A Florida attorney the SEC has described as “anything but lawyerly” is now the subject of an FBI “Wanted” poster and is considered “armed and dangerous.”
The FBI issued the poster after Michael Ralph Casey “failed to appear for a court hearing and a bench warrant was issued for his arrest by the United States District Court, Southern District of Florida.”
Casey, 67, was required to appear in court on April 29, but did not show, the FBI said. Along with James C. Howard III and Louis N. Gallo III, Casey was charged both civilly and criminally in September 2012 for his alleged role in Commodities Online.
The SEC has described Commodities Online as a securities swindle led by two convicted felons (Howard and Gallo) with narcotics rap sheets. The “program” allegedly was married to a boiler-room operation and tried to sanitize itself by bringing in Casey, who allegedly turned a blind eye to the scam.
Commodities Online is alleged to have gathered tens of millions of dollars. The “program” operators were accused of moving millions of dollars offshore while the SEC was closing in in 2011.
The alleged Commodities Online swindle also is notable for peripheral ties to other HYIP debacles. A Nevada company known as SSH2 Acquisitions sued James Clark Howard in 2010, alleging it had been ripped off in a Ponzi scheme. AdSurfDaily Ponzi figure Terralynn Hoy, later listed as an alleged winner in the Zeek Rewards Ponzi scheme, was listed in Nevada records as a director of SSH2.
Meanwhile, BWFC Processing Center LLC, the registered agent of SSH2, is associated with Joseph Craft, a figure in the alleged TelexFree pyramid- and Ponzi scheme.
ASD was an alleged $119 million Ponzi scheme; Zeek was alleged to be a combined Ponzi- and pyramid swindle that gathered $850 million, and TelexFree has been described by regulators as a combined pyramid- and Ponzi fraud that gathered $1.2 billion.
Hoy was a moderator at the now-defunct “Surfs Up” forum that cheered for ASD Ponzi schemer Andy Bowdoin. She also moderated a defunct forum that led cheers for AdViewGlobal, an ASD reload scam that collapsed in 2009. Surf’s Up disappeared mysteriously in early 2010. Earlier this year, the court-appointed receiver in the Zeek case identified Hoy as a Zeek winner.
“Still, a man hears what he wants to hear/And disregards the rest” — “The Boxer,” Simon & Garfunkel, from “Bridge over Troubled Water,” Columbia Records, 1969.
“After changes upon changes/We are more or less the same/After changes we are more or less the same” — The “missing verse” from “The Boxer,” Simon & Garfunkel. (Paul Simon and Art Garfunkel have sung the verse at rare public performances, including the famous reunion concert in New York’s Central Park in 1981. The duo had broken up in 1970. The version of “The Boxer” on the “Bridge over Troubled Water” album did not include the verse.)
Simon & Garfunkel sang “The Boxer” and included the famous “missing verse” at a Central Park concert in 1981 attended by 500,000 people. From YouTube.
EDITOR’S NOTE: AdSurfDaily, Zeek Rewards and TelexFree were investment-fraud schemes that led to staggering losses. People heard what they wanted to hear — and disregarded the rest. At the same time, the “programs” were cosmetically tweaked versions of one another, demonstrating for the ages that changes can occur but something can remain more or less the same.
**________________ **
Sept. 19, 1981: In what perhaps was the shortest speech of his political career, then-New York City Mayor Ed Koch descended the four steps leading to the main stage set up in Central Park. The mayor, hearing boos after earlier suggesting the city no longer could afford such a high-maintenance gathering place, spoke exactly six words to an estimated 500,000 people.
“Ladies and gentlemen,” he intoned, “Simon and Garfunkel.”
Though some accounts of the event put an exclamation mark after Koch’s “Simon and Garfunkel” phrase, the mayor seems not to have inflected one. But if a verbal misdemeanor occurred that day, Hizzoner recovered quickly. A former infantryman, Koch made a semicrisp quarter-turn, focusing 1 million eyes on the stage door through which the city’s greatest divided treasure would appear and re-fuse into a single gem again after 11 years as solo diamonds.
A tremendous roar went up. Art Garfunkel, the personification of “talent on loan from God” long before Rush Limbaugh popularized the phrase, was first to come into view. The incomparable Paul Simon was behind him, carrying a guitar.
“The Boxer” — with its famous “missing verse” — was the 17th song of the concert, according to the set list. The work often is described as a lament that includes the famous refrain “lie-la-lie.” People being people, it naturally triggered conspiracy theories about precisely who might be lying. Bob Dylan perhaps? The last thing some folks wanted to believe, apparently, was that “lie-la-lie” was simply a catchy, harmonic bridge to other verses.
What cannot be doubted is the wisdom of the song (highlighted above). A man does hear what he wants to hear and disregards the rest. And even after changes upon changes we are more or less the same.
Some TelexFree members sent doodles to the federal judge presiding over the SEC’s fraud case. Redaction by PP Blog.
(UPDATED 9:24 am EDT MAY 14 U.S.A.) The PP Blog previously has reported on campaigns by members to petition judges to “bail out” TelexFree and consider the purported upside of the “program,” which may be the largest combined Ponzi- and pyramid scheme in MLM HYIP history. (Campaigns referenced in this May 10, 2014, PP Blog editorial.)
