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Tag: SEC

  • Full Statement By SEC On U.S. Justice Department’s Filing Last Week Of Criminal Charges Against TelexFree Figures

    U.S. SECURITIES AND EXCHANGE COMMISSION

    Litigation Release No. 22992 / May 13, 2014

    Securities and Exchange Commission v. TelexFree, Inc. et al., Civil Action No. 1:14-cv-11858-DJC (United States District Court for the District of Massachusetts)

    United States v. Carlos Nataniel Wanzeler and James Matthew Merrill, Case No. 14-MJ-4172-DHH (United States District Court for the District of Massachusetts)

    Criminal Charges Filed Against Two Principals of Massachusetts-Based Telexfree

    On Friday, May 9, 2014, the U.S. Attorney for the District of Massachusetts charged James M. Merrill, of Ashland, Massachusetts, and Carlos N. Wanzeler, of Northborough, Massachusetts, with conspiracy to commit wire fraud in connection with the alleged TelexFree pyramid scheme previously charged by the Securities and Exchange Commission. Federal authorities arrested Merrill on Friday, and an arrest warrant was issued for Wanzeler, who the Department of Justice announced is a fugitive. The Department of Justice also announced it has executed 37 seizure warrants seizing assets relating to the fraudulent pyramid scheme.

    The criminal charges against Merrill and Wanzeler related to the same conduct charged in a civil enforcement action filed by the SEC on Tuesday, April 15, 2014, against Merrill, Wanzeler, and others. Those charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze. That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, April 16, secured millions of dollars of funds and prevented the potential dissipation of investor assets. After the SEC staff implemented the asset freeze, at the SEC’s request the Court lifted the seal on April 17. On April 30, 2014, the Court entered preliminary injunctions extending the asset freeze as to defendants Santiago De La Rosa, of Lynn, Massachusetts, and Randy N. Crosby, of Alpharetta, Georgia. On May 8 and 9, the Court entered preliminary injunctions extending the asset freeze as to all the remaining defendants (Merrill, Wanzeler, TelexFree, Inc., TelexFree, LLC, Joseph H. Craft, of Boonville, Indiana, Steve Labriola, of Northbridge, Massachusetts, Faith R. Sloan, of Chicago, Illinois, and relief defendants (TelexFree Financial, Inc., TelexElectric, LLLP, and Telex Mobile Holdings, Inc.).

    The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme. In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds. According to the SEC’s complaint filed in federal court in Massachusetts, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites. The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters. As a result, in classic pyramid scheme fashion, TelexFree was paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

    In related proceedings, on May 6, 2014, the U.S. Bankruptcy Court in the District of Nevada granted the SEC’s motion to transfer venue of those proceedings from Nevada to Massachusetts. The SEC had contended that the TelexFree entities hastily filed for bankruptcy in Nevada on Sunday night, April 13, 2014, in a transparent attempt to avoid Massachusetts. The SEC had noted that TelexFree does virtually no business in Nevada but rather was headquartered in Marlborough, Massachusetts. The SEC also argued that TelexFree did not have a legitimate business capable of reorganization under the bankruptcy code. The bankruptcy case will be transferred to Massachusetts for all further proceedings.

    Source: http://www.sec.gov/litigation/litreleases/2014/lr22992.htm

  • Alleged TelexFree Promoter Hauled In Front Of TV Cameras In Uganda

    From NTV report.
    From NTV report.

    A man asserted to be a promoter of at least three fraud schemes, including TelexFree, has been hauled in front of TV cameras in Uganda. The report below is from NTV Uganda.

    The embarrassing appearance of the suspect may raise the stakes for promoters of online fraud schemes and create even more disastrous PR for cross-border MLM schemes. TelexFree has been accused in the United States of operating a $1.2 billion pyramid- and Ponzi scheme. In court filings, the SEC repeatedly has pointed to TelexFree promos that appeared on YouTube.

    Whether TelexFree, which now is batting civil and criminal fraud charges in the United States, would provide counsel for the alleged Ugandan affiliate was not immediately clear. Accused HYIP purveyors typically find themselves on their own, perhaps facing prosecution and the need to hire attorneys at their own expense.

    Some HYIP promoters proceed from scheme to scheme to scheme. At least eight alleged TelexFree managers/executives and promoters face civil charges in the United States. Two of those — James Merrill and Carlos Wanzeler — face criminal charges. The various probes are ongoing.

