PatrickPretty.com

Tag: Judge Melvin S. Hoffman

  • TelexFree Trustee Hopes Merrill’s Guilty Plea And Sentencing Will Spark More Claims; Darr Asks Judge To Extend Filing Deadline Until March

    newtelexfreelogo-1UPDATED DEC. 22, 2016: The court has extended the claims deadline until March 15, 2017. Earlier story below . . .

    ** _____________**

    With the Dec. 31 filing deadline for TelexFree claims fast approaching, court-appointed Trustee Stephen B. Darr has asked the court to extend the deadline until March 15, 2017.

    Chief Bankruptcy Judge Melvin S. Hoffman has scheduled a hearing Dec. 21 to consider the request.

    Darr advised the judge yesterday that about 121,000 claims had been filed. He added that the guilty plea of TelexFree’s James Merrill, Merrill’s agreement with prosecutors to forfeit tens of millions of dollars and publicity surrounding Merrill’s sentencing set for March 2 and 3 might encourage more participants to file claims.

    Hoffman already has granted one extension — from Sept. 26 until Dec. 31. The scheme, which the judge ruled a combined Ponzi- and pyramid, may have created hundreds and hundreds of thousands of victims worldwide.

    As things stand now, the claims-filing deadline remains Dec. 31 at 4:30 p.m. Prevailing Eastern Time.

    The process of making participants as whole as possible has been “extraordinarily complex,” Darr advised the judge.

    Challenges have included the number of victims, the geographic dispersion of victims throughout the world, the magnitude of losses, language barriers and the complexity of TelexFree itself, Darr advised the judge.

    Criminal prosecutors said in Merrill’s plea agreement that his role in the TelexFree scheme created at least $550 million in losses.

    Codefendant Carlos Wanzeler fled to Brazil, prosecutors said.




  • BULLETIN: Judge Certifies Class-Action Lawsuit Against 15,000 Alleged TelexFree ‘Winners’ In United States

    newtelexfreelogoBULLETIN: U.S. Bankruptcy Judge Melvin S. Hoffman has certified a defendant class-action lawsuit brought by TelexFree Trustee Stephen B. Darr against about 15,000 alleged TelexFree “net winners” in the United States.

    The ruling means “clawback” cases against alleged U.S. winners will proceed. Darr has alleged aggregate payments to the domestic net winners exceed $100 million and must be returned to the bankruptcy estate. This is the second such order since last year affecting MLM promoters on a large scale. Class-certification also was approved in 2015 against Zeek Rewards’ winners.

    Hoffman appointed alleged winner Frantz Balan as the putative class representative. The law firm of Milligan Rona Duran & King LLC will be class counsel. Class counsel will be paid with funds from the Trustee estate: up to $225,000 for legal fees and costs, and up to $87,500 for a class expert.

    Balaan was a net winner of $516,875.00 and received $315,572.00 in net preference payments from TelexFree, Darr alleged. Balaan disputes those numbers, according to counsel.

    Darr also is suing tens of thousands of alleged TelexFree international winners in a proposed class action. The international case hasn’t yet proceeded to the certification phase.

    TelexFree created more than $3 billion in illicit transactions and hundreds of thousands of net losers, Darr has contended.

    James Merrill, the alleged president of TelexFree, is scheduled to go on trial on 17 criminal counts next month. The trial initially had been set for October.

    Read the class-certification order.




    More . . .

  • Sept. 26 Deadline Set For Filing TelexFree Claims; Claims Portal Opens As James Merrill Fights Evidence In Criminal Case

    newtelexfreelogoUPDATED 11:53 A.M. EDT U.S.A. Sept. 23, 2016: The claims deadline has been extended until Dec. 31, 2016, at 4:30 p.m. Prevailing Eastern Time. Claims must be filed through TelexFreeClaims.com. Our earlier story is below . . .

    **____________**

    TelexFree participants and others who may have a claim against the estate should read this important notice from bankruptcy Trustee Stephen B. Darr. It is styled “Notice of Deadline for Filing Electronic Proofs of Claim and Claims Procedures” and appeared on the docket yesterday.

