Ming Xu is called “DPMX” in this purported contract with a lobbying firm. Source: Federal court files. Red highlight by PP Blog.
BULLETIN: (7th update 6:59 p.m. EDT U.S.A.) The court-appointed receiver in the SEC’s WCM777 pyramid- and Ponzi-scheme case says she is seeking court approval to pursue claims against a California lobbying firm that allegedly received $750,000 from accused scammer Ming Xu and performed no work.
Ming Xu also is known as Phil Ming Xu and Dr. Phil Ming Xu. The receiver, Krista Freitag, has shown a federal judge a document that purports to be a contract between Governmental Impact Inc. (GII) and Xu, who is described in apparent shorthand as “DPMX” in the contract.
James Dantona is listed on the contract as the president of GII. Under the contract terms, either party could terminate the agreement with 30 days’ notice and no refunds would be given Xu by GII.
“DPMX shall not be entitled to any refund for any reason,” the document allegedly specified. Given the nature of the allegations against Xu and WCM777, such an agreement could have deepened the Ponzi.
Xu was photographed in 2013 with celebrities such as former Vice President Al Gore and Apple co-founder Steve Wozniak. He also purportedly was listed as a member of the Inauguration Committee of Los Angeles Mayor Eric Garcetti, son of the famed prosecutor Gil Garcetti.
Filings by Freitag suggest Xu, through the 2014 GII contract, was seeking to buy access to American politicians. It is not unusual for Ponzi schemers to seek to surround themselves with politicians and to use politicians and famous companies to create a veneer of legitimacy. WCM777 and its purported parent — World Capital Market Inc. — also claimed ties to scores of famous companies.
One of them — Siemens — specifically refuted WCM777’s claims in October 2013, during a period in which WCM was being pitched in California churches.
Some of the money Xu directed toward GII ended up at a company called ZHB International Corp. and was used to pay for the personal mortgage of ZHB’s Zayda Aberin, Freitag contends.
Through GII, Freitag contends, Xu sought help in “locating and securing legislators, obtaining access to such legislative leaders in California and Washington, D.C., and communicating and recommending advocacy strategies and effective public relations programs with the government.”
Xu’s plan appears to have backfired. After actions by Massachusetts and California, the SEC sued Xu, alleging he was at the helm of a massive international fraud.
From ABC News report on James McBride and “Divine Province.”
EDITOR’S NOTE: U.S. Immigration and Customs Enforcement (ICE) and Homeland Security Investigations (HSI) are referenced in the story about purported “sovereign citizen” James T. McBride below. ICE/HSI also are involved in the investigation of the alleged TelexFree Ponzi- and pyramid scheme. Whether TelexFree had any “sovereign citizens” in its ranks is unclear. “Sovereign citizens,” however, have been linked to other HYIP schemes. Wild narratives may accompany such schemes both before and after a government intervention.
** __________________________________ **
James T. McBride first came to our attention in January 2013, after a reader alerted us to a story in the Sun Sentinel about a bizarre incident that occurred during a bankruptcy hearing for a Florida business known as RoboVault.
McBride, who claims to derive his authority from the Vatican, sent letters to the judge and trustee demanding the bankruptcy case be dropped. He previously has been profiled in media accounts as a “sovereign separatist,” someone who believes he is not subject to state and federal laws.
McBride’s name next surfaced in February 2013, as part of a story concerning the arrest near Columbus, Ohio, of a purported “sovereign citizen.” A police officer and police canine reportedly were injured. (See Comments thread below story, which references an entity known as “Divine Province.”)
So-called “sovereign citizens” — jailed AdSurfDaily figure Kenneth Wayne Leaming is one of them — have an irrational belief that laws do not apply to them. Leaming became the target of an FBI investigation after filing false liens against various public officials involved in the ASD Ponzi case. Investigators found bogus police credentials in Leaming’s possession.
Prosecutors said Leaming was a member of the “County Rangers,” the armed-enforcement wing of a group of “sovereign citizens.”
By May 2014, prosecutors had formally connected McBride, 60, of Columbus, Ohio, to “Divine Province.” He has now been convicted in the Eastern District of Virginia on charges of conspiracy, causing the impersonation of a diplomat and producing false identification documents.
