BULLETIN: Federal prosecutors in the United States have informed a federal judge that “evidence underlying this case is closely tied to certain foreign countries, especially Brazil” and that “it is likely that the parties will need to review evidence in foreign countries and arrange for foreign witnesses and/or law enforcement officers to travel to the United States to testify at trial.”
The assertion by U.S. prosecutors is part of a motion to designate TelexFree as a “complex case” that calls for an exception to the Speedy Trial Act, a law that requires an indicted defendant to be tried within 70 days. Former TelexFree executives or managers James Merrill and Carlos Wanzeler were indicted on July 23.
It was unclear whether Merrill, who remains in the United States, would challenge prosecutors on the issue. Wanzeler ducked out of the United States through Canada on April 15, and flew to Brazil on April 17, according to prosecution filings.
From a prosecution filing today (italics added):
Relief from the requirements of the Speedy Trial Act is needed to allow the parties enough time to produce and examine discovery and evidence in this case and to prepare for trial. In the event of trial, substantial lead time will be required to secure the attendance of foreign witnesses, including the permission of host countries and travel. The ends of justice served by relief from Speedy Trial Act requirements in this case outweigh the best interests of the public and the defendant in a speedy trial; failure to grant relief may deny the parties the time needed for effective trial preparation, taking into account the exercise of due diligence, and may result in a miscarriage of justice.
U.S. prosecutors asserted today that they had seized 400 terabytes of data “spanning 46 servers.” Meanwhile, prosecutors said they’d “seized about 26 separate computers from TelexFree’s headquarters – all containing independent drives that are not networked to the servers described above – as well as about three other computers obtained via grand jury subpoena.”
At the same time, prosecutors said the U.S. government had “also issued approximately 185 grand jury subpoenas in the course of its investigation so far, nearly all for large productions of business records, including from multiple banks, brokerage houses, and payment processing services. The government is in the process of scanning the seized documents and, along with the subpoenaed materials, compiling a single database for production to the defense.”
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.
Despite worldwide promos implying otherwise, TelexFree was neither the sole occupant nor the owner of this Massachusetts building.
One of TelexFree’s alleged reality-distortion fields has been formally exposed.
Perhaps you saw the recruitment promos (both corporate and affiliate) that planted the seed TelexFree was the sole occupant of a large building in Marlborough, Mass.
Former President James Merrill was shown posing in front of the structure. A caption on TelexFree’s website read, “The Company HQ: United States.”
Using the building as a backdrop, one or more affiliates taped promos from the parking lot, creating the impression that TelexFree had a large physical presence in the United States.
And perhaps you noticed that the SEC viewed those promos as “materially false and misleading” because, as the agency put it in a May 2014 amended complaint (italics added):
(a) TelexFree, Inc. does not own or occupy the entire building; (b) TelexFree, Inc. originally shared a single suite (consisting of a receptionist, conference rooms, and cubicles) with many other companies; (c) only in December 2013 did TelexFree, Inc. move into its own suite in a portion of the first floor; and (d) TelexFree, LLC has no physical office at all, just a mailing address in Nevada. Despite being the company’s president, Merrill failed to take effective action to prevent or correct the misstatements.
In court filings in the TelexFree bankruptcy case today, the trustee confirmed that, in November 2013, TelexFree leased a first-floor office in the building (Suite 118) for $5,944 a month. The lease officially began on Jan. 1, 2014, and was set to run through March 2015.
Other records show TelexFree shared a second-floor office (Suite 200) in the same building with multiple companies. How much it paid for that office was not immediately clear.
What is clear is that Stephen B. Darr, the trustee, has negotiated the termination of the lease of the first-floor office, concluding he “has no continuing need for the Premise” and thus potentially saving the estate tens of thousands of dollars. The landlord has agreed to settle for a retention of a security deposit and certain furnishings and fixtures — and to let the trustee out of the lease.
As for the overall TelexFree morass?
“I’ve been involved in a lot of interesting cases,” Darr told the Wall Street Journal, in a Law Blog article published Aug. 11. “TelexFree is number one.”
URGENT >> BULLETIN >> MOVING: (5th update 7:33 P.M. EDT U.S.A.) In a defense filing in the SEC’s securities fraud case against him, former TelexFree interim CFO Joseph Craft says he concluded TelexFree was a Ponzi scheme selling unregistered securities.
