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Tag: James Merrill

  • EDITORIAL: SEC Announced TelexFree Prosecution 1 Year Ago Today, But Many MLMers Have Missed Or Ignored The Lessons

    UPDATED 7:10 A.M. EDT APRIL 18 U.S.A. A year has passed since the U.S. Securities and Exchange Commission announced the prosecution of TelexFree. Here’s the lede from the PP Blog’s story on April 17, 2014:

    The U.S. Securities and Exchange Commission (SEC) has filed charges against the alleged TelexFree pyramid scheme and a federal judge has granted an asset freeze.

    TelexFree was a sham to mask an investment scheme known as “AdCentral” in which affiliates were told they could earn money without selling anything as long as they placed “meaningless ads” for the the program’s VOIP product on the Internet “and recruit[ed] others to do the same,” the SEC charged.

    The TelexFree “program” was targeted mainly at “Dominican and Brazilian immigrants in the U.S.,” the SEC alleged.

    We learned later that TelexFree had been under investigation since at least October 2013 by the U.S. Department of Homeland Security. This probe was part of an undercover operation. A criminal complaint was filed against alleged TelexFree principals James Merrill and Carlos Wanzeler in May 2014. They were indicted in July 2014.

    Merrill is free on bail and is awaiting trial. U.S. prosecutors say Wanzeler ducked out of the United States via Canada in April 2014 and boarded a flight to Brazil. They describe him as a fugitive.

    Some TelexFree members sent doodles to the federal judge presiding over the SEC’s fraud case. Redaction by PP Blog.
    Some TelexFree members sent doodles to the federal judge presiding over the SEC’s fraud case. Redaction by PP Blog.

    Carlos Costa, a TelexFree figure in Brazil, tried to turn the tables on investigators by running for a seat in Brazil’s Congress. This occurred alongside claims by U.S. prosecutors that TelexFree “has a disturbingly cult-like quality.”

    Federal Police in Brazil carried out “Operation Orion” against TelexFree in July 2014. Costa reportedly suffered a nonfatal heart attack on Sept. 2, 2014. In October 2014, he was trounced at the polls in Brazil.

    In a February 2015 filing in the TelexFree bankruptcy case, trustee Stephen B. Darr called TelexFree a “pyramid scheme” that may have involved 1 million or more participants globally and gathered as much as $1.8 billion in about two years of cross-border operation.

    If the numbers hold up, it would mean that TelexFree has surpassed the Zeek Rewards scheme in both victims’ count and haul. Zeek is estimated to have created about 800,000 victims, while gathering about $897 million. Zeek was shut down by the SEC in August 2012. Zeek also operated for about two years.

    Prior to Darr’s February 2015 observations about TelexFree, the SEC — in January 2015 — tweeted that its April 14, 2014, announcement about the TelexFree prosecution was the “#1 most-viewed news” item on the agency’s website last year.

    Regardless, any number of American MLMers appear to have ignored important lessons that could be learned from the TelexFree and Zeek cases. “Programs” such as “Achieve Community” and “Wings Network” and “UFunClub” rose to the fore.

    The SEC has brought charges against Achieve and Wings. UFunClub is under investigation in Thailand. There have been reports about arrests and suspects fleeing. Early reports put the U.S. dollar sum involved at $307 million.

     

  • [PART 1]: CLAIM: Major TelexFree Promoter Operated Out Of New York City Beauty Salon And Marriott Hotel

    “Because that’s where the money is.” — Classic rejoinder attributed to Brooklyn-born criminal Willie Sutton, reportedly after he was asked why he robbed banks. The often-quoted line may or may not be apocryphal. (Also see “Sutton’s Law” on the need to consider the obvious and “When you hear hoofbeats, think of horses not zebras.”)

    newtelexfreelogoUPDATED 5:26 P.M. EDT U.S.A. If you had the means to throw down $140 for “Chocolate Body Therapy” or $260 to get the “Prince or Princess for a Day” treatment, would you also have the means to direct some cash to an MLM “program” purported to double or triple your money?

    Daniil Shoyfer of Staten Island perhaps thought so. In a proposed class-action lawsuit against various TelexFree figures, the plaintiffs accuse Shoyfer of holding TelexFree pitchfests at Salon Delacqua, a beauty shop that offers moderately priced and upscale services on 86th Street in Brooklyn. The meetings appear to have occurred at 8 p.m., near or at the shop’s published closing time.

    These pitches included promises of “fabulous wealth,” according to the plaintiffs. The salon also advertises a “Brazilian Karatine” hair-strengthening treatment that takes three hours and begins at $250.

    And when Shoyfer wasn’t at the salon, he allegedly was at the Marriott Hotel Grand Ballroom at 102-05 Ditmars Blvd. in the Queens neighborhood of East Elmhust near LaGuardia Airport, pitching the “program” in a room that hotel says on its website can be configured to seat 400.

    The demographics from the neighborhood (2010) suggest that 30 percent of its residents were born outside of the United States, with a Latino population on the rise.  TelexFree was accused last year by the SEC of targeting immigrants.

    Shoyfer pitchfests also were hosted elsewhere in the Greater New York City region, and allegedly were conducted in English and Russian. The sites included the SOHO Lounge in Brooklyn and a real-estate office in the Rego Park neighborhood of Queens.

