(UPDATED 11:30 A.M. EDT MAY 21 U.S.A. See Update at bottom of this brief, originally published May 20.)
TelexFree figure James Merrill was unable to persuade a federal magistrate judge to free him, the PP Blog has learned.
Judge David Hennessy declined Merrill’s bail application today, the office of U.S. Attorney Carmen Ortiz said moments ago.
Merrill, 53, was arrested and detained May 9 on wire-fraud conspiracy charges. TelexFree co-owner Carlos Wanzeler, 45, has been labeled a fugitive. Wanzeler’s wife Katia, meanwhile, was arrested last week and detained as a material witness.
May 21 update: The Boston Globe is reporting (see Globe Tweet in Comments thread below) that John F. Merrill, the brother of James Merrill, has been subpoenaed by the Massachusetts Securities Division led by Commonwealth Secretary William Galvin. John Merrill is a banker at Fidelity Bank.
See March 9, 2014, PP Blog report. The report references a February 2014 document on file at the Washington State Utilities and Transportation Commission that purported to be a TelexFree LLC “Balance Sheet.” The document lists two accounts at Fidelity Bank and outlines purported TelexFree loans to other TelexFree-related enterprises, including TelexElectric LLLP, Telexfree Financial Inc., TelexMobile and Ympactus.
When the Massachusetts Securities Division filed an action against TelexFree last month, the state alleged that TelexFree financial filings with the Washington State Utilities and Transportation Commission were at odds with information TelexFree had provided the investigators in Massachusetts.
UPDATED 11:13 A.M. EDT U.S.A. Katia Helia Wanzeler, the wife of alleged TelexFree fugitive Carlos Wanzeler, remains in federal custody, according to the Federal Bureau of Prisons website.
Katia, 49, is listed as an inmate at the Metropolitan Detention Center in Brooklyn, a federal facility situated in the largest (by population) of New York City’s five boroughs. She is expected to be moved to Massachusetts to make an appearance before a grand jury investigating TelexFree, an alleged pyramid- and Ponzi scheme that gathered $1.2 billion.
Details of the move are unclear. Katia, a resident of Northborough, Mass., was arrested as a material witness last week at John F. Kennedy International Airport in New York, after “someone in Brazil” allegedly purchased her a one-way ticket to fly there. Her husband allegedly flew to Brazil on April 17, after ducking into Canada late on the evening of April 15. TelexFree’s offices in Marlborough, Mass., were raided at approximately 2 p.m. on that date.
Records in Worcester, Mass., show that the former Katia Helia Barbosa wed Carlos Nataniel Wanzeler on June 20, 1992. If Carlos Wanzeler remains in Brazil, it means he does so as the couple’s 22nd wedding anniversary approaches and his wife is being detained by U.S. authorities.
It also means that he remains in Brazil while James Merrill, his TelexFree business partner, remains in a U.S. jail. Merrill was arrested in Worcester on May 9 on a charge of wire-fraud conspiracy. Both Merrill and Wanzeler also face civil actions by the U.S. Securities and Exchange Commission and the Massachusetts Securities Division, the state-level regulator. In addition, they face at least two prospective class-action lawsuits, including one that alleges violations of the federal racketeering (RICO) statute.
At a TelexFree confab in Spain earlier this year, Merrill spoke of Carlos Wanzeler in glowing terms, calling him one of “the greatest leaders” he’d ever met. He said the same thing about Carlos Costa, a business partner and TelexFree figure in Brazil.
Whether Merrill continues to hold Carlos Wanzeler and Carlos Costa in high regard is unclear.
TelexFree appears to have had at least one video personality with the surname of Barbosa: Helio Barbosa. Whether he is related to Katia Helia (née Barbosa) Wanzeler was not immediately clear. At least one YouTube video in Portuguese shows Helio Barbosa with Carlos Wanzeler. The video appears to have been shot at a TelexFree event in Newport Beach, Calif., in July 2013.
A TelexFree report aired in recent hours on the Brazilian television show “Fantastico” suggested that TelexFree continued to operate in Brazil. A link to a print version of the report was posted by a reader of BehindMLM.com.
URGENT >> BULLETIN >> MOVING: (16th Update 12:27 p.m. EDT U.S.A.) “Wings Network,” an MLM “program” in part targeted at TelexFree participants, has been charged in Massachusetts with operating a pyramid scheme and selling unregistered securities as investment contracts as part of a securities-fraud scheme.
Several individual promoters or alleged recipients of fraud-scheme proceeds were named in the civil complaint.
The allegations were brought by the office of Massachusetts Commonwealth Secretary William Galvin, who oversees the Massachusetts Securities Division. Galvin’s office earlier brought fraud charges against TelexFree and banned a similar “program” known as WCM777 from the state. The SEC later sued both TelexFree and WCM777.