The acknowledgement, which appears to be the first concession from the TelexFree inner circle that the enterprise engaged in fraud, potentially pits Craft against other TelexFree defendants and others who may have inside knowledge of the scheme. Craft paints himself in the filing as an outsider who was misled by insiders.
Craft, 50, came to the Ponzi/securities conclusion in “approximately March” 2014, according to the filing. TelexFree filed for bankruptcy protection the following month. The SEC immediately sued, the Massachusetts Securities Division (MSD) filed a civil-fraud action and federal agents raided TelexFree headquarters in Marlborough, Mass. It later became known that the U.S. Department of Homeland Security had conducted an undercover investigation into TelexFree’s operations beginning at least by October 2013.
Alleged TelexFree managers or executives James Merrill and Carlos Wanzeler later were indicted on criminal charges of wire fraud and wire-fraud conspiracy.
Filings in the TelexFree bankruptcy case say Craft was appointed TelexFree CFO on April 13. Why he’d accept the appointment from Merrill and Wanzeler at an emergency board meeting on a Sunday night in April after concluding TelexFree was a Ponzi scheme in March was not immediately clear in defense filings.
Craft, a certified public accountant in Boonville, Ind., was charged civilly by the SEC in April, two days after the bankruptcy filing. So were seven others, including Merrill and Wanzeler, former executive Steve Labriola and four alleged promoters. The scheme gathered more than $1.2 billion, MSD alleged.
TelexFree also was charged civilly. Craft became TelexFree’s accountant in July 2012, according to the defense filing.
Craft “denies that he was a principal or insider in the enterprise at any time, and says that he performed honest and legitimate accounting services for the corporations named in the Complaint,” the defense filing reads in part. “He denies that he assisted any wrongful activity. He was kept in the dark about the true nature of the enterprise’s activities and was a victim of misrepresentations for most of the time that he served as TelexFree’s accountant. He was not an insider, employee, owner, principal or promoter.”
And, according to the filing, “[i]n 2013 and 2014” while performing accounting services for TelexFree, Craft “relied on the advice of the defendant enterprises’ counsel in all material respects.”
The former CFO did not identify the counsel. One TelexFree lawyer, MLM attorney Gerald Nehra, has been accused of racketeering by some TelexFree members.
Other Highlights Of Defense Filing
Craft admitted he was aware a Brazilian state court in Acre had suspended TelexFree’s Brazilian affiliate (Ympactus) in June 2013, but says he “was told that the suspension was improper and was going to be overturned.” He did not say who advised him the Acre action would be overturned.
He “denies that he was involved in any way in ‘running a huge Ponzi and pyramid scheme.’ He was not involved in company operations. He was not a company principal or someone who was correctly informed about many of the [details] of the company’s true operations.”
Craft admits that he “compiled an unaudited, informal financial statement” that was filed with MSD in 2013. But the statement, he says, was “based entirely on information provided by corporate officers.”
“At the time of preparing the compilation Mr. Craft had been misinformed about the company’s activities and material information was withheld by company officers,” according to the defense filing.
The SEC has said TelexFree’s VOIP service was a front to mask a billion-dollar fraud scheme.
Longtime HYIP huckster and TelexFree figure Faith Sloan has been banned by Illinois from selling securities. The prohibition order is dated June 9. It was issued by the Securities Department of Illinois Secretary of State Jesse White.
The state found that Sloan, an Illinois resident, operated a TelexFree-related website and acted as an unregistered securities dealer, salesperson and investment adviser.
Violating the order could result in a felony charge, the state said.
Sloan, who faces TelexFree-related civil charges of securities fraud from the U.S. Securities and Exchange Commission, is associated with the website TelexFreePower.com. The website now appears not to be loading properly.
When Illinois observed the site, the state said in the prohibition order, the site loaded an image of an “exotic sports car” with a statement that read, “I made $200 in 7 days working 3 minutes a day.”
The image implied that “one would be able to afford the exotic sports car by becoming a member of TelexFree,” the state said.
The SEC also has referenced the TelexFreePower website. In addition to promoting the massive TelexFree pyramid- and Ponzi scheme, the SEC said, Sloan violated the asset freeze in the case and lied to a federal judge.
Faith Sloan. Source: YouTube.
