As one of its operators sits in a Michigan federal prison and the other is listed “at large” by U.S. authorities, Payza today announced a purported “restructuring” as a “European service” that has ceased serving U.S. customers.
“This means that no transactions are allowed for US members at this time and Payza will no longer be servicing businesses registered in the US, neither providing US payout services or US based withdrawals,” Payza said in a Blog post accessible via Twitter.
Precisely who is running things at the company is unclear. The Blog post had a byline of “Payza Writer.”
Ferhan Patel, 37, is listed as an inmate at the federal correctional institute in Milan, Mich. He was arrested Sunday in Detroit. Firoz Patel, his brother and co-defendant in a major money-laundering case announced Tuesday by U.S. prosecutors, appears neither to have surrendered or been arrested. Firoz Patel is 43. The brothers are citizens of Canada and reportedly lived in the Montreal area.
The office of U.S. Attorney Jessie K. Liu of the District of Columbia confirmed Wednesday that Payza’s dotcom domain had been seized.
Prosecutors said Payza had helped fuel Ponzi schemes, pyramid schemes, a child-porn site and other criminal activities. Homeland Security Investigations is leading the probe.
Payza and a predecessor company known as AlertPay have been referenced in Ponzi-scheme litigation dating back at least to 2008’s AdSurfDaily Ponzi scheme, a $119 million fraud. More recent “programs” with ties to Payza include Traffic Monsoon and Zeek Rewards.
BULLETIN: A grand jury in the District of Columbia has indicted the operators of Payza and moved for the forfeiture of the Payza.com domain name.
Ferhan Patel, 37, has been arrested in Detroit and is being held. Firoz Patel, 43, is listed by U.S. authorities as “at large.” The Payza.com domain name appears still to be operational.
Charges include money-laundering and operating an unlicensed money-service business that processed payments for Ponzi schemes, pyramid schemes and child pornography.
The case has been under investigation for years. Homeland Security Investigations led the probe.
“The arrest and indictments in this case demonstrate that we will vigorously enforce laws meant to protect the American consumer,” said U.S. Attorney Jessie K. Liu of the District of Columbia. “Money transmitting businesses are required to be registered federally and licensed in most states and jurisdictions, including the District of Columbia. Consumers should beware of those that do not follow these laws because they could be acting as a cover for other illegal activity.”
BULLETIN: (8TH UPDATE 3:57 P.M. EDT U.S.A.) James Merrill, the former president of the TelexFree Ponzi- and pyramid scheme, has been sentenced to six years in federal prison.
U.S. District Judge Timothy S. Hillman ordered the sentence, which was four years less than what prosecutors in the office of Acting U.S. Attorney William D. Weinreb of the District of Massachusetts sought.
Robert Goldstein, Merrill’s lawyer, argued that his client deserved no more than a year.
The PP Blog is awaiting comment from prosecutors. (See below.) Also see the Boston Globe’s early story on Merrill’s sentence.
Merrill, 55, of Ashland, Mass., also was sentenced to three years’ supervised release after he completes his sentence and agreed to forfeit about $140 million and other assets, Weinreb’s office said. He was given until May 15 to report to prison. The former TelexFree officer pleaded guilty in October 2016 to eight counts of wire fraud and one count of conspiracy.
“Despite knowing that Telexfree was a pyramid scheme, Mr. Merrill profited for years at the expense of the hard-working individuals who invested in the fraudulent company,” Weinreb said in a statement. “For the hundreds of thousands of investors, here and around the world, who were taken in by the lies promoted by Mr. Merrill and Telexfree, today’s sentence provides a measure of justice. Mr. Merrill’s greed damaged the livelihoods of thousands of people who were simply struggling to make ends meet.”
Added Matthew Etre, special agent in charge of Homeland Security Investigations in Boston:
“While the harm and damage James Merrill caused by stealing more than $3 billion from innocent investors can never be repaired, his victims in more than 240 countries around the world can take some small measure of satisfaction that he is now looking at six years in federal prison and a substantial forfeiture as repayment for his crimes. HSI special agents will continue to aggressively investigate those who seek to profit by taking advantage of others.”
