UPDATED 8 A.M. EDT U.S.A. New England Public Radio has a minute-long audio report on TelexFree, iFreeX and Sann Rodrigues, including comments from Massachusetts Commonwealth Secretary William Galvin.
Rodrigues, accused in April 2014 by the U.S. Securities and Exchange Commission of fraud over his alleged role in TelexFree, earlier (in 2006) was accused of fraud by the SEC in a separate alleged pyramid scheme involving phone products. iFreeX may constitute at least his third dance in securities- and affinity-fraud schemes involving communications products.
Galvin reportedly told the station that the “current whereabouts” of Rodrigues is unknown. The charged pitchman hails from Brazil, once resided in Massachusetts and also has lived in Florida.
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.
SEC case filings alleged that, on March 15, Rodrigues’ co-defendant Faith 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.”
Regulators have described TelexFree as a billion-dollar pyramid- and Ponzi scheme that operated across national borders.
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. Bowoin later was sentenced to federal prison for his $119 million Ponzi scheme.
Affinity fraud may occur in many contexts: appeals to religious faith, appeals to common interests, appeals to common heritage, appeals to common political interests and more.
More than two minutes and 40 seconds of a special version of “I Gotta Feeling” recorded by the Black Eyed Peas to honor Oprah Winfrey plays in this “team” promo for a matrix-cycler “program” known as “Diamond Holiday Feeder.” Neither the group nor Winfrey is credited. Source: screen shot from DailyMotion.com.
The Gmail address used by TelexFree figure Faith Sloan in a Sept. 23 DMCA takedown notice filed against BehindMLM.com appears below a 2010 video promo for a “program” known as “Diamond Holiday Feeder,” part of a larger “program” purportedly engaged in the travel business while also operating a matrix cycler.
Matrix cyclers sometimes are known as 2x2s or “get two who get two.” MPB Today, a collapsed matrix cycler that led to racketeering charges in Florida against the “program” operator, is an example of a 2×2. Another example is Regenesis 2×2, which led to a U.S. Secret Service probe in Washington state in 2009.
In a 3:44 video whose publication date is listed as April 8, 2010, Sloan claims to have made $10,000 in the Diamond Holiday Feeder program and further claims “you can do that over and over again.” The headline of the video is, “Ten Thousand Dollars Proof – Diamond Holiday Feeder – BYC.”
Another Sloan video for a “team” build of the Diamond Holiday “program” uses nearly three full minutes of a special version of “I Gotta Feeling” recorded by The Black Eyed Peas to honor Oprah Winfrey and the 24th year of The Oprah Winfrey Show in September 2009. Neither Winfrey nor the group is credited in the “team” promo. The “team” build video is dated March 21, 2010.
Ironically, Sloan has accused BehindMLM.com of copyright infringement, amid allegations it used photos to which she owned the copyright on its website.
BehindMLM.com says Sloan’s claims are bogus.
Though TelexFree would come later — after the apparent collapse of Diamond Holiday Feeder, with Sloan blaming events on management — an image of Sloan posing in front of a TelexFree logo appears on the Diamond Holiday Feeder video site. The site appears now to be driving traffic to a “program” known as “RE247365.” (BehindMLM.com is back online after being offline for all or parts of three days. Read its “RE247365” review.)
Sloan’s narration in the April 2010 video shows her Diamond Holiday Feeder back office and suggests she did not withdraw her purported earnings of $10,000 all at once to her bank account, but rather in smaller increments. Such a practice may lead to questions about whether she was engaged in structuring transactions to avoid bank-reporting requirements. In a civil action against TelexFree in April, the Massachusetts Securities Division raised the issue of structuring.
Other information suggests Sloan gravitated to Diamond Holiday Feeder after the collapse of the Noobing MLM scam in 2009. Noobing, in part, was targeted at people with hearing impairments, including a California woman the PP Blog interviewed in 2010 through her interpreter.
On a website deemed “The Official Web Blog” of Noobing, the program was described as a “hit” among deaf people. Noobing, according to the Blog, was promoted at Deaf Expos in Kansas, Missouri, New Jersey and Texas in 2008 “to connect with the often overlooked hearing impaired business community.”