    Accused TelexFree executive Steve Labriola was a co-host at a Shoyfer Marriott pitchfest, dubbed a “Superweekend in NY,” according to the plaintiffs.

    Shoyfer allegedly took his marching orders from Labriola and other TelexFree “founders,” including accused Ponzi schemers James Merrill, Carlos Wanzeler and Carlos Costa. Also within the alleged den of financial impropriety were accused TelexFree securities fraudster Joe Craft, an accountant, and Katia Wanzeler, the wife of Carlos Wanzeler.

    Along for the ride in the TelexFree swindle, according to the plaintiffs, were Sann Rodrigues, Faith Sloan, Randy Crosby and Santiago de la Rosa, all four of whom were accused by the SEC last year of securities fraud and named defendants in the proposed class action. It is one of several tied to the alleged TelexFree Ponzi- and  pyramid scheme.

    “Defendant Shoyfer was the creator and leader of a large network of TelexFree Promoters based primarily in New York City, but extending into other states as well, including Massachusetts, and he is believed to have been the largest single Promoter in the greater New York area,” the plaintiffs alleged. “Under any view, Shoyfer funneled a portion of his ill-gotten gain up the food chain to TelexFree, its masterminds and other Defendants.”

    The complaint includes alleged passages from Shoyfer text messages to his TelexFree group. These suggest he was gathering cashier’s checks from his downline, and included a claim that he had made “$142,320 in a single week in February 2014” from TelexFree.

    According to the complaint, in December 2013, prior to TelexFree’s Sunday night bankruptcy filing in April 2014, Shoyfer told his group this on behalf of himself and TelexFree “founders” (italics added):

    From my upper line “Happy New Year everyone!!! 2014 is gonna be the best year for Telexfree$$$! TelexMobil is about to be launched in January! ! And, on Thursday January 23rd at 6.30 pm I will be doing my first Telexfree Superweekend in NY with Steve Labriola (director of international marketing TF) at Marriott Hotel Grand Ballroom by La Guardia Airport at 102-05 Dimars Blvd, Flushing NY 11369 (parking available). Now is the time to meet with top corporate representative..and my top leaders in my rapidly growing team.. You MUST invite your people (forward this msg to them), especially those who r still sitting on sidelines, debating about legibility [sic] and future of this company. .Trust me after this event, all negativity will disappear. .and you will double and triple you earnings in this busine$$ venture in 2014…”

    On Feb. 26, 2014, about two days before the Massachusetts Securities Division made public the news that TelexFree was under investigation, Shoyfer allegedly told his group this on behalf of himself and TelexFree “founders” (italics added):

    I just received checks from everyone but will wait for u to bring it until 2 p.m… then I’m going to FedEx.

    On Feb. 28, the very day news broke that MSD was investigating TelexFree even as the company was reaching into Spain and conducting an event at an ornate hotel in Madrid, Shoyfer allegedly told his group this on behalf of himself and TelexFree “founders” (italics added):

    Bring me certified checks now I will send them to ewallet by federal express and they will post it immediately.

    TelexFree is alleged to have changed its compensation plan on March 9, 2014, much to the fury of affiliates.  Shoyfer, however, continued to promote it, according to the plaintiffs (italics added):

    Hey..my team Telexfree! ! And here we go again..Come to check out and learn about new compensation plan TF 2.0.. and how to grow it even faster and MUCH more aggressively and efficiently than the one we had before.…Here is this week’s schedule. . Monday 03/24 at Salon Delacqua (2027 86 str) at 8.00 pm (in English) ..Wednesday 03/26 at SOHO launch(2213 65th street) at 7.45 pm ( in Russian) and Thursday 03/27 at 7.30 pm at 63-112 Woodhaven Blvd in a real estate office. In my case, since I have started from absulute zero during this passed week Mon 03/17- Sun 03/23/14 I booked 11,500 from new one and 21,600 still coming from old plan..A total of 31,100 in 7 short days… Go Telex!!!”

    The import of this, according to the plaintiffs, is that [a]fter the institution of the new TelexFree compensation plan in March of 2014, Shoyfer took part in a closed meeting with TelexFree’s Directors and Owners in Marlborough, Massachusetts, at which Shoyfer was instructed not to discuss the new TelexFree compensation plan with other, non-insiders, as the new compensation plan was detrimental to Promoters and was adopted to forestall filing bankruptcy.”

    In short, the plaintiffs accuse Shoyfer of working in concert with TelexFree management to dupe people into enrolling “right up until TelexFree’s bankruptcy filing.”

    Filings in the TelexFree bankruptcy case suggest Shoyfer received nearly $88,000 from TelexFree in two separate payments just prior to the April 13 bankruptcy filing. The first, for $9,902.37, occurred on March 21, and the second, for $78,037.33, occurred on March 28.

    NOTE: Part 2 of this two-part PP Blog series on the class-action lawsuit, which was filed in U.S. District Court for the Southern District of New York, will be published later. Part 2 will cover other allegations from the complaint, filed Dec. 12. A copy of the complaint is available through TruthInAdvertising.org.  (Link to complaint temporarily disabled by PP Blog at 9 p.m. EDT March 9, 2015.)

     

     

     

  • In Response To Search Warrant In TelexFree Case, YouTube Delivers 45GB Of Data

    newtelexfreelogo2ND 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.

    NOTE: Our thanks to the ASD Updates Blog.