The docket of U.S. District Judge Nathaniel M. Gorton of the District of Massachusetts now shows that members have written letters to the court in support of TelexFree. Gorton is presiding over the SEC’s civil case against TelexFree. The complaint was brought on an emergency basis on April 15. Assets of TelexFree and alleged managers and certain promoters have been frozen.
At least one TelexFree supporter contended in a letter to Gorton that he can “assure” the judge that “media disinformation” is responsible for the problems at TelexFree and that the company “revolutionized” MLM in a manner that “put out of extreme poverty thousands and thousands of people around the world, if not millions.”
TelexFree, according to the sender, was like a drop of “heaven for poor families.”
Some of the letters appear to be in Spanish, sent to the judge via fax. Some are handwritten. Some are typewritten. A few of them include doodles.
There are letters from the United States. There are letters from the Dominican Republic. Some of the letters appear to have used a shared template, which likely means TelexFree upline/downline groups organized the campaign.
In the 2008 AdSurfDaily case, shared litigation templates were used by certain members who appeared to be more interested in advancing conspiracy theories than understanding the facts of the case. Some of the letters/emails of “support” submitted by ASD in 2008 were used by the government to undermine ASD’s assertion it was not selling securities and was not a Ponzi scheme.
At least one TelexFree member asserted in a letter to Gorton that the “program” gave him an opportunity to earn money from TelexFree by posting ads on the Internet.
On Friday, it became known that the U.S. Department of Homeland Security was involved in an undercover probe of TelexFree that began at least by October 2013.
In a criminal complaint and affidavit filed in support of wire-fraud conspiracy charges against TelexFree figures James Merrill and Carlos Wanzeler, a DHS agent involved in the probe alleged an intelligence research specialist within DHS placed more than 700 ads for TelexFree online.
“The ads have resulted in no retail sales of TelexFree’s VOIP product,” the agent alleged.
And, the agent asserted, “the sites on which these ads were posted contained page after page after page of hundreds of nearly identical ads placed by various TelexFree promoters for the identical VOIP service.”
Zeek Rewards, an $850 million Ponzi- and pyramid scheme shut down by the SEC in 2012, also had an “advertising” component. So did ASD, a $119 million Ponzi scheme shut down by the U.S. Secret Service in 2008.
MLM HYIP schemes have defrauded billions of dollars from participants in recent years. The combined hauls of TelexFree, Zeek and ASD alone may exceed $2.169 billion. That’s nearly double the size of the epic Scott Rothstein Ponzi and racketeering scheme in Florida in 2009.
MLM HYIP swindles typically are aimed at vulnerable populations, with MLMers who have big email lists and experience in one fraud scheme after another scoring tremendous windfalls.
MLM attorney Gerald Nehra at a TelexFree rah-rah event in California last year. Source: YouTube.
In case you missed the big news yesterday, TelexFree figures James Merrill and Carlos Wanzeler were charged criminally.
Unofficially this brings the number of charged MLM HYIP “programs” (or clients) with links to MLM attorney Gerald Nehra to three in recent years. Nehra was an “expert witness” for AdSurfDaily in 2008. He testified that ASD, a 1-percent-a-day “program,” was a legitimate business and not a Ponzi scheme.
ASD operator Andy Bowdoin, who compared the men and women who guard the President of the United States to “Satan” and the 9/11 terrorists and clucked that “God” * was on his side, later was charged criminally and sentenced to a lengthy term in federal prison.
Nehra was brought in for marquee value and as an adviser to Zeek Rewards, Zeek operator Paul Burks said in late 2011 or early 2012. Zeek executives Dawn Wright-Olivares and Daniel Olivares later were charged criminally. Zeek was a 1.5-percent-a-day “program.”
At some point in 2012 or 2013, Nehra began to advise TelexFree. TelexFree executive Steve Labriola, like Zeek’s Burks before him, also saw marquee value in Nehra, according to Labriola’s comments in a TelexFree promo on YouTube. Now, Merrill and Wanzeler face the prospect of jail. Because the investigation is ongoing, others may, too.
TelexFree’s bogus returns were not tied to sales of its VOIP product and computed to more than 200 percent a year, making the “program” a classic Ponzi- and pyramid swindle, according to court filings. Some promoters claimed $15,125 returned $57,200. One promoter allegedly told an undercover federal agent that he’d scored $1.6 million in TelexFree “without selling a TelexFree product.”
This is a column about willful blindness and feigned obtuseness. (Think Faith Sloan.) It’s also a column about missed signals, whether they’re missed purposely or otherwise. (Think: Why would TelexFree hire Nehra after ASD and Zeek — and why would Nehra ever accept the work, which was bound to lead to racketeering allegations? Put another way, if you’re at the scene of too many highly suspicious fires, you shouldn’t be surprised if serious people start to believe you’re the arsonist or the arsonist’s helper. Even assuming Nehra is no MLM arsonist or racketeer, accepting the TelexFree work potentially put him in the position of being extorted or otherwise abused by the trade’s arsonists and racketeers.)
Spot any common themes or information roadmaps in the quoted material below?
