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SPECIAL REPORT: Prior To Brazil’s TelexFree-Related ‘Operation Orion,’ United States Used Same Name In Sting; U.S. Department Of Homeland Security Has Office In Brasilia And History Of Cooperating With Brazilian Investigators

Only in MLM: In a head-scratching promo earlier this year, TelexFree cheerleaders used an image of the Pyramids of Giza during an active pyramid-scheme probe in Brazil. Red highlight by PP Blog.

If you’ve been following TelexFree developments, you’ve probably heard about “Operation Orion,” the code name for the investigation that led to raids against TelexFree’s Ympactus arm last week by the Brazilian federal police. The Orion name was chosen, police said, because it fit splendidly within the context of a pyramid-scheme case.

How so? The Pyramids of Giza in Egypt were aligned with the Orion constellation, police explained.

Our analysis of the “Operation Orion” name is that it shows heady messaging by Brazilian police. It is direct in the sense that TelexFree, after all, may be the world’s largest MLM HYIP pyramid scheme. And it’s subtle in the sense that so many pyramid-scheme participants have bright stars in their eyes that blind them to the realities of mathematics.

Here we’ll point out that, for whatever reason, someone within the TelexFree sphere got the head-scratching idea earlier this year to use an image of the Pyramids of Giza in a promo for TelexFree during an active pyramid-scheme probe in Brazil.

We believe it notable that Brazilian police also referenced the Pyramids of Giza, given their presence in a TelexFree promo.

For newer readers, we’ll also point out that the HYIP sphere is infamous for taunting the law-enforcement community. Like TelexFree, a “program” known as WCM777 also came under investigation in multiple countries earlier this year. Naturally someone within the WCM777 sphere shoved an image of a pyramid down the throat of law enforcement after word of the investigations became public.

Second Tour (At Least) For ‘Operation Orion’

Did you know that the code name “Operation Orion” chosen by Brazilian police previously had been used by the United States in a major law-enforcement action, albeit in a completely different context? (More on the 2012 U.S. action below.)

What’s your thinking? Are two Operation Orions in two years coincidence?

And did you know that the U.S. Department of Homeland Security (DHS), which has its own TelexFree probe, has an office in Brasilia and a history of cooperating with Brazil’s federal police — and that some criminal investigators from outside the United States receive training at the DHS Federal Law Enforcement Training Center in Glynco, Ga? (The U.S.-sponsored training also sometimes occurs in countries that host the United States. Some Brazilian investigators, for example, have received U.S. training in Peru. See photo below.)

U.S. prosecutors did not respond to a request for comment on whether there was any coordination between the United States and Brazil last week on TelexFree-related events: the indictment of TelexFree figures James Merrill and Carlos Wanzeler in the United States, and the public announcement of “Operation Orion” in Brazil.

What’s In A Code Name?

U.S.-based police, prosecutorial and regulatory agencies regularly conjure up operational names to distill the essence of the law-enforcement goal and to send a message that fraudsters never should be confident. Agencies also sometimes engage in something we’ll describe as reverse black comedy whose purpose is to accent the absurdities of scams and scammers. In New Jersey last year, for example, a law-enforcement action targeted at alleged booze diluters was memorably named “Operation Swill.”

It was an instant classic.

A long-running FBI operation targeted at dozens of penny-stock fraudsters a few years ago was dubbed “Operation Shore Shells,” in part because the probe occurred near the sea and in part because the fraud involved the use of shell companies, often a nemesis of legitimate commerce. The SEC, which regulates the U.S. securities markets, once dubbed an action directed at hundreds of companies ripe for pump-and-dump swindles “Operation Shell Expel.”

To out illegal gambling conduits reaching into the United States, DHS once set up a sting operation and “obtained a business address near Atlantic City, New Jersey” to bolster undercover operatives’ street cred. As part of the operation, the Feds created a bogus “payment processor” known as Linwood Payment Solutions to “negotiate contracts and terms of the processing, and to handle the intricate movement and processing of collection and payment data from the gambling organizations to the banks.”

These well-dressed greeters actually were part of a federal undercover operation dubbed “No Such Thing as a Free Lunch.” Source: U.S. Marshals Service. Red blocks by PP Blog.

The U.S. Marshals Service, in charge of rounding up fugitives, once famously conjured up a sting dubbed “No Such Thing as a Free Lunch” that operated as part of a larger sting dubbed FIST — for Fugitive Investigative Strike Teams.

As part of a six-year FIST operation in the 1980s, marshals created a fake business known as “Flagship International Sports Television Inc.,” obtained the last-known addresses of more than 3,000 wanted persons and sent brunch “invitations” that promised free food and free National Football League game tickets to those addresses. The marshals also offered a shot at free Super Bowl tickets.

The free-food sting netted 100 arrests. FIST overall netted more than 14,700.