“This case is another example of unscrupulous operators preying on vulnerable immigrant communities with promises of great riches, in this instance a bogus means of downloading electronic content,” Galvin said. “In reality, these operators only sought to rope more participants into their scheme.”
In a statement moments ago, Galvin’s office said three individuals in Central Massachusetts had been charged as promoters.
“Within five months, Wings Network collected $12,546,226 from 8,914 Massachusetts investors,” Galvin’s office said, citing the complaint.
Named respondents include Priscila and Geovani Bento of Auburn, and Vinicius Aguiar of Marlborough.
Some of the money was “wire transferred” to Sergio Tanaka of Florida and Tropikgadget, Tanaka’s company based in the United Arab Emirates and Portugal,” Galvin’s office said.
“Tanaka and his company are respondents in the complaint,” Galvin’s office said.
Aguiar, Galvin’s office said, conducted transactions as BRAZUSA Communication Company, Eagle Team, Grupo Aguiar, and Grupo Internacional.
Carlos Barbosa of Madeira, Portugal, is a party referenced in the complaint. Barbosa purportedly is the CEO of Wings Network.
“Respondent Barbosa was videotaped in April, 2014 giving a Wings Network presentation to over 960 Massachusetts investors,” Galvin’s office said.
From a statement by Galvin’s office (italics/carriage returns added):
Wings Network purported to sell mobile marketing platforms that allow consumers to download electronic content for a fee, the complaint stated, but added, “The marketing materials, online selling presentations and assertions by the individual respondents make it clear that the primary purpose of Wings Network is to recruit additional members.”
Of the sales pitches for this “thinly veiled pyramid scheme,” the complaint says, “The use of trendy internet terms combined with meaningless high technology buzzwords and slick websites are all devices to dazzle prospective investors and induce them to purchase their way into the Wings Network scheme.”
“The product itself is redundant because it is not necessary to use any product including Respondents’ product, to download electronic content,” the complaint charges, “The true purpose of the program was to recruit additional participants into the Wings Network and investors were told that recruitment was how the investor was going to make any significantmoney.”
The complaint seeks a cease and desist order, and a requirement that the respondents offer to compensate investors who suffered losses through the alleged wrongdoing.
A message on the Wings Network website today claims “no wrong doing has been alleged.”
Based on today’s complaint by Galvin’s office, the message on the website appears not to reflect the current reality.
MLM attorney Gerald Nehra at a TelexFree rah-rah event in California last year. Source: YouTube.
In case you missed the big news yesterday, TelexFree figures James Merrill and Carlos Wanzeler were charged criminally.
Unofficially this brings the number of charged MLM HYIP “programs” (or clients) with links to MLM attorney Gerald Nehra to three in recent years. Nehra was an “expert witness” for AdSurfDaily in 2008. He testified that ASD, a 1-percent-a-day “program,” was a legitimate business and not a Ponzi scheme.
ASD operator Andy Bowdoin, who compared the men and women who guard the President of the United States to “Satan” and the 9/11 terrorists and clucked that “God” * was on his side, later was charged criminally and sentenced to a lengthy term in federal prison.
Nehra was brought in for marquee value and as an adviser to Zeek Rewards, Zeek operator Paul Burks said in late 2011 or early 2012. Zeek executives Dawn Wright-Olivares and Daniel Olivares later were charged criminally. Zeek was a 1.5-percent-a-day “program.”
At some point in 2012 or 2013, Nehra began to advise TelexFree. TelexFree executive Steve Labriola, like Zeek’s Burks before him, also saw marquee value in Nehra, according to Labriola’s comments in a TelexFree promo on YouTube. Now, Merrill and Wanzeler face the prospect of jail. Because the investigation is ongoing, others may, too.
TelexFree’s bogus returns were not tied to sales of its VOIP product and computed to more than 200 percent a year, making the “program” a classic Ponzi- and pyramid swindle, according to court filings. Some promoters claimed $15,125 returned $57,200. One promoter allegedly told an undercover federal agent that he’d scored $1.6 million in TelexFree “without selling a TelexFree product.”
This is a column about willful blindness and feigned obtuseness. (Think Faith Sloan.) It’s also a column about missed signals, whether they’re missed purposely or otherwise. (Think: Why would TelexFree hire Nehra after ASD and Zeek — and why would Nehra ever accept the work, which was bound to lead to racketeering allegations? Put another way, if you’re at the scene of too many highly suspicious fires, you shouldn’t be surprised if serious people start to believe you’re the arsonist or the arsonist’s helper. Even assuming Nehra is no MLM arsonist or racketeer, accepting the TelexFree work potentially put him in the position of being extorted or otherwise abused by the trade’s arsonists and racketeers.)
Spot any common themes or information roadmaps in the quoted material below?