    The United States had labeled Wanzeler a fugitive.

  • TelexFree Members Blame MLM Debacle On ‘Media Disinformation’; Judge Presiding Over SEC Case Receives Doodles

    Some telexFree members sent doodles to the federal judge presiding over the SEC's fraud case. Redaction by PP Blog.
    Some TelexFree members sent doodles to the federal judge presiding over the SEC’s fraud case. Redaction by PP Blog.

    (UPDATED 9:24 am EDT MAY 14 U.S.A.) The PP Blog previously has reported on campaigns by members to petition judges to “bail out” TelexFree and consider the purported upside of the “program,” which may be the largest combined Ponzi- and pyramid scheme in MLM HYIP history. (Campaigns referenced in this May 10, 2014, PP Blog editorial.)

    The docket of U.S. District Judge Nathaniel M. Gorton of the District of Massachusetts now shows that members have written letters to the court in support of TelexFree. Gorton is presiding over the SEC’s civil case against TelexFree. The complaint was brought on an emergency basis on April 15. Assets of TelexFree and alleged managers and certain promoters have been frozen.

    At least one TelexFree supporter contended in a letter to Gorton that he can “assure” the judge that “media disinformation” is responsible for the problems at TelexFree and that the company “revolutionized” MLM in a manner that “put out of extreme poverty thousands and thousands of people around the world, if not millions.”

    TelexFree, according to the sender, was like a drop of “heaven for poor families.”

    Some of the letters appear to be in Spanish, sent to the judge via fax. Some are handwritten. Some are typewritten. A few of them include doodles.

    There are letters from the United States. There are letters from the Dominican Republic. Some of the letters appear to have used a shared template, which likely means TelexFree upline/downline groups organized the campaign.

    In the 2008 AdSurfDaily case, shared litigation templates were used by certain members who appeared to be more interested in advancing conspiracy theories than understanding the facts of the case. Some of the letters/emails of “support” submitted by ASD in 2008 were used by the government to undermine ASD’s assertion it was not selling securities and was not a Ponzi scheme.

    At least one TelexFree member asserted in a letter to Gorton that the “program” gave him an opportunity to earn money from TelexFree by posting ads on the Internet.

    On Friday, it became known that the U.S. Department of Homeland Security was involved in an undercover probe of TelexFree that began at least by October 2013.

    In a criminal complaint and affidavit filed in support of wire-fraud conspiracy charges against TelexFree figures James Merrill and Carlos Wanzeler, a DHS agent involved in the probe alleged an intelligence research specialist within DHS placed more than 700 ads for TelexFree online.

    “The ads have resulted in no retail sales of TelexFree’s VOIP product,” the agent alleged.

    And, the agent asserted, “the sites on which these ads were posted contained page after page after page of hundreds of nearly identical ads placed by various TelexFree promoters for the identical VOIP service.”

    Zeek Rewards, an $850 million Ponzi- and pyramid scheme shut down by the SEC in 2012, also had an “advertising” component. So did ASD, a $119 million Ponzi scheme shut down by the U.S. Secret Service in 2008.

    MLM HYIP schemes have defrauded billions of dollars from participants in recent years. The combined hauls of TelexFree, Zeek and ASD alone may exceed $2.169 billion. That’s nearly double the size of the epic Scott Rothstein Ponzi and racketeering scheme in Florida in 2009.

    MLM HYIP swindles typically are aimed at vulnerable populations, with MLMers who have big email lists and experience in one fraud scheme after another scoring tremendous windfalls.

    Our thanks to the ASD Updates Blog.

  • BULLETIN: Merrill, Wanzeler Charged With Wire-Fraud Conspiracy; Wanzeler Labeled ‘Fugitive’; Scope Of TelexFree Fraud ‘Breathtaking,’ Top Federal Prosecutor Says; Undercover Probe Had Been Under Way For Months, With ‘Intelligence Research Specialist’ Placing ‘Ads’ And Undercover Agent Mixing With Promoters

    Screen shot of part of criminal complaint filed today.
    Screen shot of part of criminal complaint filed today.

    BULLETIN: (18th Update 8:15 a.m. EDT, May 10, U.S.A.) TelexFree figures James Merrill and Carlos Wanzeler have been charged criminally with conspiracy to commit wire fraud.

    Merrill, 53, was arrested in Worcester, Mass. Wanzeler, 45, of Northborough, Mass., has been labeled a “fugitive.”