  • URGENT >> BULLETIN >> MOVING: Bankruptcy Trustee Says TelexFree Was ‘Pyramid Scheme’ That Gathered As Much As $1.8 Billion

    breakingnews72URGENT >> BULLETIN >> MOVING: (10th Update 8:53 p.m. ET U.S.A.) In his first formal report to the Massachusetts bankruptcy court, TelexFree Trustee Stephen B. Darr calls the company a “pyramid scheme” that may have involved 1 million or more participants globally and gathered as much as $1.8 billion through arms in the United States and Brazil.

    If the numbers hold up, it would mean that TelexFree has surpassed the Zeek Rewards scheme in both victims’ count and haul. Zeek is estimated to have created about 800,000 victims, while hauling about $897 million. Zeek was shut down by the SEC in August 2012.

    The SEC and the Massachusetts Securities Division brought actions against TelexFree in April 2014.

    Darr also revealed that 13 private lawsuits have been filed against TelexFree and/or related principals, including former executives James Merrill and Carlos Wanzeler.

    TelexFree’s Brazilian arm was known as Ympactus and “grew much more quickly than the Debtors and its shutdown by Brazilian authorities in the summer of 2013 was the first of many red flags that the Debtors were operating an unsustainable pyramid scheme,” Darr advised U.S. Bankruptcy Judge Melvin S. Hoffman.

    Darr also strongly implied that a black market existed both internally at TelexFree and externally to the cross-border enterprise. It is known that the U.S. Department of Homeland Security, through its Homeland Security Investigations arm, is deeply involved in the TelexFree probe.

    Today’s report by Darr may — at least in part — explain why. From the report (italics added/minor editing performed):

    The Debtors’ business plan was complicated in and of itself. The scheme’s complexity was expanded further, however, through a web of inter-Participant transactions that permeated the scheme.

    First, a new Participant could purchase a membership plan by making payment directly to the Debtors . . . or by redeeming accumulated credits.

    In lieu of paying funds directly to the Debtors, it appears that many Participants became involved in the scheme by paying their membership fee directly to a recruiting Participant who often did not remit the payment from the new Participant to the Debtors. Rather, the recruiting Participant frequently retained the payment from the new Participant in return for a reduction, or redemption, of their accumulated credits. The mechanics of this transaction were as follows:

    a) After an invoice was issued to the new Participant and marked as pending, the new Participant would forward the invoice through the system to the recruiting Participant for payment;

    b) The recruiting Participant would then pay the invoice using the recruiting Participant’s credits. The Debtors’ database would charge the recruiting Participant’s credits for the invoice and mark the invoice as paid.

    In this manner, new Participants often joined the Debtors’ scheme without any money actually being paid to the Debtors.

    In addition to the two scenarios outlined above, there appears to have been a third type of transaction that did not involve the Debtors at all. This type of transaction involved the transfer of credits by one Participant to another Participant in exchange for cash or other consideration. The motivation for the transfer of credits is not always clear, although in some instances recruiting Participants may have purchased credits so that such recruiting Participant had sufficient credits to be redeemed after receiving payment from a new Participant.

    Growth at the Ympactus arm in Brazil accelerated “in the fall of 2012 through the early summer of 2013,” Darr asserted.

    “The Debtors’ records indicate that by the spring of 2013, Ympactus had cash receipts of more than $100,000,000 per month,” he continued. “These receipts do not reflect inter-Participant transactions that did not involve direct payment to Ympactus.”

    After Brazilian authorities intervened in June 2013, freezing as much as $300 million in that country, the U.S. TelexFree arms — previously underperformers compared to Ympactus — began to surge, Darr alleged.

    “Following the shutdown of Ympactus, the Debtors’ revenues increased dramatically such that by the end of 2013 and early 2014, the Debtors were generating cash of as much as $50,000,000 per month, without regard to inter-Participant transactions for which consideration did not pass to the Debtors,” Darr said.

    TelexFree banking relationships crumbled, Darr said in the report.

    “Multiple banks closed the Debtors’ operating accounts apparently based upon suspicious activity in those accounts,” Darr said.

    A lawyer advised TelexFree in mid-2013 that its business plan constituted a pyramid scheme, Darr said.

    “Although the Debtors were apprised in mid-2013 by counsel that the business plan was a pyramid scheme, they continued to operate using that plan until March 2014. At that time, the Debtors introduced a new business plan, even though the Debtors were apparently advised that the new plan did not rectify the problem. The new plan was unanimously rejected by the Participants, which appears to have precipitated a ‘run on the bank’ inasmuch as $58,000,000 or more was paid out to certain Participants in the several weeks leading up to the filing of the petitions. An additional $100,000,000 was requested by Participants but was not paid.”

    In September 2014, Darr identified MLM lawyer Jeffrey Babener as an attorney who advised TelexFree it was operating a pyramid scheme.  Babener isn’t named in today’s filing, so it is not immediately clear if a second attorney also advised TelexFree that its platform was a pyramid.

    Darr also said in the report that TelexFree “wrote off” a receivable “in the approximate amount of $180,000,000” due from Ympactus. The write-off appears to have occurred in late 2013, after the action in Brazil.