AdSurfDaily “is not” a Ponzi scheme. “It is a legally structured, direct selling business model with multilevel compensation.” — Gerald Nehra, MLM attorney, Aug. 18, 2008. (Context: Nehra’s submitted testimony as defense witness in civil forfeiture action in the $119 million AdSurfDaily MLM HYIP Ponzi case. **)
“[AdViewGlobal] is the next iteration of the Ponzi scheme auto-surf programs, which [are] staffed with former [AdSurfDaily] executives and Bowdoin disciples.” — Class-action attorneys suing AdSurfDaily operator Andy Bowdoin and AdSurfDaily attorney Robert Garner of North Carolina, June 30, 2009. (Context: Motion in member-filed lawsuit against Bowdoin and Garner that alleged RICO (racketeering) violations.)
“With all of our efforts to punish and deter this criminal enterprise, the rights of innocent parties are protected and will subsequently be returned.” — A.T. Smith, assistant director, U.S. Secret Service Office of Investigations, Sept. 26, 2011. (Context: Successful forfeiture actions and remission (restitution) in AdSurfDaily MLM HYIP Ponzi case.)
“We will continue to use every tool at our disposal to bring justice to the citizens defrauded by these insidious schemes.” — Assistant Attorney General Lanny A. Breuer, U.S. Department of Justice, Criminal Division, Sept. 26, 2011. (Context: Successful forfeiture actions and remission (restitution) in AdSurfDaily MLM HYIP Ponzi case.)
“Just having him on retainer and having him on our team, it goes a long way from keeping anybody from launching an attack. Because generally when Gerry Nehra is involved, the Feds know that he’s cleaned up the act really well.” — Paul Burks, Zeek Rewards operator, c. December 2011. (Context: Burks’ remarks to early Zeek members that MLM attorney Nehra was on board.)
“I am pleading guilty because I am in fact guilty of the offense(s) identified in this Plea Agreement.” — Andy Bowdoin, AdSurfDaily operator, May 2012. (Context: Plea agreement to wire fraud in which Bowdoin disagreed with MLM attorney Nehra and acknowledged AdSurfDaily was a Ponzi scheme.)
“Capitalizing on the strength of our financial task force partnerships, we aggressively pursue criminals using computer experts, forensic specialists, investigative experts and intelligence analysts.” — Dennis Ramos Martinez, special agent in charge, U.S. Secret Service Orlando Office, Aug. 29, 2012. (Context: Prison sentence imposed on AdSurfDaily operator Andy Bowdoin.)
“While [Gregory] McKnight himself referred to Legisi as a “loan” program, and demanded that “members” not refer to their “loan” and an “investment,” Legisi was, in reality, an investment contract, which is considered a security and therefore regulated by the Securities and Exchange Commission. This semantic obfuscation was quite obviously an attempt to sidestep the securities laws.” — Office of U.S. Attorney Barbara L. McQuade, Eastern District of Michigan, September 2012. (Context: Sentencing memo against Gregory McKnight in Legisi $72 million HYIP swindle.)
“I’m not sure how many of you have heard the name ‘Gerry Nehra.’ But it is a very big name in this industry.” — Steve Labriola, TelexFree executive, Newport Beach, Calif., July 2013. (Context: Labriola introducing Nehra to TelexFree members at “Super Weekend” MLM rah-rah fest.)
“ZeekRewards used the enormous power of the Internet to rip off $850 million from hundreds of thousands of victims in less than two years. We will continue to work with our law enforcement partners to take down greedy scam artists who think nothing of stealing the savings of hard working people.” — U.S. Attorney Anne M. Tompkins, Western District of North Carolina, Dec. 20, 2013. (Context: The filing of criminal charges in the Zeek Rewards MLM/HYIP case.)
“The Massachusetts Securities Division charged TelexFREE Inc., with running a Ponzi scheme targeting Brazilian-Americans that has raised over $90 million from Massachusetts residents and around $1 billion globally.” — U.S. Department of Homeland Security,April 17, 2014. (Context: U.S. financial infrastructure protection. Sourced from DHS Daily Open Source Infrastructure Report.)
“At this [TelexFree] ‘super weekend’ event, Attorney Nehra spoke at length to attending investors, assuring them of the legality of TelexFree’s operation stating: ‘It is legally designed . . . you are on very solid legal ground.’” — Class-action attorneys, May 3, 2014. (Context: The filing of a prospective class-action against TelexFree and Nehra that alleged RICO (racketeering) violations.)
“Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving AdSurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. 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.” — Class-action attorneys, May 3, 2014. (Context: The filing of a prospective class-action against TelexFree and Nehra that alleged RICO (racketeering) violations.)
