UPDATED 12:14 P.M. EDT (U.S.A.) Being under investigation in Brazil and Massachusetts and getting kicked out of Rwanda apparently isn’t viewed in MLM La-La Land as a strong-enough clue that it’s time to give up the TelexFree ghost.
Or maybe it is — and the TelexFree-related fire sales have begun. It wouldn’t be the first time that members of an HYIP tried to sell their holdings while regulators were circling.
At least in the United States, one of the TelexFree issues is whether the purported “opportunity” is selling unregistered securities as investment contracts. That’s bad enough.
But things potentially could get worse. Individual TelexFree members now may be creating bundles of securities and fueling even more questions about a dangerous TelexFree black market.
An ad for a package of 550 TelexFree AdCentrals appears on a site known as “TripleClicks.” The asking price? $16,760.
Good grief.
The bundle, according to the ad, ships from the United States.
“You Save: $8,190.00 (33%),” the ad contends.
It goes on to say this (italics added):
1) you will pay 16,760$ to get a value of 24,950$ of voip subscription that you can use by your self 2) you will earn up to 110,000$ in one year (minimum guarantee 100% 56,100$ only posting 55 adtext for day) 3) You will get a lot of Vpoints that will be useful for your SFI Business 4) you will be refunded 100% if within about 18 weeks you will not have fully recovered the money spent initially. If of course you did all needed to get back money (it mean 30 minutes copy and paste everyday without sponsoring or sale nothing at all)
so nothing to loose here but only to get…
How the “refunding” would be accomplished wasn’t explained. The ad suggests, however, that TelexFree would “repurchase” the packs over time.
In addition, the ad contends that BehindMLM.com, a site that reports on emerging MLM frauds, has “what I believe is a more skeptical perspective on what is going on behind the Telexfree name.” The ad that bundles TelexFree “AdFamily” packs then asks and answers its own question:
“Does Telex Free Work? I confidently say it works, with Capital Y as in Yes! You see this company has a track record already.”
Visit BehindMLM.com. Among other things, BehindMLM has reported on money-laundering allegations involving TelexFree.
California-based WCM777, an MLM “program,” got booted out of Massachusetts in November 2013, amid allegations of securities fraud and affinity fraud targeted at the Brazilian community through hotel pitchfests. WCM777, purportedly operated by Ming Xu and recruiting affiliates to conduct business over the Internet, later got booted out of California. In addition to the Brazilian community, WCM777 targeted people who speak Spanish and people who speak Chinese, perhaps Christians in particular.
Massachusetts launched a probe into TelexFree, another MLM “program” associated with hotel pitchfests and affiliate recruitment over the Internet, at least by Feb. 28 of this year — probably sooner, given the nature of WCM777. TelexFree largely is targeting speakers of Portuguese and Spanish, perhaps Christians in particular. It also has an affiliate presence in India and Africa (at least).
Although the schemes do not appear to have common ownership, both WCM777 and TelexFree offered plans that encouraged recruits to buy in at higher levels to get higher “earnings.” Affiliates of each scheme appear to have engineered subschemes in which their recruits could buy in at higher levels than the “programs” themselves advertised, potentially introducing a second layer of fraud.
What this means, in essence, is that neither TelexFree nor WCM777 may know their real bottom lines and that the firms created an environment that encouraged back-alley, illegal sales of securities and secret deal-making among individual promoters. Individuals ostensibly acting as brokers for TelexFree and WCM777 could be cherry-picking cash and not even sending it to the “program” operators. In short, certain people could be creating personal and organizational underground economies and fleecing TelexFree and WCM777 even as they fleece their own marks and recruits.
Hidden members of both “programs” may be getting paid in cash by their upline sponsors or ostensible brokers, with no record of their participation — even if they supplied cash or an equivalent to join the “programs.”
The only safe assumption in HYIP Ponzi Land is that any system that can be abused will be abused. That’s why these “programs” necessarily must be viewed through the lens of national security.
Presented below are some screen shots that demonstrate promotional ties between TelexFree and WCM777. In certain instances, the websites pictured below are promoting not only TelexFree and WCM777, but also other “programs.” One of them, for instance, is promoting the almost indescribably insidious and bizarre Banners Broker “program.”
As always is the case in HYIP investigations, the concern is that banks locally, regionally, nationally and internationally are being used by corporate scammers first as warehouses to store illicit proceeds — and later, by individual promoters at potentially thousands and thousands of locations, as virtual ATMs that provide the service of offloading the “earnings” of the promoters.
The interconnectivity of these schemes endangers local, regional, state, provincial and national economies. In many cases, promoters engage in willful blindness and simply move to another MLM HYIP scam when the current “hot” one encounters regulatory intervention or craters on its own.
It’s often the case that promoters plant the seed that a scheme has been endorsed by a government or that a corporate registration is surefire “proof” that no scam exists. Social media invariably is used to help a scheme proliferate or achieve Internet virality.
One of the shots below is from a YouTube video in which a TelexFree promoter seeks to plant the seed that TelexFree is backed by the Better Business Bureau. The narrator’s words in the video suggest he sought to plant the same seed about WCM777 but had to backtrack when he discovered a BBB listing that referred to WCM777 as a Ponzi scheme.
“Today we’re going to compare two of the most dynamic companies out there taking over right now,” the narrator said.
After recording a search of the BBB site for a TelexFree listing and finding one, the narrator suggested that the listing alone was proof that TelexFree was not a scam. He thereafter performed a search for WCM777 and found a Ponzi reference, thus triggering what appeared to be backtracking from his earlier claims that TelexFree and WCM777 were “dynamic companies.”
It also could be the case, we suppose, that he already knew about the WCM777 Ponzi listing before performing the search and that the design all along was to get people to go with TelexFree because WCM777 was a scam. Even under that interpretation, however, the video still demonstrates the underhandedness within the HYIP sphere.
The HYIP sphere always screams incongruity. Keeping that in mind, we’ll point out that one of the screen shots below shows TelexFree executive James Merrill in the same affiliate-manufactured frame as Massachusetts Commonwealth Secretary William Galvin. It was a clear bid to suggest that because TelexFree was registered as a corporation in Massachusetts, the “program” couldn’t possibly be a scam.