    “Upon information and belief, the Debtors advanced the costs for the voice over internet protocol, or ‘VOIP’, service for both the Debtors and Ympactus,” Darr said. “Ympactus contracted to pay a portion of its revenues to the Debtors as a commission, but it is unclear the extent to which these payments were ever made. In December 2013, six months after the seizure of Ympactus’ assets by the Brazilian authorities, the Debtors established, and then subsequently wrote off, a receivable due from Ympactus in the approximate amount of $180,000,000, purportedly for unpaid commissions and related services.”

    Darr also identified a number of TelexFree subsidiaries or affiliates, noting there could be more. These are among the entities and ownership information listed in the report. (Please note that not all location information is listed):

    • TelexFree International LLC:: Ownership: Wanzeler, Carlos Costa, Merrill:: Location:: Nevis.
    • TelexFree Mobile Holdings Inc.:: Ownership:: Wanzeler and Merrill.
    • Graham Bell Telex LLC:: Ownership:: TelexFree Mobile Holdings LLC and Costa.
    • TelexFree Mobile LLC:: Ownership:: Graham Bell Telex LLC and Infinium Wireless.
    • TelexElectric LLLP: Ownership:: Wanzeler, Costa and Merrill.
    • Bright Lite Future LLC:: Ownership: Wanzeler, Costa and Merrill.
    • Brazilian Help Inc.:: Ownership: Wanzeler.
    • Sunwind Energy Group LLLP: Ownership: 1127 Enterprises LLC and Merchant Enterprises Inc.
    • Sunwind Energy Solutions:: Ownership:: 1127 Enterprises Inc., ACE.
    • LLLP: Ownership:: LLP, Executive Marketing Inc. and Sunwind Energy Group LLLP.
    • Sunwind Energy Doyle North LLC:: Ownership: Sunwind Energy Southern LLLP, ACE LLP, Adams Craft Ewing LLLP, Guasti LLC.
    • ACE LLP:: Ownership:: Undetermined.
    • Executive Marketing Inc.:: Ownership:: Undetermined.
    • 1127 Solutions LLC:: Ownership: Undetermined.
    • Merchant Enterprises Inc.:: Ownership: Undetermined.

    “There may have been other entities formed by the Debtors’ principals to conduct similar operations in other jurisdictions, including TelexFree Ecuador, TelexFree Columbia, TelexFree Dominican Republic, TelexFree Canada, and TelexFree International, Ltd. (Cayman Islands),” Darr alleged.

    And, he noted, “In addition, other entities appear to have been formed by the Debtors’ principals for related or unrelated purposes, including JC Real Estate Investments LLC; JC Real Estate Management Co., LLC; Above and Beyond the Limit LLC; CNW Real Estate LLC; CNW Realty State LLC; Acceris Realty Estate LLC; KC Realty State LLC; Makeover Investments LLC; Eagleview Realty Estate LLC; and Grandview Realty Estate LLC.

    With forensics well under way and with Darr in communication with investigators in the United States and Brazil, how big is the job ahead? (Bolding added):

    “The database identifies more than 2,100,000 electronic mail addresses for Participants in the operations of both the Debtors and Ympactus,” Darr said. “Of this amount, approximately 1,000,000 appear to be provided by Participants of the Debtors, with the balance related to the Ympactus Participants. The database identifies more than 17,000,000 different accounts, of which approximately 12,000,000 are those of Participants and 5,000,000 are those of Ympactus Participants. As referenced earlier, an individual Participant could maintain multiple accounts using a single electronic mail address, and an individual Participant could also maintain more than one electronic mail address. During the period February 2012 to April 2014, the total combined cash receipts for the Debtors and Ympactus were in excess of $1,800,000,000 and combined noncash revenue was approximately $4,200,000,000.

    Oddities abound, according to the report.

    ” . . . the Debtors’ computer system does not link all accounts for an individual Participant, and the Participant name field enabled Participants to use different variations of their name in the input process,” Darr said.

    “Certain accounts do not contain electronic mail address information. Of those accounts that do contain electronic mail address information, in some instances, the information is facially inaccurate, such as the Participant’s use of the Debtors’ electronic mail address as a placeholder such as [deleted by PP Blog]. In other instances, a Participant may have used the same electronic mail address as other Participants, including the sharing of electronic mail addresses with family members. Unlike the computer systems of similar type enterprises, the Debtors’ system did not require confirmation of an electronic mail address.

    “Similarly,” Darr said, “certain accounts do not contain physical address information. Some other accounts contain physical address information that is facially inaccurate, such as the use of a country code that is inconsistent with the address, e.g., ‘San Paulo, USA.’”

    From the report (italics/bolding added):

    Manual credits were credits assigned to a Participant’s account balance on account of money paid to the Debtors for one of several reasons, as distinguished from credits “earned” from the placement of advertisements or other components of the compensation scheme. The Debtors’ records reflect approximately $151,000,000 of manual credits issued to certain Participants. The issuance of manual credits appears to be a fraud within the larger fraud of the pyramid scheme with the Debtors’ insiders adding large amounts of credits to certain accounts whereby the credits could then be sold to other Participants. There appears to be no corresponding payment supporting many of these large manual credits.

  • BULLETIN: Zeek-Like Situation Surfaces In TelexFree Case — Dishonored Cashier’s Checks; Trustee Seeks Authority To Subpoena Banks, Including Bank In Puerto Rico

    newtelexfreelogoBULLETIN: The court-appointed trustee in the TelexFree bankruptcy case is seeking authority to issue subpoenas and obtain information from eight financial institutions, including Puerto Rico-based Oriental Bank.