“Investigating the flow of illicit money across U.S. borders and the criminal enterprises behind that money is one of our top priorities.” — Bruce Foucart, special agent in charge, Homeland Security Investigations, May 9, 2014. (Context: Comment on the filing of criminal charges in the TelexFree Ponzi- and pyramid case.)
“As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.” — U.S. Attorney Carmen Ortiz, District of Massachusetts,May 9, 2014. (Context: Comment on the filing of criminal charges in the TelexFree Ponzi- and pyramid case.)
* Like jailed AdSurfDaily operator Andy Bowdoin, TelexFree figure Carlos Costa contends God is on his side. While Bowdoin talked of “Satan,” one TelexFree promoter has called a prosecutor in Brazil a “blonde she-devil.”
** Two members of AdSurfDaily who went on to become members of Zeek Rewards liked Nehra’s opinion so much they used it in a failed lawsuit (2011) against the U.S. government. The members, Todd Disner and Dwight Owen Schweitzer, both are listed as “winners” in the $850 million Zeek Rewards’ scheme. Disner’s Zeek haul was alleged to be more than $1.875 million.
Screen shot of part of criminal complaint filed today.
BULLETIN: (18th Update 8:15 a.m. EDT, May 10, U.S.A.) TelexFree figures James Merrill and Carlos Wanzeler have been charged criminally with conspiracy to commit wire fraud.
Merrill, 53, was arrested in Worcester, Mass. Wanzeler, 45, of Northborough, Mass., has been labeled a “fugitive.”
In similar prosecutions, U.S. authorities have notified INTERPOL about the subjects of U.S. arrest warrants in HYIP cases. How authorities intended to proceed against Wanzeler was not immediately clear.
“The scope of this alleged fraud is breathtaking,” U.S. Attorney Carmen Ortiz of the District of Massachusetts said. “As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.”
From the criminal complaint and affidavit filed by Homeland Security Investigations (HSI), an arm of the U.S. Department of Homeland Security (italics added):
An analysis of the bank and credit card processing accounts behind TelexFree’s publicly-stated income and revenue figures shows that TelexFree was deriving less than 1% of its revenue from its VOIP products, about 99% from investments by new promoters, and that it could not meet its massive payment obligations to existing promoters without equally large infusions of cash from new promoters.
The complaint, among other things, reveals that an undercover probe into TelexFree was under way before the company and certain arms filed for bankruptcy protection in Nevada on April 13.
One undercover agent made a TelexFree purchase on April 9, four days prior to the bankruptcy filing. The complaint/affidavit describes the purchase bid as “cumbersome,” taking “over two hours, including unusual steps like setting up an electronic ‘eWallet’ and uploading to TelexFree copies of [the undercover agent’s] drivers license and credit card.”
Information in the affidavit/complaint shows that the undercover probe began at least by October 2013, months ago:
From the affidavit/complaint (italics/carriage returns/minor editing applied):
During the investigation, a law enforcement officer arranged to have him/herself recruited as a TelexFree promoter, to confirm how portions of the TelexFree system operated.
On October 15, 2013, an undercover HSI task force officer (“UC”) met with a TelexFree promoter (“Person A”). During the conversation, Person A told the UC that the UC could make $100 a week using an “AdCentral Family Package” to post online ads for TelexFree, and could earn additional money by recruiting other people to join TelexFree.
The UC met Person A again the next day, and successfully joined TelexFree as a new promoter. The UC bought the AdCentral Plan for $1,425 (a $50 membership fee plus $1,375 for the AdCentral package), using a check made payable to Person A.
Person B, an associate of Person A, helped the UC register and verify the UC’s new TelexFree “back office” account. This consisted of entering a name, date of birth, Social Security number, cellular telephone number, email address, and mailing/billing address. In order to access the back office, the UC created a unique log-in name and password.
Starting on October 21, 2013, using the UC’s access to the TelexFree system, an HSI Intelligence Research Specialist placed online advertisements as a promoter for TelexFree.
Following the system discussed above, the Specialist copied advertisements created by TelexFree and made available to the Specialist in the back office area of TelexFree’s site, and pasted them to another website TelexFree recommended. As required under the AdCentral Family plan, the Specialist did this five times a day. The entire process took about 25 minutes per day.
Between October 21, 2013, and the date of this affidavit, the Specialist posted more than 700 advertisements. The ads have resulted in no retail sales of TelexFree’s VOIP product. As described above, the sites on which these ads were posted contained page after page after page of hundreds of nearly identical ads placed by various TelexFree promoters for the identical VOIP service.
The document also asserts the government — once inside TelexFree — used an undercover bank account and tied it to a TelexFree “eWallet” — and began to receive payments from TelexFree.
One TelexFree huckster, according to the complaint/affidavit, told an undercover agent that “he [the huckster] had earned $1,600,000 as a TelexFree promoter, without selling a TelexFree product.”
