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Tag: Massachusetts Securities Division

UPDATE: BitClub Network Launch Said To Be Delayed; ‘Founders’ Positions Reportedly Sell For $3,599; Pitches Directed At ‘Leaders’; Prospects Asked To Wire Money; Purported ‘Opportunity’ May Have TelexFree-Like Cash-Transfer System

“These participants received uncontrolled cash deposits outside of the TelexFree system,” — Massachusetts Securities Division, Ponzi- and pyramid complaint against TelexFree, April 15, 2014.

EDITOR’S NOTE: For our earliest background on BitClub Network, see Aug. 30 report that references serial HYIP promoter T. LeMont Silver. Are you really sure you want to promote bitcoin-themed HYIPs alongside a man who parachuted into the Dominican Republic from Florida after the Zeek HYIP scam and now is using an address in Seychelles?

Read on for more early background on BitClub Network . . .

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As tomorrow is the 75th anniversary of the beginning of World War II, it’s easy enough to summon images of the late Winston Churchill asking the world to pay attention. The great man still is very much alive in the annals of history and in millions of hearts. We imagine him in 2014, contemplating BitClub Network as a gathering storm, perhaps a modern “riddle wrapped in a mystery inside an enigma.”

BitClub Network appears very much to be yet another nascent MLM/network marketing whack-a-mole “program,” a reload scheme rising to replace a “program” that has collapsed. The most recent major “program” to crumble into an alleged heap of Ponzi- and pyramid rubble was TelexFree — in April 2014.

Reload schemes keep cash flowing to factories of online crime and to the “leaders” who deliver human souls to them for the purposes of financial disembowelment. The more bodies disemboweled, the more the scammers-in-chief and their disingenuous and corrupt enablers make.

Our early analysis of BitClub Network, subject to amendment, is that it is casting its net to attract the greediest and greatest HYIP scammers on a cross-continent basis. The PP Blog observed information last night that suggested the brand of BitClub Network, which already is conducting business via wires that pass though the United States, also may be expanding in a region of Europe known for atrocities, including ethnic cleansing.

Among the core dangers of HYIP scams is that they deliver undeserved and potentially ruinous economic power to unknown persons or entities. The money could be used for any nefarious purpose under the sun.

For an unclear reason — headline scraping to drive people with an interest in politics to bitcoin-themed sites, perhaps? — one promo using the name of BitClub Network linked yesterday via Twitter to a site that featured a video commercial and the names of National Geographic and Michelin, the French tire-maker with a presence in the United States. The Twitter linkage occurred through a site curiously dubbed “Bitcoin Regime” with a “From” message of “Bitclub Russia.” A promo today linked via Twitter through Bitcoin Regime was playing a commercial for Schick, the Connecticut-based maker of razors. Some text surrounding the promos is in English. Other text appears to be in the language of Russian or Ukranian or Serbian.

“Bitclub Russia” appears also to have its own YouTube site. “Bitcoin Regime,” meanwhile, says “[t]his site was created out of passion and interest in the subject.” One of the headlines on the site reads, “Obama: No Strategy For ISIS.. (Oops, We Funded & Trained ISIS!).”

Another reads, “. . . because fuck fiat!” Yet another reads, “Let’s Talk Bitcoin: Buenos Aires & Bitcoin Embassy.” Still another, in Russian, reads, “Earn Bitcoins on a serious level 1 service! The most serious Bitcoin earnings!” — when Google’s translation tool from Russian to English is used.

Is it a scraping site of some sort that is drafting off the anticipated popularity of BitClub Network?

ISIS is the terrorist group that allegedly beheaded American journalist James Foley and also allegedly beheaded a Lebanese soldier.

Launch Timing

Head-scratchingly, the “Founders’” launch of the BitClub Network “program” had been set for Sept. 1, the 75th anniversary of the beginning of World War II. Whether that’s a coincidence is unclear. Sept. 1 also is Labor Day in the United States. Various HYIPs have targeted the world’s workers, offering false relief from the daily grind — not just a chicken in every pot, but a mansion, unlimited sums of cash and perhaps a fleet of high-end automobiles and maybe even a Ferrari (or two).

As is typical in HYIP scams, there was at least one report this morning circulating on Twitter that BitClub Network has experienced a launch delay. As also is typical in HYIP Ponzi Land, black comedy is in no short supply. Whether it’s accidental or intentional is unclear.