James Merrill, Former President of Telexfree, sentenced to 6 years in prison for billion dollar pyramid scheme https://t.co/ZHtbEFlnZH
Separately, police action against TelexFree figures in Brazil continued today, with Brazilian prosecutors formally announcing criminal charges against 22 people accused of operating a clandestine financial institution. (Google translation from Portuguese to English here.)
Two of the Brazilian defendants — Carlos Costa and Carlos Wanzeler — are known business associates of Merrill. Wanzeler fled the United States for Brazil when investigators were closing in on TelexFree in 2014, U.S. prosecutors said.
There are at least two major investigations of TelexFree under way in Brazil, including one about money-laundering. It was announced earlier this month.
Federal prosecutors have Tweeted a photo of $20 million allegedly found stuffed in a box spring and linked to the massive TelexFree Ponzi- and pyramid caper.
In other HYIP news, apparent supporters of the Traffic Monsoon “program” have been using Twitter in the past 24 hours to ask President Trump to intervene in the SEC’s fraud case brought in July 2016.
Traffic Monsoon was pitched as an “advertising” program. The SEC alleged the program operated as a Ponzi scheme.
3RD UPDATE 2:56 P.M. EDT OCT 25 U.S.A. James Merrill, the president of TelexFree, has pleaded guilty to eight counts of wire fraud and one count of conspiracy in Massachusetts federal court.
Merrill, 55, of Ashland, Mass., is scheduled to be sentenced in February.
“The significance of a guilty plea in a case of this magnitude cannot be overstated,” said special agent in charge Matthew Etre of Homeland Security Investigations, Boston. “James Merrill is finally facing justice for his role in bilking more than $3 billion from innocent investors, in more than 240 countries around the world, for what amounted to little more than greed. HSI special agents will continue to aggressively investigate those who seek to profit by taking advantage of others.”
Records show Merrill formalized a plea agreement Friday with the office of U.S. Attorney Carmen Ortiz. The agreement calls for a maximum prison term of 10 years, plus forfeiture of criminal proceeds, including about $140 million, real estate, cars and boats, prosecutors said.
The Telegram & Gazette, via Twitter and its own website, was first with the news of the formal guilty plea. The Boston Globe also was in the Worcester courtroom of U.S. District Judge Timothy S. Hillman this afternoon.
9TH UPDATE 2:08 P.M. EDT U.S.A. U.S. District Judge Timothy S. Hillman’s calendar shows a plea hearing for TelexFree operator James Merrill at 2:30 p.m. Monday at the federal courthouse in Worcester, Mass.
The office of U.S. Attorney Carmen Ortiz has confirmed the guilty plea to the PP Blog.
“President of TelexFree, James Merrill, has agreed to plead guilty on the eve of trial for his role in the billion dollar pyramid scheme,” a spokeswoman for Ortiz confirmed.
Details of the plea were not immediately clear. Merrill, who earlier pleaded not guilty to 17 charges, had been scheduled to go on trial Nov. 8.
A notation today on the court docket read, “Counsel is to contact U.S. Probation and Pretrial Services as soon as possible . . . to determine scheduling of the presentence interview.”
Stephen B. Darr, the court-appointed trustee in the TelexFree bankruptcy case, has described TelexFree as a combined Ponzi- and pyramid scheme that involved more than $3 billion in illicit transactions.
One of Merrill’s business partners — Carlos Wanzeler — allegedly fled the United States for Brazil in 2014. Wanzeler has been indicted in the United States. U.S. prosecutors have described him as a fugitive.
Paul Burks, the operator of the Zeek Rewards MLM scheme, was convicted on all criminal counts against him by a federal jury in July. Burks, 69, potentially faces decades in prison.
Merrill was 53 when indicted in 2014. Like Burks, he also potentially faces a long prison sentence.