The order also bans TelexFree managers or executives James Merrill, Carlos Wanzeler, Joe Craft and Steve Labriola from selling securities in the state.
Attorneys handling the TelexFree bankruptcy case appear to have became aware of the order at least by June 16, according to billing records in the bankruptcy case. The effect the order had on decision-making in the bankruptcy case is unclear.
On July 16, bankruptcy trustee Stephen B. Darr said in court filings that he has “no intention of reorganizing or reactivating” the TelexFree businesses. TelexFree, its former manager or executives and some of its promoters, including Sloan, are facing a mountain of litigation.
Merrill and Wanzeler have been indicted on U.S. charges of wire fraud and wire-fraud conspiracy. Brazilian federal police conducted TelexFree-related raids last week.
Sloan has blamed TelexFree, Merrill, Wanzeler and MLM attorney Gerald Nehra for her TelexFree-related troubles.
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).
UPDATED AT 11:10 P.M. EDT U.S.A. JULY 28, 2014: Globo.com (Brazil) is reporting that police raided the headquarters of Ympactus this morning in a law-enforcement action dubbed “Operation Orion.” The story suggests raids also were carried out elsewhere and that Brazilian tax authorities are involved in the actions.
Costa is not named in the U.S. indictment, which appears to refer to him as “a third man” who formed TelexFree in the United States with Merrill and Wanzeler in 2012. Wanzeler, believed to be in Brazil, is considered a fugitive by the United States, which has issued a warrant for his arrest.
Whether Brazilian and U.S. authorities were coordinating events was not immediately clear.
A snippet from the Google translation of the Globo story (italics added):
Altogether, participated in the action 50 federal police officers and 18 auditors from the IRS Brazil. The operation name alludes to the Great Pyramids of Giza in Egypt Plain considering that the Egyptian pyramids are perfectly aligned with the constellation Orion.
UPDATE 11:10 P.M. EDT U.S.A. JULY 28, 2014: Please see this from Mikaella Campos, an economics reporter at A Gazeta Newspaper in Brazil. We are grateful to Mikaella for posting it here.
URGENT >> BULLETIN >> MOVING: 10th Update 9:18 p.m. EDT U.S.A.) TelexFree figures James Merrill and Carlos Wanzeler have been indicted by a federal grand jury.
The indictment, dated today, includes eight criminal counts of wire fraud and one criminal count of wire-fraud conspiracy.
Among other things, the indictment alleged that Merrill and Wanzeler conspired with each other and with “others known and unknown to the Grand Jury” to fleece TelexFree members.
The indictment describes wire transfers involving Merrill and Wanzeler that began on the day after Christmas in 2013 and continued on Dec. 27.
Here are the alleged wire transfers:
Merrill: Dec. 26. $136,200 from TelexFree Inc. account at Fidelity Co-operative Bank to Merrill.
Wanzeler: Dec. 26. $500,000 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 26. $136,200 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 26. $158,900 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 26. $22,700 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Merrill: Dec. 27. $3 million from TelexFree Inc. account at Fidelity Co-operative Bank to Waddell & Reed Inc., to Merrill.
Wanzeler: Dec. 27. $3 million from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Wanzeler: Dec. 27. $3.5 million from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.
Prosecutors from the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts said in a statement early this evening that assets seized in the case so far total about $140 million.
From a statement by prosecutors (italics added):
The indictment also specifies approximately 70 assets to be forfeited as proceeds of the alleged fraud scheme, or assets traceable to such proceeds, including approximately $140,000,000 seized from TelexFree’s accounts and various real assets, such as homes, condominiums, cars and two boats.
Also from prosecutors (italics/bolding/carriage returns added):
According to the indictment, TelexFree, Inc., and TelexFree LLC (collectively, “TelexFree”) provided “voice-over-internet-protocol” (“VOIP”) telephone services that allowed customers to use the Internet to make phone calls. The indictment alleges, however, that TelexFree actually operated as a pyramid scheme, in which its ongoing operations were supported, not by actually selling TelexFree’s VOIP product, but by bringing in a constant stream of new investor dollars.
Between early 2012 and March 2014, TelexFree purported to aggressively market its VOIP service by recruiting thousands of “promoters” to post ads for the product on the Internet. Each promoter was required to “buy in” to TelexFree at a certain price, after which they were compensated by TelexFree, under a complex compensation structure, on a weekly basis so long as they posted ads for TelexFree’s VOIP service.