In any event, BitClub Network reportedly has a feature known as the “holding tank” — and this “holding tank” is being blamed for the launch delay.

“Hi Leaders,” a link from Twitter bizarrely begins, adding a second layer of black comedy. “Ok, I just heard that the programming of the holding tank feature is taking a bit longer than expected, so dont [sic] be dissapointed [sic] as it basically gives us more time to prepare our teams. :) So, it now looks like we [sic] gonna pre launch around wednesday [sic] or thursday [sic] 2pm EST [sic?] this coming week!”

Perhaps most distressing, though, is a murky claim that “Founders” still can wire $3,599 to get started, “holding tank” delay or not. This wire maneuver appears to be very similar to the way things were done at WCM777, alleged by the SEC earlier this year to be a massive international scam. It’s also highly reminiscent of Profitable Sunrise, which told the marks to wire money to the Czech Republic. Some of the money was seized in Hungary in a money-laundering probe.

Details of the BitClub Network wiring arrangement are not published and apparently are revealed only in private communications, another typical signature of an emerging HYIP scam. It’s also possible that people are disguising themselves as BitClub Network promoters to solicit and then steal wire transfers.

“If you want to do a wire you need to get back to me ASAP and I will sent [sic] you the details for that,” the link from Twitter coaches. “The advanatge [sic] of sending in a wire is that you lock your spot on top of the binairy [sic] before hundreds or probably thusands [sic] that will come in afer [sic] you at launch!”

Chronic typos and odd syntax often signal HYIP scammers are at work.

A separate link from Twitter, presumptively from a different early bird, says, “[Y]ou get paid right away on all referrals and can use those commissions to pay others in after they send you paypal [,] bank wire, or pazya etc.”

If this is true, it would reflect the money-moving mechanics of other HYIP scams that encourage “leaders” to gather money from prospects via bank wires and payment processors — and then to cherry-pick part of it or all of it to use as a recruitment lure. Such deals almost certainly would take place off the books of the “program” and can create layers and layers of black markets inside a larger black market — nesting dolls of crime, if you will.

The second link from Twitter continues (italics added):

I can’t stress enough the fact that you are at the top and at the very beginning of this incredible global program that will make everyone money every day, just for joining.

If you have done your homework you shoud [sic] know by now why this is and how it works, cause of the crypto currency mining :)

And if you refer others, well you”ll [sic] make a KILLING! read [sic] the income example on the payplan site, this will blow your mind!

This is BIG money you can make here, some of you will make already [sic] 7 figures by christmas [sic].

Naturally some American scammers appear already to be doing some of the bidding for BitClub Network. It’s as though Profitable Sunrise, a collapsed HYIP allegedly operated by a ghost and driven by willfully blind affiliates who conducted business by wire from the United States to Eastern Europe, never happened.

BitClub Network also may be a bit like TelexFree, another collapsed HYIP. After prospects are told they can only join by wire at this stage and later will have to join with bitcoin, the first link from Twitter goes on to suggest sponsors can perform back-office transactions and collect money directly from recruits.

Here’s how the first link from Twitter (described above) confusingly puts it (italics added):

OR……having your sponsor or upline paying for you with their commissions within their back office using the credit system after you have sent them the money!

Back-office transactions almost certainly contributed to the calamity at TelexFree, an alleged Ponzi- and pyramid scheme that may have gathered more than $1.2 billion in a little more than two years of Internet scamming. One of the issues at TelexFree was “cash deposits” alleged to be “uncontrolled.”

As noted above, one of the dangers of such systems is that they introduce the specter of a black-market economy and back-alley deals, making already-dangerous enterprises doubly dangerous. The results can be bizarre.

As things stand today, if BitClub Network were the movie “Casablanca,” Renault would be telling the troops to “round up the usual suspects.”

Any person who joins this program with a purported “holding tank” is a fool. Any person who pitches it to others amid these exceptionally murky circumstances is reckless beyond comparison.

Aug 31, 2014
Citing Missing Affidavit And Inconsistencies, Indiana Rejected TelexFree Telecom Application

UPDATED 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.

Aug 27, 2014
Missouri Raised ‘Grave Concerns’ Over TelexFree

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.

Aug 18, 2014
BOSTON GLOBE: Massachusetts Now Investigating EmGoldEx

The EmGoldEx “program” describes gold as “money” and an ancient investment vehicle available in a “new splendor.”