Undercover TelexFree Probe

It is known that DHS conducted a TelexFree-related undercover operation that lasted for months. Whether the operation extended to foreign soil and had a formal name is unclear. Based on its research, the PP Blog believes that undercover stings (named and unnamed) operated by U.S. government agencies and aimed at HYIPs have been operating continuously in the United States since at least 2006.

One of the reasons is that the schemes put banks in the line of fire and often target disadvantaged populations. Beyond that, HYIP schemes have a history of trading on the names of the White House and U.S. government agencies, thus confusing people across the world. TelexFree promoters, for instance, traded on the names of President Obama, the cabinet-level office of the U.S. Attorney General, the SEC and Massachusetts Commonwealth Secretary William Galvin. Why? To cloak themselves in a veneer of legitimacy and to drive money to a scheme that purportedly returned $1,040 in a year to people who paid in $289, $5,200 to people who paid in $1,375 and $57,200 to people who paid in $15,125.

Even Bernard Madoff would gag at the thought.

Female police officials from multiple countries, including Brazil, received U.S. training in Peru in 2012. Photo source: DHS.

With the Internet emerging as the favored delivery vessel of both clever and unclever fictions aimed at transferring great sums of wealth and putting unwarranted financial power in the hands of criminals and criminal enterprises, the need has arisen to pursue cross-border frauds aggressively. The only way to minimize the mushroom effect of fraud schemes operating on the Internet is through international cooperation at the highest levels of government and law enforcement.

Put another way, your latest recruit could be a Fed. The person you instructed not to “call it an investment” (as part of a ham-handed cover-up bid) could be a Fed. The person sitting next to you at a hotel “extravaganza” of some sort could be a Fed. So could the person in the cabin next to you on the scammers’ cruise ship. So could the recruit who, at your direction, paid you personally while joining, instead of paying the company. That upline guy — the one who sponsored you and asked you to pay him personally — could have one or more Feds in his downline. Those Feds could be “placing ads” for the program and keeping notes on whether anybody signed up under them.

Channeling?

Could Brazilian authorities who selected the name “Operation Orion” and referenced the Pyramids of Giza perhaps been channeling their U.S. counterparts and engaging in some reverse black comedy to point out the absurdity of scams? Man, we hope so.

As noted above, someone within the TelexFree sphere showcased the Pyramids of Giza during a pyramid-scheme probe in Brazil. Apparently no one in TelexFree thought it prudent, say, to stop the scheme during the Brazilian probe.

Because the HYIP sphere is populated by the most disingenuous “businesses” and people you’ll ever encounter, it’s easy enough to read such an act as telling law enforcement to shove it. Fractured thinking and taunts at law enforcement are core signatures of HYIP frauds, perhaps characteristics every bit as defining as preposterous daily payout rates of between .50 and 2.75 percent.

Good fortune certainly did not shine down on TelexFree from Orion on July 23, the date of the U.S. indictments. Nor did it shine down on July 24, the date the “Operation Orion” pyramid probe was announced in Brazil.

In our view, the name “Operation Orion” selected by Brazilian police was practically perfect.

In addition to being a star constellation, Orion is the great hunter from Greek mythology. With Brazil’s “Operation Orion,” alleged pyramid schemers became the hunted.

Alleged child predators were the hunted in the U.S. version of “Operation Orion,” a 2012 sting engineered by DHS. Arrests were made in the United States, Spain, the Philippines, Argentina and the United Kingdom. The DHS agency that launched the 2012 version of “Operation Orion” is known as Immigration and Customs Enforcement — or ICE for short. Homeland Security Investigations (HSI) is an ICE directorate.

From ICE (italics/bolding added):

HSI investigates immigration crime, human rights violations and human smuggling, smuggling of narcotics, weapons and other types of contraband, financial crimes, cybercrime and export enforcement issues. ICE special agents conduct investigations aimed at protecting critical infrastructure industries that are vulnerable to sabotage, attack or exploitation.

In addition to ICE criminal investigations, HSI oversees the agency’s international affairs operations and intelligence functions. HSI consists of more than 10,000 employees, consisting of 6,700 special agents, who are assigned to more than 200 cities throughout the U.S. and 47 countries around the world.

U.S. court records show that HSI started the undercover investigation into TelexFree at least by October 2013. Other records show HSI has an attaché office in Brasilia, the capital of Brazil.

ICE and HSI have a history of cooperating with Brazil’s federal police. Recent examples include the May 2014 return to the government of Brazil of a smuggled painting linked to a bank fraud investigation. In April 2014, ICE agents returned to Brazil a man arrested in the United States and wanted on murder charges in Brazil.

In May 2014, ICE and HSI announced they had cooperated with federal police in Brazil in a sting known as “Operation Proteja Brasil,” described as aimed at protecting against child porn.

From ICE (italics/bolding added):

Some of the warrants executed during this operation were the direct result of leads provided by HSI Brasilia and the National Center for Missing & Exploited Children (NCMEC).