    The other seven are Digital Federal Credit Union, based in TelexFree’s headquarters city of Marlborough, Mass., Bank of America, JPMorgan Chase, Citizens Bank, Santander, TD Bank and Wells Fargo.

    All of the banks ended up in the TelexFree stream of commerce, but precise details of the relationships are not known publicly. What is known is that some TelexFree bank accounts were seized in criminal or civil forfeiture actions and that a cascading avalanche of litigation continues to roar down the mountain.

    Why MLM firms continually tempt this ruinous fate is one of the great business mysteries of current times.

    In the instances of Bank of America and TD Bank, it is known that TelexFree affiliates were given instructions to make walk-in deposits at the banks, some in the name of TelexFree Inc., others in the name of TelexFree LLC. Those instructions were highly similar to instructions given to members of the $119 million AdSurfDaily MLM Ponzi scheme in 2008.

    Court filings by Trustee Stephen B. Darr say he is trying to get to the heart of TelexFree-related money flow and communications involving the banks. Notably, one of the concerns is that all eight of the banks allegedly issued TelexFree-related cashier’s checks prior to the firm’s April 2014 bankruptcy filing, and later dishonored some of the checks.

    Cashier’s checks also were an issue in the ASD case. At the time of the ASD related actions in 2008, the enterprise was the largest known MLM HYIP Ponzi scheme. It since has been surpassed by Zeek Rewards, TelexFree and others.

    Dishonored cashier’s checks became one of the earliest issues in the $850 million Zeek Rewards MLM scheme in 2012. Citing the Uniform Commercial Code, Zeek’s receiver and lawyers have been been pursuing remedies from the banks for more than two years — at a cost of money and time.

    Kenneth D. Bell, the Zeek receiver, has said that “[i]f a bank refuses to pay a cashier’s check or teller’s check presented by the Receiver, it may be required to pay for the Receiver’s expenses and loss of interest resulting from the nonpayment, as well as consequential damages.”

    In the Zeek case, the Virginia Bankers Association provided guidance to member institutions that “the court’s order relied on the Uniform Commercial Code to establish that the uncashed cashier’s checks in the receiver’s possession were receivership assets, and that the receiver was required to present those cashier’s checks for payment and had no discretion not to.”

    Now, the TelexFree trustee appears to be wading into the same or highly similar MLM waters. Among the information Darr is seeking is “information respecting the remitters of the cashiers’ checks and the reasons for the dishonor of such checks.”

    Because MLM Ponzi- and pyramid schemes spread virally, have common promoters and often rely on cashier’s checks, it is conceivable that some promoters might have bought their way into both “programs” with cashier’s checks, possibly even with cashier’s checks recruits paid to their upline sponsors, rather than to the “programs” themselves.

    In the case of Zeek, tens of millions of dollars in checks allegedly had backed up at Zeek’s office in North Carolina in the weeks prior to the SEC’s August 2012 Ponzi- and pyramid action.

    The TelexFree case may add a new wrinkle. Indeed, nearly $38 million in cashier’s checks from Wells Fargo allegedly were found in TelexFree’s Marborough office in the possession of Joseph Craft two days after TelexFree’s April 13 bankruptcy filing. Craft, who has denied wrongdoing, was a TelexFree executive. He has been charged civilly with securities fraud.

    In April, the SEC said that a check dated April 3 in Craft’s possession was “remitted to” TelexFree principal Carlos Wanzeler and made out to “TelexFree Dominicana SRL in the amount of $10,398,000.”

    One check for more than $2 million in Craft’s possession was made out to Katia B. Wanzeler, Wanzeler’s wife. She later was arrested at JFK Airport in New York and detained for more than a week as a material witness.

    The SEC alleged that Carlos Wanzeler was amassing a small-real estate empire in Massachusetts and Florida. He is alleged to have ducked out of the United States via Canada in April, ultimately flying to his native country of Brazil. The United States describes him as an international fugitive.

    Darr now is seeking not only information about the cashier’s checks, but also information on communications between the banks and TelexFree or its principals James Merrill and Carlos Wanzeler, and information on any TelexFree-related investigations conducted by the banks, including “information related to ‘Know Your Customer’” rules and regulations.

    In addtion, Darr is seeking bank statements, canceled checks, deposit slips, wire-transfer communications and remittances, documentation concerning fees and contracts, minutes from bank board meetings at which TelexFree matters were discussed, documentation on why the banks ended relationships with TelexFree, documentation on communications the banks had with the SEC and state regulatory bodies, documentation the banks may have on the Massachusetts Securities Division TelexFree investigation and documentation “concerning whether the remitters have been refunded any amounts advanced to purchase” the dishonored checks.

  • Judicial Panel Of United States Moves TelexFree-Related Lawsuits To Massachusetts

    Carlos Wanzeler. From YouTube.
    Carlos Wanzeler. From YouTube.

    The United States Judicial Panel on Multidistrict Litigation has moved TelexFree-related litigation pending in federal courts in other states to Massachusetts. A directive ordering the transfers for the sake of judicial efficiency was issued on Oct. 21.

    Some plaintiffs from outside of Massachusetts sued TelexFree and other defendants in federal courts in Florida, Georgia and North Carolina. The order moves all of these cases to federal court in Massachusetts and puts them in the hands of U.S. District Judge Timothy S. Hillman, who is presiding over the criminal cases against TelexFree figures James Merrill and Carlos Wanzeler.