If TelexFree, WCM777 and Wings Network were not enough, the office of Massachusetts Commonwealth Secretary William Galvin now is investigating the “EmGoldEx” program.

The Boston Globe broke the story this morning. Galvin leads the Massachusetts Securities Division.

From the Globe (italics added):

Secretary of State William F. Galvin’s office is investigating the Andover operation of Emgoldex Team USA Inc., a company that recruits investors to buy gold online and pays bonuses for referring friends and acquaintances.

The degree to which EmGoldEx has penetrated Massachusetts is unclear. “Gold” and other shiny-object schemes typically ride on the coattails of MLM HYIP recruiting scams. Narratives surrounding such schemes often are incongruous, if not downright wild, sometimes focusing on tales of spectacular profit opportunities in Europe and the Middle East and a chance to deal with purported royal families or upstream investors interested in elevating people out of poverty.

EmGoldEx purportedly operates from Dubai. Here is a verbatim snippet of the EmGoldEx narrative as it appears in challenged English: “To become a client of the Internet – shop, it is necessary to be registered and make an Order. In the Internet shop an account will be opened for you and the purchase price will be fixed for 24 hours.”

Hidden text on the page appears to be in Russian.

As part of the TelexFree probe in April, Galvin’s office alleged a Massachusetts entity had asserted that it bought “TelexFree packages, and all sorts of real estate within the U.S.A. or foreign countries.” Investigators further alleged that the enterprise asserted it was backed by “Dubai investors.”

Regulators in Quebec issued a warning on a “program” known as Karatbars International earlier this year. Other recent (or relatively recent) gold-themed “programs” that have been targeted by regulators include Gold Nugget Invest (HYIP/shiny-object scheme that collapsed in 2010 amid bizarre, companion claims INTERPOL was investigating the SEC); and Gold Quest International (HYIP with possible links to the “sovereign citizens movement” and operated in part by a purported “Lord”).

In October 2013, the office of North Carolina Secretary of State Elaine F. Marshall announced criminal charges against Rondell Scott Hedrick, 48, of Lexington, N.C.

Investigators linked Hedrick to an alleged “precious metals scam” that involved trawling for investor cash on Craigslist.

One investor, according to the state, wired Hedrick $5,000 after Hedrick had provided instructions and claimed he’d be leaving for Dubai soon and providing the investor a return of 200 percent.

Shiny-object scams are close cousins to prime-bank swindles, which produce equally wild narratives. (See Sept. 30, 2011, PP Blog story on the experience of U.S. Ponzi schemer Marian Morgan, who was arrested in Sri Lanka.)

Read June 2014 review of EmGoldEx on BehindMLM.com.

Galvin’s office is publishing a brochure on how to steer clear of pyramid schemes.

Aug 8, 2014
MLM Attorney Gerald Nehra Now Lawyered Up In TelexFree Bankruptcy Case

MLM attorney Gerald Nehra, his law partner Richard Waak and their law firm are now lawyered up in the TelexFree bankruptcy case.

Groups of TelexFree members have sued them in bankruptcy court, alleging violations of the federal racketeering (RICO) statute and violations of federal securities laws. TelexFree filed for Chapter 11 bankruptcy protection on a Sunday evening in April, just prior to fraud actions filed by securities regulators.

Attorneys Christopher F. Robertson and William J. Hanlon, partners in the Boston office of Seyfarth Shaw LLP, entered appearance notices for Nehra, Waak and the firm yesterday.

Also named defendants in some or all of the actions are TelexFree, alleged officers or executives James Merrill, Carlos Wanzeler, Carlos Costa, Steve Labriola and Joe Craft, alleged promoters Sann Rodrigues, Randy Crosby, Santiago De La Rosa and Faith Sloan, and several alleged financial vendors or service-providers.

In a complaint filed May 3, 2014, plaintiffs accused Nehra of counseling TelexFree “on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”

He further was accused of encouraging unknowing TelexFree members to “participate in the evasion of federal and state securities laws.”

Sloan, in response to fraud allegations against her filed by the U.S. Securities and Exchange Commission, said she “believed what [SEC Co-] Defendants Carlos Wanzeler, James Merrill, Steve Labriola and their attorney, Gerald Nehra, had told her, until TelexFree continued to miss the deadlines for the launch of its new products.”