Yes. You read that right: causing the impersonation of a diplomat.
McBride was indicted on May 14, 2014, by a federal grand jury of one count of conspiracy, one count of causing the impersonation of a diplomat and four counts of producing false identification documents. According to the evidence at trial, McBride was the leader of a sovereign citizen group called “Divine Province,” whose members claimed the U.S. government was a “municipal corporation” that did not have authority over them. McBride produced and distributed false diplomatic identification cards to his group’s members, and he encouraged them to make claims of diplomatic immunity to avoid arrest, debts or taxes. None of the group’s members were in fact accredited diplomats.
McBride started selling the identification cards in September 2012 at a seminar he organized in Herndon, Virginia. Afterwards, he started selling the IDs from a website and shipping them around the country.
McBride sold the IDs in pairs, one that identified the holder as a “Universal Post Office Diplomat” and another that purported to be an “International Diplomatic Driver Permit,” for approximately $200. The defendant also encouraged his members to send copies of the IDs to governmental agencies to notify them of a member’s “status” as a diplomat. The defendant claimed that his authority to issue the IDs came from the Vatican. The defendant also gave a televised interview on ABC News prior to the filing of charges in the case, in which he reiterated such claims. During the course of the charged conduct, the defendant’s organization earned close to $500,000.
Despite worldwide promos implying otherwise, TelexFree was neither the sole occupant nor the owner of this Massachusetts building.
One of TelexFree’s alleged reality-distortion fields has been formally exposed.
Perhaps you saw the recruitment promos (both corporate and affiliate) that planted the seed TelexFree was the sole occupant of a large building in Marlborough, Mass.
Former President James Merrill was shown posing in front of the structure. A caption on TelexFree’s website read, “The Company HQ: United States.”
Using the building as a backdrop, one or more affiliates taped promos from the parking lot, creating the impression that TelexFree had a large physical presence in the United States.
And perhaps you noticed that the SEC viewed those promos as “materially false and misleading” because, as the agency put it in a May 2014 amended complaint (italics added):
(a) TelexFree, Inc. does not own or occupy the entire building; (b) TelexFree, Inc. originally shared a single suite (consisting of a receptionist, conference rooms, and cubicles) with many other companies; (c) only in December 2013 did TelexFree, Inc. move into its own suite in a portion of the first floor; and (d) TelexFree, LLC has no physical office at all, just a mailing address in Nevada. Despite being the company’s president, Merrill failed to take effective action to prevent or correct the misstatements.
In court filings in the TelexFree bankruptcy case today, the trustee confirmed that, in November 2013, TelexFree leased a first-floor office in the building (Suite 118) for $5,944 a month. The lease officially began on Jan. 1, 2014, and was set to run through March 2015.
Other records show TelexFree shared a second-floor office (Suite 200) in the same building with multiple companies. How much it paid for that office was not immediately clear.
What is clear is that Stephen B. Darr, the trustee, has negotiated the termination of the lease of the first-floor office, concluding he “has no continuing need for the Premise” and thus potentially saving the estate tens of thousands of dollars. The landlord has agreed to settle for a retention of a security deposit and certain furnishings and fixtures — and to let the trustee out of the lease.
As for the overall TelexFree morass?
“I’ve been involved in a lot of interesting cases,” Darr told the Wall Street Journal, in a Law Blog article published Aug. 11. “TelexFree is number one.”
A statement by the President of the United States on the passing today of Robin Williams, an American treasure.
“Robin Williams was an airman, a doctor, a genie, a nanny, a president, a professor, a bangarang Peter Pan, and everything in between. But he was one of a kind. He arrived in our lives as an alien – but he ended up touching every element of the human spirit. He made us laugh. He made us cry. He gave his immeasurable talent freely and generously to those who needed it most – from our troops stationed abroad to the marginalized on our own streets. The Obama family offers our condolences to Robin’s family, his friends, and everyone who found their voice and their verse thanks to Robin Williams.”
The EmGoldEx “program” describes gold as “money” and an ancient investment vehicle available in a “new splendor.”
If TelexFree, WCM777 and Wings Network were not enough, the office of Massachusetts Commonwealth Secretary William Galvin now is investigating the “EmGoldEx” program.
