutors also have entered the TelexFree fray through the filing of forfeiture actions.

    TelexFree, it seems, finds itself the target of a richly deserved paper-nuking by a government righteously angered by the preposterous “opportunity” and its gaggle of reliably felonious pitchmen.

    Regardless, the process of killing TelexFree dead and delivering it to the judiciary for final pronouncement inevitably will create an opportunity for MLM’s criminal wing and robotic Stepfordians to serve up a vomitous spectacle. Members of the public at large should pay close attention to this spectacle and use it to inform their thinking.

    EXTREME CAUTION WARRANTED: Watch the rancid TelexFree spectacle from a distance: If you get too close to the ever-hurling Stepfordians and their upstream programmers who load the vomit-inducing talking points, you might find yourself suddenly wondering why your fellow man ever questioned the beauty of Soviet propaganda night at Jonestown. You even could find yourself waxing nostalgically for the Peoples Temple itself.

    Like Zeek Rewards and AdSurfDaily before it, TelexFree was a vessel created to divert the wages of the MLM proletariat to the MLM Politburo, known in HYIP scam circles as the “leaders.”  Some of those “leaders” have Ferraris and Hummers and BMWs and blue-chip investment accounts that reportedly contained millions and millions of dollars.

    Little wonder some angry affiliates showed up at TelexFree’s broom closet office in Massachusetts to voice their displeasure a mere 12 days before TelexFree filed for bankruptcy protection in Nevada, a state from which TelexFree operated a billion-dollar business through a mailbox.

    Merriam-Webster.com defines “rabbit hole” as a “bizarre or difficult state or situation — usually used in the phrase down the rabbit hole.”

    In the hours leading up to last week’s key hearing for TelexFree in bankruptcy court, the U.S. Department of Justice saw fit to recommend looking down the TelexFree “rabbit hole.”  Based on the Merriam-Webster definition, our take is that the take of the Justice Department — through U.S. Trustee Tracy Hope Davis —  was practically perfect.

    We believe the Justice Department, the SEC and MSD will find Chernobyl, Bhopal and Love Canal down that hole. There’s also a fair chance they’ll find Al Capone wearing an Easter Bunny suit.

    TelexFree provided the financial world with a glimpse into what an Extinction Level Event driven by hapless MLM buffoons and their Stepfordian followers might look like. TelexFree was an attack on free enterprise, not an innocent expression of the same.

    Kill it. Kill it dead.

  • URGENT >> BULLETIN >> MOVING: TelexFree, Gerald Nehra MLM Law Firm, Banks, Processors Sued In Prospective Class Action That Alleges RICO Violations

    breakingnews72URGENT >> BULLETIN >> MOVING: (18th update 3:49 P.M. EDT U.S.A.) TelexFree, MLM attorney Gerald Nehra, “Doe” insiders and several banks have been sued in a prospective class-action that alleges fraud and violations of the federal RICO (racketeering) statute.

    “Certain Defendants share joint and severable liability, including the Doe Inside Promoters, the licensed professionals such as the RLP Defendants, including certified public accountants and lawyers that specialized in sheltering so-called Multi-Level Marketing schemes having aided and abetted TelexFree’s Pyramid Ponzi Scheme by providing TelexFree with legal and financial advice and assistance during the course of the fraud, despite knowledge of the fraudulent nature of TelexFree’s operation,” the complaint alleges.

    Among other things, Nehra was accused in the complaint of turning a blind eye to securities issues at TelexFree, encouraging others to conceal those issues and engaging in other misconduct.

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

    With Nehra understanding that “his legal opinions and representations would be used by TelexFree as a marketing tool to further and advance their business model,” his “opinions were packaged and promoted as part of TelexFree’s total ‘post Brazilian shut down package’ to the members of the putative class,” according to the complaint.

    The complaint further alleges that Nehra’s actions in misrepresenting TelexFree as a legitimate business encouraged TelexFree members “unknowingly” to “participate in the evasion of federal and state securities laws.”