AdSurfDaily “is not” a Ponzi scheme. “It is a legally structured, direct selling business model with multilevel compensation.” — Gerald Nehra, MLM attorney, Aug. 18, 2008. (Context: Nehra’s submitted testimony as defense witness in civil forfeiture action in the $119 million AdSurfDaily MLM HYIP Ponzi case. **)
“[AdViewGlobal] is the next iteration of the Ponzi scheme auto-surf programs, which [are] staffed with former [AdSurfDaily] executives and Bowdoin disciples.” — Class-action attorneys suing AdSurfDaily operator Andy Bowdoin and AdSurfDaily attorney Robert Garner of North Carolina, June 30, 2009. (Context: Motion in member-filed lawsuit against Bowdoin and Garner that alleged RICO (racketeering) violations.)
“With all of our efforts to punish and deter this criminal enterprise, the rights of innocent parties are protected and will subsequently be returned.” — A.T. Smith, assistant director, U.S. Secret Service Office of Investigations, Sept. 26, 2011. (Context: Successful forfeiture actions and remission (restitution) in AdSurfDaily MLM HYIP Ponzi case.)
“We will continue to use every tool at our disposal to bring justice to the citizens defrauded by these insidious schemes.” — Assistant Attorney General Lanny A. Breuer, U.S. Department of Justice, Criminal Division, Sept. 26, 2011. (Context: Successful forfeiture actions and remission (restitution) in AdSurfDaily MLM HYIP Ponzi case.)
“Just having him on retainer and having him on our team, it goes a long way from keeping anybody from launching an attack. Because generally when Gerry Nehra is involved, the Feds know that he’s cleaned up the act really well.” — Paul Burks, Zeek Rewards operator, c. December 2011. (Context: Burks’ remarks to early Zeek members that MLM attorney Nehra was on board.)
“I am pleading guilty because I am in fact guilty of the offense(s) identified in this Plea Agreement.” — Andy Bowdoin, AdSurfDaily operator, May 2012. (Context: Plea agreement to wire fraud in which Bowdoin disagreed with MLM attorney Nehra and acknowledged AdSurfDaily was a Ponzi scheme.)
“Capitalizing on the strength of our financial task force partnerships, we aggressively pursue criminals using computer experts, forensic specialists, investigative experts and intelligence analysts.” — Dennis Ramos Martinez, special agent in charge, U.S. Secret Service Orlando Office, Aug. 29, 2012. (Context: Prison sentence imposed on AdSurfDaily operator Andy Bowdoin.)
“While [Gregory] McKnight himself referred to Legisi as a “loan” program, and demanded that “members” not refer to their “loan” and an “investment,” Legisi was, in reality, an investment contract, which is considered a security and therefore regulated by the Securities and Exchange Commission. This semantic obfuscation was quite obviously an attempt to sidestep the securities laws.” — Office of U.S. Attorney Barbara L. McQuade, Eastern District of Michigan, September 2012. (Context: Sentencing memo against Gregory McKnight in Legisi $72 million HYIP swindle.)
“I’m not sure how many of you have heard the name ‘Gerry Nehra.’ But it is a very big name in this industry.” — Steve Labriola, TelexFree executive, Newport Beach, Calif., July 2013. (Context: Labriola introducing Nehra to TelexFree members at “Super Weekend” MLM rah-rah fest.)
“ZeekRewards used the enormous power of the Internet to rip off $850 million from hundreds of thousands of victims in less than two years. We will continue to work with our law enforcement partners to take down greedy scam artists who think nothing of stealing the savings of hard working people.” — U.S. Attorney Anne M. Tompkins, Western District of North Carolina, Dec. 20, 2013. (Context: The filing of criminal charges in the Zeek Rewards MLM/HYIP case.)
“The Massachusetts Securities Division charged TelexFREE Inc., with running a Ponzi scheme targeting Brazilian-Americans that has raised over $90 million from Massachusetts residents and around $1 billion globally.” — U.S. Department of Homeland Security,April 17, 2014. (Context: U.S. financial infrastructure protection. Sourced from DHS Daily Open Source Infrastructure Report.)
“At this [TelexFree] ‘super weekend’ event, Attorney Nehra spoke at length to attending investors, assuring them of the legality of TelexFree’s operation stating: ‘It is legally designed . . . you are on very solid legal ground.’” — Class-action attorneys, May 3, 2014. (Context: The filing of a prospective class-action against TelexFree and Nehra that alleged RICO (racketeering) violations.)
“Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving AdSurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.” — Class-action attorneys, May 3, 2014. (Context: The filing of a prospective class-action against TelexFree and Nehra that alleged RICO (racketeering) violations.)
“Investigating the flow of illicit money across U.S. borders and the criminal enterprises behind that money is one of our top priorities.” — Bruce Foucart, special agent in charge, Homeland Security Investigations, May 9, 2014. (Context: Comment on the filing of criminal charges in the TelexFree Ponzi- and pyramid case.)
“As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.” — U.S. Attorney Carmen Ortiz, District of Massachusetts,May 9, 2014. (Context: Comment on the filing of criminal charges in the TelexFree Ponzi- and pyramid case.)
* Like jailed AdSurfDaily operator Andy Bowdoin, TelexFree figure Carlos Costa contends God is on his side. While Bowdoin talked of “Satan,” one TelexFree promoter has called a prosecutor in Brazil a “blonde she-devil.”
** Two members of AdSurfDaily who went on to become members of Zeek Rewards liked Nehra’s opinion so much they used it in a failed lawsuit (2011) against the U.S. government. The members, Todd Disner and Dwight Owen Schweitzer, both are listed as “winners” in the $850 million Zeek Rewards’ scheme. Disner’s Zeek haul was alleged to be more than $1.875 million.
