UPDATED AT 11:10 P.M. EDT U.S.A. JULY 28, 2014: Globo.com (Brazil) is reporting that police raided the headquarters of Ympactus this morning in a law-enforcement action dubbed “Operation Orion.” The story suggests raids also were carried out elsewhere and that Brazilian tax authorities are involved in the actions.
Costa is not named in the U.S. indictment, which appears to refer to him as “a third man” who formed TelexFree in the United States with Merrill and Wanzeler in 2012. Wanzeler, believed to be in Brazil, is considered a fugitive by the United States, which has issued a warrant for his arrest.
Whether Brazilian and U.S. authorities were coordinating events was not immediately clear.
A snippet from the Google translation of the Globo story (italics added):
Altogether, participated in the action 50 federal police officers and 18 auditors from the IRS Brazil. The operation name alludes to the Great Pyramids of Giza in Egypt Plain considering that the Egyptian pyramids are perfectly aligned with the constellation Orion.
UPDATE 11:10 P.M. EDT U.S.A. JULY 28, 2014: Please see this from Mikaella Campos, an economics reporter at A Gazeta Newspaper in Brazil. We are grateful to Mikaella for posting it here.
URGENT >> BULLETIN >> MOVING: 10th Update 9:18 p.m. EDT U.S.A.) TelexFree figures James Merrill and Carlos Wanzeler have been indicted by a federal grand jury.
The indictment, dated today, includes eight criminal counts of wire fraud and one criminal count of wire-fraud conspiracy.
Among other things, the indictment alleged that Merrill and Wanzeler conspired with each other and with “others known and unknown to the Grand Jury” to fleece TelexFree members.
The indictment describes wire transfers involving Merrill and Wanzeler that began on the day after Christmas in 2013 and continued on Dec. 27.
Here are the alleged wire transfers:
Merrill: Dec. 26. $136,200 from TelexFree Inc. account at Fidelity Co-operative Bank to Merrill.
Wanzeler: Dec. 26. $500,000 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 26. $136,200 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 26. $158,900 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 26. $22,700 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Merrill: Dec. 27. $3 million from TelexFree Inc. account at Fidelity Co-operative Bank to Waddell & Reed Inc., to Merrill.
Wanzeler: Dec. 27. $3 million from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 27. $3.5 million from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Prosecutors from the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts said in a statement early this evening that assets seized in the case so far total about $140 million.
From a statement by prosecutors (italics added):
The indictment also specifies approximately 70 assets to be forfeited as proceeds of the alleged fraud scheme, or assets traceable to such proceeds, including approximately $140,000,000 seized from TelexFree’s accounts and various real assets, such as homes, condominiums, cars and two boats.
Also from prosecutors (italics/bolding/carriage returns added):
According to the indictment, TelexFree, Inc., and TelexFree LLC (collectively, “TelexFree”) provided “voice-over-internet-protocol” (“VOIP”) telephone services that allowed customers to use the Internet to make phone calls. The indictment alleges, however, that TelexFree actually operated as a pyramid scheme, in which its ongoing operations were supported, not by actually selling TelexFree’s VOIP product, but by bringing in a constant stream of new investor dollars.
Between early 2012 and March 2014, TelexFree purported to aggressively market its VOIP service by recruiting thousands of “promoters” to post ads for the product on the Internet. Each promoter was required to “buy in” to TelexFree at a certain price, after which they were compensated by TelexFree, under a complex compensation structure, on a weekly basis so long as they posted ads for TelexFree’s VOIP service.
It is further alleged that over the course of the fraud TelexFree derived only a fraction of its revenue from sales of VOIP service and the vast majority of it from new people buying into the scheme, and so TelexFree was able to pay the returns it had promised to its existing promoters only by bringing in money from newly-recruited promoters. The indictment includes eight charges of wire fraud, based on Merrill, in December 2013, wiring about $10,000,000 in TelexFree funds to personal accounts belonging to him and Wanzeler.
Also see May 27 PP Blog story on SEC allegations about how some of the TelexFree money was dissipated.
UPDATED 6:07 P.M. EDT U.S.A. A U.S. Magistrate Judge issued no immediate ruling today on a motion by TelexFree figure James Merrill to release $4 million to pay for his criminal defense.
Instead, Judge David H. Hennessy will take the matter under advisement and issue an order later, according to the docket of the case. Hennessy heard arguments from both sides today.
When the order would be issued was not immediately clear.
