BULLETIN: The government of Colombia appears to be seizing assets linked to four Colombians with alleged ties to TelexFree, which authorities in the United States have described as a massive cross-border pyramid- and Ponzi scheme.
La Superintendencia de Sociedades, Colombia’s Superintendency of Companies, has published notices of the action. (See link to document (Spanish) below.)
At a 2013 TelexFree event in California, then-TelexFree President James Merrill suggested from the stage that the Colombian government “feared” network marketing.
The precise context of Merrill’s remark on Colombia made at the Newport Beach TelexFree confab last year was unclear. In an April 2014 pyramid- and Ponzi complaint against TelexFree, the U.S. Securities and Exchange Commission referenced comments made by Merrill and TelexFree figures Carlos Wanzeler and Steve Labriola at the Newport Beach event.
Brazilian federal police have conducted TelexFree-related raids, as have the U.S. Department of Homeland Security and the FBI in the United States.
The infamous D.M.G. Group (DMG) “program” in Colombia and other nations had ties to money-laundering and narcotics trafficking, with U.S. federal prosecutors saying hundreds of “subsidiary and affiliated companies” were established in a bid to cleanse dirty money.
If you’re a student or educator or employee or boss with a traditional M-F schedule, chances are you’ll be hearing about a new Ponzi scheme before the final bell rings or the final whistle blows on Friday.
During the first six months of 2014, a Ponzi scheme was discovered every 4.9 days (or every 118 hours), according to an eye-popping report today by Jordan Maglich at PonziTracker.com.
From PonziTracker (italics added):
. . . Ponzi schemes remain rampant in the United States and worldwide despite mounting government and regulatory efforts. Indeed, the 37 schemes discovered during the first half of 2014 suggest that at least 74 schemes will be discovered in 2014 — approximately 10% more than the 67 schemes unearthed in 2013.
The largest alleged scheme discovered in 2014 so far is TelexFree, PonziTracker reports.
Read the report on PonziTracker, which also notes Ponzi prison sentences handed down this year are on pace to top last year’s cumulative sentencing total.
The PP Blog’s research shows that MLM HYIP Ponzi schemes that spread through commission-based salespeople are the most insidious because they create victims in numbers America’s largest sports stadiums cannot accommodate.
Both Zeek Rewards (2012) and TelexFree (2014) may have created hundreds of thousands of victims each. The combined schemes could fill the Rose Bowl to capacity with victims 15+ times over and have led to requests by prosecutors or receivers to ask courts to approve special victim-notification procedures because of the overwhelming numbers.
The staff of the Missouri Public Service Commission raised “grave concerns” that permitting TelexFree’s telecom registration to remain intact in the state could “assist in the perpetuation of a fraud on investors,” records show.
Missouri approved the registration in March 2014. TelexFree applied for it the previous month, according to records.
Those records included a notarized TelexFree affidavit dated Feb. 14 — Valentine’s Day — and signed by “Jim Merrill,” who held the title “Managing Member.” The name and seal of a Massachusetts notary public appear on the document.
Among other things, the document attests that TelexFree is “ready, willing, able, and will comply with all applicable state and federal laws and regulations imposed upon providers of interconnected voice over Internet protocol services.” It also attests that “the Applicant is legally, financially, and technically qualified to provide interconnected voice over Internet protocol services.”
But on April 13, 2014, just weeks after “Jim Merrill” had advised Missouri that TelexFree was “financially” qualified to operate in the state, TelexFree filed for bankruptcy protection in Nevada. (The case since has been moved to Massachusetts.)
In May, Missouri moved to revoke TelexFree’s registration, citing information it had received April 18 from Joseph Isaacs, a TelexFree telecom consultant.
“Mr. Isaacs indicated the affidavit signed by Jim Merrill is not truthful,” a Public Service Commission staffer wrote to the full commission. The staffer recommended revocation of TelexFree’s registration.
Isaacs, according to the staffer’s affidavit, pointed the commission to civil fraud actions against TelexFree filed by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission on April 15, two days after the bankruptcy filing.
By May 9, federal prosecutors had announced the criminal prosecution of TelexFree figures James Merrill and Carlos Wanzeler. The Missouri staffer pointed the commission to a news release by the office of U.S. Attorney Carmen Ortiz on the Merrill/Wanzeler prosecutions for wire-fraud conspiracy.