That is hogwash, of course. Galvin did not endorse TelexFree when his office approved a corporate registration. Besides, Galvin — as Commonwealth Secretary — oversees both the Massachusetts Corporations Division and the Securities Division. The Securities Division is probing TelexFree and possibly can rely on various documents in the Corporations Division to help investigators connect dots.
Beyond that, the website from which the screen shot promoting TelexFree by marrying images of Merrill and Galvin was taken also is promoting WCM777. Also shown below is an image from the same site in which Merrill is shown posing beside a giant SUV. Contrast that image against the image of Merrill posing in front of a large Massachusetts building as though TelexFree were its only occupant. TelexFree promoters have used the same approach, planting that seed that TelexFree owns the building and has a large physical presence in the United States.
That’s hogwash, too. TelexFree was an occupant of Suite 200 at a Regus center in Marlborough, along with dozens of other companies.
Finally, before observing the shots below, recognize that MLM itself — never a stranger to scandal — may be on the verge of experiencing a PR and legal crisis of unprecedented proportions.
People have harshly criticized hedge-fund manager Bill Ackman for attacking Herbalife. Among his contentions is that Herbalife is a pyramid scheme that targets vulnerable populations. Say what you will about Ackman’s Herbalife claims, but it is crystal clear that affinity fraud and the viral looting of impoverished/disadvantaged people have existed in the MLM realm for a long time and continues to be seen. One might even be inclined to say a market-making fraud blueprint exists within MLM: mow down one affinity cluster or population group and then move to another.
At a minimum, “programs” such as TelexFree and WCM777, which clearly have positioned themselves as wealth recipes for immigrants and vulnerable populations, can help Ackman shape and inform his Herbalife hypothesis.
James Merrill is TelexFree’s president and thus an MLM executive. TelexFree and Merrill, to date, have played into virtually every MLM stereotype that exists — everything from private jets, monster SUVs and stretch limos to business registrations and mail drops in Nevada.
Most disturbingly, though, Merrill represents an American MLM company that has been banned in Rwanda, an African nation that is trying to reverse poverty and receives aid from the World Bank. It’s hard to conceive that MLM — particularly American MLM — could card a worse PR disaster. Regardless, one could be in the offing.
Picture Story
1.
A TelexFree promoter who also promoted WCM777 extends the myth that TelexFree has a large physical presence in the United States and plants the seed that Massachusetts Commonwealth Secretary William Galvin endorsed TelexFree. Galvin’s office is investigating TelexFree after previously booting WCM777 from the state.
2.
A promoter simultaneously pitches TelexFree and WCM777. This shot is from the same site described in the photo above. The site may be based in Ecuador.
3.
This shot is from the same two sites described in the captions above — and features TelexFree President James Merrill posing with a giant SUV.
4.
This shot was taken on the same site described in the three preceding captions above. In this fourth shot, a person promoting both TelexFree and WCM777 claims that the purported parent company of WCM777 provided a loan of $20 million to a restaurant chain that sells Mexican food. The PP Blog has deleted an image of the chain’s logo that appears in the WCM777 promo. The same site plants the seed that WCM has provided hundreds of millions of dollars in loans to jewels of American business.
5.
This site features promos for various purported “opportunities,” including TelexFree and WCM777. Though not shown in the photo, the site also is promoting the uber-bizarre Banners Broker “program.” The site may be based in Italy.
6.
This site also is simultaneously promoting TelexFree and WCM777.
7.
This YouTube site describes TelexFree and WCM777 as “dynamic companies” and plants the seed that TelexFree is endorsed by the Better Business Bureau.
UPDATED 9:24 A.M. EDT (MARCH 22 U.S.A.) TelexFree, alleged to be a pyramid scheme using a VOIP product as a front to mask an investment program, has been under investigation in Brazil since at least June 2013. There’s also an ongoing securities probe in Massachusetts. The government of Rwanda, meanwhile, has announced it booted a TelexFree enterprise after a joint investigation with the African nation’s central bank sparked money-laundering concerns.
Yes, Rwanda has banned TelexFree, something that might set a new standard of embarrassment for an American MLM company. Though the timing may be coincidental, Rwanda did this after a TelexFree pitchman suggested to troops in Boston on March 9 that TelexFree has so much free cash laying around that the two-year-old business can saddle up a “private jet” for trips to Hispaniola and Haiti, perhaps the poorest nation in the Western Hemisphere.
Just a week earlier, promos for a TelexFree convention in Spain bragged that the firm was holding a “Gala Dinner” in Madrid and providing “direct Limo Service” to its recruiting stars. TelexFree also sponsors a professional soccer club in Brazil.
One can hardly blame Rwanda if it is protecting its dignity while wondering what happened to the cash gathered from Rwandan affiliates. And because Uganda has signaled it may follow Rwanda’s lead, the imagery in African media of out-of-touch, greedy American MLMers may not be at its zenith. From a PR perspective, these things couldn’t be happening at a worse time for MLM. Herbalife, an industry stalwart, is under investigation by the U.S. Federal Trade Commission.
There have been rumors for days that Massachusetts-based TelexFree was hiring a CEO. That appears not to have happened. Or, if it has happened, TelexFree hasn’t expressed it clearly in print.
There is a new hand on board, according to a TelexFree news release issued this morning. But nowhere does the release describe the new hand — former MLM telecom executive Stuart A. MacMillan — as TelexFree’s CEO or even as a TelexFree executive. Instead, MacMillan is described in terms that suggest he’s freelance management talent “[s]peaking on behalf of TelexFREE.”
MacMillan doesn’t even get a mention until the tail end of the sixth paragraph of this morning’s release. Instead, the company booted out of Rwanda and under investigation on at least three continents led with an underwhelming headline that highlighted MLM without calling it MLM. “TelexFREE Chooses Tradition of Direct Selling Phone Service.”
So, TelexFree, which says it is a professional communications company, buried whatever news it had and hasn’t made it clear that MacMillan has a title, let alone real decision-making authority. And even if he does have authority, how much of it extends to the overall TelexFree operation is unclear.
There’s a TelexFree LLC based in Nevada that has been denied registration as a telecommunications company in Washington state. Then there’s TelexFree Inc., which operates from Massachusetts. In Florida, there’s a TelexFree International Inc. that was registered on March 14. Also in Florida there’s a TelexFree Tax Service registered March 14, and a TelexFree Financial Inc. registered Dec. 26. Other companies in Florida also use the name TelexFree. So do at least three companies in California.