Noobing was under the umbrella of an enterprise known as Affiliate Strategies Inc. that was running a government-grants swindle and was sued by the FTC and three state-level attorneys general for fraud. ASI went into receivership, taking Noobing with it. The enterprise had offshore conduits in Belize and Nevis.
On one August day in 2009, attorneys assisting the ASI receivership “received thirty two US Mail crates” filled with complaints from scam victims, receiver Larry Cook said at the time.
“The Receiver’s work over the past three weeks suggests the Defendants’ operations were insolvent on the date [July 24, 2009] the [Temporary Restraining Order] was entered and that for at least all of 2009, Defendants operated only by signing up new victims faster than the old victims could obtain refunds,” Cook said at the time.
Massachusetts Commonwealth Secretary William Galvin.
URGENT >> BULLETIN >> MOVING: Massachusetts Commonwealth Secretary William Galvin has issued a warning on an emerging scheme known as “IFreeX.”
Like TelexFree before it, IFreeX is being pitched by two-time SEC pyramid-scheme defendant Sann Rodrigues and is being targeted at the Brazilian community.
Rodrigues also is known as Sanderley Rodrigues de Vasconcelos, and individuals already have filed complaints about his promotion of IFreeX, Galvin’s office said. The headline on a state news release is, “SECRETARY GALVIN WARNS OF NEW PHONE SCAM TARGETING BRAZILIAN COMMUNITY.”
This is the entire statement issued by the Massachusetts Securities Division a short time ago (italics/logo graphic added by PP Blog):
Secretary of the Commonwealth William F. Galvin today warned investors, especially persons in the Brazilian community, about iFreex, a phone service app promising lucrative returns with minimal effort. It appears to be much like TelexFREE, a scam that targeted the Brazilian and other minority communities.
According to complaints made to the Securities Division, Sanderley Rodrigues de Vasconcelos, also known as Sann Rodrigues, who was once a top TelexFREE promoter, is now promoting iFreex, enticing investors to pre-register with promises of a new iPhone.
On his Facebook page, Rodrigues, a former Revere resident, even claimed that iFreex would be the new TelexFREE. TelexFREE was charged by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission earlier this year with fraud in operating a pyramid scheme. It is now in bankruptcy.
“iFreex appears to be nothing more than a rebranded TelexFREE fraud for mobile phones,” Secretary Galvin said. “Everyone, but especially those in the Brazilian and other immigrant communities that are the target of these pitches, need to be skeptical of any scheme that offers guaranteed returns with little or no effort. Unfortunately, we have seen an increase in these pyramid schemes in the past year.”
Rodrigues, who was charged by the SEC in the TelexFREE case, was charged in 2006 with a similar telecommunications scheme . . . and barred from securities dealings in Massachusetts. That scheme, too, targeted the Brazilian community.
iFreex appears to have many of the same characteristics as other pyramid schemes the Securities Division has recently brought actions against, including Wings, TelexFREE and WCM777.
While there is little information available about the iFreex operations, management, and headquarters, it is scheduled to go live in early November and is currently accepting preregistrations with the promise to investors of a new iPhone.
Those who have information about iFreex are encouraged to call the Securities Division at the toll-free 1-800-269-5428.
From Google cache earlier today for BehindMLM.com.
UPDATED 3:21 A.M. EDT SEPT. 30 U.S.A. The PP Blog is aware that BehindMLM.com, the popular review site that covers multilevel marketing and fraud schemes within the sphere, is offline. The precise reason why is unclear at this time.
BehindMLM.com reported Sept. 26 that it had received a DMCA takedown notice from Faith Sloan, an MLM HYIP huckster and figure in the TelexFree Ponzi- and pyramid-scheme story. In April 2014, Sloan was charged with securities fraud by the SEC for her alleged role in TelexFree, described by regulators as a billion-dollar fraud that crossed national borders.
In the takedown action, Sloan complained about certain photographs that have appeared on BehindMLM.com. Sloan claims to own the copyrights and that Behind MLM’s use of the photographs was unauthorized.
