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Tag: SEC

  • BULLETIN: MLM Attorney Jeffrey Babener Told TelexFree It Was Operating Pyramid Scheme Months Before Collapse, But MLM ‘Program’ Continued To Collect Money, Bankruptcy Trustee Says

    newtelexfreelogoBULLETIN: (2nd Update 5:26 p.m. EDT Sept. 16 U.S.A.) The court-appointed trustee in the TelexFree bankruptcy case says in court filings that MLM attorney Jeffrey Babener advised TelexFree in August 2013 that it was operating a pyramid scheme.

    TelexFree nevertheless continued to collect money, Trustee Stephen B. Darr said.

    Just two months earlier — in June 2013 — TelexFree’s Brazilian arm (Ympactus) “was seized by the Brazilian authorities and its operations shut down based upon the allegations that its operations constituted a pyramid scheme,” Darr said.

    Between early February 2014 and mid-March 2014 alone, Darr said, TelexFree “took approximately $50,000,000 from new and existing Promoters.”

    This occurred while both the SEC and the Massachusetts Securities Division were investigating TelexFree, Darr said.

    And, he noted, it also occurred after TelexFree — in the late summer or early fall of 2013 — had retained Robert Weaver, “an attorney with extensive white collar crime expertise, and the firm of Garvey, Schubert, Barer based in Seattle to, upon information and belief, provide legal advice respecting potential and/or ongoing violations of federal and state law.”

    “Despite the shutdown of Ympactus on the basis that its business was a pyramid scheme, and being advised in August of 2013 that the Debtors’ business plan was a pyramid scheme, the Principals continued to operate their business in accordance with that scheme throughout 2013 and into March 2014,” Darr said.

    Babener not only told TelexFree it was operating a pyramid scheme, he also told the law firm Greenberg Traurig that TelexFree was a pyramid scheme, Darr said.

    Greenberg Traurig, Darr said, initially had been retained by TelexFree in early February 2014 to represent the company “in connection with the MSD investigation.”

    The law firm then represented TelexFree in its Chapter 11 bankruptcy case. That case was filed in Nevada on April 13, two days before the SEC and MSD brought actions and the FBI and the U.S. Department of Homeland Security raided TelexFree’s office in Massachusetts.

    With TelexFree members complaining about high billings from TelexFree’s bankruptcy lawyers and other professionals involved in the bankruptcy case, Darr said that he “has reached an agreement in principle with Greenberg [Traurig] that should resolve the objections of the Trustee and the SEC to the Greenberg fee application.”

    (See BehindMLM.com for story on clashes with the Gordon Silver law firm over fees.)

    Overall, Darr said, TelexFree had racked up more than $5 billion in liabilities.

    If it proves true Babener advised TelexFree it was operating a pyramid scheme, his concerns would appear to be in stark contrast to words MLM attorney Gerald Nehra delivered at a TelexFree convention in California in July 2013.

    In May 2014, some TelexFree members accused Nehra of racketeering and turning a blind eye to fraud at TelexFree, alleging he misrepresented TelexFree as a legitimate business and encouraged TelexFree members “unknowingly” to “participate in the evasion of federal and state securities laws.”

    Moreover, the plaintiffs alleged, Nehra’s “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.

    Nehra was not merely providing zealous representation to TelexFree, the plaintiffs alleged. Rather, 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.”

    Nehra was billed as a “special guest” at a TelexFree rah-rah session in Spain in early March of this year, but appears not to have shown.

  • BULLETIN: Government Of Colombia Investigates TelexFree, Ties

    newtelexfreelogoBULLETIN: The government of Colombia appears to be seizing assets linked to four Colombians with alleged ties to TelexFree, which authorities in the United States have described as a massive cross-border pyramid- and Ponzi scheme.

    La Superintendencia de Sociedades, Colombia’s Superintendency of Companies, has published notices of the action. (See link to document (Spanish) below.)

    At a 2013 TelexFree event in California, then-TelexFree President James Merrill suggested from the stage that the Colombian government “feared” network marketing.

    The precise context of Merrill’s remark on Colombia made at the Newport Beach TelexFree confab last year was unclear. In an April 2014 pyramid- and Ponzi complaint against TelexFree, the U.S. Securities and Exchange Commission referenced comments made by Merrill and TelexFree figures Carlos Wanzeler and Steve Labriola at the Newport Beach event.

    TelexFree’s presence in Newport Beach may create a tie to Zeek Rewards, another alleged massive pyramid- and Ponzi scheme that crossed national borders.

    See the Colombian government’s document.

    Also see story at Portafolio.co.

    The WCM777 scam — another recent MLM HYIP “program” — led to a police raid in Peru. The PP Blog reported in March 2014 that there were promotional ties between WCM777 and TelexFree.

    Brazilian federal police have conducted TelexFree-related raids, as have the U.S. Department of Homeland Security and the FBI in the United States.