“I am very proud of the tireless efforts of my special agents,” said Bruce Foucart, special agent in charge of HSI. “Investigating the flow of illicit money across U.S. borders and the criminal enterprises behind that money is one of our top priorities. While pyramid schemes are nothing new, the potential scope of this case will hopefully serve as an educational lesson for all. The main point is clear; if it sounds too good to be true, it probably is.”
Undercover agents even attended a TelexFree rah-rah fest in Boston on March 9, the day TelexFree announced a new compensation plan. That plan, according to documents, led to an effective storming by affiliates of TelexFree headquarters in Marlborough on April 1.
Bail information for Merrill was not immediately clear. Wire-fraud conspiracy is punishable by up to 20 years in federal prison.
The Massachusetts Securities Division has alleged TelexFree was a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion. The SEC also has sued.
BULLETIN: The TelexFree Chapter 11 bankrupcy case filed in Nevada last month now has been formally transferred to Massachusetts and has been assigned to U.S. Bankruptcy Judge Melvin S. Hoffman of the Central Division in Worcester.
U.S. Bankruptcy Judge August B. Landis of Nevada ordered the case transferred to Massachussetts earlier this week. The SEC argued successfully for the transfer, saying the state was the “nerve center” of TelexFree.
TelexFree is alleged by the Massachusetts Securities Division and the SEC to be a massive Ponzi- and pyramid scheme.
Like the Nevada court, the Massachusetts court has established a TelexFree information page. Click here.
Hoffman already has issued the first order since the transfer — a status conference May 27 at 2 p.m. in Courtroom 3 of Donohue Federal Building in Worcester.
Housekeeping chores such as transferring docket records from Nevada are under way. Until the transfer is complete, Hoffman has authorized attorneys involved in the case to file emergency pleadings from Boston, Springfield or Worcester.
3rd Update 12:58 P.M. EDT U.S.A. The office of Massachusetts Commonwealth Secretary William Galvin has issued a subpoena to Wings Network, the Boston Globe is reporting.
From the Globe (italics added):
“We attended one of their events,’’ Galvin said. “We had heard from some investors who, in light of TelexFree, had become concerned — and we’re concerned.’’
Galvin’s office alleged that TelexFree was a combined Ponzi- and pyramid scheme that had gathered more than $1.2 billion.
Both TelexFree and WCM777 were targeted at the Brazilian community in Massachusetts, according to filings. In addition, the “programs” targeted speakers of Spanish and Chinese. The U.S. Securities and Exchange Commission (SEC) also filed charges against the “programs.”
No charges have been brought against Wings Network. The Massachusetts probe is ongoing, the Globe reports.
Like WCM777, Wings Network says it is in the cloud-computing business. Like TelexFree, Wings Network says it’s involved in “apps.” TelexFree also pushed a VOIP product.
Galvin’s office issued a warning on pyramid schemes last month, saying that investigators have encountered “recent schemes” involving “products related to internet services, mobile marketing platforms, app sales, cloud computing services, and voice-over-internet applications.”
The HYIP world is infamous for reload schemes in which victims of previous scams are targeted again by purveyors of purported emerging “opportunities.”
There is a Wings Network outlet in Framingham, Mass., according to a photo in the Globe.
The Framingham area appears to have been a TelexFree stronghold.
Like TelexFree, AdSurfDaily, Zeek Rewards, Profitable Sunrise and other schemes that have come under regulatory scrutinty, Wings Network has a presence on well-known Ponzi-scheme boards such as TalkGold and MoneyMakerGroup.
TelexFree, an alleged $1.2 billion Ponzi- and pyramid scheme targeted at immigrants, is an exceptionally dangerous MLM malignancy and criminal enterprise. The SEC, the Massachusetts Securities Division and the U.S. Department of Justice have an obligation to society at large to treat TelexFree with maximum legal prejudice and to annihilate it.
This, we believe, is happening.
MSD has filed an action. The SEC has filed an action. The office of the U.S. Trustee, the Justice Department’s watchdog arm in bankruptcy petitions, is seeking to intervene in TelexFree’s Chapter 11 case in Nevada. On Friday, Jordan Maglich of PonziTracker.com reported that the SEC asserted at a key bankruptcy hearing that federal prosecutors also have entered the TelexFree fray through the filing of forfeiture actions.
TelexFree, it seems, finds itself the target of a richly deserved paper-nuking by a government righteously angered by the preposterous “opportunity” and its gaggle of reliably felonious pitchmen.
Regardless, the process of killing TelexFree dead and delivering it to the judiciary for final pronouncement inevitably will create an opportunity for MLM’s criminal wing and robotic Stepfordians to serve up a vomitous spectacle. Members of the public at large should pay close attention to this spectacle and use it to inform their thinking.