Nehra, Waak and the law firm are not defendants in the SEC action. Nor are they defendants in a TelexFree-related securities action by the Massachusetts Securities Division. Sloan, who later was accused by the SEC of violating the asset freeze against her in the SEC case by sending thousands of dollars to another “program” and transferring her interest in a real-estate trust to her mother, is a longtime HYIP huckster.

In a separate criminal case that alleges wire-fraud conspiracy against Merrill and Wanzeler, Merrill has signaled that he intends to use a defense of reliance on Nehra’s lawyering. The Massachusetts Securities Division has described TelexFree as a “financial pariah” and a combined pyramid- and Ponzi scheme that had gathered more than $1.2 billion. The SEC likewise has accused TelexFree of hatching a billion-dollar pyramid-and Ponzi scheme, saying it was aimed largely at Brazilians and Dominicans.

Nehra, according to plaintiffs suing him in in at least one of the TelexFree-related actions in bankruptcy court, advised at least two other “programs” regulators accused of operating massive pyramid or Ponzi schemes: Zeek Rewards (2012/$850 million) and AdSurfDaily (2008/$119 million).

Sloan is known to have promoted Zeek Rewards. Some HYIP promoters move from scheme to scheme to scheme, piling up purported “earnings” alleged to be fraudulent along the way.

“Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law,” plaintiffs alleged. “Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”

Zeek-related actions still are winding their way through the courts. The Zeek “program” was back in the news yesterday, with the court-appointed receiver alleging that an affiliate who appears to have invested $10 filed a claim for $30 million and that a vendor alleged to have aided Zeek wanted nearly $15 million.

Jun 24, 2014
MONTANA: Former Zeek Pitchman Who Also Pushed TelexFree Now Required To Give State Notice Of MLM Activities

A former pitchman for the Zeek Rewards MLM Ponzi- and pyramid scheme also acknowledged he participated in TelexFree, the state of Montana said in a consent agreement and final order.

James D. Helgeson was fined $5,000 by the office of Monica Lindeen, Montana’s Commissioner of Securities and Insurance (CSI) and state auditor.

The case demonstrates that accountability for a “program” can apply to both the operators and individual promoters. It also demonstrates that promoters who may move from one dubious MLM scheme to another may encounter state-imposed restrictions.

As part of the agreement, Helgeson must notify Montana for the next five years “prior to his participation in any multilevel distribution company.”

From Helgeson’s agreement with Montana, which was finalized this month (italics/carriage returns added):

This condition applies regardless of whether the MLM is registered with the State of Montana as required under §30-10-216.

“Participation” includes selling any MLM product or service; directly or indirectly promoting, recommending, or referring a person to any MLM product, service, or compensation plan; participating in any MLM compensation structure wherein Respondent sponsors or is sponsored by another person in the structure, or receives a pecuniary or other benefit based upon the efforts of other persons within the structure; or paying a MLM or its representative, whether directly or through the purchase of a product or service, for the opportunity to participate in a compensation plan or structure.

“Participation” does not include the purchase of a MLM product or service for personal consumption or use, so long as the MLM does not market or offer that product or service as a means for the purchaser to earn income.

In April 2014, Montana issued a cease-and-desist order to TelexFree, saying it unsuccessfully had sought complete information from the MLM “program” for months and alleging that TelexFree continued to do business in the state after claiming it had pulled out.

Alleged TelexFree co-owners James Merrill and Carlos Wanzeler were charged criminally by federal prosecutors in May 2014 with wire-fraud conspiracy. They also face serious allegations of fraud filed by the U.S. Securities and Exchange Commission, as well as at least four prospective class-action lawsuits.

The SEC has sued four alleged individual promoters, saying they engaged in securities fraud. Helgeson, who neither admitted nor denied wrongdoing in Montana, is not among the federal defendants.

During the Zeek-related action brought against him in Montana, Helgeson acknowledged to authorities that he also had been involved in TelexFree and an MLM “program” known as Apex Revenue, the state said in its order.

The filing asserts that Helgeson, who was a registered securities salesperson and investment adviser while pushing Zeek, pushed Zeek’s unregistered securities.

Helgeson supplied the state with a list of the names of his Zeek recruits and “has offered certain Montana resident-participants payment for monies lost through participation in the Program,” according to the order.

“Respondent has further informed the CSI that he has terminated his Participation in the TelexFree and Apex Revenue MLM programs prior to the date of this Agreement,” the state said in the order, which was dated June 2.