It is further alleged that over the course of the fraud TelexFree derived only a fraction of its revenue from sales of VOIP service and the vast majority of it from new people buying into the scheme, and so TelexFree was able to pay the returns it had promised to its existing promoters only by bringing in money from newly-recruited promoters. The indictment includes eight charges of wire fraud, based on Merrill, in December 2013, wiring about $10,000,000 in TelexFree funds to personal accounts belonging to him and Wanzeler.
Also see May 27 PP Blog story on SEC allegations about how some of the TelexFree money was dissipated.
UPDATED 6:07 P.M. EDT U.S.A. A U.S. Magistrate Judge issued no immediate ruling today on a motion by TelexFree figure James Merrill to release $4 million to pay for his criminal defense.
Instead, Judge David H. Hennessy will take the matter under advisement and issue an order later, according to the docket of the case. Hennessy heard arguments from both sides today.
When the order would be issued was not immediately clear.
Prosecutors in the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts have contended Merrill isn’t entitled to the money because it belongs to victims swindled in a huge pyramid- and Ponzi scheme.
Merrill, who is charged with wire-fraud conspiracy, is represented by Boston-based attorney Robert Goldstein
BULLETIN: Federal prosecutors handling the criminal case against TelexFree figure and alleged co-owner James Merrill have asked a judge not to release $4 million Merrill says he needs to pay for his criminal defense.
On July 1, Merrill asked for an evidentiary hearing aimed ultimately at securing “an order returning the identified funds” to him.
TelexFree might be the largest MLM HYIP pyramid- and Ponzi scheme in U.S. history, based on global reach, dollar volume and the number of affected recruits. Regulators have called it a cross-border fraud that gathered more than $1.2 billion.
Prosecutors contended today that the “funds Merrill asks the Court to release, however, are investor funds — money victims gave to TelexFree during the course of the alleged fraud.”
The funds were seized via warrants on April 24. Thirty-seven TelexFree-related seizure warrants were applied for that day, after an undercover probe led by Homeland Security Investigations, an arm of the U.S. Department of Homeland Security. TelexFree had declared bankruptcy 11 days earlier. At least five of the seizure warrants were targeted at Merrill accounts holding more than $4.18 million, according to court filings.
In cases involving assets alleged to be forfeitable, prosecutors typically argue that the assets should be preserved until a trial occurs and a verdict on the alleged underlying crime that led to the seizures is returned. If such assets are returned prior to trial, they will be dissipated and thus lost to victims in the event of a finding of guilt.
Beyond that, prosecutors contended, Merrill is not automatically entitled to an evidentiary hearing on the release of the funds and has not made a threshold showing that he lacks access to other funds to pay for his defense.
“[Merrill] fails to submit any evidence in support of his bald assertion that the United States cannot establish probable cause as to forfeitability of the seized assets, and such failure is fatal to his request for a hearing,” prosecutors argued to U.S. District Judge Timothy S. Hillman of the District of Massachusetts.
Boston-based attorney Robert M. Goldstein is defending Merrill.
“[T]he government cannot establish probable cause to believe that the assets in dispute are traceable or otherwise sufficiently related to the crime charged in the criminal complaint,” Goldstein argued on July 1.
Prosecutors asserted today that probable cause to seize the funds already had been established and that Merrill was trying to get a “sneak preview” at the criminal case against him. Merrill currently faces a single charge of wire-fraud conspiracy brought via criminal complaint in May.
A grand jury has been impaneled, which means that other criminal charges are possible. Some TelexFree members have alleged that the company was a racketeering enterprise.
Merrill’s co-defendant in the existing criminal case charging wire-fraud conspiracy is alleged TelexFree co-owner Carlos Wanzeler, described by prosecutors as an international fugitive who first ducked out of the United States through Canada on April 15 and ultimately fled to Brazil. April 15 was the date of a federal raid on TelexFree’s office in Marlborough, Mass.
Prosecutors from the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts are handling the criminal cases against Merrill and Wanzeler.
In February 2014, the PP Blog reported that TelexFree had planned a purported “international convention” in Spain in early March.