UPDATED 11:53 A.M. EDT U.S.A. Sept. 23, 2016: The claims deadline has been extended until Dec. 31, 2016, at 4:30 p.m. Prevailing Eastern Time. Claims must be filed through TelexFreeClaims.com. Our earlier story is below . . .
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TelexFree participants and others who may have a claim against the estate should read this important notice from bankruptcy Trustee Stephen B. Darr. It is styled “Notice of Deadline for Filing Electronic Proofs of Claim and Claims Procedures” and appeared on the docket yesterday.
The electronic claims portal has been established at TelexFreeClaims.com and is operational, according to Darr’s notice. The deadline to file claims is Sept. 26, 2016, at 4:30 p.m. prevailing Eastern time.
BMC Group Inc. is administering the electronic proof of claim (ePOC) form and its name appears on the TelexFree claims portal.
In a separate case, TelexFree principals James Merrill and Carlos Wanzeler were indicted in 2014 on charges of wire fraud and wire-fraud conspiracy. Wanzeler allegedly became an international fugitive by fleeing the United States for Brazil.
Merrill this month sought to suppress evidence obtained as a result of a search of TelexFree headquarters in Marlborough, Mass., on April 15, 2014, two days after TelexFree’s bankruptcy filing, according to defense court filings in the criminal case.
Through attorney Robert Goldstein, Merrill argued that the search by the U.S. Department of Homeland Security was “unconstitutionally overbroad and unparticularized” in that it targeted “all computers” and “all records.”
Among other things, agents seized a laptop computer that day from TelexFree “consultant” Joseph Craft, according to the defense. Merrill argues that Craft’s laptop and all other evidence seized that day should be excluded.
“The Deputy Sheriff told Craft he could not take the laptop and bag and that these items would be subject to the search,” the SEC said in the affidavit. “[Homeland Security Investigations] Agents searched the bag and identified ten Wells Fargo Bank, N.A. cashier’s checks totaling $37,948,296.”
Nine of the checks were dated April 11, 2014, just two days before TelexFree petitioned for bankruptcy in Nevada, according to the SEC affidavit and other court filings.
The nine checks were “remitted to” James M. Merrill, TelexFree’s co-owner and former president. Of the nine, five were made out to TelexFree LLC “totaling $25,548,809, and one was made out to Katia B. Wanzeler,” believed to be the wife of TelexFree co-owner and treasurer Carlos Wanzeler,” the SEC asserted in the affidavit.
The Katia Wanzeler check was for the sum of $2,000,635, the SEC alleged.
A check dated April 3 was “remitted to” Carlos Wanzeler and made out to “TelexFree Dominicana SRL in the amount of $10,398,000,” the SEC alleged in the affidavit.
TelexFree Dominicana SRL’s relationship to TelexFree was not immediately clear.
On April 15, two days after the TelexFree bankruptcy filing and apparently just hours before the raid, Merrill “submitted an unsolicited order to sell $1,150,000 of his mutual fund holdings” and to have the money transferred to a bank in Massachusetts, the SEC said in the affidavit.
“Bank statements show that two companies controlled by Craft received more than $2,010,000 between November 19, 2013 and March 14, 2014,” the SEC said in its complaint.
URGENT >> BULLETIN >>MOVING: (Updated 3:03 p.m. EDT U.S.A.) The United States has opened a criminal investigation involving Obopay and Payza, a Ponzi-forum darling.
Details of the probe are unclear. But the office of U.S. Attorney Channing D. Phillips of the District of Columbia confirms on its website that the U.S. Department of Homeland Security through Homeland Security Investigations (HSI) is involved in the investigation. So is the Washington, D.C. Financial Crimes Task Force.
The PP Blog first reported in December 2013 that matters pertaining to Obopay and Payza were under investigation. At the time, however, authorities did not say it was a criminal probe.
In an Oct. 15 update, the U.S. Attorney’s office says a criminal probe is under way and that prosecutors successfully asked a judge to stay civil litigation until early next year.