The Missouri staffer also advised the commission that the FBI and Homeland Security Investigations (HSI), an arm the U.S. Department of Homeland Security, were involved in the TelexFree probe. He also noted that TelexFree itself had acknowledged on its website that service interruptions or discontinuation were possible because “we are not currently in position to support our network.”
The staffer recommended that TelexFree be stripped of its telecom registration. On May 27, the commission gave TelexFree until June 24 to respond to a motion to revoke the registration.
“TELEXFREE did not respond,” the commission said in a July 2 revocation order. The order became effective Aug. 1.
Records in other states show that TelexFree filed a flurry of telecom-registration applications in the weeks leading up to its bankruptcy filing and the exposure of its alleged pyramid- and Ponzi scheme.
Only in MLM: In a head-scratching promo earlier this year, TelexFree cheerleaders used an image of the Pyramids of Giza during an active pyramid-scheme probe in Brazil. Red highlight by PP Blog.
If you’ve been following TelexFree developments, you’ve probably heard about “Operation Orion,” the code name for the investigation that led to raids against TelexFree’s Ympactus arm last week by the Brazilian federal police. The Orion name was chosen, police said, because it fit splendidly within the context of a pyramid-scheme case.
How so? The Pyramids of Giza in Egypt were aligned with the Orion constellation, police explained.
Our analysis of the “Operation Orion” name is that it shows heady messaging by Brazilian police. It is direct in the sense that TelexFree, after all, may be the world’s largest MLM HYIP pyramid scheme. And it’s subtle in the sense that so many pyramid-scheme participants have bright stars in their eyes that blind them to the realities of mathematics.
Here we’ll point out that, for whatever reason, someone within the TelexFree sphere got the head-scratching idea earlier this year to use an image of the Pyramids of Giza in a promo for TelexFree during an active pyramid-scheme probe in Brazil.
We believe it notable that Brazilian police also referenced the Pyramids of Giza, given their presence in a TelexFree promo.
For newer readers, we’ll also point out that the HYIP sphere is infamous for taunting the law-enforcement community. Like TelexFree, a “program” known as WCM777 also came under investigation in multiple countries earlier this year. Naturally someone within the WCM777 sphere shoved an image of a pyramid down the throat of law enforcement after word of the investigations became public.
Second Tour (At Least) For ‘Operation Orion’
Did you know that the code name “Operation Orion” chosen by Brazilian police previously had been used by the United States in a major law-enforcement action, albeit in a completely different context? (More on the 2012 U.S. action below.)
What’s your thinking? Are two Operation Orions in two years coincidence?
And did you know that the U.S. Department of Homeland Security (DHS), which has its own TelexFree probe, has an office in Brasilia and a history of cooperating with Brazil’s federal police — and that some criminal investigators from outside the United States receive training at the DHS Federal Law Enforcement Training Center in Glynco, Ga? (The U.S.-sponsored training also sometimes occurs in countries that host the United States. Some Brazilian investigators, for example, have received U.S. training in Peru. See photo below.)
U.S. prosecutors did not respond to a request for comment on whether there was any coordination between the United States and Brazil last week on TelexFree-related events: the indictment of TelexFree figures James Merrill and Carlos Wanzeler in the United States, and the public announcement of “Operation Orion” in Brazil.
What’s In A Code Name?
U.S.-based police, prosecutorial and regulatory agencies regularly conjure up operational names to distill the essence of the law-enforcement goal and to send a message that fraudsters never should be confident. Agencies also sometimes engage in something we’ll describe as reverse black comedy whose purpose is to accent the absurdities of scams and scammers. In New Jersey last year, for example, a law-enforcement action targeted at alleged booze diluters was memorably named “Operation Swill.”
It was an instant classic.
A long-running FBI operation targeted at dozens of penny-stock fraudsters a few years ago was dubbed “Operation Shore Shells,” in part because the probe occurred near the sea and in part because the fraud involved the use of shell companies, often a nemesis of legitimate commerce. The SEC, which regulates the U.S. securities markets, once dubbed an action directed at hundreds of companies ripe for pump-and-dump swindles “Operation Shell Expel.”