Jul 28, 2014
URGENT >> BULLETIN >> MOVING: TelexFree’s James Merrill, Carlos Wanzeler Indicted

Carlos Wanzeler. From: YouTube.

URGENT >> BULLETIN >> MOVING: 10th Update 9:18 p.m. EDT U.S.A.) TelexFree figures James Merrill and Carlos Wanzeler have been indicted by a federal grand jury.

The indictment, dated today, includes eight criminal counts of wire fraud and one criminal count of wire-fraud conspiracy.

Among other things, the indictment alleged that Merrill and Wanzeler conspired with each other and with “others known and unknown to the Grand Jury” to fleece TelexFree members.

The indictment describes wire transfers involving Merrill and Wanzeler that began on the day after Christmas in 2013 and continued on Dec. 27.

Here are the alleged wire transfers:

Merrill: Dec. 26. $136,200 from TelexFree Inc. account at Fidelity Co-operative Bank to Merrill.

Wanzeler: Dec. 26. $500,000 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.

Wanzeler: Dec. 26. $136,200 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.

Wanzeler: Dec. 26. $158,900 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.

Wanzeler: Dec. 26. $22,700 from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.

Merrill: Dec. 27. $3 million from TelexFree Inc. account at Fidelity Co-operative Bank to Waddell & Reed Inc., to Merrill.

Wanzeler: Dec. 27. $3 million from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.

Wanzeler: Dec. 27. $3.5 million from TelexFree Inc. account at Fidelity Co-operative Bank to Wanzeler.

Prosecutors from the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts said in a statement early this evening that assets seized in the case so far total about $140 million.

From a statement by prosecutors (italics added):

The indictment also specifies approximately 70 assets to be forfeited as proceeds of the alleged fraud scheme, or assets traceable to such proceeds, including approximately $140,000,000 seized from TelexFree’s accounts and various real assets, such as homes, condominiums, cars and two boats.

Also from prosecutors (italics/bolding/carriage returns added):

According to the indictment, TelexFree, Inc., and TelexFree LLC (collectively, “TelexFree”) provided “voice-over-internet-protocol” (“VOIP”) telephone services that allowed customers to use the Internet to make phone calls. The indictment alleges, however, that TelexFree actually operated as a pyramid scheme, in which its ongoing operations were supported, not by actually selling TelexFree’s VOIP product, but by bringing in a constant stream of new investor dollars.

Between early 2012 and March 2014, TelexFree purported to aggressively market its VOIP service by recruiting thousands of “promoters” to post ads for the product on the Internet. Each promoter was required to “buy in” to TelexFree at a certain price, after which they were compensated by TelexFree, under a complex compensation structure, on a weekly basis so long as they posted ads for TelexFree’s VOIP service.

It is further alleged that over the course of the fraud TelexFree derived only a fraction of its revenue from sales of VOIP service and the vast majority of it from new people buying into the scheme, and so TelexFree was able to pay the returns it had promised to its existing promoters only by bringing in money from newly-recruited promoters. The indictment includes eight charges of wire fraud, based on Merrill, in December 2013, wiring about $10,000,000 in TelexFree funds to personal accounts belonging to him and Wanzeler.

Also see May 27 PP Blog story on SEC allegations about how some of the TelexFree money was dissipated.

Read the Grand Jury indictment (courtesy of the ASD Updates Blog.)

Jul 23, 2014
DEVELOPING STORY: The TelexFree Rabbit Hole, Exposed

UPDATED 11:16 P.M. EDT U.S.A. We now may have an answer to some or all of these questions: What happens when you’re Massachusetts-based TelexFree — and apparently so out of touch that Sann Rodrigues, a former SEC defendant in a pyramid-scheme and affinity-fraud case, becomes one of the most recognizable public faces of your company and tells the troops (on video) that he’s made “$3 million?”

What happens when, on your home turf, you’re effectively targeting the same population group (Brazilian immigrants who speak Portuguese) Rodrigues was accused of targeting in his earlier scam, a scam that operated in part from Massachusetts? What happens when you’re also targeting Dominicans who speak Spanish?

And what happens when Rodrigues becomes one of the most recognizable public faces of your company after a federal judge — years earlier — had permanently enjoined him from violating the antifraud provisions of the federal securities laws?

Further, what happens when other promoters are going around telling recruits that $15,125 sent to TelexFree will return a guaranteed payout of $1,100 a week for a year and you don’t have to sell a single product to triple or quadruple your money? Further yet, what happens when Rodrigues plants the seed that all is well because an award-worthy American MLM lawyer is aboard the ship?

What happens when, say, serial MLM HYIP huckster Faith Sloan, fresh off the Zeek Rewards and Profitable Sunrise scams, also emerges as one of your top promoters?

Moreover, what happens when promoters are going around saying things such as TelexFree has gained “SEC approval” and publishing claims such as this?