BehindMLM has called Sloan’s claims “bogus” and has said an outage was possible as the situation evolved.
Content from BehindMLM.com has been cited in court filings by TelexFree members who alleged that racketeering violations occurred within TelexFree. More than 1 million TelexFree victims may exist around the world.
Saying it had “credible evidence” of fraud, the state of Illinois issued a temporary prohibition order in March 2014 against Profitable Sunrise figure Nanci Jo Frazer. The order by the Securities Department of Secretary of State Jesse White also applied to purported Profitable Sunrise operator “Roman Novak,” as well as Profitable Sunrise itself and Inter Reef Ltd.
Inter Reef was a U.K. entity through which Profitable Sunrise apparently was operating. It was not immediately clear whether the temporary order has become permanent or whether Frazer or “Novak” contested it.
In an emergency action last year against Profitable Sunrise, the SEC described Profitable Sunrise as a ghost enterprise that “operates for the benefit of unknown individuals and/or organizations doing businesses through companies formed in the Czech Republic and using bank accounts in the Czech Republic, Hungary, Latvia, and China, among other places.”
Unlike state-level Profitable Sunrise actions in 2013, the March 2014 Illinois action alleged that Profitable Sunrise engaged in wrongdoing through Dec. 31, 2013. Various state regulators filed enforcement actions against Profitable Sunrise in early 2013. A 2013 action in Illinois did not name “Roman Novak” and Frazer respondents.
The March 2014 Illinois action accused Frazer and “Roman Novak” of fraud and selling unregistered securities while operating as unauthorized salespeople, dealers or brokers. In January 2013, according to the order, an Illinois resident in pursuit of a payout from Profitable Sunrise wired $15,000 to a “Bank in Czechoslovakia” in two separate transactions.
Frazer was accused of fraud by the state of Ohio in July 2013.
Her husband, David Frazer, is listed on the website of the court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case as a Zeek “winner” of a sum in excess of $1,000. Zeek, the SEC said, was a fraud that gathered hundreds of millions of dollars.
TelexFree promoter Faith Sloan — currently accused of securities fraud by the SEC — is a former Profitable Sunrise and Zeek promoter. Sloan was banned by Illinois from selling securities in June 2014.
Zeek said it paid an average of 1.5 percent a day, according to the SEC. Profitable Sunrise purported to pay up to 2.7 percent a day.
Longtime HYIP huckster and TelexFree figure Faith Sloan has been banned by Illinois from selling securities. The prohibition order is dated June 9. It was issued by the Securities Department of Illinois Secretary of State Jesse White.
The state found that Sloan, an Illinois resident, operated a TelexFree-related website and acted as an unregistered securities dealer, salesperson and investment adviser.
Violating the order could result in a felony charge, the state said.
Sloan, who faces TelexFree-related civil charges of securities fraud from the U.S. Securities and Exchange Commission, is associated with the website TelexFreePower.com. The website now appears not to be loading properly.
When Illinois observed the site, the state said in the prohibition order, the site loaded an image of an “exotic sports car” with a statement that read, “I made $200 in 7 days working 3 minutes a day.”
The image implied that “one would be able to afford the exotic sports car by becoming a member of TelexFree,” the state said.
The SEC also has referenced the TelexFreePower website. In addition to promoting the massive TelexFree pyramid- and Ponzi scheme, the SEC said, Sloan violated the asset freeze in the case and lied to a federal judge.
Faith Sloan. Source: YouTube.
The order also bans TelexFree managers or executives James Merrill, Carlos Wanzeler, Joe Craft and Steve Labriola from selling securities in the state.
Attorneys handling the TelexFree bankruptcy case appear to have became aware of the order at least by June 16, according to billing records in the bankruptcy case. The effect the order had on decision-making in the bankruptcy case is unclear.
On July 16, bankruptcy trustee Stephen B. Darr said in court filings that he has “no intention of reorganizing or reactivating” the TelexFree businesses. TelexFree, its former manager or executives and some of its promoters, including Sloan, are facing a mountain of litigation.