EXTREME CAUTION WARRANTED: Watch the rancid TelexFree spectacle from a distance: If you get too close to the ever-hurling Stepfordians and their upstream programmers who load the vomit-inducing talking points, you might find yourself suddenly wondering why your fellow man ever questioned the beauty of Soviet propaganda night at Jonestown. You even could find yourself waxing nostalgically for the Peoples Temple itself.
Like Zeek Rewards and AdSurfDaily before it, TelexFree was a vessel created to divert the wages of the MLM proletariat to the MLM Politburo, known in HYIP scam circles as the “leaders.” Some of those “leaders” have Ferraris and Hummers and BMWs and blue-chip investment accounts that reportedly contained millions and millions of dollars.
Little wonder some angry affiliates showed up at TelexFree’s broom closet office in Massachusetts to voice their displeasure a mere 12 days before TelexFree filed for bankruptcy protection in Nevada, a state from which TelexFree operated a billion-dollar business through a mailbox.
Merriam-Webster.com defines “rabbit hole” as a “bizarre or difficult state or situation — usually used in the phrase down the rabbit hole.”
In the hours leading up to last week’s key hearing for TelexFree in bankruptcy court, the U.S. Department of Justice saw fit to recommend looking down the TelexFree “rabbit hole.” Based on the Merriam-Webster definition, our take is that the take of the Justice Department — through U.S. Trustee Tracy Hope Davis — was practically perfect.
We believe the Justice Department, the SEC and MSD will find Chernobyl, Bhopal and Love Canal down that hole. There’s also a fair chance they’ll find Al Capone wearing an Easter Bunny suit.
TelexFree provided the financial world with a glimpse into what an Extinction Level Event driven by hapless MLM buffoons and their Stepfordian followers might look like. TelexFree was an attack on free enterprise, not an innocent expression of the same.
URGENT >> BULLETIN >> MOVING: (18th update 3:49 P.M. EDT U.S.A.) TelexFree, MLM attorney Gerald Nehra, “Doe” insiders and several banks have been sued in a prospective class-action that alleges fraud and violations of the federal RICO (racketeering) statute.
“Certain Defendants share joint and severable liability, including the Doe Inside Promoters, the licensed professionals such as the RLP Defendants, including certified public accountants and lawyers that specialized in sheltering so-called Multi-Level Marketing schemes having aided and abetted TelexFree’s Pyramid Ponzi Scheme by providing TelexFree with legal and financial advice and assistance during the course of the fraud, despite knowledge of the fraudulent nature of TelexFree’s operation,” the complaint alleges.
Among other things, Nehra was accused in the complaint of turning a blind eye to securities issues at TelexFree, encouraging others to conceal those issues and engaging in other misconduct.
Nehra, according to the complaint, was not merely providing zealous representation to TelexFree, he counseled “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.”
With Nehra understanding that “his legal opinions and representations would be used by TelexFree as a marketing tool to further and advance their business model,” his “opinions were packaged and promoted as part of TelexFree’s total ‘post Brazilian shut down package’ to the members of the putative class,” according to the complaint.
The complaint further alleges that Nehra’s actions in misrepresenting TelexFree as a legitimate business encouraged TelexFree members “unknowingly” to “participate in the evasion of federal and state securities laws.”
Named defendants included TelexFree LLC, TelexFree Inc., “Paralegal Doe [who] served as TelexFree, LLC’s agent, servant or employee,” TelexFree Financial Inc., TelexElectric LLLP, Telex Mobile Holdings Inc., James M. Merrill, Carlos N. Wanzeler, Steven M. Labriola, Joseph H. Craft, Craft Financial Solutions LLC, Carlos Costa, Gerald P. Nehra, Gerald P. Nehra, Attorney at Law PLLC, Richard W. Waak (Nehra law partner), Law Offices of Nehra and Waak, Richard W. Waak Attorney at Law PLLC, TD Bank NA, Citizens Financial Group Inc., Citizens Bank of Massachusetts, Fidelity Co-Operative Bank, Middlesex Savings Bank, Global Payroll Gateway Inc., International Payout Systems Inc. (I-Payout), ProPay Inc., “Banks Doe,” “Doe Inside Promoters” and “Credit Processors Doe.”
Merrill, Wanzeler, Labriola and Craft are former TelexFree managers or executives. The Massachusetts Securities Division has described TelexFree as a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion and crossed national borders. The SEC also has charged TelexFree, Merrill, Wanzeler, Labriola and Craft with fraud, alleging that the firm conducted business in at least 20 U.S. states and mainly targeted Brazilian and Dominican immigrants.
Plaintiffs are identified as Waldemara Martins and Leandro Valentim.