“With the authorization from the attorney general to launch in the US, many predict we’ll see extraordinary growth in the United States in 2013.” — From promos for TelexFree in 2013

What happens when, say, the claim that U.S. Attorney General Eric Holder has vetted TelexFree appears on a Facebook site purportedly operated by “TELEXFREE TEAM NIGERIA.”

Think you might gain the attention of, say, the U.S. Department of Homeland Security? Think that attention might increase after promoters suggest that President Obama had your back? Think it might further intensify if it turns out that Brazilians and Dominicans in Massachusetts weren’t enough, that you’d also reached into communities in South America, Hispaniola, Europe, Africa and Asia?

What if you plant the seed that the memory of former U.S. President Ronald Reagan is the inspiration behind your business — this after you’ve also targeted the people of Haiti and Rwanda?

Might the attention you’re receiving intensify after you’re suddenly filing bankruptcy on a Sunday night when, during the two previous months, you’d been telling Public Utilities Commissions in one state after another that you’re flush with cash — so much so, that you even can lend millions of it out?

What happens when, say, one of the states you assured of your financial clout played host to the “2012 Cybercrime Conference” hosted by the U.S. Department of Justice at which one of the top national-security advisers to the President of the United States observed that cybercriminals bent on poking holes in banks may be responsible for “the greatest transfer of wealth in history?”

What if President’s Obama’s national-security adviser had said something such as this at the conference?

“Outside the public eye, a slow hemorrhaging is occurring; a range of cyber activities is incrementally diminishing our security and siphoning off valuable economic assets” — Lisa Monaco, Assistant Attorney General for National Security, Oct. 25, 2012. NOTE: Monaco now holds the title of Assistant to the President for Homeland Security and Counterterrorism.

What if you’ve used U.S. banks and payment systems to help you gather more than $1.2 billion and then declared bankruptcy just a little more than two years after you launched your “program” in cyberspace? What happens when, just days earlier, you’d been telling Public Utilities Commissions that you were so flush with cash you could lend millions to entities of your creation or choosing, but now are claiming to to have liabilities of as much as $600 million and assets of only approximately $100 million?

What if your bankruptcy filing and program compensation tweaks occurred under conditions that strongly suggested you were trying to beat regulators to the courthouse? What if, only days later, it became known that undercover federal agents had the lay of the land inside your operation before you even went to bankruptcy court?

Think the U.S. Bankruptcy Trustee might use the term “rabbit hole” to describe your operation and push for the appointment of a trustee to burrow down that hole and gain a deep understanding about TelexFree?

Think that federal criminal prosecutors might get the idea that your operation “has a disturbingly cult-like quality?”

And do you think — do you just think — the SEC might be inclined to file something such as this? (Italics added.)

The Securities and Exchange Commission (“Commission”) hereby moves, and defendants TelexFree, Inc., TelexFree, LLC, and relief defendant TelexFree Financial, LLC (collectively “the Debtors”) hereby assent, to modify the May 9, 2014 consent order (docket no. 100) to allow Stephen B. Darr, as Chapter 11 Trustee of TelexFree (the “Trustee”), to maintain bank accounts at RaboBank, NA in the name of the Debtors, as well as permit the Trustee to pursue claims and recover all property of the respective Debtors apart from those assets seized or restrained now or in the future by the United States Attorney for the District of Massachusetts or its agents.

The SEC filed the motion above yesterday.

Darr is now running things at TelexFree. He said in court filings yesterday that has “no intention of reorganizing or reactivating their businesses.”

It seems very much as though Darr’s plan is to go very deep into the rabbit hole of TelexFree.

NOTE: Our thanks to the ASD Updates Blog. Also see “TelexFree business reorganization dead in the water” at BehindMLM.com.

From a July 16 motion by the SEC.

Jul 17, 2014
URGENT >> BULLETIN >> MOVING: TelexFree Trustee Says He ‘Has No Intention Of Reorganizing Or Reactivating Their Businesses’

URGENT >> BULLETIN >> MOVING: (1st Update 8:50 P.M. EDT U.S.A.) The TelexFree trustee said in court filings today in the SEC’s civil case against the firm that he has “no intention of reorganizing or reactivating their businesses” and — based on information and belief — “they were in fact engaged in a Ponzi or pyramid scheme.”

“Based on information currently available to the Trustee, the Trustee admits that the individual defendants operated a Ponzi/pyramid scheme as evidenced by, among other things, the revenues from the retail sales of the VoIP were less than one (1%) percent of the amounts needed to satisfy the promises to the investors who had placed the Internet ads. Further, based upon the information available to the Trustee, it appears that the early investors were paid not from sales of the VoIP services but rather from the money received from the later investors, thus evidencing a classic Ponzi/pyramid scheme,” Trustee Stephen B. Darr said.

Although TelexFree filed for Chapter 11 bankruptcy protection in April, Darr said today that “Debtors have ceased all operations and all other business activities other than to liquidate assets and to pay back creditors.”

Jordan Maglich of PonziTracker.com is reporting tonight that the development may signal a Chapter 11 reorganization may be off the table.