    Wanzeler has been deemed an international fugitive by U.S. federal prosecutors. He was born in Brazil, a country that has its own TelexFree-related investigations at both the state and federal levels.

    The U.S. Judicial Panel order provides yet another example of how cross-border MLM HYIP schemes that involve hundreds of thousands of people can lead to severe economic fallout and tidal waves of litigation that strain the resources of all parties involved. There are at two government actions against TelexFree and at least six private actions, all occurring while a court-appointed bankruptcy trustee for TelexFree is conducting an investigation.

    The great irony of the cases is that TelexFree, while operating, was presented as a means of making lives easier, a rising tide that would lift all boats. Serial promoters of fraud schemes continue to push similar “programs,” often using appeals to religious faith and lost economic opportunity as a lure

    From the order (italics added):

    On the basis of the papers filed and the hearing session held, we find that the actions listed on Schedule A involve common questions of fact, and that centralization in the District of Massachusetts will serve the convenience of the parties and witnesses and promote the just and efficient conduct of this litigation.

    These actions share factual questions relating to the allegation that the TelexFree companies operated a Ponzi pyramid scheme involving the recruitment of investors in marketing TelexFree’s telephone service plan and that defendants directly participated in or aided and abetted the alleged scheme. Centralization will eliminate duplicative discovery; prevent inconsistent pretrial rulings, especially with respect to class certification; and conserve the resources of the parties, their counsel and the judiciary.

    Weighing all factors, we are persuaded that the District of Massachusetts is the most appropriate location for this litigation. The events giving rise to the alleged claims primarily occurred in Massachusetts, which is the principal place of business of the TelexFree companies. The federal and state enforcement actions against TelexFree and affiliated individuals are pending there. Thus, the primary witnesses and other evidence likely will be located in Massachusetts. Additionally, transfer of actions to this district will facilitate coordination with the TelexFree bankruptcy cases, which also are pending in this district. The Honorable Timothy S. Hillman, to whom we assign this litigation, presides over the related criminal action and thus is familiar with the factual and legal issues presented by these actions. We are confident he will steer this litigation on a prudent course.

    Current cases listed in Schedule A that began outside of Massachusetts and now have been moved there include:

    GUEVARA v. MERRILL, ET AL., C.A. No. 1:14-22405 (Southern District of Florida).

    COOK v. TELEXELECTRIC, LLLP, ET AL., C.A. No. 2:14-00134 (Northern District of Georgia).

    Cases already residing in Massachusetts include:

    GITHERE, ET AL. v. TELEXELECTRIC, LLLP, ET AL., C.A. No. 1:14-12825.

    MARTIN, ET AL. v. TELEXFREE, INC., ET AL., Bky. Adv. No. 4:14-04044.

    CELLUCCI, ET AL. v. TELEXFREE, INC., ET AL., Bky. Adv. No. 4:14-04057.

    FERGUSON, ET AL. v. TELEXELECTRIC, LLLP, ET AL., C.A. No. 4:14-40138 (transferred from the Eastern District of North Carolina).

  • SEC Official Speaks On TelexFree Case At ‘Fraud Affects Every Community’ Event At FTC, Announces ‘Pyramid-Scheme Task Force’ And Tells Audience That ‘Program’ Consumed Entire $50,000 Retirement Account Of Trusting Mom

    “We know of at least one victim who borrowed, I think, $50,000 from his mother and gave it all to [TelexFree]. And it was her entire retirement.” — Melissa Armstrong, assistant chief litigation counsel, U.S. Securities and Exchange Commission, Oct. 29, 2014

    Melissa Armstrong of the SEC at an FTC event today. Source: FTC video.
    Melissa Armstrong of the SEC at an FTC event today. Source: FTC video.

    UPDATED 12:19 P.M. EDT OCT. 30 U.S.A. Affinity fraud was one of the topics at an all-day symposium today at the Federal Trade Commission (FTC). The event was titled, “Fraud Affects Every Community.”

    Melissa Armstrong, assistant chief litigation counsel for the U.S. Securities and Exchange Commission (SEC), was one of the featured speakers. Her topic was the SEC’s pyramid- and Ponzi case against TelexFree and how TelexFree was a form of affinity fraud.

    In her view, Armstrong said, some TelexFree promoters exploited members of the Dominican and Brazilian communities.

    And, she told the audience, the scheme spread over YouTube, Facebook, Twitter, Instagram and though local pitchfests.

    “They sold a version of the American dream that was [meant] to appeal to recent immigrants,” she said.

    Over time, Armstrong said, TelexFree gathered “hundreds of millions of dollars from hundreds of thousands of promoters. It had promised to pay them back to the tune of [about] $5 billion.”

    “The message was always consistent: You could go from having nothing to having it all in a very short time with this program,” she said. “The organizers would travel from city to city.”

    Organizers “were given the rock-star treatment,” she said. Recruiters provided “testimonials.”

    And, she said, “training centers were nothing more than recruitment centers.”

    “Ministers” of church congregations helped the scam spread, Armstrong said.

    Armstrong also touched on TelexFree’s April 2014 bankruptcy filing. And, without mentioning TelexFree co-owner Carlos Wanzeler by name, she said he “fled to Brazil” and now faces criminal charges in the United States.

    Former TelexFree President James Merrill also faces criminal charges.