The complaint alleges that Craft incorporated TelexFree Financial and that the entity “was fraudulently set up for the purpose of sheltering funds rightfully belonging to the putative class.”
Among the contentions in the complaint (italics added):
On March 9, 2014, TelexFree changed its compensation plan, thereby requiring Promoters to sell its VoIP product to qualify for the payments that TelexFree had previously promised to pay them.
TelexFree’s former officers or employees stated to the TelexFree transition team that under the Pre March 2014 standard form contract TelexFree owes its promoters over $5 billion dollars.
The rule change generated a storm of protests from Promoters who were unable to recover their money. On April 1, 2014, dozens of Promoters descended upon TelexFree’s Marlborough, Massachusetts office to protest this change and attempt to regain access to their money.
Reporting on TelexFree-related matters by BehindMLM.com, a publication that reports on evolving MLM frauds, is referenced in the complaint.
In addition, according to the complaint, “TelexFree mailed fraudulent and inaccurate 1099 (Miscellaneous Income) forms to investors, possibly to create the illusion that they had made payments to investors.”
HYIP schemes in recent years have advised participants to avoid calling the “program” an “investment program.” Here is what the complaint alleges on this subject:
“TelexFree’s Contract at Section 2.6.5 (m) mandates that Promoters are not to use the term investment with respect to the registration costs . . . Co-Defendant and Company Counsel Attorney Gerald P. Nehra, through his affiliated companies (Law Offices of Nehra and Waak , Gerald P. Nehra, Attorney at Law, PLLC, and Richard W. Waak, Attorney at Law, PLLC), and under the direct supervision of Co-Defendants Richard W. Waak and Richard W. Waak Attorney at Law, PLLC provided this deceitful advice for the purpose of furthering perpetuating Defendants unlawful Pyramid Ponzi Scheme.”
In the complaint, the plaintiffs further asserted that “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. 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.”
Craft was accused in the complaint of “Overseeing TelexFree’s creation of falsified accounting records,” “Fraudulently certifying TelexFree’s business operations and accounting practices as good and lawful, despite actual knowledge of their unlawful and illegitimate nature” and “Concealing the fact that the AdCentral Packages purveyed by TelexFree were actually securities.”
At the same time, Craft was accused of “Concealing and absconding with investor assets.”
Costa, a TelexFree figure in Brazil, was accused of publicly supporting “TelexFree’s illegal and corrupt activities.”
The banks and processors were accused of aiding and abetting a fraud scheme.
Santiago De La Rosa at a TelexFree pitchfest. Source: YouTube.
(UPDATED 8:05 A.M. EDT U.S.A.) Alleged TelexFree promoter and securities fraudster Santiago De La Rosa has been ordered by the federal judge presiding over the U.S. Securities and Exchange Commission’s Ponzi- and pyramid case to sell two BMWs and a Land Rover Range Rover “back to the dealership” and to “repatriate all funds located outside the United States.”
De La Rosa resides in Massachusetts.
U.S. District Judge Nathaniel M. Gorton of the District of Massachusetts issued the order. The automobiles were described as a 2014 BMW X5 XDrive, a 2010 BMW X5 XDrive and a 2013 Land Rover Range Rover Sport HSE. Precise details of the models were not available. A quick pricing search suggests De La Rosa was captaining roughly $150,000 worth of high-end rides.
There may be hundreds of thousands of victims of TelexFree’s excess, according to court filings.
TelexFree also had access to a “private jet,” a pitchman said in Boston two months ago.
News of Gorton’s order first appeared on BehindMLM.com, which also reported on the conditions imposed in an injunction against accused TelexFree promoter Randy N. Crosby of Georgia.
On April 15, the PP Blog reported that the office of Massachusetts Commonwealth Secretary William Galvin had uncovered a check with a memo line that read, “Cars for Extravaganza . . .” Galvin oversees the Massachusetts Securities Division (MSD).
MSD alleged the check was associated with more than $100,000 in TelexFree-related purchases at a Mercedes-Benz dealership in Orlando, Fla. TelexFree held an event in Orlando in May 2013. The firm filed for bankruptcy protection in Nevada on April 13, 2014.
Gorton was appointed to the federal bench by President George H.W. Bush in 1992.
Accused TelexFree promoter Sann Rodrigues captains a Ferrari.
Prior to TelexFree’s bankruptcy filing, this curious graphic was used to promote the “program’s” purported “international convention” in Spain. Red highlight by PP Blog.
URGENT >> BULLETIN >> MOVING: Carlos Wanzeler refused to resign from TelexFree-related entities and has been fired by interim CEO Stuart A. MacMillan, according to new filings in the TelexFree bankruptcy case.
MacMillan also caused the resignations of former TelexFree President James Merrill and interim CFO Joe H. Craft, according to the filings. MacMillan now is controlling the TelexFree businesses.