Merrill and Wanzeler have been indicted on U.S. charges of wire fraud and wire-fraud conspiracy. Brazilian federal police conducted TelexFree-related raids last week.
Sloan has blamed TelexFree, Merrill, Wanzeler and MLM attorney Gerald Nehra for her TelexFree-related troubles.
UPDATED 11:16 P.M. EDT U.S.A. We now may have an answer to some or all of these questions: What happens when you’re Massachusetts-based TelexFree — and apparently so out of touch that Sann Rodrigues, a former SEC defendant in a pyramid-scheme and affinity-fraud case, becomes one of the most recognizable public faces of your company and tells the troops (on video) that he’s made “$3 million?”
What happens when, on your home turf, you’re effectively targeting the same population group (Brazilian immigrants who speak Portuguese) Rodrigues was accused of targeting in his earlier scam, a scam that operated in part from Massachusetts? What happens when you’re also targeting Dominicans who speak Spanish?
And what happens when Rodrigues becomes one of the most recognizable public faces of your company after a federal judge — years earlier — had permanently enjoined him from violating the antifraud provisions of the federal securities laws?
Further, what happens when other promoters are going around telling recruits that $15,125 sent to TelexFree will return a guaranteed payout of $1,100 a week for a year and you don’t have to sell a single product to triple or quadruple your money? Further yet, what happens when Rodrigues plants the seed that all is well because an award-worthy American MLM lawyer is aboard the ship?
What happens when, say, serial MLM HYIP huckster Faith Sloan, fresh off the Zeek Rewards and Profitable Sunrise scams, also emerges as one of your top promoters?
Moreover, what happens when promoters are going around saying things such as TelexFree has gained “SEC approval” and publishing claims such as this?
“With the authorization from the attorney general to launch in the US, many predict we’ll see extraordinary growth in the United States in 2013.” —From promos for TelexFree in 2013
What happens when, say, the claim that U.S. Attorney General Eric Holder has vetted TelexFree appears on a Facebook site purportedly operated by “TELEXFREE TEAM NIGERIA.”
Think you might gain the attention of, say, the U.S. Department of Homeland Security? Think that attention might increase after promoters suggest that President Obama had your back? Think it might further intensify if it turns out that Brazilians and Dominicans in Massachusetts weren’t enough, that you’d also reached into communities in South America, Hispaniola, Europe, Africa and Asia?
Might the attention you’re receiving intensify after you’re suddenly filing bankruptcy on a Sunday night when, during the two previous months, you’d been telling Public Utilities Commissions in one state after another that you’re flush with cash — so much so, that you even can lend millions of it out?
What happens when, say, one of the states you assured of your financial clout played host to the “2012 Cybercrime Conference” hosted by the U.S. Department of Justice at which one of the top national-security advisers to the President of the United States observed that cybercriminals bent on poking holes in banks may be responsible for “the greatest transfer of wealth in history?”
“Outside the public eye, a slow hemorrhaging is occurring; a range of cyber activities is incrementally diminishing our security and siphoning off valuable economic assets” — Lisa Monaco, Assistant Attorney General for National Security, Oct. 25, 2012. NOTE: Monaco now holds the title of Assistant to the President for Homeland Security and Counterterrorism.
What if you’ve used U.S. banks and payment systems to help you gather more than $1.2 billion and then declared bankruptcy just a little more than two years after you launched your “program” in cyberspace? What happens when, just days earlier, you’d been telling Public Utilities Commissions that you were so flush with cash you could lend millions to entities of your creation or choosing, but now are claiming to to have liabilities of as much as $600 million and assets of only approximately $100 million?
What if your bankruptcy filing and program compensation tweaks occurred under conditions that strongly suggested you were trying to beat regulators to the courthouse? What if, only days later, it became known that undercover federal agents had the lay of the land inside your operation before you even went to bankruptcy court?
Think the U.S. Bankruptcy Trustee might use the term “rabbit hole” to describe your operation and push for the appointment of a trustee to burrow down that hole and gain a deep understanding about TelexFree?