In Nevada, at least two companies that appear to have ties to TelexFree have been registered since November. These include Telex Mobile Holdings Inc. and TelexElectric LLLP.
Leading With ‘The Gipper’
The opening line of the news release release fondly harkens back to the “mid-1980s” and the phone-sector deregulation that occurred during “the Reagan Administration.”
It could be worse, we suppose. WCM777, an MLM firm kicked out of Massachusetts and California and under investigation on at least two continents for advertising preposterous returns, tried its hand at channeling both President Reagan (of California) and President Kennedy (of Massachusetts) with rhetorical references to a “City upon a Hill.”
President Reagan finished his second and final term as President in January 1989, more than 25 years ago. He died in 2004. Even his political opponents wept.
Now, TelexFree appears to be suggesting that the deregulation he favored during his years in the White House has put the firm on the success track and inspired it to sell Internet telephony to “Brazilian and Hispanic expatriate communities.”
One of the things that happened during the Reagan administration — and this is not a knock on the President, whom we admired — was that doors opened for phone companies to compete on long-distance pricing. Over time, consumer-pleasing downward pressure on prices and lower margins put some firms at death’s door. One of those firms was Excel Communications, an MLM company that formerly employed MacMillan.
A separate release issued today describes TelexFree as an enterprise that “booked 10,859,669 minutes of VOIP calls” last month. It’s a hollow claim, rather like a husband bragging to a wife on Saturday morning that he’d just trimmed 10.8 million blades of grass in the front yard — while conveniently forgetting to mention that a John Deere did all the heavy work.
What TelexFree conveniently is forgetting is that the issue with it is whether the people who used those 10.8 million minutes it “booked” last month would purchase the VOIP service if it were not attached to an “opportunity” affiliates describe as something that could retire government, corporate and consumer debt if the regulators would just leave it alone.
Moreover, the release does not mention that Sann Rodrigues, previously described as the firm’s top pitchman, was accused by the SEC before TelexFree even came into existence of being a pyramid-huckster who roped Brazilians into an affinity-fraud scheme involving a phone-related product.
“You say you haven’t heard of TelexFREE?” the second release queries. “Then you probably aren’t one of the more than 1 million Portuguese-speaking residents of the Commonwealth of Massachusetts.”
It goes on to say that “[b]efore TelexFREE, Portuguese speakers calling home to Brazil or Portugal were paying high international rates or suffering the frustration of trying to teach elderly parents how to use Skype…after they taught them how to get online.
“In large part due to those frustrations and expenses, Brazilian and Hispanic expatriate communities are embracing the simplicity and economy of TelexFREE.”
Most curious of all in the second release was a TelexFree claim that it “wasn’t until about two years ago that we found a niche community that expressed such overwhelming need for our product.” That’s particularly strange, given that Rodrigues hails from Portuguese-speaking Brazil, as do Portuguese-speaking TelexFree executives Carlos Wanzeler and Carlos Costa.
Rodrigues and Wanzeler, at least, have been pitching phone products to Portuguese-speakers for years. Rival Skype is available in multiple languages, including Portuguese.
Like the first release, the second release doesn’t mention that promoters of TelexFree have claimed that $15,125 sent to the firm fetches back more than $57,000 in a year and that smaller sums of between $289 and $1,375 also virtually triple or quadruple in a year.
The first release, however, at least hints that MacMillan recognizes some in-house problems at TelexFree.
“I see my responsibility as establishing internal governance and an expansion of the products and services,” the release quotes him as saying. “Like so many entrepreneurial companies in the tech space, TelexFREE has been growing so fast, it hasn’t had much time for management. I’ve been brought in to spend that time and to provide that experience, including an end-to-end review of methodologies and controls.” (Emphasis in original.)
Whether MacMillan has the authority to ground the “private jet” to which executives and top reps apparently have access when flying to the Dominican Republic and Haiti was not addressed in the news release. Nor did the release say whether MacMillan planned to eliminate the appearances of limousines in various TelexFree promos or do away with sea-cruise pitchfests.
James Merrill remains TelexFree’s president, according to the second release.
From the second release (italics added):
When asked about the success of the company, President and co-founder Jim Merrill replies, “We have been in VOIP telecommunications for more than a decade; but it wasn’t until about two years ago that we found a niche community that expressed such overwhelming need for our product. Combined with a distribution method that takes our services to them economically, our growth has been exponential.”
It’s as though promising to pay $1,040 on $289, $5,200 on $1,375 and $57,200 on $15,125 — in a year, no less — had nothing to do with it.
Reagan would have thought it madness and advised House Speaker Tip O’Neill that someone was trying to soil that beautiful Massachusetts city upon the hill. And Kennedy would have called TelexFree’s business practices “a wholly unjustifiable and irresponsible defiance of the public interest.”
The Ministry of Trade and Industry of the Republic of Rwanda has announced that a TelexFree enterprise has been banned in the country after a joint investigation with the National Bank of Rwanda, the nation’s central bank.
Central banks control monetary policy in their respective countries. Other examples of central banks include the Bank of Canada, Banco Centro do Brasil and the U.S. Federal Reserve.
The move by the Rwandan government and the central bank may mark the first public effort to choke off TelexFree.
Whether TelexFree headquarters in the United States had direct/indirect or no control over the operation in Rwanda was not immediately clear. Nor was it clear whether any help from TelexFree’s U.S. or Brazilian operations would be forthcoming.
Kanimba Francois, Rwanda’s Trade and Industry Minister, signed the order, specifically naming an entity known as P.L.I Telexfree Rwanda Ltd.
How many other TelexFree-related enterprises may be operating in Rwanda wasn’t immediately clear. In theory, a single distributor could recruit tens, hundreds or even thousands of affiliates, with those affiliates creating even more.
TelexFree has thrived, based on assertions that sums sent to the firm triple or quadruple in a year.
Separately, Uganda is signaling that it may follow Rwanda’s lead. The Twitter site of Richard Kabonero, Uganda’s ambassador to Rwanda, has published the Rwanda ban signed by Francois.