“Mr. Merrill, Mr. Wanzeler and Mr. Craft no longer have access to the Debtors’ facilities and their access to the Company’s email has been terminated,” MacMillan advised U.S. Bankruptcy Judge August B. Landis of Nevada. “I am the only person authorized to act as a signatory on any bank account that the Debtors have or may have.”
Whether the moves would satisfy the SEC and the U.S. Bankruptcy Trustee, however, was far from clear early this morning. Tracy Hope Davis, the trustee, alleged last week that there were “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.
Among the Davis allegations was that “[t]wo companies controlled by Craft received more than $2,010,000.00 between November 19, 2013 and March 14, 2014.” She also contended that “[t]he modus operandi of Merrill and Wanzeler and their cohorts suggests that it is more likely than not that anyone handpicked by them to manage their wholly owned companies will be another cohort.”
MacMillan advised Landis today that “I did not have a pre-existing relationship with the Company, Mr. Wanzeler or Mr. Merrill prior to this initial engagement by TelexFree.”
Whether he had a preexisting relationship with Craft was not immediately clear.
Davis is seeking the appointment of a trustee, a process that could put the firm on the path toward liquidation, rather than reorganization under Chapter 11.
The firing of Wanzeler and the resignations of Merrill and Craft, according to MacMillan, occurred on April 17, a day after the SEC alleged that Craft was in the TelexFree office in Massachusetts with nearly $38 million in cashier’s checks and sought to leave the premises with the checks while a federal raid was under way.
News of the management maneuvers came on the same day it was learned that the state of Montana had halted TelexFree, alleging that it was unable to obtain complete and accurate information from the MLM company after months of trying. Other states are questioning TelexFree’s ability to provide telecom service
In a separate filing in bankruptcy court today, TelexFree pledged to “cooperate with the SEC and the Massachusetts Securities Division in their ongoing investigations related to the Debtors and prosecutions against third parties, including the Debtors’ former employees and equity holders of TelexFree Nevada and TelexFree Massachusetts.”
Wanzeler and Merrill are the asserted equity holders. They, along with Craft and TelexFree marketing director Steve Labriola, were charged with fraud April 15 by the SEC. Four alleged TelexFree pitchmen also were charged with fraud.
Despite the pledge to cooperate, TelexFree is resisting the SEC’s bid to transfer the bankruptcy case from Nevada to Massachusetts.
From an assertion today by TelexFree (italics added):
The Debtors chose the Nevada Bankruptcy Court because inter alia TelexFree Nevada, a Nevada entity, is a counter-party to more than 700,000 contracts governed by Nevada law. The Debtors anticipate that nearly all of the claims against the Chapter 11 estates will result from these contracts. Although both Nevada and Massachusetts residents will be asserting some of these claims, the Debtors’ creditor base resides all over the world. Some 90% of the creditors reside outside Nevada and Massachusetts. In fact, approximately three-quarters of the creditors are from foreign countries.
MacMillan also suggested today that Wanzeler and Merrill owned TelexFree Dominicana, a company to which a cashier’s check for more than $10 million was made out just days before the April 13 bankruptcy filing. The check and nine others, including one for more than $2 million made out to Wanzeler’s wife, were seized by federal agents on April 15, after being found in Craft’s possession.
MacMillan said he did not believe that “Mr. Craft was attempting to divert any of the Debtors’ cash or other resources.
“Instead,” MacMillan continued, “he was acting at the direction of Mr. [William] Runge and me to secure the cashier’s checks in a safe and reliable location for the benefit of the Debtors’ constituencies.”
Runge, a turnaround specialist, is TelexFree’s chief restructuring advisor.
MacMillan, in his declaration today, said it was his “understanding” that TelexFree “struggled to maintain a consistent cash management system.
“It is also my understanding that on or about March 14, 2014, Wells Fargo Bank, N.A. . . . notified the Debtors that Wells Fargo was closing their depository account and that the Debtors needed to remove their cash on deposit.”
This may be the cash that was used to acquire the cashier’s checks. Regardless, the account closures signaled serious trouble for TelexFree, which the SEC and the Massachusetts Securities Division alleged have a history of not disclosing important information to members.
The assertion by MacMillan potentially means that TelexFree continued to gather money from both existing participants and new recruits after one of its key vendors notified it that an account was being closed.
Beyond that, if Merrill and Wanzeler owned a company in the Dominican Republic, it could lead to questions about whether they owned other firms in offshore venues and diverted money to those entities.
The same circumstance of account closures by major vendors arose in both the AdSurfDaily Ponzi scheme in 2008 and the Zeek Rewards Ponzi scheme in 2012.
(UPDATED 11:30 A.M. EDT MAY 21 U.S.A. See Update at bottom of this brief, originally published May 20.)