    The infamous D.M.G. Group (DMG) “program” in Colombia and other nations had ties to money-laundering and narcotics trafficking, with U.S. federal prosecutors saying hundreds of “subsidiary and affiliated companies” were established in a bid to cleanse dirty money.

    In 2010, after DMG operator David Murcia had been extradited to the United States, U.S. prosecutors called DMG  “a vehicle for a multi-level marketing scheme.”

  • DEVELOPING STORY: Zeek Receiver Seeks Temporary Restraining Order ‘Necessary To Prevent Further Dissipation And Waste Of The Assets At Issue’

    DEVELOPING STORY: (Updated 9:44 a.m. EDT Sept 3, U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has asked a federal judge for a Temporary Restraining Order he says is necessary to prevent “further dissipation and waste” of certain assets.

    Receiver Kenneth D. Bell asked that the motion be filed under seal. The Zeek-related assets Bell believes could shrink were not specified in a public filing

    “The underlying motion and memorandum contain sensitive information regarding Receivership Property,” Bell advised Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina.

    Neither the SEC nor Zeek operator Paul R. Burks objected to the request for the motion to be filed under seal.

    From the public portion of a filing by the receiver today (italics added):

    The underlying motion and memorandum contain sensitive information regarding Receivership Property. As explained in detail in the memorandum, sealing the Receiver’s motion and memorandum is necessary to prevent further dissipation and waste of the assets at issue. The Receiver seeks to have the underlying motion sealed only temporarily until the Court can consider and rule on the motion.

    When Mullen would rule on the motion was not immediately clear. The public portion of Bell’s pleading today is styled, “Receiver’s Motion to Seal Ex Parte Motion for Temporary Restraining Order Enforcing the Court’s Asset Freeze.”

    The sealed information contains three exhibits, according to the docket of the case.

    Burks and Zeek figures Dawn Wright-Olivares and Daniel Olivares agreed to a $600 million consent judgment “to be satisfied with substantially all of their assets,” according to a filing by Bell in July.

    The receiver’s motion for the TRO and to file under seal appears on the docket of the SEC case originally filed against Zeek and Burks in August 2012. The agency sued Wright-Olivares and Olivares in a separate case in December 2013.

    Both Wright-Olivares and Olivares have pleaded guilty to criminal charges.

    NOTE: Our thanks to the ASD Updates Blog.

  • ZEEK RECEIVER: ‘No Comment’ On BitClub Network Story

    Zeek receiver Kenneth D. Bell had “no comment” this morning on an Aug. 30, PP Blog story that reported Zeek figure T. LeMont Silver now was pushing a murky “program” called “BitClub Network.”

    Bell has raised concerns that Silver is a serial promoter of Zeek-like schemes to defraud.

    As the PP Blog noted yesterday, Silver also has been linked to a “program” known as “Gold Crowdfunding” that has links to the OneX scam that put AdSurfDaily Ponzi schemer Andy Bowdoin in jail in 2012. Like Bowdoin, Silver pitched OneX.

    OneX used an image of a bomb in its logo.

    OneX logo.
    OneX logo.

    Bell is suing Silver for the return of his alleged gains in Zeek, saying they came from Zeek victims. The SEC and federal prosecutors in the Western District of North Carolina have described Zeek as a Ponzi- and pyramid scheme that collected hundreds of millions of dollars in less than two years of operation.

    The SEC shut down Zeek in August 2012.

    Zeek figure Dawn Wright-Olivares pleaded guilty to criminal charges of investment-fraud conspiracy and tax-fraud conspiracy in February 2014. Her stepson, former Zeek programmer Daniel Olivares, pleaded guilty to a charge of investment-fraud conspiracy.

    The Consumer Financial Protection Bureau (CFPB) issued a warning on Bitcoin-themed scams on Aug. 11, 2014. Silver’s promotions for BitClub Network began to appear on the Internet about three weeks later.

    CFPB did not immediately respond to a request for comment on BitClub Network, which Silver has described as a “mining” venture.

    BitClub Network purportedly pays out a daily dividend for 1,000 days and has three “mining pools” with tiered buy-in rates: $500, $1,000 and $2,000. Early birds — described as “Leaders” — are being encouraged to send in $3,599 to qualify for a “Founder’s” position.

    Much is murky about BitClub Network.

    Also see Sept. 1 report on “Gold Crowdfunding” by BehindMLM.com.

  • 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.

    cautionflagEDITOR’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 . . .

    ** ______________ **

    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.

     

  • Citing Missing Affidavit And Inconsistencies, Indiana Rejected TelexFree Telecom Application

    newtelexfreelogoUPDATED 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.