Secretary of State William F. Galvin’s office is investigating the Andover operation of Emgoldex Team USA Inc., a company that recruits investors to buy gold online and pays bonuses for referring friends and acquaintances.
The degree to which EmGoldEx has penetrated Massachusetts is unclear. “Gold” and other shiny-object schemes typically ride on the coattails of MLM HYIP recruiting scams. Narratives surrounding such schemes often are incongruous, if not downright wild, sometimes focusing on tales of spectacular profit opportunities in Europe and the Middle East and a chance to deal with purported royal families or upstream investors interested in elevating people out of poverty.
EmGoldEx purportedly operates from Dubai. Here is a verbatim snippet of the EmGoldEx narrative as it appears in challenged English: “To become a client of the Internet – shop, it is necessary to be registered and make an Order. In the Internet shop an account will be opened for you and the purchase price will be fixed for 24 hours.”
Hidden text on the page appears to be in Russian.
As part of the TelexFree probe in April, Galvin’s office alleged a Massachusetts entity had asserted that it bought “TelexFree packages, and all sorts of real estate within the U.S.A. or foreign countries.” Investigators further alleged that the enterprise asserted it was backed by “Dubai investors.”
Regulators in Quebec issued a warning on a “program” known as Karatbars International earlier this year. Other recent (or relatively recent) gold-themed “programs” that have been targeted by regulators include Gold Nugget Invest (HYIP/shiny-object scheme that collapsed in 2010 amid bizarre, companion claims INTERPOL was investigating the SEC); and Gold Quest International (HYIP with possible links to the “sovereign citizens movement” and operated in part by a purported “Lord”).
In October 2013, the office of North Carolina Secretary of State Elaine F. Marshall announced criminal charges against Rondell Scott Hedrick, 48, of Lexington, N.C.
Investigators linked Hedrick to an alleged “precious metals scam” that involved trawling for investor cash on Craigslist.
One investor, according to the state, wired Hedrick $5,000 after Hedrick had provided instructions and claimed he’d be leaving for Dubai soon and providing the investor a return of 200 percent.
Shiny-object scams are close cousins to prime-bank swindles, which produce equally wild narratives. (See Sept. 30, 2011, PP Blog story on the experience of U.S. Ponzi schemer Marian Morgan, who was arrested in Sri Lanka.)
Only in MLM: In a head-scratching promo earlier this year, TelexFree cheerleaders used an image of the Pyramids of Giza during an active pyramid-scheme probe in Brazil. Red highlight by PP Blog.
If you’ve been following TelexFree developments, you’ve probably heard about “Operation Orion,” the code name for the investigation that led to raids against TelexFree’s Ympactus arm last week by the Brazilian federal police. The Orion name was chosen, police said, because it fit splendidly within the context of a pyramid-scheme case.
How so? The Pyramids of Giza in Egypt were aligned with the Orion constellation, police explained.
Our analysis of the “Operation Orion” name is that it shows heady messaging by Brazilian police. It is direct in the sense that TelexFree, after all, may be the world’s largest MLM HYIP pyramid scheme. And it’s subtle in the sense that so many pyramid-scheme participants have bright stars in their eyes that blind them to the realities of mathematics.
Here we’ll point out that, for whatever reason, someone within the TelexFree sphere got the head-scratching idea earlier this year to use an image of the Pyramids of Giza in a promo for TelexFree during an active pyramid-scheme probe in Brazil.
We believe it notable that Brazilian police also referenced the Pyramids of Giza, given their presence in a TelexFree promo.
For newer readers, we’ll also point out that the HYIP sphere is infamous for taunting the law-enforcement community. Like TelexFree, a “program” known as WCM777 also came under investigation in multiple countries earlier this year. Naturally someone within the WCM777 sphere shoved an image of a pyramid down the throat of law enforcement after word of the investigations became public.
Second Tour (At Least) For ‘Operation Orion’
Did you know that the code name “Operation Orion” chosen by Brazilian police previously had been used by the United States in a major law-enforcement action, albeit in a completely different context? (More on the 2012 U.S. action below.)
What’s your thinking? Are two Operation Orions in two years coincidence?