A Tweet attributed to Kabonero read, “like [all] good ponzi schemes the people who get in first make the money but eventually they fold.”
@tumksivan@KakandeAlex@tomddumba like alll good ponzi schemes the people who get in first make the money but eventually they fold
Following a common theme when a government moves against an MLM “program,” a fellow Tweeter asserted that Kabonero was jealous because he wasn’t earning money in TelexFree.
RwandaEye, an online financial publication, is reporting that TelexFree operated from the second floor of a supermarket in Remera.
TelexFree is under investigation in Brazil, amid pyramid allegations. The “program” also is under investigation in the U.S. state of Massachusetts.
News of the Rwanda ban after the joint probe with the central bank came while some TelexFree affiliates were complaining about not getting paid and poor response to customer-service issues.
On March 14, this message appeared on a Facebook site dubbed “TelexFreeInUSA” (italics added/quoted section verbatim except as noted):
Hello, i opened an account the 27/2/20014 and i payed invoice for a family pack (amount 1425$) the 10/03/2014. In ewallet i recived this message from TelexFree near my payed invoice: “Invoice Number [deleted by PP Blog] Voided as per management request. Package is no longer available”.
!!! AT THIS MOMENT MY ACCOUNT IS NOT ACTIVATED, I HAVE NOT RECIVED A REFUND FROM TELEXFREE, ANYONE ANSWER TO MY EMAILS AND MY SUPPORT REQUESTS !!!
Efforts to get a refund have failed so far, the poster claimed. Many TelexFree affiliates have claimed that purchases of “family packs” generate guaranteed income. Sales of “packs” are typical of HYIP Ponzi schemes.
During this video, TelexFree executive Carlos Costa reportedly talked about a $30 million tax penalty. Costa also showed off the award provided him in Spain earlier this month. Costa appears not to have accepted the award in person, according to a video of the March 1 and 2 event in Madrid. (See related story at bottom of this post.)
UPDATED 9:46 P.M. EDT (U.S.A.) The video below of TelexFree executive Carlos Costa is in Portuguese. In this particular circumstance, the Google facility to translate captions from Portuguese to English didn’t do much to aid our comprehension. Perhaps one of our readers skilled in both Portuguese and English could provide a summary below of Costa’s remarks. It would be appreciated.
Jornal.US News Service has a story here (in Portuguese) that references the video. The Portuguese translation by Google of the article says TelexFree has been subjected to a penalty by a Brazilian tax authority of “70 million reais.” That’s about $30 million (U.S.).
We are treating this information as nonfinal, which means we may update/amend this PP Blog post as the circumstance becomes more clear and more information becomes available.
If the penalty sum is accurate, it’s hard to see how this is good news for TelexFree reps, particularly amid Ponzi/pyramid concerns elsewhere about TelexFree. That’s because Ponzi/pyramid schemes already are under financial stress before taxation even is taken into consideration.
Beyond that, TelexFree has been tinkering with its compensation plan. Given the tax circumstance, questions now can be raised not only about whether TelexFree is engaging in the sale of unregistered securities in many countries, but also whether the compensation tinkering is designed somehow to minimize cash outflow by making it harder for members to qualify to get paid.
News of the tax penalty comes only days after TelexFree charged affiliates $164 to attend a function in Boston. At the Boston event, a man selling a TelexFree-related credit-repair program talked about being on a “private jet” with others in TelexFree and flying from the Dominican Republic to Haiti.
From a Blog leading dubious cheers for the TelexFree MLM “program.”
UPDATED 12:07 P.M. EDT (U.S.A.) You can’t blame legitimate MLMers if they’re feeling a little jittery. Herbalife, one of the industry’s stalwarts, is under investigation by the FTC, which has many duties, including enforcing laws against false advertising and pyramid schemes. Precisely why the FTC is investigating Herbalife is unknown. Hedge-fund manager Bill Ackman says Herbalife is a pyramid scheme that plumbs and churns vulnerable population groups. (See Nov. 13, 2013, PP Blog editorial: “Herbalife And Polarization In The Latino Community.”)
A public company, Herbalife itself announced the probe on March 12, saying it had received a “Civil Investigative Demand” (CID) and will “cooperate fully” with the agency.
But even as Herbalife wore a confident face and shared the FTC news, others within the MLM realm were making the trade look ridiculous on a global scale. MLM already is known for train wrecks (see example) and spectacular PR gaffes (see example). The sorry circus taking place outside of Herbalife’s immediate sphere of influence (see below) couldn’t come at a worse time for the firm.
To Herbalife’s credit, there was no attempt to demonize the FTC or pretend the CID was unimportant. So, score an early point for the supplement-maker in the category of PR awareness.
The unfortunate reality for Herbalife, however, is that it is ensconced in an industry that serves up one outrageous scam after another. And because some quirky or downright bizarre MLM “programs” have shown an almost unbelievable ability to raise tremendous sums of money quickly, the issue is not simply about a PR deficit. It’s also about national and cross-border security.
That’s why Herbalife’s conduct while it is under investigation by the FTC matters to the entire trade.
Attempts by Stepfordian MLMers to paint law enforcement as the enemy and dismiss the importance of a CID sent by North Carolina Attorney General Roy Cooper to the Zeek Rewards MLM “program” in July 2012 made MLM look silly. Claims from Zeek’s Stepfordian wing that the receipt of a CID was “exciting” news made it look beyond clueless.
Whether the trade likes it or not, all of this Stepfordian behavior gets pinned on “MLM.” And MLM therefore looked particularly ridiculous when the SEC, a month after the North Carolina CID, described Zeek as a Ponzi- and pyramid scheme that had gathered hundreds of millions of dollars in less than two years and had ripped off hundreds of thousands of people by planting the seed it paid an interest rate of 1.5 percent a day and that earnings could be “compounded.”
So, if you’re a legitimate MLMer and need a comforting thought, here’s one for you: Unlike Zeek, Herbalife isn’t trying to sell the “exciting” angle to its legions of members during a government probe. And here’s a tip for legitimate MLMers and individuals considering signing up for an MLM: When someone tells you a government investigation is exciting news, get the hell off the list or stop reading the Blog. Recognize that you’re being splashed with sugary vomit and programmed by an MLM Stepfordian.