To out illegal gambling conduits reaching into the United States, DHS once set up a sting operation and “obtained a business address near Atlantic City, New Jersey” to bolster undercover operatives’ street cred. As part of the operation, the Feds created a bogus “payment processor” known as Linwood Payment Solutions to “negotiate contracts and terms of the processing, and to handle the intricate movement and processing of collection and payment data from the gambling organizations to the banks.”
These well-dressed greeters actually were part of a federal undercover operation dubbed “No Such Thing as a Free Lunch.” Source: U.S. Marshals Service. Red blocks by PP Blog.
The U.S. Marshals Service, in charge of rounding up fugitives, once famously conjured up a sting dubbed “No Such Thing as a Free Lunch” that operated as part of a larger sting dubbed FIST — for Fugitive Investigative Strike Teams.
As part of a six-year FIST operation in the 1980s, marshals created a fake business known as “Flagship International Sports Television Inc.,” obtained the last-known addresses of more than 3,000 wanted persons and sent brunch “invitations” that promised free food and free National Football League game tickets to those addresses. The marshals also offered a shot at free Super Bowl tickets.
The free-food sting netted 100 arrests. FIST overall netted more than 14,700.
Undercover TelexFree Probe
It is known that DHS conducted a TelexFree-related undercover operation that lasted for months. Whether the operation extended to foreign soil and had a formal name is unclear. Based on its research, the PP Blog believes that undercover stings (named and unnamed) operated by U.S. government agencies and aimed at HYIPs have been operating continuously in the United States since at least 2006.
One of the reasons is that the schemes put banks in the line of fire and often target disadvantaged populations. Beyond that, HYIP schemes have a history of trading on the names of the White House and U.S. government agencies, thus confusing people across the world. TelexFree promoters, for instance, traded on the names of President Obama, the cabinet-level office of the U.S. Attorney General, the SEC and Massachusetts Commonwealth Secretary William Galvin. Why? To cloak themselves in a veneer of legitimacy and to drive money to a scheme that purportedly returned $1,040 in a year to people who paid in $289, $5,200 to people who paid in $1,375 and $57,200 to people who paid in $15,125.
Even Bernard Madoff would gag at the thought.
Female police officials from multiple countries, including Brazil, received U.S. training in Peru in 2012. Photo source: DHS.
With the Internet emerging as the favored delivery vessel of both clever and unclever fictions aimed at transferring great sums of wealth and putting unwarranted financial power in the hands of criminals and criminal enterprises, the need has arisen to pursue cross-border frauds aggressively. The only way to minimize the mushroom effect of fraud schemes operating on the Internet is through international cooperation at the highest levels of government and law enforcement.
Put another way, your latest recruit could be a Fed. The person you instructed not to “call it an investment” (as part of a ham-handed cover-up bid) could be a Fed. The person sitting next to you at a hotel “extravaganza” of some sort could be a Fed. So could the person in the cabin next to you on the scammers’ cruise ship. So could the recruit who, at your direction, paid you personally while joining, instead of paying the company. That upline guy — the one who sponsored you and asked you to pay him personally — could have one or more Feds in his downline. Those Feds could be “placing ads” for the program and keeping notes on whether anybody signed up under them.
Channeling?
Could Brazilian authorities who selected the name “Operation Orion” and referenced the Pyramids of Giza perhaps been channeling their U.S. counterparts and engaging in some reverse black comedy to point out the absurdity of scams? Man, we hope so.
As noted above, someone within the TelexFree sphere showcased the Pyramids of Giza during a pyramid-scheme probe in Brazil. Apparently no one in TelexFree thought it prudent, say, to stop the scheme during the Brazilian probe.
Because the HYIP sphere is populated by the most disingenuous “businesses” and people you’ll ever encounter, it’s easy enough to read such an act as telling law enforcement to shove it. Fractured thinking and taunts at law enforcement are core signatures of HYIP frauds, perhaps characteristics every bit as defining as preposterous daily payout rates of between .50 and 2.75 percent.
Good fortune certainly did not shine down on TelexFree from Orion on July 23, the date of the U.S. indictments. Nor did it shine down on July 24, the date the “Operation Orion” pyramid probe was announced in Brazil.
In our view, the name “Operation Orion” selected by Brazilian police was practically perfect.