And did you know that the U.S. Department of Homeland Security (DHS), which has its own TelexFree probe, has an office in Brasilia and a history of cooperating with Brazil’s federal police — and that some criminal investigators from outside the United States receive training at the DHS Federal Law Enforcement Training Center in Glynco, Ga? (The U.S.-sponsored training also sometimes occurs in countries that host the United States. Some Brazilian investigators, for example, have received U.S. training in Peru. See photo below.)
U.S. prosecutors did not respond to a request for comment on whether there was any coordination between the United States and Brazil last week on TelexFree-related events: the indictment of TelexFree figures James Merrill and Carlos Wanzeler in the United States, and the public announcement of “Operation Orion” in Brazil.
What’s In A Code Name?
U.S.-based police, prosecutorial and regulatory agencies regularly conjure up operational names to distill the essence of the law-enforcement goal and to send a message that fraudsters never should be confident. Agencies also sometimes engage in something we’ll describe as reverse black comedy whose purpose is to accent the absurdities of scams and scammers. In New Jersey last year, for example, a law-enforcement action targeted at alleged booze diluters was memorably named “Operation Swill.”
It was an instant classic.
A long-running FBI operation targeted at dozens of penny-stock fraudsters a few years ago was dubbed “Operation Shore Shells,” in part because the probe occurred near the sea and in part because the fraud involved the use of shell companies, often a nemesis of legitimate commerce. The SEC, which regulates the U.S. securities markets, once dubbed an action directed at hundreds of companies ripe for pump-and-dump swindles “Operation Shell Expel.”
To out illegal gambling conduits reaching into the United States, DHS once set up a sting operation and “obtained a business address near Atlantic City, New Jersey” to bolster undercover operatives’ street cred. As part of the operation, the Feds created a bogus “payment processor” known as Linwood Payment Solutions to “negotiate contracts and terms of the processing, and to handle the intricate movement and processing of collection and payment data from the gambling organizations to the banks.”
These well-dressed greeters actually were part of a federal undercover operation dubbed “No Such Thing as a Free Lunch.” Source: U.S. Marshals Service. Red blocks by PP Blog.
The U.S. Marshals Service, in charge of rounding up fugitives, once famously conjured up a sting dubbed “No Such Thing as a Free Lunch” that operated as part of a larger sting dubbed FIST — for Fugitive Investigative Strike Teams.
As part of a six-year FIST operation in the 1980s, marshals created a fake business known as “Flagship International Sports Television Inc.,” obtained the last-known addresses of more than 3,000 wanted persons and sent brunch “invitations” that promised free food and free National Football League game tickets to those addresses. The marshals also offered a shot at free Super Bowl tickets.
The free-food sting netted 100 arrests. FIST overall netted more than 14,700.
Undercover TelexFree Probe
It is known that DHS conducted a TelexFree-related undercover operation that lasted for months. Whether the operation extended to foreign soil and had a formal name is unclear. Based on its research, the PP Blog believes that undercover stings (named and unnamed) operated by U.S. government agencies and aimed at HYIPs have been operating continuously in the United States since at least 2006.
One of the reasons is that the schemes put banks in the line of fire and often target disadvantaged populations. Beyond that, HYIP schemes have a history of trading on the names of the White House and U.S. government agencies, thus confusing people across the world. TelexFree promoters, for instance, traded on the names of President Obama, the cabinet-level office of the U.S. Attorney General, the SEC and Massachusetts Commonwealth Secretary William Galvin. Why? To cloak themselves in a veneer of legitimacy and to drive money to a scheme that purportedly returned $1,040 in a year to people who paid in $289, $5,200 to people who paid in $1,375 and $57,200 to people who paid in $15,125.
Even Bernard Madoff would gag at the thought.
Female police officials from multiple countries, including Brazil, received U.S. training in Peru in 2012. Photo source: DHS.
With the Internet emerging as the favored delivery vessel of both clever and unclever fictions aimed at transferring great sums of wealth and putting unwarranted financial power in the hands of criminals and criminal enterprises, the need has arisen to pursue cross-border frauds aggressively. The only way to minimize the mushroom effect of fraud schemes operating on the Internet is through international cooperation at the highest levels of government and law enforcement.