The PP Blog’s analysis of Zeek is that it was a criminal enterprise from the start that was designed in part to reel in participants dissatisfied with traditional MLM companies such as Herbalife that sell the dream but have low distributor success rates and high burn rates. Refugees from Herbalife and other traditional MLMs were perfect marks for Zeek’s MLM, a collection of predatory vultures unlike the MLM world had ever seen.
We’re bringing this up because MLM so often ventures into Stepfordland. So, odd as it sounds, Herbalife did itself (and the industry) a favor by avoiding the word “exciting” when describing a CID. For perfectly understandable reasons, it allowed only that it “welcomes the inquiry given the tremendous amount of misinformation in the marketplace” and that it is “confident that Herbalife is in compliance with all applicable laws and regulations.”
Even though Herbalife did not fumble the ball when announcing the probe, the company still needs to work on its messaging. Last year, when the firm was confronting Ackman’s pyramid allegations and companion assertions that it was plumbing and churning Latinos/Hispanics to sustain growth, Herbalife described former U.S. Surgeon General Richard Carmona — a new appointee to its board — as “[b]orn to a poor Hispanic family in New York City.”
In highlighting Carmona’s circumstances as a newborn delivered into poverty in the Big Apple more than 60 years ago, Herbalife perhaps was projecting some stress. Whether it also was projecting an accidental hint of a Stepfordland within Herbalife remains on open question.
Given the disturbing plumbing-and-churning assertions against the firm, Herbalife would have done better by simply announcing Carmona’s appointment and including only his academic/business/public-service credentials in the announcement. It doesn’t matter that other enterprises with which he is involved have used the same line about hailing from a “poor Hispanic family” to describe him. They’re not being accused of pillaging vulnerable populations.
In short, Herbalife cannot afford to be seen as a Stepfordland company. Nothing can erode marketplace confidence faster.
Poor or even insidious messaging has harmed MLM for years. It is an industry that, unfortunately, is known for serial disingenuousness, absurd misrepresentations, gross distortions, impossible constructions and outright lies.
How Other Industry Messages Could Hurt Herbalife
On March 11, a day before Herbalife announced the FTC probe, members of the TelexFree MLM were taking to the web and planting the seed that President Obama had TelexFree’s back. The assertions are either a gross misunderstanding of the JOBS Act and the concept of raising startup capital through crowdfunding or a typical MLM lie to provide extra cover for the scheme. (See Google Translation from Portuguese to English here. See original here.)
For starters, TelexFree, which appears to have gathered $1 billion or more in less than two years, wants the public to believe it is not selling securities, despite affiliate claims the “program” delivers “passive” income. Moreover, it is not raising capital under the JOBS Act, which is a work-in-progress. In October 2013, the SEC formally proposed that a “company would be able to raise a maximum aggregate amount of $1 million through crowdfunding offerings in a 12-month period.”
The sum of $1 million is less than the sum TelexFree pitchman and former SEC defendant Sann Rodrigues says he’s earned from TelexFree since Feb. 18, 2012.
Rodrigues started pitching TelexFree before the JOBS Act even became law and before the SEC even promulgated rules. So, strike the JOBS Act claim.
Beyond that, TelexFree is under investigation by the Securities Division in its home state of Massachusetts. There’s also at least one probe in Africa, specifically in Rwanda, where a genocide occurred in the 1990s. Meanwhile, in South America, Brazilian prosecutors have called TelexFree a pyramid scheme. Police in Europe have issued warnings about TelexFree, amid concerns that the “opportunity” is targeting the Madeiran community.
At a minimum, TelexFree is at least as clueless as Zeek, home of the “exciting” CID. As noted above, TelexFree pitchman Sann Rodrigues is a former defendant in an SEC pyramid-scheme and affinity-fraud case. If that weren’t enough, TelexFree executives and reps apparently have access to a “private jet” that recently made a flight between the Dominican Republic and Haiti.
If there’s a surefire way to destroy the public’s confidence in the emerging JOBS Act, it’s for a bunch of MLMers to go around planting the seed that the President of the United States has authorized TelexFree as a crowdfunding company — and to water that seed by talking about “private jets” that can be flown by the TelexFree MLM into Haiti to line up struggling Haitians to sell credit repair and financial advice to struggling Americans.
Yes, we know: It’s altogether too much to believe. But the bitter reality for MLM — and therefore for Herbalife — is that it’s actually happening.
TelexFree says it’s in the communications business, and is expanding from VOIP into cell phones and, highly curiously, credit repair and financial advice. This is an MLM quagmire if ever there was one, especially since American MLMers say sums from $289 to $15,125 sent to TelexFree virtually triple or quadruple in a year.
If MLMers ever wonder why the trade has so many critics, they need look no further than TelexFree or Zeek before it.
With Zeek smoldering in the ashes of Ponzi/pyramid history and TelexFree serving up a current symphony of the bizarre, the MLM trade now also is confronting yet-another epic PR disaster — namely, a “program” known as WCM777 that, like TelexFree, is under investigation in multiple countries.
Like TelexFree and Zeek, WCM777 also promoted preposterous returns.
But that might be just the beginning of WCM777’s problems. Among other things, WCM777 has claimed it is “Launching The Way TV to transform nations & Joseph Global institute to train a group of Josephs to bless the world.”
But the “Joseph Global Institute” and a companion enterprise that trades on the name of Harvard appear to be shams. And The Way TV launched long ago through an entity known as Media for Christ, which became the center of an international firestorm over a production known as “Innocence of Muslims.”
Particularly disconcerting now are reports that tens of millions of dollars may have gone missing from the WCM777 coffers. In 2013, the SEC alleged that a “program” known as Profitable Sunrise may have gathered tens of millions of dollars before disappearing.
Don’t kid yourself: There is no doubt that the circumstances surrounding some MLM “programs” are affecting economic security and contributing to concerns about national security.
MLM Minefields
As noted above, precisely why the FTC is investigating Herbalife is unclear. The Zeek case initiated by the SEC, however, could supply a clue or even a specific reason for the U.S. government to be concerned about Herbalife. A look at the list of alleged “winners” by the court-appointed receiver in the Zeek case suggests that Zeek became popular in immigrant communities, which may signal MLM affinity fraud on top of Ponzi and pyramid fraud.
