URGENT >> BULLETIN >> MOVING: (5th update 7:33 P.M. EDT U.S.A.) In a defense filing in the SEC’s securities fraud case against him, former TelexFree interim CFO Joseph Craft says he concluded TelexFree was a Ponzi scheme selling unregistered securities.

The acknowledgement, which appears to be the first concession from the TelexFree inner circle that the enterprise engaged in fraud, potentially pits Craft against other TelexFree defendants and others who may have inside knowledge of the scheme. Craft paints himself in the filing as an outsider who was misled by insiders.

Craft, 50, came to the Ponzi/securities conclusion in “approximately March” 2014, according to the filing. TelexFree filed for bankruptcy protection the following month. The SEC immediately sued, the Massachusetts Securities Division (MSD) filed a civil-fraud action and federal agents raided TelexFree headquarters in Marlborough, Mass. It later became known that the U.S. Department of Homeland Security had conducted an undercover investigation into TelexFree’s operations beginning at least by October 2013.

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

Filings in the TelexFree bankruptcy case say Craft was appointed TelexFree CFO on April 13. Why he’d accept the appointment from Merrill and Wanzeler at an emergency board meeting on a Sunday night in April after concluding TelexFree was a Ponzi scheme in March was not immediately clear in defense filings.

Tracy Hope Davis, the U.S. Bankruptcy Trustee when the TelexFree bankruptcy case was filed in Nevada, expressed concerns about what happened during that meeting.

Craft, a certified public accountant in Boonville, Ind., was charged civilly by the SEC in April, two days after the bankruptcy filing. So were seven others, including Merrill and Wanzeler, former executive Steve Labriola and four alleged promoters. The scheme gathered more than $1.2 billion, MSD alleged.

TelexFree also was charged civilly. Craft became TelexFree’s accountant in July 2012, according to the defense filing.

Craft “denies that he was a principal or insider in the enterprise at any time, and says that he performed honest and legitimate accounting services for the corporations named in the Complaint,” the defense filing reads in part. “He denies that he assisted any wrongful activity. He was kept in the dark about the true nature of the enterprise’s activities and was a victim of misrepresentations for most of the time that he served as TelexFree’s accountant. He was not an insider, employee, owner, principal or promoter.”

And, according to the filing, “[i]n 2013 and 2014” while performing accounting services for TelexFree, Craft “relied on the advice of the defendant enterprises’ counsel in all material respects.”

The former CFO did not identify the counsel. One TelexFree lawyer, MLM attorney Gerald Nehra, has been accused of racketeering by some TelexFree members.

Other Highlights Of Defense Filing

Craft admitted he was aware a Brazilian state court in Acre had suspended TelexFree’s Brazilian affiliate (Ympactus) in June 2013, but says he “was told that the suspension was improper and was going to be overturned.”  He did not say who advised him the Acre action would be overturned.

He “denies that he was involved in any way in ‘running a huge Ponzi and pyramid scheme.’ He was not involved in company operations. He was not a company principal or someone who was correctly informed about many of the [details] of the company’s true operations.”

Craft admits that he “compiled an unaudited, informal financial statement” that was filed with MSD in 2013. But the statement, he says, was “based entirely on information provided by corporate officers.”

“At the time of preparing the compilation Mr. Craft had been misinformed about the company’s activities and material information was withheld by company officers,” according to the defense filing.

The SEC has said TelexFree’s VOIP service was a front to mask a billion-dollar fraud scheme.

NOTE: Our thanks to the ASD Updates Blog.