“The United States government, including Homeland Security Investigations and the Washington, D.C. F[i]nancial Crimes Task Force, is currently conducting a criminal investigation. As part of that investigation, the United States Attorney’s Office for the District of Columbia has requested a United States District Judge to pause curr[en]t civil litigation relating to Payza and Obopay. The Judge has paused the litigation until January 22, 2016. Shortly after that date, additional information will be made available on this website about the status of this investigation.”
Prosecutors’ update includes an email link and phone number.
Sann Rodrigues is on the right in this TelexFree promo from 2014. Indicted TelexFree figures James Merrill and Carlos Wanzeler are on the left.
UPDATED 12:55 P.M. EDT JUNE 24 U.S.A. Once alleged by a class-action plaintiff to be part of an international racketeering enterprise, TelexFree and IFreeX figure Sann Rodrigues, on May 3, 2015, allegedly told U.S. Customs and Border Protection officers at Boston’s Logan International Airport that he was about to travel to Israel.
Rodrigues, charged civilly by the SEC with securities fraud 13 months earlier in a case that alleged TelexFree had targeted affinity populations, “stated that he was embarking on a trip to the holy land with a church group for a week visit,” according to a May 7, 2015, affidavit by Homeland Security Investigations (HSI). HSI is an arm of the U.S. Department of Homeland Security.
The asserted church group was not identified in the affidavit. Also unclear is whether Rodrigues conducted business in Israel while there. What is clear is that Rodrigues had been conducting business in the United States for years. On at least one occasion, he allegedly failed to disclose to U.S. immigration officials that the SEC had brought a fraud action against him.
“Aliens” is a term under U.S. immigration law to describe foreign nationals. Rodrigues is a citizen of Brazil. Under U.S. law, aliens who’ve engaged in acts of terrorism, narcotics trafficking or seek to engage in “commercial vice” are ineligible to enter or reside in the United States, according to the affidavit.
Commercial vice typically covers crimes such as prostitution, but immigration law also addresses a “serious criminal offense” such as “any felony.” If Rodrigues is charged criminally with any Ponzi-related or other felony, it almost certainly will further cloud his immigration status. Since Rodrigues was arrested last month in the United States on a charge of visa fraud, that status already is under the U.S. microscope.
Among the allegations against Rodrigues, whose full name is Sanderley Rodrigues De Vasconcelos, was that he had obtained his U.S. green card fraudulently, the office of U.S. Attorney Carmen M. Ortiz said on May 26. Green cards provide for lawful, permanent U.S. residency.
Prior to receiving his green card in 2011, Rodrigues, in 2009, lied to the U.S. Consulate in Rio de Janiero to obtain a “B2” tourist visa with the stated purpose of visiting Las Vegas for eight days, according to the affidavit.
Upon his May 16 return to the United States from Israel, Rodrigues was arrested at a New Jersey airport (Newark International). He initially was jailed, but later was released on tight conditions.
But Rodrigues now has been detained again, BehindMLM.com reported today. The issue? Rodrigues, now an alleged visa fraudster in addition to being an alleged cross-border securities fraudster, reportedly has not met his bail conditions.
From BehindMLM (italics added):
[An] 8th of June hearing saw Rodrigues ordered to remain in the custody of the [U.S. Marshals Service], ‘until an SEC accounting or alternate funds are made available for bail‘.
Put another way, Rodrigues may not have enough clean money to comply with bail conditions.
U.S. federal court filings link Rodrigues to the alleged $1.8 billion TelexFree cross-border pyramid- and Ponzi scheme broken up by HSI and the SEC last year and to a 2006 pyramid scheme known as Universo Fone Club. Massachusetts investigators, meanwhile, have linked him to the IFreeX scheme.
Court records suggest Rodrigues has been in the United States at least on and off since at least 2003. And, according to the records, Rodrigues claimed in the 2009 B2 U.S. visa application for the trip to Las Vegas that he previously had traveled to Brazil, Spain, Italy, France, Germany, Austria and Switzerland. The TelexFree huckster allegedly failed to disclose that he’d also traveled to the United States, had lived in the United States for years and was deposed in the United States by the SEC in the 2006 Universo Fone Club case.