From PonziTracker.com (italics added):

Thus, it appears that a conversion from a Chapter 11 to a Chapter 7, which liquidates the debtor, is likely.

NOTE: Our thanks to the ASD Updates Blog.

Jul 16, 2014
SEC Halts Trading Of Cynk Technology Corp. Stock, A Mysterious And Sudden Darling With Belize Address

From an SEC halt order today.

It’s one of those things almost too bizarre to contemplate: The stock price of Cynk Technology Corp. increased tens of thousands of percent over a period of days — except the Belize company supposedly in the social-networking business reportedly has no revenue and no assets.

The SEC halted trading in Cynk stock this morning, citing “concerns regarding the accuracy and adequacy of information in the marketplace and potentially manipulative transactions in CYNK’s common stock.”

How a penny stock rose “to a market cap of well over $6 billion at one point” remains a mystery.

A variety of headlines:

“Tech stock soars 25,000%. Trading halted” (CNN Money)

“Penny stock soars to $6B, and even the auditor is perplexed.” (CNBC)

“Cynk Is a Joke, Not Proof of a Bubble” (Business Week)

From Twitter:

Trading Suspension: Cynk Technology Corp. http://t.co/Z0huUZTuR6

— SEC Enforcement (@SEC_Enforcement) July 11, 2014

Cynk Technology Is The New Scheme In Town – Cynk Technology Corp – Seeking Alpha http://t.co/rJMPBmuP0d — Alex Cobb (@alexcobb00) July 11, 2014

Jul 11, 2014
Zeek Receiver Seeks Nearly $2.1 Million From Alleged Winner And Former AdSurfDaily Ponzi Pitchman Todd Disner; Records Show Zeek Paid Him More Than $7,000 On Same Day He Sued United States For Alleged Misdeeds In ASD Case

Summary of Todd Disner’s alleged Zeek winnings. Source: Exhibit by court-appointed receiver.

Zeek Rewards “winner” Todd Disner owes the receivership estate $2,079,757.88, according to a motion asking the court clerk to enter a default judgment.

Receiver Kenneth D. Bell filed for the judgment July 9 in federal court for the Western District of North Carolina, seeking not only Disner’s alleged Zeek haul of $1,800,037.06, but also interest of $279,720.82.

Zeek’s records show that Disner paid $11,810.49 into the “program,” beginning with an initial outlay of $480 on March 4, 2011, shortly after Zeek started business.

From that initial outlay and others, $1,811,847.55 flowed back to him, the receiver advised Senior U.S. District Judge Graham C. Mullen and the court clerk. The lion’s share of Disner’s outlay — $10,000 — was paid to Zeek on July 6, 2012. Zeek collapsed six weeks later, on Aug. 17, 2012.

Disner’s last Zeek withdrawal totaled $102,617.73 and occurred on July 30, 2012, less than three weeks prior to the SEC action that spelled doom for the “program.” His largest withdrawal, according to the receiver’s filing, was for $177,026.27 on July 9, 2012.

A former AdSurfDaily Ponzi pitchman who once sued the United States for alleged misdeeds in the ASD case, Disner regularly withdrew tens of thousands of dollars at a time from Zeek, according to the receiver’s filing.

Zeek operated as part of Rex Venture Group.

Bell also filed today for clerk’s default judgment against alleged winners David Sorrells and Michael Van Leeuwen. The receiver is seeking $1,197,241.12 from Sorrells, including $157,672.63 in interest. Meanwhile, he is seeking $1,617,444.99 from Van Leeuwen, including $213,012.07 in interest.

Disner’s unsuccessful lawsuit against the United States for allegedly violating his right to privacy in the ASD case was docketed on Nov. 7, 2011.

Bell’s filing shows that Zeek paid Disner $7,199.49 on the same day.

A federal judge tossed Disner’s ASD-related lawsuit on Aug. 29, 2012, the same day ASD operator Andy Bowdoin was sentenced to federal prison after admitting ASD was a Ponzi scheme. Only 12 days earlier, the SEC sued Zeek, alleging a massive Ponzi- and pyramid scheme.

The U.S. Secret Service has been involved in both the ASD and Zeek probes.

Jul 10, 2014
RECOMMENDED READING: 50,000 Spaniards Reportedly Plowed Money Into TelexFree

In February 2014, the PP Blog reported that TelexFree had planned a purported “international convention” in Spain in early March.

The pitch for the convention, hosted in Madrid, was voiced by Sann Rogrigues, whom the U.S. Securities and Exchange Commission successfully had sued in 2006 amid allegations he was operating a pyramid scheme and engaging in affinity fraud aimed at the Brazilian community.

Rodrigues, now accused of securities fraud and a defendant in the SEC’s TelexFree civil case announced in April, reportedly was one of TelexFree’s top hucksters and had “earned” millions of dollars.