And do you think — do you just think — the SEC might be inclined to file something such as this? (Italics added.)
The Securities and Exchange Commission (“Commission”) hereby moves, and defendants TelexFree, Inc., TelexFree, LLC, and relief defendant TelexFree Financial, LLC (collectively “the Debtors”) hereby assent, to modify the May 9, 2014 consent order (docket no. 100) to allow Stephen B. Darr, as Chapter 11 Trustee of TelexFree (the “Trustee”), to maintain bank accounts at RaboBank, NA in the name of the Debtors, as well as permit the Trustee to pursue claims and recover all property of the respective Debtors apart from those assets seized or restrained now or in the future by the United States Attorney for the District of Massachusetts or its agents.
The SEC filed the motion above yesterday.
Darr is now running things at TelexFree. He said in court filings yesterday that has “no intention of reorganizing or reactivating their businesses.”
It seems very much as though Darr’s plan is to go very deep into the rabbit hole of TelexFree.
UPDATED 10:48 P.M. EDT U.S.A. A plaintiff bringing a prospective class-action lawsuit in Massachusetts federal court has accused 10 TelexFree figures of committing crimes and — as a group — committing racketeering violations through an “association-in-fact enterprise.”
Unlike other prospective TelexFree-related class-actions, this one names neither attorneys nor banks nor TelexFree itself defendants. Rather, it pins the onus of the conduct exclusively on James Merrill, Carlos Wanzeler, Steve Labriola, Joe Craft, Fabio Wanzeler, Sann Rodrigues, Santiago De La Rosa, Randy Crosby, Faith Sloan and Carlos Costa.
Costa, a Brazil-based TelexFree figure, is described in the complaint as the “mastermind of the TelexFree pyramid scheme of fraud.” The complaint further asserts Costa conducted business in Massachusetts, where TelexFree operated an entity known as TelexFree Inc.
Olavo F. Magalhaes of Milford, Mass., is the plaintiff. The complaint says Magalhaes invested more than $209,000 in TelexFree LLC, the Las Vegas-based TelexFree business that operated in a Massachusetts office suite.
The crimes alleged against the defendants include fraud, securities fraud, wire fraud and conspiracy. Violations of civil law also are alleged.
On the racketeering front, the complaint alleged, the members of the “association-in-fact enterprise” associated together between January 2012 and April 15, 2014, “for the purpose of conducting an illegal pyramid scheme and wrongfully enriched themselves” at the expense of Magalhaes and others.
“Each member of the enterprise played a role in the targeting of victims, advertising and working together to make the TelexFree enterprise work,” the complaint alleged.
Fabio Wanzeler is the brother of Carlos Wanzeler, an alleged international fugitive accused criminally by federal prosecutors of wire-fraud conspiracy in the United States. Carlos Wanzeler is believed to be in Brazil.
Fabio Wanzeler, formerly of Worcester, Mass., is believed also to be in Brazil, according to the Magalhaes complaint.
In other TelexFree news, a federal judge has denied a motion by Faith Sloan to make more than $15,000 available to her.
MLM attorney Gerald Nehra, his law partner Richard Waak and their law firm are now lawyered up in the TelexFree bankruptcy case.
Groups of TelexFree members have sued them in bankruptcy court, alleging violations of the federal racketeering (RICO) statute and violations of federal securities laws. TelexFree filed for Chapter 11 bankruptcy protection on a Sunday evening in April, just prior to fraud actions filed by securities regulators.
Attorneys Christopher F. Robertson and William J. Hanlon, partners in the Boston office of Seyfarth Shaw LLP, entered appearance notices for Nehra, Waak and the firm yesterday.
Also named defendants in some or all of the actions are TelexFree, alleged officers or executives James Merrill, Carlos Wanzeler, Carlos Costa, Steve Labriola and Joe Craft, alleged promoters Sann Rodrigues, Randy Crosby, Santiago De La Rosa and Faith Sloan, and several alleged financial vendors or service-providers.
In a complaint filed May 3, 2014, plaintiffs accused Nehra of counseling TelexFree “on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”
He further was accused of encouraging unknowing TelexFree members to “participate in the evasion of federal and state securities laws.”