    The electronic claims portal has been established at TelexFreeClaims.com and is operational, according to Darr’s notice. The deadline to file claims is Sept. 26, 2016, at 4:30 p.m. prevailing Eastern time.

    BMC Group Inc. is administering the electronic proof of claim (ePOC) form and its name appears on the TelexFree claims portal.

    Chief Bankruptcy Judge Melvin S. Hoffman of the District of Massachusetts has ruled TelexFree a Ponzi- and pyramid scheme.

    In a separate case, TelexFree principals James Merrill and Carlos Wanzeler were indicted in 2014 on charges of wire fraud and wire-fraud conspiracy. Wanzeler allegedly became an international fugitive by fleeing the United States for Brazil.

    Merrill this month sought to suppress evidence obtained as a result of a search of TelexFree headquarters in Marlborough, Mass., on April 15, 2014, two days after TelexFree’s bankruptcy filing, according to defense court filings in the criminal case.

    Through attorney Robert Goldstein, Merrill argued that the search by the U.S. Department of Homeland Security was “unconstitutionally overbroad and unparticularized” in that it targeted “all computers” and “all records.”

    Among other things, agents seized a laptop computer that day from TelexFree “consultant” Joseph Craft, according to the defense. Merrill argues that Craft’s laptop and all other evidence seized that day should be excluded.

    In 2014, the SEC alleged that Craft was TelexFree’s CFO and was in possession of nearly $38 million in TelexFree-related cashier’s checks on the date of the search.

    As the PP Blog reported on April 17, 2014 (italics added):

    “The Deputy Sheriff told Craft he could not take the laptop and bag and that these items would be subject to the search,” the SEC said in the affidavit. “[Homeland Security Investigations] Agents searched the bag and identified ten Wells Fargo Bank, N.A. cashier’s checks totaling $37,948,296.”

    Nine of the checks were dated April 11, 2014, just two days before TelexFree petitioned for bankruptcy in Nevada, according to the SEC affidavit and other court filings.

    The nine checks were “remitted to” James M. Merrill, TelexFree’s co-owner and former president. Of the nine, five were made out to TelexFree LLC “totaling $25,548,809, and one was made out to Katia B. Wanzeler,” believed to be the wife of TelexFree co-owner and treasurer Carlos Wanzeler,” the SEC asserted in the affidavit.

    The Katia Wanzeler check was for the sum of $2,000,635, the SEC alleged.

    A check dated April 3 was “remitted to” Carlos Wanzeler and made out to “TelexFree Dominicana SRL in the amount of $10,398,000,” the SEC alleged in the affidavit.

    TelexFree Dominicana SRL’s relationship to TelexFree was not immediately clear.

    On April 15, two days after the TelexFree bankruptcy filing and apparently just hours before the raid, Merrill “submitted an unsolicited order to sell $1,150,000 of his mutual fund holdings” and to have the money transferred to a bank in Massachusetts, the SEC said in the affidavit.

    “Bank statements show that two companies controlled by Craft received more than $2,010,000 between November 19, 2013 and March 14, 2014,” the SEC said in its complaint.

    NOTE: Our thanks to the ASD Updates Blog.




  • SEC, Trustee, Defense Attorneys Mum On Possible Deeper Ties Between TelexFree And DFRF Schemes

    Daniel Fernandes Rojo Filho in a YouTube promo for the alleged DFRF Ponzi- and pyramid scheme.
    Daniel Fernandes Rojo Filho in a YouTube promo for the alleged DFRF Ponzi- and pyramid scheme.

    The SEC declined Friday to say whether two individuals named prospective defendants in a massive class-action lawsuit brought by the Trustee in the 2014 TelexFree bankruptcy case were the same two persons charged with securities fraud last year by the agency in the DFRF Enterprises/Daniel Fernandes Rojo Filho Ponzi- and pyramid-scheme case.