As the PP Blog reported in February (italics added):

The promo [for the Madrid convention] curiously is playing against the backdrop of an image of the Pyramids of Giza. For good measure, images of other famous world landmarks are thrown in. These include St. Basil’s Cathedral (near the Kremlin) in Moscow; Big Ben in London; The Eiffel Tower in Paris; the Empire State Building and the Statue of Liberty in New York; the Leaning Tower of Pisa; and the Burj al Arab Hotel in Dubai.

Despite the fact TelexFree was under investigation in Brazil and almost certainly knew its days were numbered in the United States because investigators were closing in, TelexFree proceeded with the Madrid event. The confab was held under a cloud growing increasingly black. On Feb. 28, the eve of the convention, the PP Blog reported that Massachusetts securities regulators were investigating TelexFree, the first confirmation of such a probe by a regulator in the United States.

James Merrill, TelexFree’s former president, attended the Madrid event with at least two other TelexFree executives or managers: Carlos Wanzeler, now described as an international fugitive who’d engaged in a criminal wire-fraud conspiracy with Merrill, and Steve Labriola, another defendant in the SEC’s fraud case.

Here is part of what Merrill said from the stage in Madrid, as reported by the PP Blog on March 3, 2014 (italics added):

Carlos Wanzeler was up here talking about Carlos Costa . . . two of the greatest leaders that I’ve met in my life,” Merrill said. “They’re very strong. They’re courageous, and they’re fighting for you. And I want you all to know that they didn’t join my team, I joined their team. OK. They’re great leaders.”

Racketeering allegations later would surface in the United States, questioning the greatness of all three men. MLM attorney Gerald Nehra, billed as an honoree at the Madrid convention, is another defendant named in the RICO actions, which were brought as prospective class-action lawsuits by TelexFree members.

Despite the fact Nehra had been billed as a star attraction of the Madrid confab, he appears not to have shown.

Instead, Labriola, who suggested from the Madrid stage that TelexFree was suited for the impoverished people of Haiti, strolled out to accept Nehra’s award.

“I was asked to come up and receive this for Jerry,” Labriola told the crowd.

Labriola did not say who asked him to accept the award for Nehra. Precisely how long TelexFree had been operating in Spain remains unclear. But only in MLM La-La Land does the juxtaposition of the images of a recidivist securities violator-in-waiting (Rodrigues) and an MLM lawyer (Nehra) make sense in marketing materials, especially since TelexFree promoters were claiming $15,125 sent to the firm returned $57,200 in a year without the need for members to sell a single product.

Rodrigues later appeared in a YouTube video in which he recorded himself tooling around in a Ferrari. He also allegedly claimed “God” started MLM and “binary.”

Now, El Pais, Spain’s largest newspaper, is reporting that TelexFree might have fleeced 50,000 Spanish investors.

Read the El Pais story. (Use the Chrome browser for a translation from Spanish to English or another language or access Google’s translation tool here.)

NOTE: Our thanks to a longtime PP Blog reader who provided the El Pais link.

ALSO: Coming soon on the PP Blog: a Special Report titled “How TelexFree’s ‘Big Revolution’ Dragged The MLM Trade, Lawyers, Payment Vendors And Service-Providers Into A La-La Land Rabbithole.”

Here’s a snippet (italics added):

On at least one occasion — in March 2014 — undercover [Homeland Security Investigations] agents were in the same conference room as TelexFree “speakers,” including alleged owners James Merrill and Carlos Wanzeler, both of whom were charged criminally in May with wire-fraud conspiracy. The room was part of the Marriott Copley Place Hotel in Boston, according to an affidavit. It turned out that, on the same date agents were in the room, a TelexFree speaker claimed from the stage that certain affiliates had been provided a private jet and that the jet had flown between the Dominican Republic and Haiti. Passengers on the jet were said to have been greeted by “the Prime Minister of Haiti’s motorcade.” The rep was pitching a TelexFree-related credit-repair “program.” Just two days earlier, on March 7, a TelexFree-related Blog falsely claimed that the TelexFree “program” at large had gained “SEC Approval from USA.”

Jul 6, 2014
EDITORIAL: On The War In Zeekland And HYIP Rabbit Holes

From a promo for Zeek online in 2012. The “program” operated through Rex Venture Group and later was charged by the SEC with selling unregistered securities as investment contracts.

EDITOR’S NOTE: On Feb. 5, 2014, Zeek figures and alleged insiders Dawn Wright-Olivares and Daniel Olivares pleaded guilty to federal crimes. Wright-Olivares pleaded guilty to investment-fraud conspiracy and tax-fraud conspiracy. Olivares pleaded guilty to investment-fraud conspiracy. Federal prosecutors in the Western District of North Carolina are maintaining an information site here.

Kenneth D. Bell, the court-appointed receiver in the SEC civil case, also is the special master in the criminal prosecution. The charging document in the criminal case references unnamed “co-conspirators” who are “known and unknown” to federal prosecutors.