     

  • PONZITRACKER.COM: New Ponzi Scheme Uncovered Every 118 Hours; Alleged TelexFree Fraud Heads 2014 List

    recommendedreading1If you’re a student or educator or employee or boss with a traditional M-F schedule, chances are you’ll be hearing about a new Ponzi scheme before the final bell rings or the final whistle blows on Friday.

    During the first six months of 2014, a Ponzi scheme was discovered every 4.9 days (or every 118 hours), according to an eye-popping report today by Jordan Maglich at PonziTracker.com.

    From PonziTracker (italics added):

    . . . Ponzi schemes remain rampant in the United States and worldwide despite mounting government and regulatory efforts. Indeed, the 37 schemes discovered during the first half of 2014 suggest that at least 74 schemes will be discovered in 2014 — approximately 10% more than the 67 schemes unearthed in 2013.

    The largest alleged scheme discovered in 2014 so far is TelexFree, PonziTracker reports.

    Read the report on PonziTracker, which also notes Ponzi prison sentences handed down this year are on pace to top last year’s cumulative sentencing total.

    The PP Blog’s research shows that MLM HYIP Ponzi schemes that spread through commission-based salespeople are the most insidious because they create victims in numbers America’s largest sports stadiums cannot accommodate.

    Both Zeek Rewards (2012) and TelexFree (2014) may have created hundreds of thousands of victims each. The combined schemes could fill the Rose Bowl to capacity with victims 15+ times over and have led to requests by prosecutors or receivers to ask courts to approve special victim-notification procedures because of the overwhelming numbers.

    Zeek receiver and special master Kenneth D. Bell has compared Zeek to Enron and the Bernard Madoff and Allen Stanford Ponzi schemes.

    Just this week, prosecutors in the TelexFree case have asked for special victim-notification procedures — while contending that travel to Brazil and potentially other countries might be required.

    WickedLocalHudson, which publishes news from the Hudson Sun and Metrowest Daily News, reported today that the Massachusetts Securities Division had received (to date) 8,847 complaint forms about TelexFree.

    MSD posted the complaint form in late April.

    The FBI and Homeland Security Investigations (HSI), an arm of the U.S. Department of Homeland Security, also are soliciting information from potential TelexFree victims.

  • Missouri Raised ‘Grave Concerns’ Over TelexFree

    newtelexfreelogoThe 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.

     

  • Trustee Confirms TelexFree Did Not Own Building

    Despite worldwide promos implying otherwise, TelexFree was neither the sole occupant nor owner of this Massachusetts building.
    Despite worldwide promos implying otherwise, TelexFree was neither the sole occupant nor the owner of this Massachusetts building.

    One of TelexFree’s alleged reality-distortion fields has been formally exposed.

    Perhaps you saw the recruitment promos (both corporate and affiliate) that planted the seed TelexFree was the sole occupant of a large building in Marlborough, Mass.

    Former President James Merrill was shown posing in front of the structure. A caption on TelexFree’s website read, “The Company HQ: United States.”

    Using the building as a backdrop, one or more affiliates taped promos from the parking lot, creating the impression that TelexFree had a large physical presence in the United States.

    And perhaps you noticed that the SEC viewed those promos as “materially false and misleading” because, as the agency put it in a May 2014 amended complaint (italics added):

    (a) TelexFree, Inc. does not own or occupy the entire building; (b) TelexFree, Inc. originally shared a single suite (consisting of a receptionist, conference rooms, and cubicles) with many other companies; (c) only in December 2013 did TelexFree, Inc. move into its own suite in a portion of the first floor; and (d) TelexFree, LLC has no physical office at all, just a mailing address in Nevada. Despite being the company’s president, Merrill failed to take effective action to prevent or correct the misstatements.

    In court filings in the TelexFree bankruptcy case today, the trustee confirmed that, in November 2013, TelexFree leased a first-floor office in the building (Suite 118) for $5,944 a month. The lease officially began on Jan. 1, 2014, and was set to run through March 2015.

    Other records show TelexFree shared a second-floor office (Suite 200) in the same building with multiple companies. How much it paid for that office was not immediately clear.

    What is clear is that Stephen B. Darr, the trustee, has negotiated the termination of the lease of the first-floor office, concluding he “has no continuing need for the Premise” and thus potentially saving the estate tens of thousands of dollars. The landlord has agreed to settle for a retention of a security deposit and certain furnishings and fixtures — and to let the trustee out of the lease.

    As for the overall TelexFree morass?

    “I’ve been involved in a lot of interesting cases,” Darr told the Wall Street Journal, in a Law Blog article published Aug. 11. “TelexFree is number one.”

  • BOSTON GLOBE: Massachusetts Now Investigating EmGoldEx

    The EmGoldEx "program" describes gold as cash and the "new splendor."
    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.

  • URGENT >> BULLETIN >> MOVING: TelexFree Was Ponzi Scheme Selling Unregistered Securities, Accused Former Interim CFO Says

    From a defense filing by Joseph Craft today.

    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.