    Named defendants included TelexFree LLC, TelexFree Inc., “Paralegal Doe [who] served as TelexFree, LLC’s agent, servant or employee,” TelexFree Financial Inc., TelexElectric LLLP, Telex Mobile Holdings Inc., James M. Merrill, Carlos N. Wanzeler, Steven M. Labriola, Joseph H. Craft, Craft Financial Solutions LLC, Carlos Costa, Gerald P. Nehra, Gerald P. Nehra, Attorney at Law PLLC, Richard W. Waak (Nehra law partner), Law Offices of Nehra and Waak, Richard W. Waak Attorney at Law PLLC, TD Bank NA, Citizens Financial Group Inc., Citizens Bank of Massachusetts, Fidelity Co-Operative Bank, Middlesex Savings Bank, Global Payroll Gateway Inc., International Payout Systems Inc. (I-Payout), ProPay Inc., “Banks Doe,”  “Doe Inside Promoters” and “Credit Processors Doe.”

    Merrill, Wanzeler, Labriola and Craft are former TelexFree managers or executives. The Massachusetts Securities Division has described TelexFree as a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion and crossed national borders. The SEC also has charged TelexFree, Merrill, Wanzeler, Labriola and Craft with fraud, alleging that the firm conducted business in at least 20 U.S. states and mainly targeted Brazilian and Dominican immigrants.

    Plaintiffs are identified as Waldemara Martins and Leandro Valentim.

    The complaint alleges that Craft incorporated TelexFree Financial and that the entity “was fraudulently set up for the purpose of sheltering funds rightfully belonging to the putative class.”

    Among the contentions in the complaint (italics added):

    On March 9, 2014, TelexFree changed its compensation plan, thereby requiring Promoters to sell its VoIP product to qualify for the payments that TelexFree had previously promised to pay them.

    TelexFree’s former officers or employees stated to the TelexFree transition team that under the Pre March 2014 standard form contract TelexFree owes its promoters over $5 billion dollars.

    The rule change generated a storm of protests from Promoters who were unable to
    recover their money. On April 1, 2014, dozens of Promoters descended upon TelexFree’s Marlborough, Massachusetts office to protest this change and attempt to regain access to their money.

    Reporting on TelexFree-related matters by BehindMLM.com, a publication that reports on evolving MLM frauds, is referenced in the complaint.

    In addition, according to the complaint, “TelexFree mailed fraudulent and inaccurate 1099 (Miscellaneous Income) forms to investors, possibly to create the illusion that they had made payments to investors.”

    HYIP schemes in recent years have advised participants to avoid calling the “program” an “investment program.” Here is what the complaint alleges on this subject:

    “TelexFree’s Contract at Section 2.6.5 (m) mandates that Promoters are not to use the term investment with respect to the registration costs . . . Co-Defendant and Company Counsel Attorney Gerald P. Nehra, through his affiliated companies (Law Offices of Nehra and Waak , Gerald P. Nehra, Attorney at Law, PLLC, and Richard W. Waak, Attorney at Law, PLLC), and under the direct supervision of Co-Defendants Richard W. Waak and Richard W. Waak Attorney at Law, PLLC provided this deceitful advice for the purpose of furthering perpetuating Defendants unlawful Pyramid Ponzi Scheme.”

    In the complaint, the plaintiffs further asserted that “Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”

    Craft was accused in the complaint of “Overseeing TelexFree’s creation of falsified accounting records,” “Fraudulently certifying TelexFree’s business operations and accounting practices as good and lawful, despite actual knowledge of their unlawful and illegitimate nature” and “Concealing the fact that the AdCentral Packages purveyed by TelexFree were actually securities.”

    At the same time, Craft was accused of “Concealing and absconding with investor assets.”

    Costa, a TelexFree figure in Brazil, was accused of publicly supporting “TelexFree’s illegal and corrupt activities.”

    The banks and processors were accused of aiding and abetting a fraud scheme.

  • BULLETIN: Cash, Weapons, Electronics Reportedly Seized In TelexFree-Related Raid In Dominican Republic; Alleged Promoter Labeled Fugitive

    Source: Public Ministry.
    Source: Public Ministry.