The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case says his “multitilayered investigation into [Zeek operator Rex Venture Group] and its insiders, advisors, and financial institutions” continues.
Receiver Kenneth D. Bell has been at the helm since the epic collapse of the Zeek MLM HYIP scheme in August 2012. The SEC initially filed civil charges to halt the $850 million fraud. A parallel criminal probe by federal prosecutors in North Carolina to date has resulted in the arrest and prosecution of two Zeek insiders, both of whom pleaded guilty.
Bell did not say in his May 7 report to Senior U.S. District Judge Graham C. Mullen precisely who the receivership was investigating. Zeek is known to have had members and vendors in common with the $119 million AdSurfDaily Ponzi scheme, which collapsed in 2008.
Bell so far has sued several members of ASD who became alleged winners in Zeek. (See March 3, 2014, PP Blog story and Comments thread.) Zeek also had members in common with TelexFree, an alleged Ponzi- and pyramid scheme that gathered more than $1.2 billion. Class-action attorneys have alleged RICO violations at TelexFree involving vendors and MLM attorney Gerald Nehra, who also performed work for Zeek, according to Zeek promos.
“The Receiver has begun to investigate possible claims against financial institutions that facilitated the [Zeek] scheme,” Bell advised Mullen. “If the Receiver becomes convinced that there are colorable causes of action against banks and other financial institutions, he will solicit other law firms to undertake this work.”
And, Bell noted, “The Receiver continues to evaluate potential claims against RVG’s third-party advisors, consultants, and others who received fraudulent transfers but who were not Affiliate Investors.
“These claims,” he continued, “are varied in light of the diverse range of involvement these parties had with RVG. The Receiver intends to file multiple third-party actions, likely grouping defendants in these actions based on the similarity of claims asserted against them.”
Moreover, Bell said, he “has been investigating allegations that certain insiders and net winners may be sheltering, hiding, or dissipating assets fraudulently transferred or held. The Receiver intends to fully pursue legal recourse in these situations so that funds are preserved and may be returned to victims of the ZeekRewards scheme.”
Bids to flummox the receivership were not limited to insiders and winners, Bell said.
“The Receiver Team also identified one creditor that appears to have taken numerous actions that were in direct violation of the Freeze Order and greatly damaged the estate,” Bell said. “The Receiver is in the process of determining what actions should be taken in regard to these violations.”
Bell did not identify the creditor.
An examination of of transactions that occurred at offshore processors such as Payza and SolidTrustPay continues, Bell said.
“The Receiver Team is continuing its investigation of and pursuit of any outstanding funds, including any potential transfers or withdrawals, from Payza and Solid Trust Pay,” Bell said.
Foreign transactions involving Payment World and CyberProfit also are under scrutiny, Bell said.
In addition, he asserted that his team “is investigating potential improper transfers totaling approximately $5.8 million from a Trust Account set up by Preferred Merchants’ CEO Jaymes Meyer for which Rex Venture Group was the beneficiary,” Bell said. “The Receiver Team has issued a subpoena to Preferred Merchants to obtain additional information and is engaged in conversations with Preferred Merchants’ counsel regarding these transfers and the production of this information.”
Transactions at Plastic Cash International also are under scrutiny, Bell said.
‘The Receiver Team is investigating potential improper transfers or withdrawals from Plastic Cash International,” Bell said. “This inquiry includes an analysis of the flow of funds through Network Merchants and SecureNet, which facilitated the flow of funds between Rex Venture Group and Plastic Cash International.”
Meanwhile, scrutiny of transactions involving NXPay, another Zeek Vendor, continues, Bell said.
“The Receiver Team completed its reconciliation of account information for NxPay, determining an outstanding amount of over $13 million, including improper post-freeze Order disbursements, and is analyzing potential options to recover this outstanding amount,” Bell said.
Negotiations with various parties over document production and information-sharing continue, Bell said.
“As part of this effort, the Receiver recently conducted an interview of a key fact witness with knowledge of the scheme,” Bell said.
3rd Update 12:58 P.M. EDT U.S.A. The office of Massachusetts Commonwealth Secretary William Galvin has issued a subpoena to Wings Network, the Boston Globe is reporting.
From the Globe (italics added):
“We attended one of their events,’’ Galvin said. “We had heard from some investors who, in light of TelexFree, had become concerned — and we’re concerned.’’
Galvin’s office alleged that TelexFree was a combined Ponzi- and pyramid scheme that had gathered more than $1.2 billion.
Both TelexFree and WCM777 were targeted at the Brazilian community in Massachusetts, according to filings. In addition, the “programs” targeted speakers of Spanish and Chinese. The U.S. Securities and Exchange Commission (SEC) also filed charges against the “programs.”
No charges have been brought against Wings Network. The Massachusetts probe is ongoing, the Globe reports.
Like WCM777, Wings Network says it is in the cloud-computing business. Like TelexFree, Wings Network says it’s involved in “apps.” TelexFree also pushed a VOIP product.
Galvin’s office issued a warning on pyramid schemes last month, saying that investigators have encountered “recent schemes” involving “products related to internet services, mobile marketing platforms, app sales, cloud computing services, and voice-over-internet applications.”
The HYIP world is infamous for reload schemes in which victims of previous scams are targeted again by purveyors of purported emerging “opportunities.”