    On June 30, 2015, Gaspar C. Jesus, 54, of Malden, Mass., and Eduardo N. Da Silva, 40, of Orlando, Fla., were among the nine named civil defendants in the DFRF/Filho case. Jesus allegedly received $56,000 from DFRF; Da Silva allegedly received $221,000.

    Filho, also charged criminally, “orchestrated” the DFRF scheme with the “assistance” of Jesus, Da Silva and others, the SEC alleged at the time. The agency also has referred to Da Silva as simply “Silva.”

    Promoters who move from one online investment fraud scheme to another and help scammers grease HYIP Ponzi wheels have posed a longtime problem. Both TelexFree and DFRF largely were aimed at Spanish- and Portuguese-speaking communities, the SEC has alleged.

    And that’s not all they had in common. Investors in both MLM-style “programs,” according to court filings, sometimes paid their sponsors directly, rather than paying the companies.

    “The amount of checks and cash that the individual defendants collected directly from investors is currently unknown,” the agency said about DFRF and how money entered the system last year.

    Such mechanics can led to secret deal-making and the siphoning of funds by insiders, creating smaller frauds inside of larger ones.

    On April 4, 2016, TelexFree Trustee Stephen B. Darr asked Chief Bankruptcy Judge Melvin S. Hoffman for permission to amend a defendant class-action case to include dozens of additional defendants alleged to be “winners” in the scheme.

    Among the proposed additional defendants were “Gaspar Jesus” of Lynn, Mass., and “Eduardo N. Silva” of Orlando, Fla.

    As noted above, the SEC declined to say whether the individuals were the same ones named in the DFRF/Filho case.

    Jonathan Shapiro, a Boston defense attorney representing Gaspar C. Jesus in the DFRF/Filho case, said on Friday he “cannot confirm that the person named in the [TelexFree] bankruptcy matter is the same person I represent in the DFRF matter.”

    On Saturday, Martin R. Rosenthal, a Boston attorney representing Eduardo N. Da Silva in the DFRF/Filho case, said he had “no comment” on whether his client was the same individual named in the Trustee’s proposed amended class action.

    Darr has alleged Eduardo N. Silva received more than $2.4 million from TelexFree. Gaspar Jesus was alleged by Darr to have received $882,936. The Trustee did not return a request for comment on whether the individuals were the same ones named in the SEC’s fraud case against DFRF and Filho.

    The SEC previously tied DFRF/Filho to TelexFree defendant Sann Rodrigues.

    Both DFRF and TelexFree spread in part on YouTube.

    The surname “Filho” also is referenced among the alleged “winners” in Darr’s proposed amended class action, though not specifically Daniel Fernandes Rojo Filho.

  • Faith Sloan’s Alleged TelexFree Haul: $710,319

    newtelexfreelogoUPDATED 3:32 P.M. EDT U.S.A. Faith Sloan received $710,319 from the TelexFree Ponzi- and pyramid scheme, according to filings by TelexFree bankruptcy Trustee Stephen B. Darr.

    Sloan, whose address was listed as Virginia Beach, Va., is a longtime Illinois HYIP huckster on Ponzi boards and social media. She and three other TelexFree promoters were charged in April 2014 with securities fraud by the SEC. The state of Illinois later barred her from the securities industry and warned her that violating the ban could result in a felony charge.

    Her alleged TelexFree haul was not known at the time.

    Darr, who has been investigating TelexFree for nearly two years, now wants to add Sloan and dozens of other alleged major winners as named defendants in a proposed class-action lawsuit filed in February that would return the winnings to the bankruptcy estate. Another proposed defendant is Randy Crosby, charged alongside Sloan by the SEC two years ago. His alleged haul, according to Darr, was $487,621.

    An individual identified as Sonya Crosby at the same address received $541,450, according to Darr. She, too, has been named a proposed defendant in the class action.

    As of April 4, no adequate class representative had been found, Darr advised Chief Bankruptcy Judge Melvin S. Hoffman of the District of Massachusetts.

    Sloan previously had complained that the SEC was picking on her, given that others in TelexFree had received more from the scheme and were not charged by the agency. As investigations evolve, however, the SEC sometimes files amended complaints or brings individual actions against defendants not charged out of the gate.