In fact, according to court filings, Rodrigues claimed in 2009 never to have been in the United States — this allegedly despite the SEC deposition and his own claim that he had lived in the United States between 2003 and 2006.
Cross-Border Scamming MLM-Style
Precisely how long Rodrigues has been involved in MLM/network marketing is unclear. The SEC says it’s been since at least 2006, potentially meaning the huckster who reaches across borders via the Internet and allegedly claims to be a world traveler has been scamming recruits for at least nine years.
While pitching prospects, Rodrigues publicly claimed he hauled at least $3 million out of TelexFree. The SEC said that the Universo Fone Club enterprise gathered more than $3 million. (See June 2007 story in Forbes.)
Rodrigues was among TelexFree’s purported honorees at the Madrid confab. Whether he had a large TelexFree organization in Spain remains an open question. It has been reported that 50,000 Spaniards had become involved in the “program.”
Affinity fraud in the form of schemes targeted at people who have something in common — from common nationality and common religion to common financial problems and common political beliefs — is a growing menace. The Internet in large part drives the schemes across national borders. But cross-border travel also plays a role. Pitchfests are performed in grand hotels and in budget properties. Ships at sea also have been used.
If the visa and securities charges against Rodrigues are proven, it will mean that you can add immigration fraud to the mix of ways modern network marketers are duping the public.
From a 2014 YouTube promo for iFreeX. Masking by PP Blog. In 2014, T-Mobile told the PP Blog that it was seeking to determine if IFreeX was misusing T-Mobile’s intellectual property.
The website of IFreeX.com is offline. The PP Blog could not immediately determine why. Visitors are seeing a GoDaddy.com page.
Google cache suggests IFreeX.com was online earlier today.
As part of its reporting, the PP Blog has reviewed certain documents pertaining to the criminal prosecution of TelexFree figures James Merrill and Carlos Wanzeler and documents pertaining to the immigration arrest of Rodrigues. The documents show that the same U.S. federal prosecutor is involved in both the Merrill/Wanzeler case and the immigration case involving Rodrigues.
At the same time, the documents show that the same Homeland Security Investigations (HSI) agent also is involved in both prosecutions. In addition to filing paperwork against Rodrigues in the immigration case, the agent filed paperwork that led to the 2014 arrest on a TelexFree-related material-witness warrant at JFK Airport in New York of Katia Wanzeler.
Katia is the wife of Carlos Wanzeler, who has been described by the United States as an international fugitive. Katia later was released. HSI, which conducted a TelexFree-related undercover operation beginning in 2013, is an arm of the U.S. Department of Homeland Security.
Merrill and Carlos Wanzeler were indicted in July 2014 on eight criminal counts of wire fraud and one criminal count of wire-fraud conspiracy. Earlier, in April 2014, Merrill, Carlos Wanzeler, Rodrigues and five others were charged civilly with fraud by the U.S. Securities and Exchange Commission.
TelexFree, which hawked a VOIP service, has been described in Bankruptcy Court filings by a court-appointed trustee as a cross-border pyramid scheme that gathered $1.8 billion in about two years.
Separately, BehindMLM.com is reporting in a story dated May 26 that a website known as 2PayNet also is offline. The site may be connected in some way with IFreeX.
Intellectual property rights theft is not a victimless crime. It threatens U.S. businesses and robs hard-working Americans of their jobs, which negatively impacts the economy. It can also pose serious health and safety risks to consumers, and oftentimes, it fuels global organized crime.
2ND UPDATE 9:18 A.M. ET FEB. 13 U.S.A. On Oct. 16, 2014, Google was served a search warrant in the TelexFree criminal case against accused operators James Merrill and Carlos Wanzeler, according to joint court filings by federal prosecutors in the office of U.S. Attorney Carmen M. Ortiz of the District of Massachusetts and Robert M. Goldstein, a defense attorney for Merrill.
Merrill and Wanzeler are charged with wire fraud and wire-fraud conspiracy. U.S. prosecutors have called Wanzeler a fugitive now likely living in Brazil. With discovery involving incredible amounts of data and an avalanche of documents under way that both sides must sift though, no trial date has been set.