    The SEC now has a “newly established pyramid-scheme task force,” Armstrong said.

    Armstrong’s remarks begin at about the 4:22 mark below.

    More information on the “Fraud Affects Every Community” FTC symposium, including the roster of speakers and topics, is available here.

    Topics:

    • Welcome/Introduction
    • A Look at the Marketplace for Different Communities
    • How and Why Fraud Affects Different Communities
    • Getting More Specific: Community Case Studies on Fraud
    • Education and Community Outreach: An Open Discussion
    • Fraud Research: Building on Solid Data
    • Wrap Up

  • TelexFree Website Will Not Load

    The website of TelexFree will not load this afternoon. Whether this signals a development in the TelexFree Ponzi, pyramid and bankruptcy cases was not immediately clear.
    The website of TelexFree will not load this afternoon. Whether this signals a development in the TelexFree Ponzi, pyramid and bankruptcy cases was not immediately clear.

    EDITOR’S NOTE ADDED 1:32 P.M. EDT SEPT. 28 U.S.A. TelexFree.com appears to be back online. At this time, why the landing page wouldn’t load remains a mystery. Our earlier story is below . . .

    The website of TelexFree, alleged in April by the SEC and the Massachusetts Securities Division to have operated a billion-dollar pyramid and Ponzi scheme across state and national borders, will not load. Nor will the domain return a ping.

    This condition appears to have surfaced in recent hours. The site previously included TelexFree-authored words written in April or May that suggested TelexFree somehow could emerge from bankruptcy. Stephen B. Darr, a court-appointed trustee, is now administering TelexFree. He has said he has no intention of reorganizing or reactivating the company.

    Websites involved in Ponzi schemes sometimes are seized by court order or voluntarily surrendered by the operators. Receivers and trustees later sometimes use the URLs for the domains to publish news that concerns investors.

    Why TelexFree.com won’t load is unclear. The office of U.S. Attorney Carmen Ortiz, which is leading the criminal prosecutions of TelexFree figures James Merrill and Carlos Wanzeler, did not immediately respond to a request for comment.

    Merrill and Wanzeler have been charged with wire fraud and wire-fraud conspiracy.  U.S. prosecutors have called Wanzeler a fugitive who ducked out of the United States through Canada under cover of darkness — and later flew to Brazil.

    Like their U.S. counterparts in April, Brazilian federal police conducted TelexFree-related raids in July.

    The SEC yesterday filed a pyramid-scheme action against a “program” known as Zhunrize that also allegedly operated across state and national borders.

  • BULLETIN: Massachusetts Bank For TelexFree Settles With Securities Division For $3.5 Million; All Settlement Proceeds Will Go To Victims In The State; Bank Will Establish ‘Massachusetts Victim Relief Fund’

    breakingnews72BULLETIN: (3rd Update 1:34 p.m. EDT U.S.A.) A Massachusetts bank that established accounts for TelexFree and whose president is the brother of alleged TelexFree Ponzi- and pyramid-schemer James Merrill has settled with the Massachusetts Securities Division for $3.5 million.

    The settlement between MSD and Fidelity Co-operative of Fitchburg means that an escrow account consisting of the $3.5 million and whatever interest it draws will be set up for TelexFree victims who reside in the state. With MSD helping shepherd the process and maintaining veto power to protect the interest of victims, the bank will retain an independent claims administrator at its own expense to manage claims and disbursements.

    The escrow account will be called the “Massachusetts Victim Relief Fund.”

    At some point at least 120 days in the future, the administrator shall “determine an independent plan of Distribution.” TelexFree victims in Massachusetts will be able to file claims. Those with approved claims will be compensated under a formula established by the claims administrator.

    Precisely when the claim-filing period will begin was not immediately clear. Also unclear is precisely how many TelexFree victims reside in Massachusetts. What is clear is that MSD — with the consent of Fidelity Co-operative —  has arranged a means by which TelexFree victims residing in the state will receive money some of them may need desperately.

    Using a series of banks and payment vendors, TelexFree might have scammed as much as $90 million in Massachusetts alone. Its overall scam may have gathered more than $1.2 billion across the world.

    MSD brought alarming allegations of fraud against TelexFree in a civil action on April 15. By April 30, it had opened an investigation into Fidelity Co-operative’s role in the TelexFree case.

    As part of the settlement, the bank neither admitted nor denied the state’s allegations that it did not perform adequate due diligence on TelexFree before permitting the company to open three accounts in August and September of 2013.

    Only after receiving millions of dollars in TelexFree deposits for a period of between two and three months did Fidelity Co-operative conduct any legitimate due diligence on TelexFree, MSD alleged. On Nov. 27, 2013, according to MSD, bank president John Merrill asked Fidelity’s compliance and Bank Secrecy Act officer to review TelexFree’s banking activivity.

    Merrill is the brother of TelexFree figure James Merrill, later to be indicted with fellow TelexFree figure Carlos Wanzeler on charges of wire fraud and wire-fraud conspiracy.

    The bank’s compliance officer — by performing simple Internet searches — soon came to realize that TelexFree’s operations in Brazil had been shuttered amid pyramid-scheme allegations, according to MSD. The officer notified John Merrill of his findings and also relayed his concerns to an outside consultant the bank used for compliance and BSA issues.

    By Dec. 3, the bank advised TelexFree that it was closing its accounts by Dec. 31, MSD alleged.