Prosecutors in the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts have contended Merrill isn’t entitled to the money because it belongs to victims swindled in a huge pyramid- and Ponzi scheme.
Merrill, who is charged with wire-fraud conspiracy, is represented by Boston-based attorney Robert Goldstein
UPDATED 11:16 P.M. EDT U.S.A. We now may have an answer to some or all of these questions: What happens when you’re Massachusetts-based TelexFree — and apparently so out of touch that Sann Rodrigues, a former SEC defendant in a pyramid-scheme and affinity-fraud case, becomes one of the most recognizable public faces of your company and tells the troops (on video) that he’s made “$3 million?”
What happens when, on your home turf, you’re effectively targeting the same population group (Brazilian immigrants who speak Portuguese) Rodrigues was accused of targeting in his earlier scam, a scam that operated in part from Massachusetts? What happens when you’re also targeting Dominicans who speak Spanish?
And what happens when Rodrigues becomes one of the most recognizable public faces of your company after a federal judge — years earlier — had permanently enjoined him from violating the antifraud provisions of the federal securities laws?
Further, what happens when other promoters are going around telling recruits that $15,125 sent to TelexFree will return a guaranteed payout of $1,100 a week for a year and you don’t have to sell a single product to triple or quadruple your money? Further yet, what happens when Rodrigues plants the seed that all is well because an award-worthy American MLM lawyer is aboard the ship?
What happens when, say, serial MLM HYIP huckster Faith Sloan, fresh off the Zeek Rewards and Profitable Sunrise scams, also emerges as one of your top promoters?
Moreover, what happens when promoters are going around saying things such as TelexFree has gained “SEC approval” and publishing claims such as this?
“With the authorization from the attorney general to launch in the US, many predict we’ll see extraordinary growth in the United States in 2013.” —From promos for TelexFree in 2013
What happens when, say, the claim that U.S. Attorney General Eric Holder has vetted TelexFree appears on a Facebook site purportedly operated by “TELEXFREE TEAM NIGERIA.”
Think you might gain the attention of, say, the U.S. Department of Homeland Security? Think that attention might increase after promoters suggest that President Obama had your back? Think it might further intensify if it turns out that Brazilians and Dominicans in Massachusetts weren’t enough, that you’d also reached into communities in South America, Hispaniola, Europe, Africa and Asia?
Might the attention you’re receiving intensify after you’re suddenly filing bankruptcy on a Sunday night when, during the two previous months, you’d been telling Public Utilities Commissions in one state after another that you’re flush with cash — so much so, that you even can lend millions of it out?
What happens when, say, one of the states you assured of your financial clout played host to the “2012 Cybercrime Conference” hosted by the U.S. Department of Justice at which one of the top national-security advisers to the President of the United States observed that cybercriminals bent on poking holes in banks may be responsible for “the greatest transfer of wealth in history?”
“Outside the public eye, a slow hemorrhaging is occurring; a range of cyber activities is incrementally diminishing our security and siphoning off valuable economic assets” — Lisa Monaco, Assistant Attorney General for National Security, Oct. 25, 2012. NOTE: Monaco now holds the title of Assistant to the President for Homeland Security and Counterterrorism.
What if you’ve used U.S. banks and payment systems to help you gather more than $1.2 billion and then declared bankruptcy just a little more than two years after you launched your “program” in cyberspace? What happens when, just days earlier, you’d been telling Public Utilities Commissions that you were so flush with cash you could lend millions to entities of your creation or choosing, but now are claiming to to have liabilities of as much as $600 million and assets of only approximately $100 million?
What if your bankruptcy filing and program compensation tweaks occurred under conditions that strongly suggested you were trying to beat regulators to the courthouse? What if, only days later, it became known that undercover federal agents had the lay of the land inside your operation before you even went to bankruptcy court?
Think the U.S. Bankruptcy Trustee might use the term “rabbit hole” to describe your operation and push for the appointment of a trustee to burrow down that hole and gain a deep understanding about TelexFree?
And do you think — do you just think — the SEC might be inclined to file something such as this? (Italics added.)
The Securities and Exchange Commission (“Commission”) hereby moves, and defendants TelexFree, Inc., TelexFree, LLC, and relief defendant TelexFree Financial, LLC (collectively “the Debtors”) hereby assent, to modify the May 9, 2014 consent order (docket no. 100) to allow Stephen B. Darr, as Chapter 11 Trustee of TelexFree (the “Trustee”), to maintain bank accounts at RaboBank, NA in the name of the Debtors, as well as permit the Trustee to pursue claims and recover all property of the respective Debtors apart from those assets seized or restrained now or in the future by the United States Attorney for the District of Massachusetts or its agents.