    Such as the case with HYIP huckster Matthew John Gagnon in 2010. He also was sued by a court-appointed receiver and charged criminally by the U.S. Secret Service.

    Alleged Zeek Rewards’ winner Trudy Gilmond wasn’t originally charged by the SEC. But as the probe continued, Gilmond was sued by both the agency and the receiver.

    Zeek receiver Kenneth D. Bell has expressed concerns about promoters moving from one fraud scheme to another. In March, SEC Enforcement Director Andrew Ceresney commented on the “whack-a-mole” nature of online pyramid schemes.

    Sloan has not been charged criminally. On the civil side, she is defending against the action filed by the SEC and also is named a defendant in multiple TelexFree fraud actions brought by private plaintiffs. If Hoffman approves Darr’s motion to file an amended complaint naming Sloan a “winner,” it would open a new litigation front against her.

    It is unclear if the SEC will name any additional TelexFree defendants.

    Darr’s motion to amend the complaint to include Sloan and additional defendants is available on the Trustee’s website. The proposed complaint is included as Exhibit A.



  • BRIEF: Get Prepared To File TelexFree Claims

    Good news for potentially hundreds of thousands of people with TelexFree claims. TelexFree bankruptcy Trustee Stephen B. Darr informed Chief Judge Melvin S. Hoffman yesterday that testing could begin this month on the electronic proof of claim form (ePOC) and the online claims portal administered by BMC Group Inc.

    If all goes well, the “ePOC and Portal will be up and running by early May 2016,” Darr noted.

    No formal opening date has been announced. When the system is in place, individuals will have at least 90 days to file claims.

    This is the section of the Trustee’s website that includes court filings in the bankruptcy case. Readers also may wish to view information contained within the tabs on the left side of the page. This is the tab for Information Regarding Claims.

    As of today, it notes that “There is no deadline yet for filing claims in the TelexFree cases and claims should not be filed at this time.”

    Darr’s status report to Hoffman yesterday suggested this could change in the coming weeks, so it’s time for claimants to prepare.

    Hoffman already has ruled TelexFree a Ponzi- and pyramid scheme.




  • TelexFree Trustee Seeks Approval Of Settlement With PricewaterhouseCoopers

    newtelexfreelogoBig Four accounting firm Pricewaterhouse Coopers posted more than $115,000 in fees from the TelexFree Ponzi/pyramid scheme and will pay it all back under the terms of a stipulated settlement with TelexFree Trustee Stephen B. Darr, according to court filings.

    PwC admits no liability in the settlement, which requires the approval of Chief Bankruptcy Judge Melvin S. Hoffman of the District of Massachusetts.

    In January 2014 — just three months before TelexFree collapsed in a pile of Ponzi rubble — the firm hired PwC to provide “tax consulting and tax structuring advice,” according to a stipulation filed by Darr and PwC.

    PwC issued three invoices in the coming weeks, and TelexFree paid them all, according to the stipulation. These totaled $115,335.66. The document suggests TelexFree may have made a $50,000 payment to PwC in advance of the receipt of an invoice and in the final hours before the bankruptcy filing.

    This invoice was dated April 15, 2014, but TelexFree paid it on April 11 of that year. Two days later, according to records, TelexFree filed for bankruptcy in Nevada.

    Darr contended that payments made by TelexFree to PwC were preferential and thus recoverable. The trustee also “raised issues regarding the value of the services that were provided by PwC to TelexFree, LLC and whether such payments could be recovered as fraudulent transfers.”

    Read the stipulation.




  • TelexFree’s Merrill Concerned About Internet ‘Spectacle’

    EDITOR’S NOTE: This is a follow-up to our Feb. 4 article that reported TelexFree figure James Merrill potentially could be forced to take the Fifth Amendment in front of a large audience at a music hall in Worcester, Mass., on Feb. 10.