Zeek gathered $850 million in its scam, federal officials have said. TelexFree gathered more than $1.2 billion, according to the Massachusetts Securities Division.

Jun 17, 2014
TelexFree Telecom Application Rejected By Nevada Public Utilities Commission

The Nevada Public Utilities Commission has rejected TelexFree’s telecom application. Image source: PUC document. Red highlight by PP Blog.

Nevada, the state in which TelexFree operated an alleged $1.2 billion pyramid- and Ponzi scheme through a mailbox and filed its initial Chapter 11 bankruptcy petition, has rejected the company’s application to become a telecom provider.

The Nevada Public Utilities Commission denied the application in an order dated June 2. The staff of the PUC pressed for the denial last month, noting that TelexFree filed for the license on April 1 but then declared bankruptcy only 12 days later. The staff also said it was aware TelexFree had been charged civilly with fraud by the U.S. Securities and Exchange Commission and that its assets had been frozen. At the same time, the staff said it was aware TelexFree also is the subject of state-level civil action by the Massachusetts Securities Division.

Former TelexFree President James Merrill currently is jailed on a criminal charge of wire-fraud conspiracy. That charge was filed May 9. Merrill continues to seek his release on bail. Carlos Wanzeler, Merrill’s TelexFree business partner, also was charged criminally with wire-fraud conspiracy last month. U.S. federal prosecutors have described him as an international fugitive.

TelexFree faces challenges to its license in other states. The firm says on its website that it “has suspended all business activity.”

A U.S. Bankruptcy Judge in Nevada transferred the TelexFree petition to Massachusetts last month, after the SEC argued the state was TelexFree’s nerve center. Litigation against the firm is centered in Massachusetts, although a prospective class-action lawsuit against TelexFree and alleged managers, promoters and vendors also has been filed in federal court in the Eastern District of North Carolina.

At least two civil actions against TelexFree, including the one in North Carolina, allege violations of the federal racketeering (RICO) statute. There also is active TelexFree-related litigation in Brazil. An alleged promoter of TelexFree was arrested in Uganda last month and paraded in front of TV cameras.

In the United States, the SEC has referred to a number of TelexFree-related promos on YouTube. HYIP schemes are notorious for using social media to gain a head of steam. The actions by various governments and private litigants show that promoters are not insulated from prosecution and can become defendants in cases that allege fraud.

With its assets frozen, whether TelexFree has the resources to address lawsuits and licensing challenges in multiple jurisdictions remains an open question. Individual promoters named in complaints could rack up high legal bills, with the company unable or unwilling to provide assistance.

Because some of the actions name “Doe” defendants, it is possible that other TelexFree promoters will find themselves with the need to hire attorneys at their own expense. Named promoters so far include Faith Sloan, Sann Rodrigues, Randy Crosby and Santiago De La Rosa.

It is known that the U.S. Department of Homeland Security opened an undercover probe into TelexFree by at least October 2013.

One TelexFree huckster, according to court records, told an undercover agent that “he [the huckster] had earned $1,600,000 as a TelexFree promoter, without selling a TelexFree product.”

Precisely how many TelexFree promoters interacted with undercover agents is unclear.

In 2010, the U.S. Department of Justice said it had “begun increasingly to rely, in white collar cases, on undercover investigative techniques that have perhaps been more commonly associated with the investigation of organized and violent crime.”

The 2008 AdSurfDaily Ponzi probe began as an undercover operation. Such techniques also have been used in penny-stock cases and cases involving “carding.”

Jun 6, 2014
TelexFree Faces Prospect Of Regulatory Probe In Oregon; [UPDATE: Judge To Appoint Bankruptcy Trustee, WSJ Reports]

Redactions by PP Blog.

UPDATED 5:06 P.M. EDT U.S.A. See Comments thread below for breaking news that the judge overseeing the TelexFree bankruptcy case in Massachusetts will appoint a trustee. First reported by the Wall Street Journal. Original story on separate TelexFree matter in Oregon is below . . .

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The staff of the Oregon Public Utilities Commission has recommended that the agency open an investigation into TelexFree, citing the MLM “program’s” bankruptcy filing, civil actions against it by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission and the criminal charges against alleged TelexFree co-owners James Merrill and Carlos Wanzeler.

Should TelexFree not respond appropriately in Oregon, the PUC staff said, the commission should strip it of its telecom license.