The SEC filed the motion above yesterday.
Darr is now running things at TelexFree. He said in court filings yesterday that has “no intention of reorganizing or reactivating their businesses.”
It seems very much as though Darr’s plan is to go very deep into the rabbit hole of TelexFree.
URGENT >> BULLETIN >> MOVING: (1st Update 8:50 P.M. EDT U.S.A.) The TelexFree trustee said in court filings today in the SEC’s civil case against the firm that he has “no intention of reorganizing or reactivating their businesses” and — based on information and belief — “they were in fact engaged in a Ponzi or pyramid scheme.”
“Based on information currently available to the Trustee, the Trustee admits that the individual defendants operated a Ponzi/pyramid scheme as evidenced by, among other things, the revenues from the retail sales of the VoIP were less than one (1%) percent of the amounts needed to satisfy the promises to the investors who had placed the Internet ads. Further, based upon the information available to the Trustee, it appears that the early investors were paid not from sales of the VoIP services but rather from the money received from the later investors, thus evidencing a classic Ponzi/pyramid scheme,” Trustee Stephen B. Darr said.
Although TelexFree filed for Chapter 11 bankruptcy protection in April, Darr said today that “Debtors have ceased all operations and all other business activities other than to liquidate assets and to pay back creditors.”
Jordan Maglich of PonziTracker.com is reporting tonight that the development may signal a Chapter 11 reorganization may be off the table.
BULLETIN: Federal prosecutors handling the criminal case against TelexFree figure and alleged co-owner James Merrill have asked a judge not to release $4 million Merrill says he needs to pay for his criminal defense.
On July 1, Merrill asked for an evidentiary hearing aimed ultimately at securing “an order returning the identified funds” to him.
TelexFree might be the largest MLM HYIP pyramid- and Ponzi scheme in U.S. history, based on global reach, dollar volume and the number of affected recruits. Regulators have called it a cross-border fraud that gathered more than $1.2 billion.
Prosecutors contended today that the “funds Merrill asks the Court to release, however, are investor funds — money victims gave to TelexFree during the course of the alleged fraud.”
The funds were seized via warrants on April 24. Thirty-seven TelexFree-related seizure warrants were applied for that day, after an undercover probe led by Homeland Security Investigations, an arm of the U.S. Department of Homeland Security. TelexFree had declared bankruptcy 11 days earlier. At least five of the seizure warrants were targeted at Merrill accounts holding more than $4.18 million, according to court filings.
In cases involving assets alleged to be forfeitable, prosecutors typically argue that the assets should be preserved until a trial occurs and a verdict on the alleged underlying crime that led to the seizures is returned. If such assets are returned prior to trial, they will be dissipated and thus lost to victims in the event of a finding of guilt.
Beyond that, prosecutors contended, Merrill is not automatically entitled to an evidentiary hearing on the release of the funds and has not made a threshold showing that he lacks access to other funds to pay for his defense.
“[Merrill] fails to submit any evidence in support of his bald assertion that the United States cannot establish probable cause as to forfeitability of the seized assets, and such failure is fatal to his request for a hearing,” prosecutors argued to U.S. District Judge Timothy S. Hillman of the District of Massachusetts.
Boston-based attorney Robert M. Goldstein is defending Merrill.
“[T]he government cannot establish probable cause to believe that the assets in dispute are traceable or otherwise sufficiently related to the crime charged in the criminal complaint,” Goldstein argued on July 1.
Prosecutors asserted today that probable cause to seize the funds already had been established and that Merrill was trying to get a “sneak preview” at the criminal case against him. Merrill currently faces a single charge of wire-fraud conspiracy brought via criminal complaint in May.
A grand jury has been impaneled, which means that other criminal charges are possible. Some TelexFree members have alleged that the company was a racketeering enterprise.
Merrill’s co-defendant in the existing criminal case charging wire-fraud conspiracy is alleged TelexFree co-owner Carlos Wanzeler, described by prosecutors as an international fugitive who first ducked out of the United States through Canada on April 15 and ultimately fled to Brazil. April 15 was the date of a federal raid on TelexFree’s office in Marlborough, Mass.
Prosecutors from the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts are handling the criminal cases against Merrill and Wanzeler.