    In similar prosecutions, U.S. authorities have notified INTERPOL about the subjects of U.S. arrest warrants in HYIP cases. How authorities intended to proceed against Wanzeler was not immediately clear.

    “The scope of this alleged fraud is breathtaking,” U.S. Attorney Carmen Ortiz of the District of Massachusetts said. “As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.”

    From the criminal complaint and affidavit filed by Homeland Security Investigations (HSI), an arm of the U.S. Department of Homeland Security (italics added):

    An analysis of the bank and credit card processing accounts behind TelexFree’s publicly-stated income and revenue figures shows that TelexFree was deriving less than 1% of its revenue from its VOIP products, about 99% from investments by new promoters, and that it could not meet its massive payment obligations to existing promoters without equally large infusions of cash from new promoters.

    The complaint, among other things, reveals that an undercover probe into TelexFree was under way before the company and certain arms filed for bankruptcy protection in Nevada on April 13.

    One undercover agent made a TelexFree purchase on April 9, four days prior to the bankruptcy filing. The complaint/affidavit describes the purchase bid as “cumbersome,” taking “over two hours, including unusual steps like setting up an electronic ‘eWallet’ and uploading to TelexFree copies of [the undercover agent’s] drivers license and credit card.”

    Information in the affidavit/complaint shows that the undercover probe began at least by October 2013, months ago:

    From the affidavit/complaint (italics/carriage returns/minor editing applied):

    During the investigation, a law enforcement officer arranged to have him/herself recruited as a TelexFree promoter, to confirm how portions of the TelexFree system operated.

    On October 15, 2013, an undercover HSI task force officer (“UC”) met with a TelexFree promoter (“Person A”). During the conversation, Person A told the UC that the UC could make $100 a week using an “AdCentral Family Package” to post online ads for TelexFree, and could earn additional money by recruiting other people to join TelexFree.

    The UC met Person A again the next day, and successfully joined TelexFree as a new promoter. The UC bought the AdCentral Plan for $1,425 (a $50 membership fee plus $1,375 for the AdCentral package), using a check made payable to Person A.

    Person B, an associate of Person A, helped the UC register and verify the UC’s new TelexFree “back office” account. This consisted of entering a name, date of birth, Social Security number, cellular telephone number, email address, and mailing/billing address. In order to access the back office, the UC created a unique log-in name and password.

    Starting on October 21, 2013, using the UC’s access to the TelexFree system, an HSI Intelligence Research Specialist placed online advertisements as a promoter for TelexFree.

    Following the system discussed above, the Specialist copied advertisements created by TelexFree and made available to the Specialist in the back office area of TelexFree’s site, and pasted them to another website TelexFree recommended. As required under the AdCentral Family plan, the Specialist did this five times a day. The entire process took about 25 minutes per day.

    Between October 21, 2013, and the date of this affidavit, the Specialist posted more than 700 advertisements. The ads have resulted in no retail sales of TelexFree’s VOIP product. As described above, the sites on which these ads were posted contained page after page after page of hundreds of nearly identical ads placed by various TelexFree promoters for the identical VOIP service.

    The document also asserts the government — once inside TelexFree — used an undercover bank account and tied it to a TelexFree “eWallet” — and began to receive payments from TelexFree.

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

    “I am very proud of the tireless efforts of my special agents,” said Bruce Foucart, special agent in charge of HSI. “Investigating the flow of illicit money across U.S. borders and the criminal enterprises behind that money is one of our top priorities. While pyramid schemes are nothing new, the potential scope of this case will hopefully serve as an educational lesson for all. The main point is clear; if it sounds too good to be true, it probably is.”

    Undercover agents even attended a TelexFree rah-rah fest in Boston on March 9, the day TelexFree announced a new compensation plan. That plan, according to documents, led to an effective storming by affiliates of TelexFree headquarters in Marlborough on April 1.

    See April 3, 2014, PP Blog editorial.

    Bail information for Merrill was not immediately clear. Wire-fraud conspiracy is punishable by up to 20 years in federal prison.

    The Massachusetts Securities Division has alleged TelexFree was a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion. The SEC also has sued.

  • BULLETIN: TelexFree Chapter 11 Case Now In Hands Of Massachusetts Court

    breakingnews72BULLETIN: The TelexFree Chapter 11 bankrupcy case filed in Nevada last month now has been formally transferred to Massachusetts and has been assigned to U.S. Bankruptcy Judge Melvin S. Hoffman of the Central Division in Worcester.