    **____________________________**

    James Merrill
    James Merrill

    Forcing him to take the Fifth Amendment tomorrow at Mechanics Hall in front of an expected large crowd at a meeting of TelexFree creditors could affect his right to a fair trial in the criminal case against him in October, James Merrill argued yesterday in bankruptcy court.

    Through attorney Robert Goldstein, Merrill argued that a “spectacle” easily could ensue and that all of it could end up on the Internet.

    Trustee Stephen B. Darr’s plan to hold the meeting at the hall may set the stage for news outlets to photograph or record Merrill’s invocation of his right not to incriminate himself and for attendees with cell phones to do the same thing and “widely disseminate the spectacle on the Internet,” Merrill argued.

    Merrill will “appropriately, and necessarily” invoke the Fifth if forced to appear “and will respectfully decline to answer any questions regarding” TelexFree, which filed for Chapter 11 protection on a Sunday evening in April 2014.

    Shortly after the filing, state and federal regulators called TelexFree a massive, cross-border fraud. Darr went on to deem it a Ponzi- and pyramid scheme, and Chief Bankruptcy Judge Melvin S. Hoffman agreed. Merrill and Carlos Wanzeler, another TelexFree executive, were charged criminally in 2014, after an investigation by the U.S. Department of Homeland Security.

    TelexFree, which operated over the Internet and may have produced about $3 billion in illicit transactions in about two years, was the top story in DHS’s Daily Open Source Infrastructure Report on April 17, 2014.

    In the 2008 AdSurfDaily Ponzi scheme, accused operator Andy Bowdoin invoked his Fifth Amendment right at a civil proceeding while a parallel criminal investigation was under way. Some ASD supporters immediately used the Internet to circulate a story that Bowdoin was “too honest” to testify.

    ASD, a $119 million Ponzi scheme that ultimately sent Bowdoin to prison, and TelexFree operated in similar fashion. Prosecutors have described TelexFree as having cult-like qualities.

    Read Merrill’s brief. Hoffman has ordered Darr’s motion to compel Merrill’s attendance “continued generally.” How that would affect tomorrow’s meeting was not immediately clear.




  • Trustee Wants TelexFree’s Merrill To Appear At Meeting Next Week, Setting Stage For Potential 5th Amendment Showdown In Front Of Large Crowd

    James Merrill.
    James Merrill.

    BULLETIN: TelexFree Trustee Stephen B. Darr today asked Judge Melvin S. Hoffman for an order that would compel TelexFree executive James Merrill to appear at a meeting of creditors at 11 a.m. on Feb. 10 at Mechanics Hall in Worcester, Mass.

    Darr also wants Hoffman to designate Merrill as TelexFree’s corporate representative, setting the stage for him to be questioned by the office of the U.S. Trustee, an arm of the U.S. Department of Justice that participates in bankruptcy cases.

    Carlos Wanzeler, another TelexFree principal, reportedly fled to Brazil in 2014, a circumstance that makes Merrill the only remaining shareholder known to be on U.S. soil. Merrill, who faces criminal charges of operating a Ponzi scheme, has been under close supervision with an ankle monitor since 2014, although he is permitted to leave his Massachusetts home to attend court functions and certain other events.

    An appearance by Merrill at the meeting potentially sets the stage for him to invoke his Fifth Amendment right against self-incrimination before a large crowd at Mechanics Hall. On Jan. 13, the Telegram & Gazette reported that Darr had made plans to accommodate up to 1,000 people at the meeting, owing to the immense size of the TelexFree scheme.

    Mechanics Hall, which calls itself “an acoustical masterpiece,” typically is known as a venue for music and performances.

    “The historic performance hall, which can hold about 1,600 people, is an unusual choice for a meeting of bankruptcy creditors,” the Telegram & Gazette reported last month.”In most Worcester bankruptcy cases, creditors meet in a small room in a downtown office building.”

    Hoffman already has ruled TelexFree a Ponzi- and pyramid scheme. Darr has said it generated about $3 billion in illicit business.

    In an MLM clawback case for the ages, Darr is suing tens of thousands of alleged “winners.”

    Read Darr’s motion to compel Merrill’s attendance.