There is a Wings Network outlet in Framingham, Mass., according to a photo in the Globe.
The Framingham area appears to have been a TelexFree stronghold.
Like TelexFree, AdSurfDaily, Zeek Rewards, Profitable Sunrise and other schemes that have come under regulatory scrutinty, Wings Network has a presence on well-known Ponzi-scheme boards such as TalkGold and MoneyMakerGroup.
TelexFree, an alleged $1.2 billion Ponzi- and pyramid scheme targeted at immigrants, is an exceptionally dangerous MLM malignancy and criminal enterprise. The SEC, the Massachusetts Securities Division and the U.S. Department of Justice have an obligation to society at large to treat TelexFree with maximum legal prejudice and to annihilate it.
This, we believe, is happening.
MSD has filed an action. The SEC has filed an action. The office of the U.S. Trustee, the Justice Department’s watchdog arm in bankruptcy petitions, is seeking to intervene in TelexFree’s Chapter 11 case in Nevada. On Friday, Jordan Maglich of PonziTracker.com reported that the SEC asserted at a key bankruptcy hearing that federal prosecutors also have entered the TelexFree fray through the filing of forfeiture actions.
TelexFree, it seems, finds itself the target of a richly deserved paper-nuking by a government righteously angered by the preposterous “opportunity” and its gaggle of reliably felonious pitchmen.
Regardless, the process of killing TelexFree dead and delivering it to the judiciary for final pronouncement inevitably will create an opportunity for MLM’s criminal wing and robotic Stepfordians to serve up a vomitous spectacle. Members of the public at large should pay close attention to this spectacle and use it to inform their thinking.
EXTREME CAUTION WARRANTED: Watch the rancid TelexFree spectacle from a distance: If you get too close to the ever-hurling Stepfordians and their upstream programmers who load the vomit-inducing talking points, you might find yourself suddenly wondering why your fellow man ever questioned the beauty of Soviet propaganda night at Jonestown. You even could find yourself waxing nostalgically for the Peoples Temple itself.
Like Zeek Rewards and AdSurfDaily before it, TelexFree was a vessel created to divert the wages of the MLM proletariat to the MLM Politburo, known in HYIP scam circles as the “leaders.” Some of those “leaders” have Ferraris and Hummers and BMWs and blue-chip investment accounts that reportedly contained millions and millions of dollars.
Little wonder some angry affiliates showed up at TelexFree’s broom closet office in Massachusetts to voice their displeasure a mere 12 days before TelexFree filed for bankruptcy protection in Nevada, a state from which TelexFree operated a billion-dollar business through a mailbox.
Merriam-Webster.com defines “rabbit hole” as a “bizarre or difficult state or situation — usually used in the phrase down the rabbit hole.”
In the hours leading up to last week’s key hearing for TelexFree in bankruptcy court, the U.S. Department of Justice saw fit to recommend looking down the TelexFree “rabbit hole.” Based on the Merriam-Webster definition, our take is that the take of the Justice Department — through U.S. Trustee Tracy Hope Davis — was practically perfect.
We believe the Justice Department, the SEC and MSD will find Chernobyl, Bhopal and Love Canal down that hole. There’s also a fair chance they’ll find Al Capone wearing an Easter Bunny suit.
TelexFree provided the financial world with a glimpse into what an Extinction Level Event driven by hapless MLM buffoons and their Stepfordian followers might look like. TelexFree was an attack on free enterprise, not an innocent expression of the same.
URGENT >> BULLETIN >> MOVING: (18th update 3:49 P.M. EDT U.S.A.) TelexFree, MLM attorney Gerald Nehra, “Doe” insiders and several banks have been sued in a prospective class-action that alleges fraud and violations of the federal RICO (racketeering) statute.
“Certain Defendants share joint and severable liability, including the Doe Inside Promoters, the licensed professionals such as the RLP Defendants, including certified public accountants and lawyers that specialized in sheltering so-called Multi-Level Marketing schemes having aided and abetted TelexFree’s Pyramid Ponzi Scheme by providing TelexFree with legal and financial advice and assistance during the course of the fraud, despite knowledge of the fraudulent nature of TelexFree’s operation,” the complaint alleges.
Among other things, Nehra was accused in the complaint of turning a blind eye to securities issues at TelexFree, encouraging others to conceal those issues and engaging in other misconduct.
Nehra, according to the complaint, was not merely providing zealous representation to TelexFree, he counseled “TelexFree on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”
With Nehra understanding that “his legal opinions and representations would be used by TelexFree as a marketing tool to further and advance their business model,” his “opinions were packaged and promoted as part of TelexFree’s total ‘post Brazilian shut down package’ to the members of the putative class,” according to the complaint.
The complaint further alleges that Nehra’s actions in misrepresenting TelexFree as a legitimate business encouraged TelexFree members “unknowingly” to “participate in the evasion of federal and state securities laws.”
Named defendants included TelexFree LLC, TelexFree Inc., “Paralegal Doe [who] served as TelexFree, LLC’s agent, servant or employee,” TelexFree Financial Inc., TelexElectric LLLP, Telex Mobile Holdings Inc., James M. Merrill, Carlos N. Wanzeler, Steven M. Labriola, Joseph H. Craft, Craft Financial Solutions LLC, Carlos Costa, Gerald P. Nehra, Gerald P. Nehra, Attorney at Law PLLC, Richard W. Waak (Nehra law partner), Law Offices of Nehra and Waak, Richard W. Waak Attorney at Law PLLC, TD Bank NA, Citizens Financial Group Inc., Citizens Bank of Massachusetts, Fidelity Co-Operative Bank, Middlesex Savings Bank, Global Payroll Gateway Inc., International Payout Systems Inc. (I-Payout), ProPay Inc., “Banks Doe,” “Doe Inside Promoters” and “Credit Processors Doe.”