UPDATED 5:10 P.M. EDT U.S.A. In court filings apt to find favor in MLM HYIP Ponzi Land, some alleged “winners” in the Zeek Rewards “program” have tried to turn the tables on the court-appointed receiver by claiming he owes them “treble” damages for alleged violations of the North Carolina Unfair and Deceptive Trade Practices Act.

Similar claims were made from the sidelines of the AdSurfDaily MLM Ponzi scheme in 2008. Some ASD members contended that then-Florida Attorney General Bill McCollum should be charged with Deceptive Trade Practices, apparently for having the temerity to bring a pyramid-scheme action against ASD.

Other ASD members contended at the time that federal prosecutors and a U.S. Secret Service agent should be investigated and charged with crimes for their roles in the ASD Ponzi prosecution.

Among the alleged winners in Zeek who’ve filed a counterclaim against receiver Kenneth D. Bell are Rhonda Gates of Nashville, an alleged winner of more than $1.425 million; Durant Brockett of Las Vegas, an alleged winner of more than $1.72 million; and Aaron and Shara Andrews of Lake Worth, Fla., alleged winners of more than $1 million through a Florida shell entity known as Innovation Marketing.

In addition to claiming Bell owes them damages for Deceptive Trade Practices, the counterclaimants assert Bell interfered in contracts with payment processors such as Payza and NXPay and violated their rights under the Fourth Amendment to the U.S. Constitution.

Bell sued them in late February, alleging in a clawback action that their gains were illicit because Zeek was illicit. He also sued several other Zeek alleged winners, including former ASD members Todd Disner of Miami and Jerry Napier of Owosso, Mich. Disner allegedly received more than $1.875 million through Zeek; Napier allegedly received more than $1.745 million.

Disner, in 2011, sought unsuccessfully to sue the United States for alleged violations of his Fourth Amendment rights in its prosecution of the ASD Ponzi case. His co-plaintiff in the case was Dwight Owen Schweitzer, whom filings by Bell described as a Zeek winner of more than $1,000. Several alleged Zeek winners ventured into the “program” after earlier stints at ASD, including Terralynn Hoy, a Florida MLMer who moderated a forum that called purported “sovereign” being Curtis Richmond a “hero” for his efforts to derail the civil-forfeiture action against ASD-related assets.

Richmond, a Californian, was a member of a “sham” Utah “Indian” tribe that once sought to have U.S. Marshals serve bogus arrest warrants against federal judges. ASD figure Kenneth Wayne Leaming later was arrested by an FBI Terrorism Task Force, after allegedly harboring federal fugitives from a separate home-business caper, being a felon in possession of firearms and filing false liens against a judge and prosecutors involved in the ASD case.

Other alleged Zeek winners sued by Bell in clawback litigation include Trudy Gilmond of St. Albans, Vt. (more than $1.75 million); Darren Miller of Coeur d’Alene, Idaho (more than $1.635 million); Michael Van Leeuwen, also known as “Coach Van” of Fayetteville, N.C. (more than $1.4 million); David Sorrells of Scottsdale, Az. (more than $1 million); T. Le Mont Silver Sr. of Orlando, Fla. (more than $773,000 under at least two user names, and more than $943,000 through a Florida shell entity known as Global Internet Formula Inc. with one or more Zeek user names); Karen Silver, Silver’s wife (more than $600,000); David and Mary Kettner of Peoria, Az. (more than $930,000 via one or more user names and shell companies known as Desert Oasis International Marketing LLC and Kettner & Associates LLC); and Lori Jean Weber of Land O’Lakes, Fla. (more than $1.94 million through a shell company known as P.A.W.S. Capital Management LLC.)

Whether other alleged winners would join Gates, Brockett and Aaron and Shara Andrews in asserting claims for damages against Bell was not immediately clear.

What is clear is that a legal war has broken out over Zeek, with alleged winners challenging Bell’s clawback claims by asserting Zeek wasn’t selling unregistered securities as alleged in 2012 by the SEC, that they worked for the money they received or were due, that the alleged winners were not investors, that the SEC’s case against Zeek cannot withstand scrutiny under the “Howey Test” for what constitutes a security, that the SEC had a duty to catch Zeek much earlier — and, in any event and if all else fails, attorneys Bell sued last week and Bell himself are to blame for the unpleasantness.

On June 25, Bell sued MLM attorney Kevin Grimes and tax attorney Howard N. Kaplan, alleging they helped Zeek thrive while helping Zeek gain unwarranted credibility by lending their professional reputations to a fraud scheme.

From Brockett’s June 30 “affirmative defenses” to the receiver’s clawback claims (italics added):

The Receiver has filed suit against two attorneys who provided legal advice to [Zeek operator Rex Venture Group] and Affiliates, including Brockett. Brockett relied on that advice in concluding that RVG was a legitimate business and in committing over $100,000 in his personal resources to grow his now defunct business. Because Brockett’s damages were caused in part by the conduct of the two lawyers, Brockett is entitled in equity at and at law to a credit for all money the Receiver recovers from the two attorneys as a result of his claims against them.