    BULLETIN: (Updated 12:27 p.m. EDT U.S.A.) A TelexFree-related police raid coordinated by prosecutors in the Dominican Republic has resulted in the seizure of cash, at least two weapons and computer (tablets) and phone equipment (smart phones), the Public Ministry says in a statement in Spanish.

    The weapons were identified as a pistol and a shotgun.

    Alleged TelexFree promoter Carlos Manuel Vanterpool Severino has been labeled a fugitive, according to the statement.

    Five TelexFree-related raids occurred in San Pedro de Macoris, according to the statement. The raids appear to have taken place last week.

    The total amount of seized cash  was not immediately clear. A Google translation suggests it exceeded $10,000 U.S.

    TelexFree is alleged in the United States to be a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion.

  • TelexFree Live Bankruptcy-Court Coverage By Jordan Maglich Of Ponzi Tracker

    Jordan Maglich of PonziTracker is providing live coverage of today’s key TelexFree session in U.S. Bankruptcy Court in Nevada:

    12:44 p.m. Hearing beginning:

    Click here.

    1:07 p.m. PPBlog note: Based on Jordan’s reporting, it looks as though the U.S. Attorney’s office has filed civil and criminal forfeiture actions. This is similar to what happened in the AdSurfDaily MLM HYIP case in 2008.

    1:18 p.m. PPBlog note: One way to view the forfeiture actions is that the United States perceives an attack on the country’s banking infrastructure, opening the door for banks and payment processors effectively to become warehouses and distribution centers for fraud proceeds. For the sake of discussion, let’s say TelexFree has 700,000 members. This could mean there are 700,000 conduits to offload proceeds accumulated during a Ponzi scheme. The FBI has been warning about this type of thing for YEARS.

    4:30 p.m. PPBlog note: Testimony resumes after break for lunch. Visit PonziTracker.

  • DEVELOPING STORY: Reports Of TelexFree-Related Arrests In Dominican Republic

    (2ND UPDATE 11:39 A.M. EDT U.S.A.) In the hours leading up to a key appearance by TelexFree in Bankruptcy Court in Nevada today, there are reports in Dominican media that a TelexFree-related police raid occurred in San Pedro de Macoris and that arrests were made.

    TelexFree is accused in the United States of operating a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion.

    Also see this report.

  • 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’

    breakingnews72BULLETIN: In a blistering response to TelexFree’s bid to continue its business and move forward with its Chapter 11 bankruptcy case, the United States’ trustee said the embattled firm has not engaged “in full and fair disclosure.”

    “The former CFO and board members have disappeared with no explanation,” U.S. Trustee Tracy Hope Davis alleged. “The only declarations in support of the Debtors’ requests for relief have been signed by individuals that have been on the job for less than 3 weeks. Yet, Debtors are pressing forward with their motions for ’emergency’ relief so they can continue business ‘as usual.’ It appears that [James] Merrill, [Carlos] Wanzeler, and [Joe] Craft have all fallen down the rabbit hole and are now expecting the Court to follow.”

    Davis’ argument came in response to assertions by TelexFree interim CEO Stuart A. MacMillan that he had fired Wanzeler and caused the resignations of Merrill and Craft on April 17.

    “At the hearing on April 17, 2014, Craft was not present in the Courtroom,” Davis argued. “Counsel for Debtors informed the Court during the hearing that Craft was no longer an officer, director, or authorized signatory of the Debtor. No explanation was offered to the Court for the sudden change of management and the short duration (3 days) of Craft’s tenure.”

    And, Davis continued, MacMillan has provided “no explanation for why he felt it necessary to terminate Debtors’ entire former management team.”

    Among the trustee’s witnesses is Julio J. Defigueiredo Jr., a sheriff’s deputy from Bristol County, Mass. In a declaration to the bankruptcy court, Defigueiredo said he was present at an April 15 raid of TelexFree’s Massachusetts office by the U.S. Department of Homeland Security.

    Defigueiredo, according to the declaration, observed Craft “entering an office and attempting to grab a laptop and bag.”

    Craft, according to the deputy, claimed the items were “personal.”

    But nearly $38 million in TelexFree-related cashier’s checks were discovered in the bag, the deputy said.