It also may signal immigrant-on-immigrant crime under the MLM umbrella.
This information is preliminary, meaning a more thorough analysis is needed. But it at least suggests that some MLMers are proceeding from fraud scheme to fraud scheme and either laying waste to immigrant communities in the United States or setting the stage for immigrant populations to become immersed in litigation and MLM scams.
The surname name of “Johnson,” for instance, is one of longstanding in America. So, it can be expected that a major fraud scheme with 1 million or so members such as Zeek would pull in a number of people with that last name. There are about 45 people with that name on the Zeek list.
At the same time, there are about 60 people on the list with the Asian name of “Li.” So, “Li” has significantly more appearances than “Johnson.”
And what about “Smith,” another traditional American name? Well, there are about 52 “Smiths” on the list. Contrast that with the names “Nguyen” (about 146) and “Chen” (about 137).
There also are many Latino/Hispanic names on the Zeek list. Mind you, this is the list of alleged Zeek winners, not losers. The list of losers — perhaps as many as 800,000 — is not publicly available. (Because it is believed that many Zeek members had multiple user IDs, the number of user IDs may exceed the actual number of losers. But even if the 800,000 figure only incorporates user IDs, it remains troubling. The early data on the winners’ names suggest that immigrants could have been targeted as marks by other immigrants and also by long-established American MLMers.)
Latino groups have voiced concerns about Herbalife targeting vulnerable populations. With Zeek data suggesting such targeting occurred within Zeek, the MLM trade have may to confront some tough questions: Is a mature American MLM market being shored up by a disproportionate share of recent or relatively recent immigrants? And are American MLM companies prospecting in new lands creating losing propositions for the native inhabitants of those lands?
TelexFree certainly has targeted Portuguese and Spanish speaking populations — in the United States, Brazil and elsewhere. So has WCM777, which also has targeted Asians and Asian-Americans.
People are free to criticize Bill Ackman’s assertions that Herbalife is a pyramid scheme that is targeting vulnerable populations. But if MLMers who criticize Ackman expect to be taken seriously, they’d better be able to explain what appears to have happened at Zeek and what appears to be occurring now with both TelexFree and WCM777.
U.S. MLMers of any stripe — from longstanding citizens and naturalized ones to individuals hoping one day to proudly call themselves Americans — need to say no loudly to “programs” such as Zeek, TelexFree and WCM777.
And at a minimum, Herbalife needs to stop selling a message of “get rich quick” or turning a blind eye to it and stop trying to explain away its burn rate as the byproduct of affiliates who didn’t work hard enough to realize the dream.
Herbalife cannot be blamed for Zeek, but the burn rate may explain how Zeek and similar schemes rise to cherry-pick traditional MLMers and their recruits who have made little or no money with companies such as Herbalife.
No matter what the FTC has on its mind, any assertion by Herbalife that its current program is exemplary will be the strongest evidence of all that it, too, resides in MLM La-La Land. That would be a tragedy, given that Herbalife is viewed in the MLM community as a beacon of freedom.
UPDATED 7:03 P.M. ET (U.S.A.) At a TelexFree pitchfest in a Massachusetts hotel this morning, a man promoting a credit-repair “program” linked to TelexFree claimed that TelexFree reps recently took a “private jet” from the Dominican Republic to Haiti.
“I felt like a rockstar,” the man said from the stage.
Once on the ground in Haiti, the man said, “we got in the Prime Minister of Haiti’s motorcade.”
This triggered “high-fiving,” the man said from the stage.
Things settled down when the TelexFree passengers observed throngs of poor people lining the road from the airport into the city, the man suggested.
Whether TelexFree executives were on the private jet and later purportedly traveled in a government motorcade is unclear. TelexFree executive Steve Labriola said last week that he and TelexFree “leaders” recently ventured to Haiti.
It also was not immediately clear whether the asserted TelexFree “high-fiving” and claims of a state motorcade providing shuttle service to TelexFree would prove embarrassing to Haiti’s government. Nor was it clear that the TelexFree reps were guests of the government. The Washington Embassy of the Republic of Haiti did not immediately respond to a request for comment from the PP Blog.
Laurent Lamothe is Haiti’s Prime Minister. He is a former telecom executive.
Similar seeds about government ties from promoters of other MLM schemes have proved embarrassing to other governments, including the government of the United States. In the 2008 AdSurfDaily MLM/HYIP Ponzi scheme, for example, some members of the scheme planted the false seed that ASD had been endorsed by George W. Bush, then the President of the United States.
The false seeds about Bush were one of the things that prompted the U.S. Secret Service to open the ASD probe. Agents went on to discover a massive Ponzi scheme hidden inside ASD. ASD used “ad packs” from which purported “rebates” flowed to disguise its $119 million investment-fraud scheme.
TelexFree offers something called “AdCentrals.” Some promoters have claimed that sums of money from $289 to $15,125 sent to TelexFree triple or quadruple in a year. The $850 million Zeek Rewards Ponzi scheme had a similar component. Like TelexFree members, Zeek members were told they got paid for posting ads about the company online.
“ZeekRewards told Affiliates that in order to supposedly ‘earn’ their points, they were required to place a short, free digital ad each day on one of the many free classified websites available on the internet,” the court-appointed receiver in the Zeek Ponzi- and pyramid-scheme case asserted in a lawsuit last month against alleged insiders.
“In reality,” Zeek receiver Kenneth D. Bell asserted, “the ads were just an attempt to manufacture a cover for what was nothing more than the investment of money by Affiliates with the expectation of receiving daily ‘profit’ distributions.”
One of Bell’s lawsuit targets is Scott Miller of Greenwood, Ind. Miller, an alleged winnner in Zeek’s massive Ponzi scheme, has spoken at at least one TelexFree event and may be one of TelexFree’s key pitchmen.
TelexFree Affiliates Claim Government Approval
It is somewhat common in the HYIP sphere for promoters to suggest a “program” has the backing of a politician, a government or a government agency.
At least one TelexFree-related Blog claimed in a post dated March 7 that the “program” has gained “SEC Approval from USA.”