Put another way, your latest recruit could be a Fed. The person you instructed not to “call it an investment” (as part of a ham-handed cover-up bid) could be a Fed. The person sitting next to you at a hotel “extravaganza” of some sort could be a Fed. So could the person in the cabin next to you on the scammers’ cruise ship. So could the recruit who, at your direction, paid you personally while joining, instead of paying the company. That upline guy — the one who sponsored you and asked you to pay him personally — could have one or more Feds in his downline. Those Feds could be “placing ads” for the program and keeping notes on whether anybody signed up under them.
Channeling?
Could Brazilian authorities who selected the name “Operation Orion” and referenced the Pyramids of Giza perhaps been channeling their U.S. counterparts and engaging in some reverse black comedy to point out the absurdity of scams? Man, we hope so.
As noted above, someone within the TelexFree sphere showcased the Pyramids of Giza during a pyramid-scheme probe in Brazil. Apparently no one in TelexFree thought it prudent, say, to stop the scheme during the Brazilian probe.
Because the HYIP sphere is populated by the most disingenuous “businesses” and people you’ll ever encounter, it’s easy enough to read such an act as telling law enforcement to shove it. Fractured thinking and taunts at law enforcement are core signatures of HYIP frauds, perhaps characteristics every bit as defining as preposterous daily payout rates of between .50 and 2.75 percent.
Good fortune certainly did not shine down on TelexFree from Orion on July 23, the date of the U.S. indictments. Nor did it shine down on July 24, the date the “Operation Orion” pyramid probe was announced in Brazil.
In our view, the name “Operation Orion” selected by Brazilian police was practically perfect.
In addition to being a star constellation, Orion is the great hunter from Greek mythology. With Brazil’s “Operation Orion,” alleged pyramid schemers became the hunted.
Alleged child predators were the hunted in the U.S. version of “Operation Orion,” a 2012 sting engineered by DHS. Arrests were made in the United States, Spain, the Philippines, Argentina and the United Kingdom. The DHS agency that launched the 2012 version of “Operation Orion” is known as Immigration and Customs Enforcement — or ICE for short. Homeland Security Investigations (HSI) is an ICE directorate.
From ICE (italics/bolding added):
HSI investigates immigration crime, human rights violations and human smuggling, smuggling of narcotics, weapons and other types of contraband, financial crimes, cybercrime and export enforcement issues. ICE special agents conduct investigations aimed at protecting critical infrastructure industries that are vulnerable to sabotage, attack or exploitation.
In addition to ICE criminal investigations, HSI oversees the agency’s international affairs operations and intelligence functions. HSI consists of more than 10,000 employees, consisting of 6,700 special agents, who are assigned to more than 200 cities throughout the U.S. and 47 countries around the world.
U.S. court records show that HSI started the undercover investigation into TelexFree at least by October 2013. Other records show HSI has an attaché office in Brasilia, the capital of Brazil.
In May 2014, ICE and HSI announced they had cooperated with federal police in Brazil in a sting known as “Operation Proteja Brasil,” described as aimed at protecting against child porn.
From ICE (italics/bolding added):
Some of the warrants executed during this operation were the direct result of leads provided by HSI Brasilia and the National Center for Missing & Exploited Children (NCMEC).
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.
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.”
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.”
URGENT >> BULLETIN >> MOVING: (11th Update 9:43 p.m. EDT U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has sued MLM attorney Kevin Grimes and the Grimes & Reese law firm, alleging malpractice, negligence and breach of fiduciary duty.
In the Grimes action, the receiver is seeking “an amount in excess of $100 million.”
In another action concerning a professional who worked for Zeek or was associated with purported “opportunity,” the receiver has sued attorney and tax consultant Howard N. Kaplan. Zeek operated an MLM “program” tied to a purported penny auction.
As is the case in the Grimes action, the receiver is seeking a sum of more than $100 million against Kaplan for alleged damages.
Both Kaplan and Grimes should have known better, but nevertheless helped Zeek thrive while helping Zeek gain unwarranted credibility by lending their professional reputations to a fraud scheme that gathered hundreds of millions of dollars, receiver Kenneth D. Bell alleged.
“By virtue of his knowledge of [Zeek operator Rex Venture Group] and ZeekRewards and his legal expertise, Grimes knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and/or a Ponzi scheme. Despite this knowledge, Grimes actively encouraged investors to participate in the scheme by creating a so-called ‘compliance’ program that provided a false façade of legality and legitimacy and knowingly allowed his name to be used to promote the scheme,” Bell said in the complaint against Grimes.