In addition to being a star constellation, Orion is the great hunter from Greek mythology. With Brazil’s “Operation Orion,” alleged pyramid schemers became the hunted.
Alleged child predators were the hunted in the U.S. version of “Operation Orion,” a 2012 sting engineered by DHS. Arrests were made in the United States, Spain, the Philippines, Argentina and the United Kingdom. The DHS agency that launched the 2012 version of “Operation Orion” is known as Immigration and Customs Enforcement — or ICE for short. Homeland Security Investigations (HSI) is an ICE directorate.
From ICE (italics/bolding added):
HSI investigates immigration crime, human rights violations and human smuggling, smuggling of narcotics, weapons and other types of contraband, financial crimes, cybercrime and export enforcement issues. ICE special agents conduct investigations aimed at protecting critical infrastructure industries that are vulnerable to sabotage, attack or exploitation.
In addition to ICE criminal investigations, HSI oversees the agency’s international affairs operations and intelligence functions. HSI consists of more than 10,000 employees, consisting of 6,700 special agents, who are assigned to more than 200 cities throughout the U.S. and 47 countries around the world.
U.S. court records show that HSI started the undercover investigation into TelexFree at least by October 2013. Other records show HSI has an attaché office in Brasilia, the capital of Brazil.
In May 2014, ICE and HSI announced they had cooperated with federal police in Brazil in a sting known as “Operation Proteja Brasil,” described as aimed at protecting against child porn.
From ICE (italics/bolding added):
Some of the warrants executed during this operation were the direct result of leads provided by HSI Brasilia and the National Center for Missing & Exploited Children (NCMEC).
The Wall Street Journal and the New York Times are reporting tonight that golfer Phil Mickelson’s name has surfaced in an insider-trading probe that also involves billionaire investor Carl Icahn and Las Vegas sports bettor William “Billy” Walters.
Reports say Mickelson was approached today by the FBI at the Memorial golf tournament hosted by Jack Nicklaus in Dublin, Ohio. The SEC also is investigating.
La Republica, a newspaper in Peru, is citing information from police and reporting that a TelexFree promoter in the country was kidnapped Thursday afternoon and held in a van. The PP Blog cannot independently verify the report, which suggests the kidnapping was carried out by TelexFree members who ordered the man to withdraw money from a bank to make them whole.
In Peru and across the world, individual TelexFree members recruited others into MLM downlines. La Republica’s report suggests the kidnappers’ extortion plot failed, but one person reportedly was captured while others fled.
Court records in the United States allege that some TelexFree sponsors collected money from individual recruits, rather than directing the recruits pay TelexFree directly. Such a practice may establish a dangerous black-market economy while setting the stage for scams to occur inside of scams.
How the asserted Peruvian kidnapping victim handled TelexFree transactions is unclear. Even if recruits paid TelexFree directly, however, it’s no guarantee against an angry mob. In a 2009 Ponzi case in the United States, the FBI warned against Ponzi victims taking matters into their own hands. Four persons were charged criminally in an alleged shakedown bid associated with the 2009 case in California.
“In their guilty pleas the defendants admitted to creating an environment that was intimidating and causing the individuals to believe that they were not free to leave,” the FBI said in 2010.
On April 1, 12 days before TelexFree declared bankruptcy in the United States, unhappy affiliates jammed the “program’s” office in Massachusetts. Police were called to defuse the situation.
It’s often the case in the HYIP sphere that individual promoters push multiple scams simultaneously, potentially setting the stage for recruits to take multiple baths. It is known, for example, that some TelexFree promoters also were pushing WCM777 and Wings Network.
The SEC has called WCM777 an $80 million fraud scheme. Wings Network has been accused in Massachusetts of selling unregistered securities as investment contracts. Vulnerable populations often are targeted in HYIP scams.
There have been reports of at least two TelexFree-related suicide deaths. Some TelexFree affiliates spammed reports of the deaths with offers to join the “program,” which the Massachusetts Securities Division has described as a combined pyramid- and Ponzi scheme that gathered more than $1.2 billion.
In April, the U.S. Securities and Exchange Commission sued TelexFree and eight managers/executive or promoters, alleging a massive fraud scheme.