Sloan, in response to fraud allegations against her filed by the U.S. Securities and Exchange Commission, said she “believed what [SEC Co-] Defendants Carlos Wanzeler, James Merrill, Steve Labriola and their attorney, Gerald Nehra, had told her, until TelexFree continued to miss the deadlines for the launch of its new products.”
Nehra, Waak and the law firm are not defendants in the SEC action. Nor are they defendants in a TelexFree-related securities action by the Massachusetts Securities Division. Sloan, who later was accused by the SEC of violating the asset freeze against her in the SEC case by sending thousands of dollars to another “program” and transferring her interest in a real-estate trust to her mother, is a longtime HYIP huckster.
In a separate criminal case that alleges wire-fraud conspiracy against Merrill and Wanzeler, Merrill has signaled that he intends to use a defense of reliance on Nehra’s lawyering. The Massachusetts Securities Division has described TelexFree as a “financial pariah” and a combined pyramid- and Ponzi scheme that had gathered more than $1.2 billion. The SEC likewise has accused TelexFree of hatching a billion-dollar pyramid-and Ponzi scheme, saying it was aimed largely at Brazilians and Dominicans.
Nehra, according to plaintiffs suing him in in at least one of the TelexFree-related actions in bankruptcy court, advised at least two other “programs” regulators accused of operating massive pyramid or Ponzi schemes: Zeek Rewards (2012/$850 million) and AdSurfDaily (2008/$119 million).
Sloan is known to have promoted Zeek Rewards. Some HYIP promoters move from scheme to scheme to scheme, piling up purported “earnings” alleged to be fraudulent along the way.
“Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law,” plaintiffs alleged. “Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”
Zeek-related actions still are winding their way through the courts. The Zeek “program” was back in the news yesterday, with the court-appointed receiver alleging that an affiliate who appears to have invested $10 filed a claim for $30 million and that a vendor alleged to have aided Zeek wanted nearly $15 million.
From an SEC filing today that alleges Faith Sloan violated the TelexFree asset freeze by sending money to a “program” known as Changes Worldwide LLC. Redactions by PP Blog.
BULLETIN: (4th Update 10:01 a.m. EDT June 13 U.S.A.) The SEC has accused Faith Sloan of violating the asset freeze imposed against her in the TelexFree pyramid- and Ponzi case by sending nearly $15,000 to Changes Worldwide LLC for the purchase of “business promo packs.” On its website, Changes Worldwide identifies Robert Craddock as its copyright agent. He also is believed to be an affiliate for Changes Worldwide.
Whether the SEC would seek return of the money from Changes Worldwide was not immediately clear. Recipients of ill-gotten gains can become relief defendants in SEC actions.
Craddock emerged as a figure in the Zeek Rewards Ponzi scheme case, with the SEC asserting in 2012 that he encouraged affiliates not to cooperate with the court-appointed receiver in the Zeek case. The receiver said at the time that he had obtained information “indicating that large sums of Receivership Assets may have been transferred by net winners to other entities in order to hide or shelter those assets.”
While a purported consultant for Zeek in July 2012, Craddock, citing alleged trademark and copyright violations, sought to shut down a Hubpages site by K. Chang that questioned the Zeek program, which the SEC and federal prosecutors later described as an $850 million fraud. K. Chang publishes the MLM Skeptic site.
One of the assertions against Sloan today by the SEC is that she had the sole power of direction and was the sole beneficiary of a real-estate trust, but amended trust documents after the TelexFree freeze to transfer her interest to her mother — in violation of the asset freeze. Sending money to Changes Worldwide and a separate entity known as Changes Trading LLC also violated the freeze, the SEC alleged.
The SEC said that it had linked Sloan to three transactions with Changes Worldwide on April 25, eight days after Sloan learned of the asset freeze. Two of the transactions were for $5,000 each, and a third was for $4,854, the SEC asserted.
On April 28, 11 days after she learned about the freeze, Sloan sent $3,990 to Changes Trading, using two separate checks for $1,995 each, the SEC alleged.