TelexFree faces similar regulatory encounters in Nevada and Minnesota. On May 23 in Minnesota, the state Department of Commerce added to its TelexFree file by pointing the Public Utilities Commission to a May 20 Boston Globe story with a headline of “TelexFree co-owner to stay in custody until trial.”

It was a story about a U.S. Magistrate Judge’s decision not to grant Merrill bail. The Globe story notes Wanzeler is considered a fugitive by the U.S. Department of Justice.

TelexFree’s licensing in Alabama also is at risk, and there could be trouble brewing in other states even as TelexFree continues to pursue Chapter 11 bankruptcy protection.

In addition, TelexFree faces multiple prospective class-action lawsuits, including at least two that allege violations of the federal racketeering statute. A report in Peruvian media last week suggests that racketeering at TelexFree cut both ways.

With U.S.-based litigants asserting TelexFree was a racketeering enterprise, La Republica in Peru published a report that suggested a TelexFree promoter in the country was kidnapped by fellow members last week and ordered to go to a bank to withdraw funds to make them whole. The extortion plan reportedly failed.

TelexFree has asserted in bankruptcy-court filings that its future business prospects involving VOIP and app products are exciting. A U.S. Bankruptcy Trustee argued that TelexFree was advancing a “rabbit hole” narrative and expecting the judiciary to follow it.

From the Oregon filing by the PUC staff (italics added):

The allegations facing the Company raise serious issues as to whether or not the Company should be permitted to retain its certificate of authority. Staff has been unable to reach anyone from the Company to obtain further information. Staff stated in its communications that the Company may request that the Commission cancel its certificate under the current circumstances. It is unlikely that any services will be offered in Oregon as the Company’s assets are frozen, it is in bankruptcy proceedings, and its offices are the target of federal government activity. Nevertheless, cancelling the Company’s certificate to provide services in Oregon would foreclose the possibility.

TelexFree asserts on its website that it has “suspended all business activity.”

May 27, 2014
DISTURBING: Report Of TelexFree-Related Kidnapping And Extortion Bid

La Republica, a newspaper in Peru, is citing information from police and reporting that a TelexFree promoter in the country was kidnapped Thursday afternoon and held in a van. The PP Blog cannot independently verify the report, which suggests the kidnapping was carried out by TelexFree members who ordered the man to withdraw money from a bank to make them whole.

In Peru and across the world, individual TelexFree members recruited others into MLM downlines. La Republica’s report suggests the kidnappers’ extortion plot failed, but one person reportedly was captured while others fled.

Court records in the United States allege that some TelexFree sponsors collected money from individual recruits, rather than directing the recruits pay TelexFree directly. Such a practice may establish a dangerous black-market economy while setting the stage for scams to occur inside of scams.

How the asserted Peruvian kidnapping victim handled TelexFree transactions is unclear. Even if recruits paid TelexFree directly, however, it’s no guarantee against an angry mob. In a 2009 Ponzi case in the United States, the FBI warned against Ponzi victims taking matters into their own hands. Four persons were charged criminally in an alleged shakedown bid associated with the 2009 case in California.

“In their guilty pleas the defendants admitted to creating an environment that was intimidating and causing the individuals to believe that they were not free to leave,” the FBI said in 2010.

On April 1, 12 days before TelexFree declared bankruptcy in the United States, unhappy affiliates jammed the “program’s” office in Massachusetts. Police were called to defuse the situation.

Here is La Republica’s May 24 report in Spanish. Access the Google Translate tool here.

It’s often the case in the HYIP sphere that individual promoters push multiple scams simultaneously, potentially setting the stage for recruits to take multiple baths. It is known, for example, that some TelexFree promoters also were pushing WCM777 and Wings Network.

The SEC has called WCM777 an $80 million fraud scheme. Wings Network has been accused in Massachusetts of selling unregistered securities as investment contracts. Vulnerable populations often are targeted in HYIP scams.

There have been reports of at least two TelexFree-related suicide deaths. Some TelexFree affiliates spammed reports of the deaths with offers to join the “program,” which the Massachusetts Securities Division has described as a combined pyramid- and Ponzi scheme that gathered more than $1.2 billion.

In April, the U.S. Securities and Exchange Commission sued TelexFree and eight managers/executive or promoters, alleging a massive fraud scheme.