Some promoters continued to promote TelexFree after a Brazilian court froze TelexFree-related assets last year and suspended new registrations in that country. Promoters’ solicitations to prospects to join the “program” continued even after a judge and prosecutor in Brazil were threatened with death.
As the PP Blog reported on May 22, the FBI and the U.S. Department of Homeland Security have established a website for TelexFree victims. So has the Massachusetts Securities Division, as the PP Blog reported on April 25. As the PP Blog reported on May 15, the U.S. Securities and Exchange Commission has published TelexFree information in English, Spanish and Portuguese.
In this TelexFree promo, former President James Merrill posed with a giant SUV.
The FBI and the U.S. Department of Homeland Security have established a website for individuals who believe they were defrauded by TelexFree, an alleged pyramid- and Ponzi scheme the Massachusetts Securities Division says gathered more than $1.2 billion.
Alleged TelexFree co-owners James Merrill and Carlos Wanzeler have been charged criminally with wire-fraud conspiracy. Merrill, 53, of Ashland, Mass., is jailed in the United States. Wanzeler, 45, of Northborough, Mass., is alleged to have fled to Brazil. The U.S. Department of Justice describes him as a fugitive.
TelexFree, Merrill, Wanzeler and six other alleged TelexFree managers, executives or promoters also are defendants in a major civil prosecution by the U.S. Securities and Exchange Commission.
By some accounts, TelexFree had between 700,000 and 1.5 million participants.
From the FBI/DHS statement (italics added):
The large number of possible victims necessitates that we ask for your assistance by completing the secure questionnaire online. Your responses are voluntary, but would be useful in the federal investigation and to identify you as a victim.
The office of U.S. Attorney Carmen Ortiz of the District of Massachusetts is prosecuting the criminal cases against Merrill and Wanzeler.
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.
1:07 p.m. PPBlog note: Based on Jordan’s reporting, it looks as though the U.S. Attorney’s office has filed civil and criminal forfeiture actions. This is similar to what happened in the AdSurfDaily MLM HYIP case in 2008.
1:18 p.m. PPBlog note: One way to view the forfeiture actions is that the United States perceives an attack on the country’s banking infrastructure, opening the door for banks and payment processors effectively to become warehouses and distribution centers for fraud proceeds. For the sake of discussion, let’s say TelexFree has 700,000 members. This could mean there are 700,000 conduits to offload proceeds accumulated during a Ponzi scheme. The FBI has been warning about this type of thing for YEARS.
4:30 p.m. PPBlog note: Testimony resumes after break for lunch. Visit PonziTracker.
URGENT >> BULLETIN >> MOVING: (Updated 6:24 P.M. EDT U.S.A.) The U.S. Securities and Exchange Commission has entered the TelexFree fray in Nevada Bankruptcy Court and has petitioned the judge to transfer the case to Bankruptcy Court in the Central District of Massachusetts, an area that is a potential TelexFree stronghold. The Central District covers communities such as Worcester, Ashland, Framingham, Holliston, Bellingham, Franklin and Medway.
In a filing, the SEC also noted that the FBI and Department of Homeland Security are involved in a separate TelexFree probe led by the office of U.S. Attorney Carmen M. Ortiz. How long that probe has been under way was unclear in the filing.
SEC lawyers asserted Massachusetts was the “nerve center” of TelexFree and that TelexFree’s “late Sunday” bankruptcy filing in Nevada on Oct. 13 was a “transparent attempt to avoid Massachusetts, where their ‘business’ and numerous witnesses are located and where various government agencies have been investigating their fraudulent conduct.”
“[U]ntil [April 15], the U.S. Attorney’s Office was operating in secret,” the SEC advised a federal judge in Massachusetts last week, according to a transcript provided the Nevada Bankruptcy Court. “We couldn’t reveal ourselves without tipping things, so we had to wait until the search warrant was executed [on April 15.]”
TelexFree nevertheless knew the regulators were coming and started moving money, the SEC said.
One SEC investigator advised the Massachusetts judge who granted an asset freeze that he’d personally viewed “several hours” of TelexFree-related YouTube videos and performed transcription work before the SEC filed its fraud complaint last week, according to the transcript.