Merrill, Wanzeler, Labriola and Craft are former TelexFree managers or executives. The Massachusetts Securities Division has described TelexFree as a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion and crossed national borders. The SEC also has charged TelexFree, Merrill, Wanzeler, Labriola and Craft with fraud, alleging that the firm conducted business in at least 20 U.S. states and mainly targeted Brazilian and Dominican immigrants.
Plaintiffs are identified as Waldemara Martins and Leandro Valentim.
The complaint alleges that Craft incorporated TelexFree Financial and that the entity “was fraudulently set up for the purpose of sheltering funds rightfully belonging to the putative class.”
Among the contentions in the complaint (italics added):
On March 9, 2014, TelexFree changed its compensation plan, thereby requiring Promoters to sell its VoIP product to qualify for the payments that TelexFree had previously promised to pay them.
TelexFree’s former officers or employees stated to the TelexFree transition team that under the Pre March 2014 standard form contract TelexFree owes its promoters over $5 billion dollars.
The rule change generated a storm of protests from Promoters who were unable to recover their money. On April 1, 2014, dozens of Promoters descended upon TelexFree’s Marlborough, Massachusetts office to protest this change and attempt to regain access to their money.
Reporting on TelexFree-related matters by BehindMLM.com, a publication that reports on evolving MLM frauds, is referenced in the complaint.
In addition, according to the complaint, “TelexFree mailed fraudulent and inaccurate 1099 (Miscellaneous Income) forms to investors, possibly to create the illusion that they had made payments to investors.”
HYIP schemes in recent years have advised participants to avoid calling the “program” an “investment program.” Here is what the complaint alleges on this subject:
“TelexFree’s Contract at Section 2.6.5 (m) mandates that Promoters are not to use the term investment with respect to the registration costs . . . Co-Defendant and Company Counsel Attorney Gerald P. Nehra, through his affiliated companies (Law Offices of Nehra and Waak , Gerald P. Nehra, Attorney at Law, PLLC, and Richard W. Waak, Attorney at Law, PLLC), and under the direct supervision of Co-Defendants Richard W. Waak and Richard W. Waak Attorney at Law, PLLC provided this deceitful advice for the purpose of furthering perpetuating Defendants unlawful Pyramid Ponzi Scheme.”
In the complaint, the plaintiffs further asserted that “Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”
Craft was accused in the complaint of “Overseeing TelexFree’s creation of falsified accounting records,” “Fraudulently certifying TelexFree’s business operations and accounting practices as good and lawful, despite actual knowledge of their unlawful and illegitimate nature” and “Concealing the fact that the AdCentral Packages purveyed by TelexFree were actually securities.”
At the same time, Craft was accused of “Concealing and absconding with investor assets.”
Costa, a TelexFree figure in Brazil, was accused of publicly supporting “TelexFree’s illegal and corrupt activities.”
The banks and processors were accused of aiding and abetting a fraud scheme.
(UPDATED 8:21 P.M. EDT U.S.A.) The U.S. Securities and Exchange Commission says in new court filings that accused TelexFree promoter and securities fraudster Sann Rodrigues appeared in an April 16 YouTube video and asserted that “God” made MLM and “binary” and that Rodrigues claims he’s “never going to stop this.”
Rodrigues is now a two-time SEC defendant. He settled charges in 2007 that he was operating a pyramid scheme targeted at the Brazilian community through the purported sale of phone cards.
TelexFree is a combined Ponzi and pyramid scheme with a phone product that masked a massive, underlying fraud that gathered more than $1.2 billion, the Massachusetts Securities Division alleged on April 15. The SEC said the TelexFree scam mainly was targeted at Brazilian and Dominican immigrants.
Fellow TelexFree defendant Faith Sloan, meanwhile, appears to have removed certain videos but nevertheless has invoked “divine authority” elsewhere, according to SEC filings.
On March 15, the SEC alleged, Sloan claimed on her website that the TelexFree compensation plan was changing and was not in final form — “[b]ut is Getting BETTER as Jesus said.”
Sloan, a former promoter of the Profitable Sunrise and Zeek Rewards securities swindles, earlier claimed that the SEC was “picking on” her.
Separately, the agency alleged that TelexFree may be violating a temporary restraining order by putting its website back online.
“It appears that TelexFree and/or one or more of the individual defendants may be improperly using investor funds for that purpose,” the SEC alleged.
Moreover, the SEC said, none of the defendants has submitted the written accounting required under the order.
Sloan and Rodrigues are among four promoters charged by the SEC. TelexFree executives or co-owners James Merrill, Carlos Wanzeler, Joe Craft and Steve Labriola also were charged. The firm and related entities filed for bankruptcy protection in Nevada April 13.
Claims of divine authority or inspiration are not unusual in MLM HYIP frauds. In the 2008 AdSurfDaily case, for instance, accused operator Andy Bowdoin claimed God was on his side and compared the U.S. Secret Service to “Satan” and the 9/11 terrorists.