    And, MSD alleged, Fidelity Co-operative also had opened personal accounts for James Merrill and Carlos Wanzeler. After the bank began conducting due diligence on TelexFree in earnest on Nov. 27 and during a period in which TelexFree accounts were pending closure, MSD alleged, Wanzeler transferred $3.5 million from his personal account at Fidelity Bank “to an overseas bank account held in Singapore at the Oversea-Chinese Banking Corporation.”

    Citing evidence listed by prosecutors in the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts, MSD alleged that James Merrill and Wanzeler transferred more than “$10.4 million out of Fidelity Bank, in multiple transactions using personal accounts, to various other financial institutions after November 27, 2013.”

    Through both business and personal accounts at Fidelity Co-operative, “TelexFREE and its principals caused further harm to Massachusetts victims of the TelexFREE scheme,” MSD alleged.

    Massachusetts Commonwealth Secretary William Galvin oversees MSD, which has been squaring off against multiple cross-border pyramid schemes.

    Read the consent order between MSD and Fidelity Co-operative.

  • BULLETIN: Government Of Colombia Investigates TelexFree, Ties

    newtelexfreelogoBULLETIN: 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.

    TelexFree’s presence in Newport Beach may create a tie to Zeek Rewards, another alleged massive pyramid- and Ponzi scheme that crossed national borders.

    See the Colombian government’s document.

    Also see story at Portafolio.co.

    The WCM777 scam — another recent MLM HYIP “program” — led to a police raid in Peru. The PP Blog reported in March 2014 that there were promotional ties between WCM777 and TelexFree.

    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.

    In 2010, after DMG operator David Murcia had been extradited to the United States, U.S. prosecutors called DMG  “a vehicle for a multi-level marketing scheme.”

  • Citing Missing Affidavit And Inconsistencies, Indiana Rejected TelexFree Telecom Application

    newtelexfreelogoUPDATED 6:20 P.M. EDT U.S.A. The Indiana Utility Regulatory Commission rejected TelexFree’s telecom application on June 11, 2014, according to records in the state.

    TelexFree filed the application on March 24, requesting “CONFIDENTIAL TREATMENT OF THE FINANCIALS OF TELEXFREE, LLC,” according to records.

    On April 13, TelexFree filed for bankruptcy protection in Nevada. On April 29, Indiana informed TelexFree via a docket entry that information it had submitted in March was “Missing [an] affidavit to support the March 24, 2014, request for confidential treatment of certain financial, technical, and/or managerial information.”

    The state also noted that TelexFree had provided “Inconsistent descriptions of the services Applicant proposes to offer in Indiana.”

    Indiana gave TelexFree until May 15 to correct the deficiencies. No corrections were received, according to the state.

    The state formally rejected TelexFree’s application on June 11.

    One of the issues with TelexFree is whether it supplied false, misleading or inconsistent information to various state regulators during the process of applying for telecom registrations.

    In March  [April], the Massachusetts Securities Division alleged that TelexFree’s financial filings with the Washington State Utilities and Transportation Commission were at odds with information TelexFree had provided investigators in Massachusetts.

    Certain regulatory filings by TelexFree in early 2014 suggest it was financially capable of delivering telecom services and even strong enough to provide intracompany loans to other TelexFree-related businesses. But by April 13, TelexFree was in bankruptcy court seeking to reject its contracts with promoters — this after adopting a new compensation plan on March 9.

    On April 17, the U.S. Securities and Exchange Commission publicly accused former TelexFree President James Merrill of making false statements about how long TelexFree had been in the VOIP business.

    The SEC also accused Merrill and other TelexFree defendants of not disclosing that “several banks and at least one payment processor stopped doing business with TelexFree, apparently due to concerns about the legality of its multilevel marketing program.”

    Certain financial documents prepared by former TelexFree accountant Joe Craft referenced asserted loans TelexFree made to other TelexFree enterprises, according to the SEC.

    After assuring state telecom regulators that it was healthy, records show, TelexFree went to bankruptcy court only weeks later.

    “. . . defendants TelexFree, Inc. and TelexFree, LLC and relief defendant TelexFree Financial Inc. filed for bankruptcy in Nevada under Chapter 11,” the SEC alleged in April. “The three companies claimed to have liabilities of as much as $600 million but assets of no more than $120 million.”

    In seeking to have the SEC’s fraud charges against him dismissed, Craft has said in court filings that he concluded in March 2014 that TelexFree was a Ponzi scheme selling unregistered securities. He further contends he had been “misinformed about the company’s activities and material information was withheld by company officers.”

    In a filing on the docket of the TelexFree bankruptcy case, Craft contends that TelexFree plaintiffs who assert they are owed money have “fully recovered their ‘investments’ through benefits received from the TelexFree entities and are not owed anything.”

    TelexFree managers or executives James Merrill and Carlos Wanzeler were indicted last month on criminal charges of wire-fraud and wire-fraud conspiracy.

    In telecom filings docketed in Alabama on March 20, TelexFree asserted it was “financially qualified” to operate in the state and that its “current financials Show considerable net worth.” A hearing was scheduled for April 10. Prior to that date, however, TelexFree asked for a postponement for a month, listing unspecified “scheduling conflicts” as the reason.

    With the April 10 Alabama hearing postponed, TelexFree was in bankruptcy court just three days later.