“[T]here are plenty of examples of each of those people helping to promote the scheme and helping to explain how great it is, how much money you can make for virtually no effort, and without — they’re all active enough, these people — well [James] Merrill, [Carlos] Wanzeler, and [Steve] Labriola are officers, they certainly know this,” the SEC investigator advised the Massachusetts judge.
The Massachusetts judge granted an asset freeze on April 16.
Worried members wedge themselves into TelexFree’s broom closet in Marlborough, Mass, Tuesday. Source: YouTube.
UPDATED 12:15 P.M. EDT (U.S.A.) The Boston Red Sox were at the White House Tuesday to receive recognition for winning the 2013 World Series. There were plenty of smiling faces, perhaps particularly when slugger David Ortiz, the MVP of the series, posed for a selfie with President Obama.
But back home in Massachusetts, particularly in Marlborough, specifically in the stylized broom closet the MLM delusion merchants call TelexFree “corporate” as part of a long-running linguistic conspiracy to sanitize HYIP Ponzi cesspits, smiles were absent. In fact, the police were dispatched to prevent things from getting out of hand.
That’s because too many unhappy and confused TelexFree members who appear to believe they’ve been duped by the firm and its stable of serial delusion merchants wedged themselves into the broom closet to demand answers about why TelexFree either wasn’t paying them or why only certain members were getting paid.
But TelexFree — whom some affiliates say is a $1 billion company with a VOIP product — has only seven employees at its Marlborough office, according to regulatory filings in Tennessee. These employees work in “administration, sales and marketing, accounting, and operations positions.”
Our guess is that they work in staggered shifts, given the size of the office. All seven showing up at one time would appear to create sardine conditions.
According to the Tennessee filings, TelexFree’s two corporate officers are James Merrill and Carlos Wanzeler, who also own something called “Clarity Communications.” It’s unclear whether TelexFree’s seven employees also work for Clarity and several other firms associated with TelexFree.
Merrill is in charge of the money at TelexFree and has the ability to “motivate and instill trust in a company,” according to the Tennessee filings.
So, a company affiliates say has global reach, has gathered $1 billion and has the responsibility to pay hundreds of thousands of affiliates, does it all with just seven workers and owns another company called Clarity and several other firms. And when unhappy affiliates show up in the broom closet to demand answers . . . well, there isn’t a whole lot of wiggle room to begin with.
Filings in Tennessee confirm that TelexFree lacks its own underlying telephony infrastructure. Indeed, according to the filings, TelexFree “will resell or utilize the services of existing facilities-based national interexchange carriers in Tennessee, including the services offered by incumbent local exchange carriers.”
The issue here is almost certainly about margins — not only in Tennessee, but in other states — and whether TelexFree can squeeze any profits after it pays for everything else. This question leads to questions about why so many TelexFree affiliates seem to believe they’ll prosper through TelexFree. To put this in context, imagine that any presumptive TelexFree telephony competitor in a low-margin business had put additional pressures on itself by suggesting that $289 sent to the firm would return $1,040 in a year and that $15,125 would return $57,200.
Next imagine that these payouts were “guaranteed.”
This is an epic problem for TelexFree. For starters, the returns are absurd on their face and bring issues such as Ponzi scheme, pyramid scheme, the sale of unregistered securities and securities fraud into play. Moreover, TelexFree relies on banks to conduct business. And yet no legitimate bank ever would assert that a deposit account would provide such a whopping return. Even so, TelexFree affiliates effectively say the company outperforms its own banking vendors by orders of magnitude.
The same company now mysteriously says it is branching out into credit repair, something that potentially makes it a nemesis of the same banks its uses as vendors — while affiliates claim banks are laggards when it comes to producing income, a proposition that leads to questions about why banks haven’t followed TelexFree’s lead in recruiting affiliates and guaranteeing returns that would make Bernard Madoff blush.
At the same time, filings in Washington state show that TelexFree LLC, a Nevada entity, had made intracompany loans to other TelexFree businesses — and had more than $18 million parked at Fidelity Investment. Why does TelexFree have any money parked at Fidelity when, according to affiliates, it can earn 347 percent in a year “guaranteed” by investing in itself?
Where did affiliates get these ideas? Well, from TelexFree itself. In a “Be our promoter” pitch that once appeared on its own website, TelexFree told the troops to send in $299 (the sum also has been reported as $289) and start receiving $20 a week for a year. Meanwhile, TelexFree had an in-house scheme in which it entitled itself to 20 percent of affiliates’ earnings at the end of a year, something that became the subject of affiliate complaints.