The pitch for the convention, hosted in Madrid, was voiced by Sann Rogrigues, whom the U.S. Securities and Exchange Commission successfully had sued in 2006 amid allegations he was operating a pyramid scheme and engaging in affinity fraud aimed at the Brazilian community.
Rodrigues, now accused of securities fraud and a defendant in the SEC’s TelexFree civil case announced in April, reportedly was one of TelexFree’s top hucksters and had “earned” millions of dollars.
As the PP Blog reported in February (italics added):
The promo [for the Madrid convention] curiously is playing against the backdrop of an image of the Pyramids of Giza. For good measure, images of other famous world landmarks are thrown in. These include St. Basil’s Cathedral (near the Kremlin) in Moscow; Big Ben in London; The Eiffel Tower in Paris; the Empire State Building and the Statue of Liberty in New York; the Leaning Tower of Pisa; and the Burj al Arab Hotel in Dubai.
Despite the fact TelexFree was under investigation in Brazil and almost certainly knew its days were numbered in the United States because investigators were closing in, TelexFree proceeded with the Madrid event. The confab was held under a cloud growing increasingly black. On Feb. 28, the eve of the convention, the PP Blog reported that Massachusetts securities regulators were investigating TelexFree, the first confirmation of such a probe by a regulator in the United States.
James Merrill, TelexFree’s former president, attended the Madrid event with at least two other TelexFree executives or managers: Carlos Wanzeler, now described as an international fugitive who’d engaged in a criminal wire-fraud conspiracy with Merrill, and Steve Labriola, another defendant in the SEC’s fraud case.
Here is part of what Merrill said from the stage in Madrid, as reported by the PP Blog on March 3, 2014 (italics added):
Carlos Wanzeler was up here talking about Carlos Costa . . . two of the greatest leaders that I’ve met in my life,” Merrill said. “They’re very strong. They’re courageous, and they’re fighting for you. And I want you all to know that they didn’t join my team, I joined their team. OK. They’re great leaders.”
Racketeering allegations later would surface in the United States, questioning the greatness of all three men. MLM attorney Gerald Nehra, billed as an honoree at the Madrid convention, is another defendant named in the RICO actions, which were brought as prospective class-action lawsuits by TelexFree members.
Despite the fact Nehra had been billed as a star attraction of the Madrid confab, he appears not to have shown.
Instead, Labriola, who suggested from the Madrid stage that TelexFree was suited for the impoverished people of Haiti, strolled out to accept Nehra’s award.
“I was asked to come up and receive this for Jerry,” Labriola told the crowd.
Labriola did not say who asked him to accept the award for Nehra. Precisely how long TelexFree had been operating in Spain remains unclear. But only in MLM La-La Land does the juxtaposition of the images of a recidivist securities violator-in-waiting (Rodrigues) and an MLM lawyer (Nehra) make sense in marketing materials, especially since TelexFree promoters were claiming $15,125 sent to the firm returned $57,200 in a year without the need for members to sell a single product.
Now, El Pais, Spain’s largest newspaper, is reporting that TelexFree might have fleeced 50,000 Spanish investors.
Read the El Pais story. (Use the Chrome browser for a translation from Spanish to English or another language or access Google’s translation tool here.)
NOTE: Our thanks to a longtime PP Blog reader who provided the El Pais link.
ALSO: Coming soon on the PP Blog: a Special Report titled “How TelexFree’s ‘Big Revolution’ Dragged The MLM Trade, Lawyers, Payment Vendors And Service-Providers Into A La-La Land Rabbithole.”
Here’s a snippet (italics added):
On at least one occasion — in March 2014 — undercover [Homeland Security Investigations] agents were in the same conference room as TelexFree “speakers,” including alleged owners James Merrill and Carlos Wanzeler, both of whom were charged criminally in May with wire-fraud conspiracy. The room was part of the Marriott Copley Place Hotel in Boston, according to an affidavit. It turned out that, on the same date agents were in the room, a TelexFree speaker claimed from the stage that certain affiliates had been provided a private jet and that the jet had flown between the Dominican Republic and Haiti. Passengers on the jet were said to have been greeted by “the Prime Minister of Haiti’s motorcade.” The rep was pitching a TelexFree-related credit-repair “program.” Just two days earlier, on March 7, a TelexFree-related Blog falsely claimed that the TelexFree “program” at large had gained “SEC Approval from USA.”