Bowdoin, who also fraudulently traded on the name of then-President George W. Bush to sanitize the ASD scam, had experience as a securities swindler prior to ASD, according to court records. He is now serving a 78-month term in federal prison for his role in the $119 million ASD swindle. One of his business partners, according to federal records, was implicated by the SEC in the 1990s in three prime-bank swindles, including one that touted a return of 10,000 percent.
Brazil-based TelexFree figure Carlos Costa also routinely invokes God over TelexFree-related issues.
On Dec. 19, 2013, the PP Blog reported that TelexFree puff pieces were appearing in a publication that featured a columnist who asserted Jesus Christ was the person who inspired modern network marketers through his recruitment of 12 disciples.
Ads for an apparent cash-gifting scheme appeared in the same publication.
Images of Jesus Christ also were used in the alleged Profitable Sunrise and WCM777 HYIP swindles.
Prior to TelexFree’s bankruptcy filing, this curious graphic was used to promote the “program’s” purported “international convention” in Spain. Red highlight by PP Blog.
URGENT >> BULLETIN >> MOVING: Carlos Wanzeler refused to resign from TelexFree-related entities and has been fired by interim CEO Stuart A. MacMillan, according to new filings in the TelexFree bankruptcy case.
MacMillan also caused the resignations of former TelexFree President James Merrill and interim CFO Joe H. Craft, according to the filings. MacMillan now is controlling the TelexFree businesses.
“Mr. Merrill, Mr. Wanzeler and Mr. Craft no longer have access to the Debtors’ facilities and their access to the Company’s email has been terminated,” MacMillan advised U.S. Bankruptcy Judge August B. Landis of Nevada. “I am the only person authorized to act as a signatory on any bank account that the Debtors have or may have.”
Whether the moves would satisfy the SEC and the U.S. Bankruptcy Trustee, however, was far from clear early this morning. Tracy Hope Davis, the trustee, alleged last week that there were “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.
Among the Davis allegations was that “[t]wo companies controlled by Craft received more than $2,010,000.00 between November 19, 2013 and March 14, 2014.” She also contended that “[t]he modus operandi of Merrill and Wanzeler and their cohorts suggests that it is more likely than not that anyone handpicked by them to manage their wholly owned companies will be another cohort.”
MacMillan advised Landis today that “I did not have a pre-existing relationship with the Company, Mr. Wanzeler or Mr. Merrill prior to this initial engagement by TelexFree.”
Whether he had a preexisting relationship with Craft was not immediately clear.
Davis is seeking the appointment of a trustee, a process that could put the firm on the path toward liquidation, rather than reorganization under Chapter 11.
The firing of Wanzeler and the resignations of Merrill and Craft, according to MacMillan, occurred on April 17, a day after the SEC alleged that Craft was in the TelexFree office in Massachusetts with nearly $38 million in cashier’s checks and sought to leave the premises with the checks while a federal raid was under way.
News of the management maneuvers came on the same day it was learned that the state of Montana had halted TelexFree, alleging that it was unable to obtain complete and accurate information from the MLM company after months of trying. Other states are questioning TelexFree’s ability to provide telecom service
In a separate filing in bankruptcy court today, TelexFree pledged to “cooperate with the SEC and the Massachusetts Securities Division in their ongoing investigations related to the Debtors and prosecutions against third parties, including the Debtors’ former employees and equity holders of TelexFree Nevada and TelexFree Massachusetts.”
Wanzeler and Merrill are the asserted equity holders. They, along with Craft and TelexFree marketing director Steve Labriola, were charged with fraud April 15 by the SEC. Four alleged TelexFree pitchmen also were charged with fraud.
Despite the pledge to cooperate, TelexFree is resisting the SEC’s bid to transfer the bankruptcy case from Nevada to Massachusetts.
From an assertion today by TelexFree (italics added):
The Debtors chose the Nevada Bankruptcy Court because inter alia TelexFree Nevada, a Nevada entity, is a counter-party to more than 700,000 contracts governed by Nevada law. The Debtors anticipate that nearly all of the claims against the Chapter 11 estates will result from these contracts. Although both Nevada and Massachusetts residents will be asserting some of these claims, the Debtors’ creditor base resides all over the world. Some 90% of the creditors reside outside Nevada and Massachusetts. In fact, approximately three-quarters of the creditors are from foreign countries.
MacMillan also suggested today that Wanzeler and Merrill owned TelexFree Dominicana, a company to which a cashier’s check for more than $10 million was made out just days before the April 13 bankruptcy filing. The check and nine others, including one for more than $2 million made out to Wanzeler’s wife, were seized by federal agents on April 15, after being found in Craft’s possession.
MacMillan said he did not believe that “Mr. Craft was attempting to divert any of the Debtors’ cash or other resources.
“Instead,” MacMillan continued, “he was acting at the direction of Mr. [William] Runge and me to secure the cashier’s checks in a safe and reliable location for the benefit of the Debtors’ constituencies.”
Runge, a turnaround specialist, is TelexFree’s chief restructuring advisor.
MacMillan, in his declaration today, said it was his “understanding” that TelexFree “struggled to maintain a consistent cash management system.
“It is also my understanding that on or about March 14, 2014, Wells Fargo Bank, N.A. . . . notified the Debtors that Wells Fargo was closing their depository account and that the Debtors needed to remove their cash on deposit.”