The U.S. Securities and Exchange Commission (SEC) does not issue such approvals. In 2013, some TelexFree members worded promos to suggest that the U.S. government itself had authorized TelexFree to operate in the United States. During roughly the same time period in the spring of 2013, affiliates made this assertion (italics added):
Steve Labriola, Director of Marketing for Telex FREE, Boston, announced via email earlier today that they are ‘pulling out of Bank of America.’
Earlier, in roughly January of 2013, TelexFree affiliates were urging recruits to make walk-in deposits at a Bank of America branch in Massachusetts. The instructions strongly resembled instructions AdSurfDaily gave its recruits in 2008. TelexFree also used TD Bank, according to affiliates.
It is possible — though not confirmed — that U.S. investigators began looking into TelexFree around the same period in early 2013 in which affiliates were soliciting deposits through Bank of America and TD — while simultaneously claiming that certain TelexFree members could speed the flow of deposits if recruits emailed copies of their deposit slips to a Gmail address.
TelexFree says on its website that tickets to “new comp plan training & overview” event at the Massachusetts hotel today cost $164 and were “Sold Out.”
You’ve probably heard about the debacle at Mt. Gox, a Bitcoin exchange. Reuters, meanwhile, is reporting that a Bitcoin bank known as Flexcoin is shutting down after it lost $600,000 to a hacker attack.
Elsewhere there are stories about the tragic death of 28-year-old Autumn Radtke, CEO of First Meta Pte Ltd, a Bitcoin exchange.
Uncertainly about the future of Bitcoin and exchangers appears to be driving reload scams. These may be positioned as ways to recover Bitcoin losses incurred through Mt. Gox.
Something styled “BitcoinInvestmentFund” at a .net has appeared online. One of the links on the site, which appears have been registered in January 2014, leads to a forum in which this claim is made (italics added/verbatim):
Make millions EgoPay PerfectMoney Bitcoin SolidTrustPay in paying hyips fastest Real Investment
The PP Blog reported yesterday about a scam known as “Mutual Wealth” that allegedly was gathering cash though EgoPay, PerfectMoney and SolidTrustPay, which often are facilitators for fraud schemes.
Nothing is sacred in HYIP Ponzi Land. In a disturbing tale of disconnect, some promoters of TelexFree, an MLM “program” under investigation in North America, South America, Africa and the subject of warnings in Europe, more or less tried to cherry-pick recruits by posting in media accounts in Brazil about the suicide deaths of two TelexFree promoters.
Tacky doesn’t begin to describe it.
At 12:10 a.m. today, the PP Blog received a spam from someone (or something) tying to post in the Comments thread below this story about thousands of people being sued as a result of the Zeek Rewards scam. The would-be poster used the would-be user ID of “Hyip Egopay” and sought to plant a link to the purported Bitcoin recovery venture at the .net.
Within the would-be post was an assertion about “Investment Insurance.” It also issued this appeal: “Cover Your Lost [sic] on MTGOX.”
The would-be post appeared to solicit sums of between $300 and $250,000 — and the purported payouts were in the thousands of percent per hour.
Among the claims on the actual .net site is this: “Bitcoin Investment Fund is short term, high yield private loan program, backed up Our Newest system of Forex trading.”
TelexFree affiliates have a role in easing suffering in Haiti, Steve Labriola suggested in Spain. Source: Video on ConventionTelexFree.com.
UPDATED 12:23 P.M. ET (MARCH 4, U.S.A.) A 10-hour video of the TelexFree confab in Spain Saturday and Sunday has emerged, apparently a recording of a once-live feed.
After being billed as headliners, neither Brazil-based TelexFree executive Carlos Costa nor American MLM lawyer Gerald Nehra appeared on the stage to accept awards.
U.S.-based TelexFree marketing executive Steve Labriola walked onto the stage to accept Nehra’s award.
“This is for Jerry,” he said. “I was asked to come up and receive this for Jerry.”
Labriola did not say who asked him to accept the award on Nehra’s behalf.
Nehra does “most of our corporate law,” Labriola said. “He’s a great man. And he also works long hours, like all of you out there, and I [will] be honored to give this to him.”
Whether Nehra was in Spain was not immediately clear. He’d been billed by a website styled ConventionTelexFree.com as a “Special Guest” at the Madrid event.
Labriola then accepted an award for himself.
“Somebody said to me once — ‘Network marketing: it’s a get-rich-quick scheme,’” Labriola recalled in accepting the award. “But let me tell you, if you talk to any of the leaders or anybody that is working their business, there is no get-rich-quick. There is long hours.”
The claim was at odds with various claims online that TelexFree produces “passive” income. Labriola hinted that the firm was attempting to address inappropriate marketing. Whether he’ll clash horns with American MLMer Faith Sloan, with whom he’s been pictured, wasn’t immediately known.
Among Sloan’s claims in 2013 was that TelexFree produced “100% Passive Income.”
TelexFree says it’s in the VOIP business and is expanding into cell phones.
Labriola and other TelexFree “leaders” recently ventured to Haiti, Labriola said, suggesting it could be a warm market for TelexFree, which purportedly is changing people’s lives.
“We drove through some areas that could see . . .” he said, his voice trailing off.
“There’s places in this world that need help,” Labriola continued. “It’s up to all of you to keep working your business. Keep your products and services out there. Make sure that you’re helping people where they need help. And every person that you reach out and touch and help save their life and help move them forward will help your life get a little bit better.”
Haiti is perhaps the poorest country in the Western Hemisphere. Its neighbor — the Dominican Republic — may be emerging as a TelexFree stronghold.
“Don’t worry about the Bloggers online and the things that they’re saying, because we will keep doing the right things in moving forward,” Labriola said.
The PP Blog reported Friday — on the eve of the TelexFree confab in Spain — that the firm was under investigation in the United States. It’s also under investigation in Africa and South America. Brazilian investigators say TelexFree is a pyramid scheme.
Carlos Wanzeler, another TelexFree executive at the Madrid event, appears to have accepted awards on behalf of himself and fellow TelexFree executive Carlos Costa, perhaps the firm’s most well-known executive.
Whether Costa was in Spain was not immediately clear. Like Nehra, he’d been billed as a star attraction.
Among the other TelexFree honorees was Sann Rodrigues, a former defendant in a pyramid-scheme and affinity-fraud case filed by the SEC in 2006. Rodrigues was accused of targeting the Brazilian community in an affinity-fraud scheme that involved telephone cards.