Bell accused Grimes of turning a “blind eye” to markers of fraud at Zeek such as unusually consistent payout percentages.
“This fake consistency should have, at a minimum, caused reasonably diligent legal counsel to inquire further about the validity of the alleged profits,” Bell alleged. “Indeed, the program publicly advertised historical average returns of 1.4% per day, which no legitimate investment could accomplish. But, Grimes deliberately turned a blind eye to these incredible claims and chose not to seek further information.”
And Kaplan, Bell alleged, “knew or should have known that insufficient income from the penny auction business was being made to pay the daily ‘profit share’ promised by ZeekRewards.
“Kaplan knew or should have known that the money used to fund ZeekRewards’ distributions to Affiliates came almost entirely from new participants rather than income from the Zeekler penny auctions,” Bell continued. “Further, Kaplan knew or should have known that the alleged ‘profit percentage’ was nothing more than a number made up by [Zeek operator Paul R.] Burks or one of the other Insiders. Rather than reflecting the typical variances that might be expected in a company’s profits, the alleged profits paid in ZeekRewards were remarkably consistent, falling nearly always between 1% and 2% on Monday through Thursday and between .5% and 1% on the weekends, Friday through Sunday.”
From Bell’s complaint against Kaplan (italics added):
Instead of properly informing Affiliates of the different tax implications they would face if their Zeek payments were properly characterized as coming from an ‘investment’ rather than a ‘trade or business,’ Kaplan failed to inform Affiliates, either on the calls or in his FAQs, of the material fact that payments to Affiliates should be characterized as investment income for tax reporting purposes.
For example, in the FAQs that he drafted and allowed ZeekRewards to post to its website, Kaplan advised that Affiliates should use IRS Schedule C (“Profit or Loss from Business”) to record their income, making no mention of the fact that they shoulduse IRS Schedule D (“Capital Gains and Losses”) . . . If Kaplan had candidly disclosed the material fact that Affiliate income would be properly characterized by the IRS as capital gains, the obvious negative tax implications would have caused many Zeek Affiliates to remove their cash earnings from the program rather than reinvesting them, short-circuiting the scheme much earlier. Since he did not, Affiliates were placated in their misguided belief that ZeekRewards was a lawful program.
It has been a remarkably awkward time for MLM attorneys. Gerald Nehra, Richard Waak and their law firm have been accused by plaintiffs in TelexFree-related litigation with racketeering and violations of the federal securities laws. TelexFree plaintiffs have asserted Nehra also counseled Zeek.
From the Zeek receiver’s complaint against Grimes and Grimes & Reese (italics added):
Defendants played an indispensable role in the scheme. Because of the lucrative, seemingly ‘too good to be true’ claims being made by RVG and ZeekRewards, many potential investors were skeptical of whether the scheme was legal and legitimate. So, RVG enlisted the aid of Grimes and other legal counsel to assist in promoting and legitimizing the scheme.
Grimes helped in several ways. First, despite his knowledge that ZeekRewards was a fundamentally flawed and unlawful pyramid and/or Ponzi scheme and was selling unregistered securities, Grimes offered to create and did create a so-called ‘compliance course’ specifically designed to encourage investors and potential investors to believe that if they satisfied the course then it would be a lawful enterprise.
Thus, Grimes knowingly allowed Zeek to portray a false appearance of legality through his bogus ‘compliance’ course.
Grimes profited personally from the compliance courses while allowing ZeekRewards yet another source of investor money. Upon information and belief, Grimes received payments from ZeekRewards not only for his legal counsel, but also for sales of his compliance course to Affiliates. Upon information and belief, Grimes provided the compliance course to ZeekRewards for $5 per affiliate, while allowing ZeekRewards to charge affiliates $30 each for the course, personally profiting from it and allowing RVG yet another means of extracting money from unsuspecting Affiliates.
Zeek collapsed in August 2012. The SEC and federal prosecutors now say the “program” gathered on the order of $850 million in less than two years. Two months after the collapse, two members of Zeek sent Senior U.S. District Judge Graham C. Mullen a copy of the “compliance” certification allegedly provided by Grimes (pictured below):
Both Grimes and Kaplan were aware that the Zeek “program” raised issues about the sale of unregistered securities, but nevertheless marched forward, Bell alleged.