As the PP Blog reported on Nov. 17, 2013, at least some TelexFree affiliates were told at a company event in Orlando that the 20 percent payback requirement had been waived. But the requirement appears not to have been lifted. The logistics of collecting 20 percent from each affiliate on a worldwide basis raises questions about whether some TelexFree rainmakers received secret deals that included no payback requirement (or payback discounts) and whether the company structured transactions or relied on a hidden money-moving system to evade bank-reporting requirements when policing up cash from affiliates, whether they received a waiver/discount or not.
Here we’ll point out that the Zeek Rewards MLM Ponzi scheme ($850 million) and the AdSurfDaily MLM Ponzi scheme ($119 million) both made sweetheart deals with insiders. Like Zeek, TelexFree has a purported “advertising” component in which members purportedly get paid for posting ads online. At 1.5 percent a day, Zeek promised to pay the most. On an annualized basis, TelexFree and ASD are in the same ballpark.
Zeek and TelexFree members purportedly get (or got) paid for posting ads. ASD members purportedly got paid for clicking on ads. The concern with TelexFree — as was the concern with Zeek and ASD before it — is that its “product” is just a front to mask an investment scheme.
Maximum Incongruity
As this Blog has pointed out many times, HYIPs are all about incongruity. Tuesday, however, set a new standard for irreconcilable images: cops and citizens potentially in harm’s way in an MLM HYIP broom closet.
Officers appear not to have known that TelexFree is under investigation by the Massachusetts Securities Division. Nor do they appear to have known that TelexFree is under investigation in Brazil and that a judge and a prosecutor reportedly have been threatened with death. Nor do they appear to have known that TelexFree affiliates in Brazil have staged protests in support of the company, something that was the exact opposite of what occurred in Massachusetts on Tuesday.
Our conclusion from observing videos of the broom-closet debacle is that TelexFree, now fueling tensions in the United States and creating worries about economic security after gorging itself nonstop at the 24/7/365 Portuguese and Spanish buffet it created and potentially hoping to establish an Asian smorgasbord, poses a risk to public safety.
Today we call for the Massachusetts Securities Division to brief police. And we call on TelexFree affiliates in Greater Boston and the whole of the state to remain calm and to steer clear of the broom closet occupied by a company that might have put $1 billion on the table. As righteous as your anger is, your answers are not there.
Rather, they are within the part of you that knows an annual return that beats Madoff on the order of 30 to one is too good to be true, that knows the videos and artwork online that suggest TelexFree is much bigger than a broom closet were deliberately designed to deceive, that the “private jet” and monster SUV and other shiny props were cynically calculated to reinforce your dream before cruelly destroying it.
Police did a good job of easing Tuesday’s tensions. And videos made by TelexFree affiliates suggest that reason was the order, not the exception. So, hats off to both the police and duped affiliates for exercising restraint.
We urge affiliates to see TelexFree “corporate” for what it is: the stylized broom closet used by a company that is not paying you after renting ornate hotel accommodations in Madrid, staging the entrance of limousines, posing with giant SUVs, shuttling top recruiters around on a “private jet,” dangerously pandering to the masses in Brazil and Portugal and even sponsoring a professional soccer team in South America.
Steve Labriola, another TelexFree executive, now pathetically calls the HYIP firm alleged in Brazil to be using a VOIP product as a front, a “customer-acquisition company.”
Say no. Avoid TelexFree “corporate” and any fellow member who calls it that. If you are concerned, call the FBI. Call the SEC. Call the Massachusetts Securities Division. Republican or Democrat, right, left or in between, write to President Obama and tell him his 2009 message about domestic and offshore frauds and corporate broom closets was slow to sink in — but that now you understand it because you’ve encountered one up close and personally. In fact, some of you were in the TelexFree broom closet — with police.
In closing, find joy in your Red Sox! May you and they always be “Boston strong.”
BULLETIN: The government of Colombia appears to be seizing assets linked to four Colombians with alleged ties to TelexFree, which authorities in the United States have described as a massive cross-border pyramid- and Ponzi scheme.