    UPDATE 6:08 P.M. Feb. 8. Randall G. Reese, via Twitter (@Chapter11Cases), is showing a screen shot of a document today that says Merrill opposes the motion to appear on Wednesday and questions whether his right to a fair trial in the criminal case could be compromised if he is forced to appear at the meeting. See shot in No. 2 position in Comments thread below.

  • TelexFree Trustee’s Proposed Class Actions May Affect Nearly 100,000 Alleged ‘Winners’ Globally

    newtelexfreelogoIt’s another MLM legal and PR catastrophe.

    Let’s begin with the numbers, which are staggering: In two separate actions on Jan. 15, TelexFree bankruptcy Trustee Stephen B. Darr sued 56 named alleged “winners” in the MLM Ponzi- and pyramid scheme believed to have generated about $3 billion in corrupt, cross-border economic activity.

    These 56 promoters — 23 with U.S. addresses and 33 with overseas addresses — effectively are the stand-ins for about 93,000 others who received more from TelexFree or “from other persons in connection with the purchase of membership plans or VoIP Packages” than they paid in. The adversary action in federal bankruptcy court in Massachusetts is filed as a proposed defendant class-action, meaning rulings for or against the named winners would apply to the unnamed 93,000 others.

    “The members of the Net Winner Class are so numerous that joinder of all members is impracticable,” Darr argued to Chief Bankruptcy Judge Melvin S. Hoffman.

    At least 11 U.S.-based promoters of TelexFree hauled more than $1 million each from the program, according to Darr’s complaint. At the top of the list was Benjamin Argueta of Somerville, Mass. He is alleged to have received more than $4 million, including more than $2.2 million in the last 90 days of the scheme.

    With alleged winnings of more than $2.5 million, including more than $1 million in the closing days, Zollo Alecci of Canico, Portugal, was the alleged top international winner. Canico is situated in the Madeira Islands, a spot apparently favored by Brazil-based TelexFree executive Carlos Costa.

    Costa, associated with a TelexFree branch known as Ympactus, also is a failed politician and alleged international racketeer.

    Much like Zeek Rewards’ receiver Kenneth D. Bell, who also filed a defendant class action, Darr is arguing that the alleged winners must return the money because it represents an ill-gotten gain.

    Hoffman already has ruled TelexFree a Ponzi- and pyramid scheme.

    Accused TelexFree huckster Sann Rodrigues, who once claimed a $3 million haul, was not named an alleged winner in either of Darr’s proposed class actions — even though the sum Rodrigues claimed easily would have put him among the top winners.

    The reason why Rodrigues wasn’t named was not immediately clear, although he possibly used shell companies to offload some of his haul.

    TelexFree involved as many as 1.9 million participants, according to Darr.

    NOTE: Thanks to the ASD Updates Blog.




  • Feb. 5 TelexFree Bankruptcy Conference Is Canceled; Judge Orders Public Posting Of Trustee’s Report

    newtelexfreelogoUPDATED 5:42 A.M. ET FEB. 5 U.S.A. U.S. Bankruptcy Judge Melvin S. Hoffman has canceled a status hearing set for tomorrow in the TelexFree bankruptcy case.

    Hoffman further has ordered the report filed yesterday by TelexFree Trustee Stephen B. Darr to be posted publicly. Although the report already was posted, Hoffman’s order appears to underscore his desire to make sure it is widely read.

    Darr said yesterday that TelexFree, a purported VOIP company involved in multilevel marketing, may have involved more than 1 million participants globally and gathered as much as $1.8 billion in about two years. The trustee flatly called TelexFree a pyramid scheme.

    “In light of the detailed status report, the status conference scheduled for 2/5/2015 in these cases is canceled,” Hoffman wrote in an order today. “Kurtzman Carson Consultants LLC is odered to make a copy of this status report available for viewing by the public via the Kurtzman Carson website.”

    KCC now is providing links to Darr’s status report in two places — in a PDF on the lead page of filings, and on a TelexFree information page.

    Read Feb. 3 PP Blog report on Darr’s filing.