TelexFree President James Merrill also appeared at the confab and received an award.
“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.”
Merrill predicted that the excellent lawyering and marketing-consulting TelexFree has received will make TelexFree one of the great MLM companies of all time. Helping drive growth, he said, would be the former president of Excel Communications.
Excel, according to its Wikipedia entry, once used an MLM compensation structure, but suffered when margins on long-distance phone service dropped precipitously. A bankruptcy filing followed.
Excel sought to be released from its contracts with its independent representatives. This allowed it to continue to receive revenue from its large base of installed customers without paying eternal commissions to the franchisees. Excel continued to operate but ceased to be a multi-level marketing company. Although the change created much cash enabling it to pay creditors, it was seen as shortsighted by the franchisee association because it removed the primary source of sales and customer loyalty.
A giant human hand puts the top piece on a golden pyramid. Source: Global-Unity website.
Updated 6:24 p.m ET (U.S.A.) Members of the WCM777 scam, which morphed into Kingdom777 after regulatory actions were filed, have been informed by a “program” upline that the venture now is operating as Global-Unity, a source told the PP Blog today.
Parts of the Global-Unity website appear to be under construction. The “News” tab, for instance, includes no releases.
Strangely, though, it does include a photo of a giant human hand placing what appears to be the top piece on a giant golden pyramid. Whether the photo was designed as a taunt to regulators was not immediately clear.
WCM777 is the subject of regulatory actions or Investor Alerts in the United States, Canada and Peru. TelexFree is the subject of a pyramid probe in Brazil.
HYIP scammers have been known to taunt regulators. Frederick Mann, the purported operator of the JSSTripler/JustBeenPaid HYIP scam, once claimed that government workers were “part of a criminal gang of robbers, thieves, murderers, liars, imposters.”
JSSTripler/JustBeenPaid purported to pay 2 percent a day (precompounding). The original scam changed names at least twice after the Zeek Rewards’ Ponzi action by the United States in 2012. Zeek was a scam designed to make investors believe they’d received an average payout of 1.5 percent a day, the SEC said.
JSS/JBP’s Mann was a former AdSurfDaily Ponzi-scheme pitchman and appears to have had sympathies for “sovereign citizen” political extremists in the United States, including convicted “militia” man Francis Schaeffer Cox.
A scam known as “Profitable Sunrise” that became the subject of state and federal regulatory actions in the United States last year once promoted a 2.7-percent-a-day investment “plan” known as the “Long Haul.” The Long Haul payout purportedly was due April 1, 2013 — April Fool’s Day and the day after Easter.
At least one Profitable Sunrise supporter taunted North Carolina regulators after the state filed a Cease and Desist order against the “program.” (See Comments thread below this story.)
Profitable Sunrise, like both WCM777 and TelexFree, was targeted at Christians. Both the “Long Haul” name and the purported payout dates could have been taunts.
In promos, TelexFree, WCM777 and Profitable Sunrise each used an image of the Christ the Redeemer statue in Brazil.
Istvan Merchenthaler, the U.S.-based alleged “PhoneCard USA” Ponzi schemer who reportedly was arrested on narcotics-trafficking charges in Brazil a decade ago and later was linked to pipe bombs found in Pennsylvania and North Carolina, has been indicted on charges of possessing “approximately 60 plastic PVC pipe improvised explosive devices” plus “approximately 400 cardboard tube IEDs, a 9mm Cobray M-11 semi-automatic machine pistol, and ammunition,” federal prosecutors in the Eastern District of Pennsylvania said.
“IED” stands for “improvised explosive devices.” Such devices have been associated with terrorism and guerrilla warfare. A common form is the roadside bomb.
Merchenthaler, 43, additionally was indicted in Maryland on two counts of being a fugitive in possession of firearms and ammunition and one count of possessing an unregistered destructive device. Further south, in North Carolina, Merchenthaler was indicted on two counts of being a fugitive in possession of firearms and ammunition and one count of possessing an unregistered destructive device.
The IEDs, machine pistol and ammunition were found after the first of two Ponzi indictments against Merchenthaler was handed down in 2012. The Maryland and North Carolina cases have been consolidated and will be heard by U.S. District Judge Robert F. Kelly of the Eastern District of Pennsylvania.
From a statement by the office of U.S. Attorney Zane David Memeger of the Eastern District of Pennsylvania (italics added):
[F]rom at least about May 2006 to about February 2013, Merchenthaler claimed to be the founder of PhoneCard USA, a company that was purportedly a “premier distribution source” for prepaid phone cards and cell phones. Merchenthaler, who used a number of aliases, falsely claimed that PhoneCard USA had “lucrative contracts” with major retail chain stores including Walmart, 7-Eleven, and BJ’s Wholesale Club. Further, Merchenthaler falsely claimed to have friendships with executives at Walmart and 7-Eleven. In reality, Merchenthaler operated a “Ponzi” scheme, stealing over $2 million from over 200 investors and using much of these funds for his own benefit and to perpetuate his scheme.
Merchentaler allegedly possessed pipe bombs.
In at least one promo by an apparent affiliate of the uber-bizarre MPB Today MLM “program” in 2010, pipe bombs were referenced — in the context of Walmart. An online promo for MPB Today claimed this (italics added):
If you “hate Walmart and have written a 603 page manifesto on how Walmart is trying to take over the world and steal your soul,” you should “stop making that pipe bomb and read how you can avoid Walmart and still make bank,” according to the pitch.
Like Merchenthaler allegedly did with PhoneCard USA, some MPB Today promoters claimed that the “program” had been endorsed by Walmart. It is common for scammers to imply ties to famous businesses.
Indicted alongside Merchenthaler in the IED case was Ryan Joseph Hribick, 32, of Coatesville, Pa. He was charged with count of possession of unregistered firearms, one count of manufacturing and dealing explosive materials, one count of conspiracy to obstruct justice and one count of witness tampering.
Hribick, prosecutors said, “instructed and conspired with others to destroy and conceal cardboard tubes and flash powder – which Hribick was using to manufacture IEDs – so as to keep that evidence from federal agents and the federal grand jury.”
And Hribick “attempted to influence the testimony of a federal grand jury witness regarding the destruction and concealment of evidence,” prosecutors said.