The search warrant sought “a substantial amount of video content held by [Google’s] subsidiary, YouTube,” according to the joint interim status report by prosecutors and Goldstein docketed on Dec. 17. The lawyers noted that “Google reports that compliance will take several more weeks.”
Precisely why the government sought the material is unclear, but promoters of MLM or network-marketing HYIP schemes frequently pitch their offerings on YouTube. Filings last week by Stephen B. Darr, the court-appointed trustee in the TelexFree bankruptcy case, assert that TelexFree had gathered as much as $1.8 billion in about two years and that the cross-border “program” may have involved 1 million or more people.
Darr flat out called TelexFree a pyramid scheme.
In another joint interim report docketed Monday, prosecutors said they recently received 45GB of material from Google under the search warrant. The corresponding number of hours of video contained within the production wasn’t specified.
Prosecutors also said in the report that they’d received an unspecified amount of data from Hotmail and Apple that had been sought in a search warrant.
This data involved email accounts, prosecutors said in the interim report. The names of the account-holders and the content of the emails were not revealed in the report.
HYIP schemes often get pitched in emails from promoters. The government did not say why it had sought the material.
Prosecutors did note that “[p]roduction of this material has been delayed by errors in the data as produced by the email providers.”
Darr, the trustee, has turned over 75GB of data, according to the Feb. 9 report.
Getting to the heart of an HYIP scheme that operated over the Internet is an exceptionally time-consuming task. Delays are almost inevitable and even can be caused by external events that affect resources. In the Feb. 9 filing, prosecutors noted that “paralegals and litigation technical support staff” in Ortiz’s office also are participating in the prosecution of the Boston Marathon bombing case, a mammoth undertaking.
Absences or delays, however, are not unique to the prosecution side of the argument. A TelexFree defense attorney who has to sift through discovery material is involved in a trial in another state and could not attend a status conference that had been scheduled for today, according to the joint interim report.
U.S. Magistrate Judge David H. Hennessy canceled today’s conference, setting April 13 as the next date the parties would meet. In his own report, Hennessy noted that discovery was proceeding in the case despite the enormous volume of material.
And that volume only will grow, he wrote, pointing to a TelexFree criminal investigation in Brazil and assertions by U.S. prosecutors that they expect to receive “a large amount of material, both hardcopy and electronic, from the Brazilian government” in March.
News of the conference delay was received on the same day publications in Brazil reported that an accounting firm (Ernst & Young) in that country had reported to the judiciary in Acre state that TelexFree (as Ympactus) had the characteristic of a pyramid scheme.
TelexFree is the subject of both state and federal probes in Brazil.
The Feb. 9 joint interim report in the United States notes that “the government anticipates receiving [data] in response to a search warrant submitted to the Court this week.”
What was targeted in that search warrant was not revealed. Nor was the identity of the person or entity served with the warrant.
The interim report also notes that the U.S. government is in possession of “[v]arious recordings made by undercover [Homeland Security Investigations] agents at TelexFree conference and in conversations with a TelexFree promoter.”
Brazil-based TelexFree figure Carlos Costa appears to be the subject of a veiled reference in the Feb. 9 report, which describes an unnamed person in Brazil as “the third owner of TelexFree.”
Authorities in Brazil have served “about nine” TelexFree-related search warrants in that country and have seized on the order of $450 million, according to the Feb. 9 report.
As one of its operators sits in a Michigan federal prison and the other is listed “at large” by U.S. authorities, Payza today announced a purported “restructuring” as a “European service” that has ceased serving U.S. customers.
BULLETIN: A grand jury in the District of Columbia has indicted the operators of Payza and moved for the forfeiture of the Payza.com domain name.
UPDATED 11:53 A.M. EDT U.S.A. Sept. 23, 2016: The claims deadline has been extended until Dec. 31, 2016, at 4:30 p.m. Prevailing Eastern Time. Claims must be filed through 