Also from Brockett’s “affirmative defenses” (italics added):

On information and belief, the SEC knew or should have known of the RVG Ponzi scheme, but delayed unreasonably in its prosecution of claims against RVG. Alternatively, the SEC knew for some time that RVG was operating as a Ponzi scheme but intentionally delayed disclosing that information to Affiliates and to the public. That unreasonable delay has prejudiced Brockett because he has paid taxes on the money he earned working on behalf of RVG, contributed a significant portion of his earnings to his retirement plan, and has incurred business expenses as a part of his work on behalf of RVG. The Receiver in this action stands in the SEC’s shoes and also delayed to Brockett’s detriment and now seeks return of all monies Brockett earned in connection with RVG, with no credit for the taxes or business expenses that Brockett legitimately paid, but that could have been avoided had the SEC or the Receiver timely advised Brockett of RVG’s true nature or acted in a more expeditious manner.

And from Brockett’s counterclaims against the receiver (italics added/editing for space performed):

On information and belief, RVG was not involved in the sale or marketing of any securities, so the SEC was without jurisdiction and the Court did not have subject matter jurisdiction over the SEC Action. Consequently, the appointment of the Receiver was void and of no effect, and all of the Receiver’s actions in his capacity as receiver for RVG have been unlawful and without justification . . .

RVG’s and the Receiver’s conduct described above and in the Complaint constitutes unfair methods of competition, unfair trade practices, and deceptive trade practices in violation of the North Carolina Unfair and Deceptive Trade Practices Act, N.C. GEN. STAT. § 75-1.1, et seq.

The conduct was illegal, offends public policy and is immoral, unethical, oppressive, unscrupulous, and deceptive.

Bell, the Zeek receiver, is a former federal prosecutor who once received a prestigious award from the U.S. Department of Justice for his work prosecuting a Hezbollah terrorist cell operating in North Carolina.

But some of the alleged Zeek winners now describe him with adjectives that could peel paint.

And as they do this, they seek to gut or circumvent the SEC’s authority to prosecute HYIP schemes while contending the agency fumbled the ball in investigating and prosecuting Zeek — that is, if anything was worth investigating and prosecuting at all.

It is a narrative apt to go over well in MLM HYIP Ponzi Land, the latest major expression of which is TelexFree, a rabbit hole case if ever there was one.

NOTE: Our thanks to the ASD Updates Blog.

Jul 1, 2014
Plaintiff To TelexFree Crew: You’re All Crooks And Racketeers — And Carlos Costa Is The ‘Mastermind’

Carlos Costa

UPDATED 10:48 P.M. EDT U.S.A. A plaintiff bringing a prospective class-action lawsuit in Massachusetts federal court has accused 10 TelexFree figures of committing crimes and — as a group — committing racketeering violations through an “association-in-fact enterprise.”

Unlike other prospective TelexFree-related class-actions, this one names neither attorneys nor banks nor TelexFree itself defendants. Rather, it pins the onus of the conduct exclusively on James Merrill, Carlos Wanzeler, Steve Labriola, Joe Craft, Fabio Wanzeler, Sann Rodrigues, Santiago De La Rosa, Randy Crosby, Faith Sloan and Carlos Costa.

Costa, a Brazil-based TelexFree figure, is described in the complaint as the “mastermind of the TelexFree pyramid scheme of fraud.” The complaint further asserts Costa conducted business in Massachusetts, where TelexFree operated an entity known as TelexFree Inc.

Olavo F. Magalhaes of Milford, Mass., is the plaintiff. The complaint says Magalhaes invested more than $209,000 in TelexFree LLC, the Las Vegas-based TelexFree business that operated in a Massachusetts office suite.

The crimes alleged against the defendants include fraud, securities fraud, wire fraud and conspiracy. Violations of civil law also are alleged.

On the racketeering front, the complaint alleged, the members of the “association-in-fact enterprise” associated together between January 2012 and April 15, 2014, “for the purpose of conducting an illegal pyramid scheme and wrongfully enriched themselves” at the expense of Magalhaes and others.

“Each member of the enterprise played a role in the targeting of victims, advertising and working together to make the TelexFree enterprise work,” the complaint alleged.

Fabio Wanzeler is the brother of Carlos Wanzeler, an alleged international fugitive accused criminally by federal prosecutors of wire-fraud conspiracy in the United States. Carlos Wanzeler is believed to be in Brazil.

Fabio Wanzeler, formerly of Worcester, Mass., is believed also to be in Brazil, according to the Magalhaes complaint.

In other TelexFree news, a federal judge has denied a motion by Faith Sloan to make more than $15,000 available to her.

The SEC has accused Sloan of violating the asset freeze imposed against her in the case.

NOTE: Our thanks to the ASD Updates Blog.

Jun 26, 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