In February 2012, Bell said, Grimes emailed a Zeek adviser, saying, “I am still in the process of getting my arms around its program, but I have some SERIOUS concerns that it very likely meets the definition of an ‘investment contract.’ It may have other issues as well, but I’m still reviewing their documents.”
By June 2012, according to Bell, a Zeek participant contacted Grimes, saying, “I have completed your compliance course with Zeek and really loved it. I am a great advocate of Zeek and have signed up 31 people whom I feel responsible for. . . . One of my downline is asking questions . . . there is a tremendous amount of income going into Zeek and he is concerned the profit share is coming from the new affiliates – which would make it a ponzi scheme. Can you direct me as to what is the best way to confirm this is not a ponzi scheme[?]”
In response, Grimes emailed Zeek executive Dawn Wright-Olivares, stating, “Do you want me to forward these types of communications to you or anyone else, or would you prefer that I simply discard them? I get several of these each week.”
Grimes, Bell alleged, appeared to have “no concern” about the affiliate’s email.
The MLM lawyer “took advantage of the situation, creating and marketing a compliance training course as window dressing for this illegitimate scheme, allowing the course to be sold to the Affiliates for his own profit,” Bell alleged.
MLM attorney Gerald Nehra, his law partner Richard Waak and their law firm are now lawyered up in the TelexFree bankruptcy case.
Groups of TelexFree members have sued them in bankruptcy court, alleging violations of the federal racketeering (RICO) statute and violations of federal securities laws. TelexFree filed for Chapter 11 bankruptcy protection on a Sunday evening in April, just prior to fraud actions filed by securities regulators.
Attorneys Christopher F. Robertson and William J. Hanlon, partners in the Boston office of Seyfarth Shaw LLP, entered appearance notices for Nehra, Waak and the firm yesterday.
Also named defendants in some or all of the actions are TelexFree, alleged officers or executives James Merrill, Carlos Wanzeler, Carlos Costa, Steve Labriola and Joe Craft, alleged promoters Sann Rodrigues, Randy Crosby, Santiago De La Rosa and Faith Sloan, and several alleged financial vendors or service-providers.
In a complaint filed May 3, 2014, plaintiffs accused Nehra of counseling 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.”
He further was accused of encouraging unknowing TelexFree members to “participate in the evasion of federal and state securities laws.”
Sloan, in response to fraud allegations against her filed by the U.S. Securities and Exchange Commission, said she “believed what [SEC Co-] 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.”
Nehra, Waak and the law firm are not defendants in the SEC action. Nor are they defendants in a TelexFree-related securities action by the Massachusetts Securities Division. Sloan, who later was accused by the SEC of violating the asset freeze against her in the SEC case by sending thousands of dollars to another “program” and transferring her interest in a real-estate trust to her mother, is a longtime HYIP huckster.
In a separate criminal case that alleges wire-fraud conspiracy against Merrill and Wanzeler, Merrill has signaled that he intends to use a defense of reliance on Nehra’s lawyering. The Massachusetts Securities Division has described TelexFree as a “financial pariah” and a combined pyramid- and Ponzi scheme that had gathered more than $1.2 billion. The SEC likewise has accused TelexFree of hatching a billion-dollar pyramid-and Ponzi scheme, saying it was aimed largely at Brazilians and Dominicans.
Nehra, according to plaintiffs suing him in in at least one of the TelexFree-related actions in bankruptcy court, advised at least two other “programs” regulators accused of operating massive pyramid or Ponzi schemes: Zeek Rewards (2012/$850 million) and AdSurfDaily (2008/$119 million).
Sloan is known to have promoted Zeek Rewards. Some HYIP promoters move from scheme to scheme to scheme, piling up purported “earnings” alleged to be fraudulent along the way.
“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,” plaintiffs alleged. “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.”
Zeek-related actions still are winding their way through the courts. The Zeek “program” was back in the news yesterday, with the court-appointed receiver alleging that an affiliate who appears to have invested $10 filed a claim for $30 million and that a vendor alleged to have aided Zeek wanted nearly $15 million.