Neither of the “Changes” entities nor Craddock has been accused of wrongdoing, but the alleged Sloan transactions lead to questions about whether MLM promoters accused of fraud are hiding money in other “programs” and abusing trusts in bids to avoid detection and keep their interests in schemes intact.
A crime known as structuring also could be occurring if the transactions are set up to evade bank-reporting requirements. In a civil action against TelexFree in April, the Massachusetts Securities Division raised the issue of structuring.
The SEC said today that Sloan had asserted her Fifth Amendment right against self-incrimination over a TelexFree related matter involving the asset freeze cited in a preliminary injunction. The injunction requires her to identify her assets. She has not been charged criminally, but it is known that a criminal probe is under way.
2ND UPDATE 9:44 P.M. EDT U.S.A. Just last week, accused promoter Faith Sloan was blasting TelexFree figures James Merrill and Carlos Wanzeler, as well as MLM attorney Gerald Nehra. In defense filings in the SEC’s civil case against her, Sloan threw all three men under the bus.
Merrill asserted that Nehra was among multiple attorneys with whom he consulted while operating TelexFree. Parts of the brief read like a damning of the MLM legal trade with faint praise.
Nehra, Merrill contended, “holds himself out as the expert in the field of multi-level marketing.”
And, Merrill argued through defense attorney Robert M. Goldstein, Nehra “offered his support for the multi-level marketing plan being used by TelexFree, and told promoters he was ‘honored to be the MLM specialist on retainer attorney for TelexFree.’”
Class-action lawyers have contended Nehra engaged in racketeering with Merrill and others while counseling TelexFree and divined a construction by which TelexFree was not engaging in fraud and the sale of unregistered securities.
Merrill nevertheless contends that he has “substantial ‘advice of counsel’ and state of mind defenses to any prosecution—a point the government to date has not contested in the slightest respect.”
Regulators have called TelexFree a billion-dollar Ponzi- and pyramid fraud that used a VOIP product as a front to mask an investment scheme that promised returns of more than 200 percent a year — with sales commissions on top of the investment plan.
In the early stages, Merrill’s defense has concentrated on getting him freed on bail. He’s been detained since his May 9 arrest on a criminal charge of wire-fraud conspiracy. Merrill has signaled that a “reliance of counsel” defense, specifically the counsel of Nehra, may be part of his strategy as the case-in-chief winds through federal court in Massachusetts.
Another part of Merrill’s strategy appears to be to highlight Merrill’s family bonds to Massachusetts while at once trashing legwork by law enforcement. Merrill today contended that an affidavit prepared by a federal agent after an undercover probe that began at least by October 2013 was “grossly misleading” and “remarkably misleading.”
At the same time, Merrill contends that favorable testimony delivered in the TelexFree bankruptcy case by interim TelexFree CEO Stuart MacMillan should be considered by the judge in the criminal case to free Merrill on bail.
Merrill and co-defendant Carlos Wanzeler hired MacMillan on April 13, according to court filings. Like Merrill, Wanzeler has been charged criminally with wire-fraud conspiracy. Federal prosecutors have described Wanzeler as an international fugitive.
Testimony by William Runge, a turnaround specialist working with MacMillan, also is favorable to Merrill’s position he should be released on bail, according to the defense filing today.
Prosecutors have contended Merrill should remain jailed, saying he may have access to cash and admirers to help him make an escape bid and asserting that TelexFree had a “cult-like quality” and thousands of promoters who “remain fanatically loyal to the company.”
Merrill also claimed today that TelexFree’s Alexa ranking was “astounding” in a good way and demonstrated that the government overreached in efforts to keep Merrill in jail.
MLMers often suggest that a high ranking in Alexa is “proof” of the legitimacy of a “program.”
How soon a judge will decide the bail issue was unclear tonight. Merrill lost his initial bid last month to be freed on bail.
UPDATED 8 A.M. EDT U.S.A. New England Public Radio has a minute-long audio report on TelexFree, iFreeX and Sann Rodrigues, including comments from Massachusetts Commonwealth Secretary William Galvin.