It’s one of those things almost too bizarre to contemplate: The stock price of Cynk Technology Corp. increased tens of thousands of percent over a period of days — except the Belize company supposedly in the social-networking business reportedly has no revenue and no assets.
The SEC halted trading in Cynk stock this morning, citing “concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in CYNK’s common stock.”
Summary of Todd Disner’s alleged Zeek winnings. Source: Exhibit by court-appointed receiver.
Zeek Rewards “winner” Todd Disner owes the receivership estate $2,079,757.88, according to a motion asking the court clerk to enter a default judgment.
Receiver Kenneth D. Bell filed for the judgment July 9 in federal court for the Western District of North Carolina, seeking not only Disner’s alleged Zeek haul of $1,800,037.06, but also interest of $279,720.82.
Zeek’s records show that Disner paid $11,810.49 into the “program,” beginning with an initial outlay of $480 on March 4, 2011, shortly after Zeek started business.
From that initial outlay and others, $1,811,847.55 flowed back to him, the receiver advised Senior U.S. District Judge Graham C. Mullen and the court clerk. The lion’s share of Disner’s outlay — $10,000 — was paid to Zeek on July 6, 2012. Zeek collapsed six weeks later, on Aug. 17, 2012.
Disner’s last Zeek withdrawal totaled $102,617.73 and occurred on July 30, 2012, less than three weeks prior to the SEC action that spelled doom for the “program.” His largest withdrawal, according to the receiver’s filing, was for $177,026.27 on July 9, 2012.
A former AdSurfDaily Ponzi pitchman who once sued the United States for alleged misdeeds in the ASD case, Disner regularly withdrew tens of thousands of dollars at a time from Zeek, according to the receiver’s filing.
Zeek operated as part of Rex Venture Group.
Bell also filed today for clerk’s default judgment against alleged winners David Sorrells and Michael Van Leeuwen. The receiver is seeking $1,197,241.12 from Sorrells, including $157,672.63 in interest. Meanwhile, he is seeking $1,617,444.99 from Van Leeuwen, including $213,012.07 in interest.
Disner’s unsuccessful lawsuit against the United States for allegedly violating his right to privacy in the ASD case was docketed on Nov. 7, 2011.
Bell’s filing shows that Zeek paid Disner $7,199.49 on the same day.
In February 2014, the PP Blog reported that TelexFree had planned a purported “international convention” in Spain in early March.
The pitch for the convention, hosted in Madrid, was voiced by Sann Rogrigues, whom the U.S. Securities and Exchange Commission successfully had sued in 2006 amid allegations he was operating a pyramid scheme and engaging in affinity fraud aimed at the Brazilian community.
Rodrigues, now accused of securities fraud and a defendant in the SEC’s TelexFree civil case announced in April, reportedly was one of TelexFree’s top hucksters and had “earned” millions of dollars.
As the PP Blog reported in February (italics added):
The promo [for the Madrid convention] curiously is playing against the backdrop of an image of the Pyramids of Giza. For good measure, images of other famous world landmarks are thrown in. These include St. Basil’s Cathedral (near the Kremlin) in Moscow; Big Ben in London; The Eiffel Tower in Paris; the Empire State Building and the Statue of Liberty in New York; the Leaning Tower of Pisa; and the Burj al Arab Hotel in Dubai.
Despite the fact TelexFree was under investigation in Brazil and almost certainly knew its days were numbered in the United States because investigators were closing in, TelexFree proceeded with the Madrid event. The confab was held under a cloud growing increasingly black. On Feb. 28, the eve of the convention, the PP Blog reported that Massachusetts securities regulators were investigating TelexFree, the first confirmation of such a probe by a regulator in the United States.
James Merrill, TelexFree’s former president, attended the Madrid event with at least two other TelexFree executives or managers: Carlos Wanzeler, now described as an international fugitive who’d engaged in a criminal wire-fraud conspiracy with Merrill, and Steve Labriola, another defendant in the SEC’s fraud case.
Here is part of what Merrill said from the stage in Madrid, as reported by the PP Blog on March 3, 2014 (italics added):
Carlos Wanzeler was up here talking about Carlos Costa . . . two of the greatest leaders that I’ve met in my life,” Merrill said. “They’re very strong. They’re courageous, and they’re fighting for you. And I want you all to know that they didn’t join my team, I joined their team. OK. They’re great leaders.”
Racketeering allegations later would surface in the United States, questioning the greatness of all three men. MLM attorney Gerald Nehra, billed as an honoree at the Madrid convention, is another defendant named in the RICO actions, which were brought as prospective class-action lawsuits by TelexFree members.