This may be the cash that was used to acquire the cashier’s checks. Regardless, the account closures signaled serious trouble for TelexFree, which the SEC and the Massachusetts Securities Division alleged have a history of not disclosing important information to members.
The assertion by MacMillan potentially means that TelexFree continued to gather money from both existing participants and new recruits after one of its key vendors notified it that an account was being closed.
Beyond that, if Merrill and Wanzeler owned a company in the Dominican Republic, it could lead to questions about whether they owned other firms in offshore venues and diverted money to those entities.
The same circumstance of account closures by major vendors arose in both the AdSurfDaily Ponzi scheme in 2008 and the Zeek Rewards Ponzi scheme in 2012.
(UPDATED 10:13 A.M. EDT APRIL 30 U.S.A.) Back in October 2012, two California members of the collapsed Zeek Rewards MLM “program” filed a self-written pleading with the federal judge presiding over the Zeek Ponzi- and pyramid case in North Carolina.
Just two months earlier — in August 2012 — the U.S. Securities and Exchange Commission had filed an emergency complaint against Zeek to halt its operations. At the time, the SEC described Zeek as a scam that had gathered about $600 million. Over time, the number swelled to about $850 million.
One of the core allegations in the Zeek case was that Zeek’s “advertising” component in which members spammed ads all over the Internet was a sham to help mask Zeek’s massive fraud scheme and the sale of unregistered securities. The 2008 AdSurfDaily Ponzi scheme ($119 million) had a similar “advertising” component and a daily payout rate somewhat on par with Zeek, which duped members into believing they’d receive an average return of about 1.5 percent a day.
The California Zeek members advised Senior U.S. District Judge Graham C. Mullen that Zeek had left them “on the verge of financial devastation.”
They were lured into the scheme based on suggestions it was legal and that members were accumulating wealth, according to the pleading. And the former Zeek members claimed that Zeek pitchman Tom More had acquired “over a million VIP points.”
In March 2014, Zeek receiver Kenneth D. Bell sued alleged Zeek winners and insiders based in the United States, alleging their gains had come from Zeek victims. The complaint against the named winners includes “a Defendant Class of Net Winners” who effectively are being sued in a prospective class action.
Listed as one of the thousands of “Net Winners Who Received $1,000.00 or More” from Zeek was Thomas A. More of Newport Beach, Calif.
In July 2013, Newport Beach became a staging ground for the alleged TelexFree Ponzi- and pyramid scheme, which the Massachusetts Securities Division (MSD) alleged had gathered more than $1.2 billion and told members they were getting paid for posting ads on the Internet. MSD filed an action against TelexFree two weeks ago today. So did the SEC.
When the SEC went to federal court in Massachusetts on April 15 to file a Zeek-like emergency complaint against TelexFree, the agency pointed to the Newport Beach TelexFree rah-rah session. There is a video of the event titled “TelexFree Corporate Speakers at Newport Beach Extravanganza.”
The video includes “comments” by TelexFree co-owners or executives James Merrill, Carlos Wanzeler and Steve Labriola, according to the SEC complaint.
One of Merrill’s comments, according to the video, was to thank “Tom” for putting together the “fabulous” July 2013 Newport Beach event, which occurred about a month after a court in Brazil froze TelexFree-related assets in that country and imposed a registration ban.
Among Merrill’s other comments, according to the video, was that “large corporations” for which he once provided services “squeeze you . . . until there’s nothing left.”
“They squeeze the employees until there’s nothing left,” Merrill said. “They use you up.”
Although the precise context of a follow-up remark by Merrill was unclear, the Zeek executive suggested that the government of Colombia “feared” network marketers and the “freedom” they represented.
Merrill next set his sights on the U.S. government.
Indeed, he went on to quiz an audience member (“Jay”) about whether Jay could “help the U.S. government with their credit, ’cause I don’t think anybody else . . .” Merrill’s remark appears to be related to a credit-repair service TelexFree had in the offing before it filed for bankruptcy April 13 in Nevada..
“No, he doesn’t want their business,” Merrill said at the Newport Beach “extravaganza,” answering his own question months ahead of the bankruptcy filing. He then suggested that the U.S. government, like the Colombian government, “feared” TelexFree and members of its MLM.
He added, “Those corporations fear your success because they can no longer squeeze you, they can no longer squeeze your wallet.”
JSS/JBP offered a return (precompounding) of 730 percent a year — more than Zeek, more than AdSurfDaily, more than TelexFree. In TelexFree, members said, $289 returned $1,040 in a year, $1,375 returned $5,200 and $15,125 returned $57,200.
Regulators have been warning for years that HYIPs switch forms and put on new disguises. The core scam, however, remains largely the same: claims that average people will become rich by posting ads or clicking on them or by doing nothing at all because visionary business leaders are running the “program.”
The Internet has opened the door to all sorts of viral scams, but electronic virality is not the only concern. Hotel conventions for MLM HYIPs are held in city after city. Madrid, Boston, Newport Beach and other cities were on the TelexFree tour. Certain pitchmen were taped in individual cameos.
TelexFree California organizer Tom More, late of Zeek, had such a cameo.
Here is part of what he said: “Bust and move on this now. Run, don’t walk. Get started today.”
TelexFree appears to have supplanted Zeek as the largest HYIP scam in U.S. history. It likely is the largest in world history.