    Davis described the situation as a series of “extraordinary changes of circumstances” and part of a confluence of events that makes it “unfathomable” that TelexFree is “still going forward on their cash management motions . . . as if business were proceeding as usual.”

    “Currently,” Davis argued, “Debtors have no operating business. Due to the TRO [in the TelexFree fraud case filed by the SEC on April 15], their accounts have been frozen and remain frozen for the foreseeable future. MacMillan admits their offices in Massachusetts have been shut down since the Federal raid and all remaining employees have been laid off.”

    MacMillan contended earlier this week that he did not believe that “Mr. Craft was attempting to divert any of the Debtors’ cash or other resources.”

    Davis appears not to be buying that assertion, alleging that “Craft was apprehended attempting to walk out the back door of Debtors’ offices with $38 million in negotiable cashier’s checks.”

    She further asserted that William Runge, a turnaround specialist hired to “to safeguard existing cash” by TelexFree three days before its bankruptcy filing, “[a]pparently . . . wasn’t able to perform his new job duties very well” given the circumstances surrounding Craft.

    MacMillan contended earlier this week that Craft “was acting at the direction of Mr. Runge and me to secure the cashier’s checks in a safe and reliable location for the benefit of the Debtors’ constituencies.”

    Key bankruptcy hearings for TelexFree are scheduled tomorrow.

    But emergency motions filed by the firm “have not been amended to reflect any change of circumstances in Debtors’ business operations such as the raid on their offices by Special Agents from Homeland Security, or the freezing of all their banks accounts and sources of revenue, or the fact that Craft, their former accountant, Chief Financial Officer, Board Member and signatory is no longer associated with the Debtors in any capacity,” Davis asserted.

  • Federal Judge To Accused TelexFree Promoter: Sell Your Bimmers And Land Rover

    Santiago De La Rosa at a TelexFree pitchfest. Source: YouTube.
    Santiago De La Rosa at a TelexFree pitchfest. Source: YouTube.

    (UPDATED 8:05 A.M. EDT U.S.A.) Alleged TelexFree promoter and securities fraudster Santiago De La Rosa has been ordered by the federal judge presiding over the U.S. Securities and Exchange Commission’s Ponzi- and pyramid case to sell two BMWs and a Land Rover Range Rover “back to the dealership” and to “repatriate all funds located outside the United States.”

    De La Rosa resides in Massachusetts.

    U.S. District Judge Nathaniel M. Gorton of the District of Massachusetts issued the order.  The automobiles were described as a 2014 BMW X5 XDrive, a 2010 BMW X5 XDrive and a 2013 Land Rover Range Rover Sport HSE. Precise details of the models were not available. A quick pricing search suggests De La Rosa was captaining roughly $150,000 worth of  high-end rides.

    It was not immediately clear if De La Rosa, 42, was motivated by former TelexFree President James Merrill to acquire upscale cruisers. Merrill, 52, has publicly complained about corporate excess that squeezes the little guy, but has been photographed alongside a giant Hummer used in TelexFree promos.

    There may be hundreds of thousands of victims of TelexFree’s excess, according to court filings.

    TelexFree also had access to a “private jet,” a pitchman said in Boston two months ago.

    News of Gorton’s order first appeared on BehindMLM.com, which also reported on the conditions imposed in an injunction against accused TelexFree promoter Randy N. Crosby of Georgia.

    On April 15, the PP Blog reported that the office of Massachusetts Commonwealth Secretary William Galvin had uncovered a check with a memo line that read,  “Cars for Extravaganza . . .” Galvin oversees the Massachusetts Securities Division (MSD).

    MSD alleged the check was associated with more than $100,000 in TelexFree-related purchases at a Mercedes-Benz dealership in Orlando, Fla. TelexFree held an event in Orlando in May 2013. The firm filed for bankruptcy protection in Nevada on April 13, 2014.

    Gorton was appointed to the federal bench by President George H.W. Bush in 1992.

    Accused TelexFree promoter Sann Rodrigues captains a Ferrari.

  • 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.
    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.

  • 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 graphic was used to promote the "programs" purported "international convention" in Spain.
    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.

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

    breakingnews72BULLETIN: 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.”