Despite the fact Nehra had been billed as a star attraction of the Madrid confab, he appears not to have shown.
Instead, Labriola, who suggested from the Madrid stage that TelexFree was suited for the impoverished people of Haiti, strolled out to accept Nehra’s award.
“I was asked to come up and receive this for Jerry,” Labriola told the crowd.
Labriola did not say who asked him to accept the award for Nehra. Precisely how long TelexFree had been operating in Spain remains unclear. But only in MLM La-La Land does the juxtaposition of the images of a recidivist securities violator-in-waiting (Rodrigues) and an MLM lawyer (Nehra) make sense in marketing materials, especially since TelexFree promoters were claiming $15,125 sent to the firm returned $57,200 in a year without the need for members to sell a single product.
Now, El Pais, Spain’s largest newspaper, is reporting that TelexFree might have fleeced 50,000 Spanish investors.
Read the El Pais story. (Use the Chrome browser for a translation from Spanish to English or another language or access Google’s translation tool here.)
NOTE: Our thanks to a longtime PP Blog reader who provided the El Pais link.
ALSO: Coming soon on the PP Blog: a Special Report titled “How TelexFree’s ‘Big Revolution’ Dragged The MLM Trade, Lawyers, Payment Vendors And Service-Providers Into A La-La Land Rabbithole.”
Here’s a snippet (italics added):
On at least one occasion — in March 2014 — undercover [Homeland Security Investigations] agents were in the same conference room as TelexFree “speakers,” including alleged owners James Merrill and Carlos Wanzeler, both of whom were charged criminally in May with wire-fraud conspiracy. The room was part of the Marriott Copley Place Hotel in Boston, according to an affidavit. It turned out that, on the same date agents were in the room, a TelexFree speaker claimed from the stage that certain affiliates had been provided a private jet and that the jet had flown between the Dominican Republic and Haiti. Passengers on the jet were said to have been greeted by “the Prime Minister of Haiti’s motorcade.” The rep was pitching a TelexFree-related credit-repair “program.” Just two days earlier, on March 7, a TelexFree-related Blog falsely claimed that the TelexFree “program” at large had gained “SEC Approval from USA.”
The South China Morning Post is reporting that police raiding a “pyramid-selling gang” in Guangyuan were attacked with knives.
At least two officers were stabbed when trapped in a room, the publication reported.
From the South China Morning Post, paraphrasing a report on the state-influenced People’s Daily website and information from the municipal public security bureau (italics added):
Witnesses said they saw the two policemen being carried from the room and their uniforms were bloodied. It appeared that they had been stabbed with knives.
The bureau said the policemen were mobbed by members of the pyramid-selling group and their batons and guns were taken from them.
BULLETIN: (UPDATED 9:55 A.M. EDT, JULY 3, U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has moved for default against alleged Zeek winner Todd Disner. Disner, of Miami, also was a pitchman for the 2008 AdSurfDaily Ponzi scheme, a $119 million fraud that put ASD operator Andy Bowdoin in federal prison.
Disner received more than $1.875 million through Zeek, receiver Kenneth D. Bell alleged. Zeek launched after the U.S. Secret Service exposed the ASD Ponzi scheme. ASD was a 1-percent-a-day scam. Zeek, according to court filings, sucked in participants with claims payouts averaged more than 1.4 percent a day over the course of a week.
Bell said in court filings today that Disner was among a number of Zeek winners who have failed to plead or otherwise defend against the clawback lawsuits filed against them in February. June 30 was the deadline for filing responsive pleadings.
The receiver also is seeking default against alleged Zeek winner and clawback defendant Michael Van Leeuwen, also known as “Coach Van,” of Fayetteville, N.C., and David Sorrells of Scottsdale, Az. Van Leeuwen allegedly received more than $1.4 million through Zeek, and Sorrells allegedly received more than $1 million.
Meanwhile, Bell also is seeking default against alleged Zeek insider Darryle Douglas of Orange, Calif.
Douglas received more than $1.975 million from Zeek, Bell said in court filings in February.
UPDATED AT 11:10 P.M. EDT U.S.A. JULY 28, 2014: Globo.com (Brazil) is reporting that police raided the headquarters of Ympactus this morning in a law-enforcement action dubbed “Operation Orion.” The story suggests raids also were carried out elsewhere and that Brazilian tax authorities are involved in the actions.