Some promoters continued to promote TelexFree after a Brazilian court froze TelexFree-related assets last year and suspended new registrations in that country. Promoters’ solicitations to prospects to join the “program” continued even after a judge and prosecutor in Brazil were threatened with death.

As the PP Blog reported on May 22, the FBI and the U.S. Department of Homeland Security have established a website for TelexFree victims. So has the Massachusetts Securities Division, as the PP Blog reported on April 25. As the PP Blog reported on May 15, the U.S. Securities and Exchange Commission has published TelexFree information in English, Spanish and Portuguese.

NOTE: Our thanks to the ASD Updates Blog.

May 24, 2014
BULLETIN: Nevada Public Utilities Commission Staff Recommends Denial Of TelexFree’s Telecom Application; ‘Financial Statements . . . Cannot Be Relied Upon At This Time’

BULLETIN: The staff of the Nevada Public Utilities Commission has recommended that TelexFree’s telecom application be denied, saying the firm filed the application and then almost immediately filed for bankruptcy protection.

Based on the bankruptcy filing, the financial information provided by TelexFree during the application process “cannot be relied upon at this time,” the PUC staff said.

Records in the state show that TelexFree applied to be a Nevada telecom provider on April 1, but filed for bankruptcy only 12 days later. Class-action litigants who’ve alleged racketeering at TelexFree have said “massive discrepancies” exist in the firm’s accounting.

Meanwhile, the Nevada PUC staff said it was aware TelexFree had been charged civilly with fraud by the U.S. Securities and Exchange Commission and that its assets had been frozen. At the same time, the staff said it was aware TelexFree also is the subject of state-level civil action by the Massachusetts Securities Division.

Moreover, TelexFree did not provide the required “biographies for its company officers or other relevant information” to verify assertions that it possesses the necessary technical capability to provide interexchange services in Nevada, the staff said.

When the staff tried to call a toll-free number provided by TelexFree to verify the company had a working customer-service operation, “the call did not go through and Staff was unable to reach a company representative.”

Among other things, TelexFree says this on its website (italics added):

TelexFREE has suspended all business activity while we address certain issues in the Bankruptcy Court and address pending proceedings by the SEC and other government agencies. Since we are not currently in a position to support our network, it is likely Customers will experience either interruption or discontinuation of service. Independent Associates and Promoters should not be representing TelexFree on a going forward basis absent approval of a new compensation plan by the Bankruptcy Court.

TelexFree also may face licensing challenges in Minnesota, Alabama and other states.

MSD has alleged TelexFree was a combined pyramid- and Ponzi scheme that gathered more than $1.2 billion. The firm’s bankruptcy petition initially was filed in Nevada, but a judge there transferred the case to Massachusetts, which the SEC described as the company’s nerve center.

Alleged TelexFree co-owners James Merrill and Carlos Wanzeler have been charged criminally in federal court in Massachusetts with wire-fraud conspiracy.

See April 21, 2014, PP Blog story.

May 22, 2014
FBI, Homeland Security Establish Site, Questionnaire For TelexFree Victims

In this TelexFree promo, former President James Merrill posed with a giant SUV.

The FBI and the U.S. Department of Homeland Security have established a website for individuals who believe they were defrauded by TelexFree, an alleged pyramid- and Ponzi scheme the Massachusetts Securities Division says gathered more than $1.2 billion.

Here is a link to a statement by the FBI and DHS. The page includes a link to a questionnaire.

Alleged TelexFree co-owners James Merrill and Carlos Wanzeler have been charged criminally with wire-fraud conspiracy. Merrill, 53, of Ashland, Mass., is jailed in the United States. Wanzeler, 45, of Northborough, Mass., is alleged to have fled to Brazil. The U.S. Department of Justice describes him as a fugitive.

TelexFree, Merrill, Wanzeler and six other alleged TelexFree managers, executives or promoters also are defendants in a major civil prosecution by the U.S. Securities and Exchange Commission.

By some accounts, TelexFree had between 700,000 and 1.5 million participants.

From the FBI/DHS statement (italics added):

The large number of possible victims necessitates that we ask for your assistance by completing the secure questionnaire online. Your responses are voluntary, but would be useful in the federal investigation and to identify you as a victim.

The office of U.S. Attorney Carmen Ortiz of the District of Massachusetts is prosecuting the criminal cases against Merrill and Wanzeler.

May 22, 2014