    U.S. Bankruptcy Judge August B. Landis of Nevada ordered the case transferred to Massachussetts earlier this week. The SEC argued successfully for the transfer, saying the state was the “nerve center” of TelexFree.

    TelexFree is alleged by the Massachusetts Securities Division and the SEC to be a massive Ponzi- and pyramid scheme.

    Like the Nevada court, the Massachusetts court has established a TelexFree information page. Click here.

    Hoffman already has issued the first order since the transfer — a status conference May 27 at 2 p.m. in Courtroom 3 of Donohue Federal Building in Worcester.

    Housekeeping chores such as transferring docket records from Nevada are under way. Until the transfer is complete, Hoffman has authorized attorneys involved in the case to file emergency pleadings from Boston, Springfield or Worcester.

  • ZEEK RECEIVER: ‘Multilayered Investigation Into [Rex Venture Group] And Its Insiders, Advisors, And Financial Institutions’ Continues

    ponzinews1The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case says his “multitilayered investigation into [Zeek operator Rex Venture Group] and its insiders, advisors, and financial institutions” continues.

    Receiver Kenneth D. Bell has been at the helm since the epic collapse of the Zeek MLM HYIP scheme in August 2012. The SEC initially filed civil charges to halt the $850 million fraud. A parallel criminal probe by federal prosecutors in North Carolina to date has resulted in the arrest and prosecution of two Zeek insiders, both of whom pleaded guilty.

    Bell did not say in his May 7 report to Senior U.S. District Judge Graham C. Mullen precisely who the receivership was investigating. Zeek is known to have had members and vendors in common with the $119 million AdSurfDaily Ponzi scheme, which collapsed in 2008.

    Bell so far has sued several members of ASD who became alleged winners in Zeek. (See March 3, 2014, PP Blog story and Comments thread.) Zeek also had members in common with TelexFree, an alleged Ponzi- and pyramid scheme that gathered more than $1.2 billion. Class-action attorneys have alleged RICO violations at TelexFree involving vendors and MLM attorney Gerald Nehra, who also performed work for Zeek, according to Zeek promos.

    “The Receiver has begun to investigate possible claims against financial institutions that facilitated the [Zeek] scheme,” Bell advised Mullen. “If the Receiver becomes convinced that there are colorable causes of action against banks and other financial institutions, he will solicit other law firms to undertake this work.”

    And, Bell noted, “The Receiver continues to evaluate potential claims against RVG’s third-party advisors, consultants, and others who received fraudulent transfers but who were not Affiliate Investors.

    “These claims,” he continued, “are varied in light of the diverse range of involvement these parties had with RVG. The Receiver intends to file multiple third-party actions, likely grouping defendants in these actions based on the similarity of claims asserted against them.”

    Moreover, Bell said, he “has been investigating allegations that certain insiders and net winners may be sheltering, hiding, or dissipating assets fraudulently transferred or held. The Receiver intends to fully pursue legal recourse in these situations so that funds are preserved and may be returned to victims of the ZeekRewards scheme.”

    Bids to flummox the receivership were not limited to insiders and winners, Bell said.

    “The Receiver Team also identified one creditor that appears to have taken numerous actions that were in direct violation of the Freeze Order and greatly damaged the estate,” Bell said. “The Receiver is in the process of determining what actions should be taken in regard to these violations.”

    Bell did not identify the creditor.

    An examination of of transactions that occurred at offshore processors such as Payza and SolidTrustPay continues, Bell said.

    “The Receiver Team is continuing its investigation of and pursuit of any outstanding funds, including any potential transfers or withdrawals, from Payza and Solid Trust Pay,” Bell said.

    Foreign transactions involving Payment World and CyberProfit also are under scrutiny, Bell said.

    In addition, he asserted that his team “is investigating potential improper transfers totaling approximately $5.8 million from a Trust Account set up by Preferred Merchants’ CEO Jaymes Meyer for which Rex Venture Group was the beneficiary,” Bell said. “The Receiver Team has issued a subpoena to Preferred Merchants to obtain additional information and is engaged in conversations with Preferred Merchants’ counsel regarding these transfers and the production of this information.”

    Transactions at Plastic Cash International also are under scrutiny, Bell said.

    ‘The Receiver Team is investigating potential improper transfers or withdrawals from Plastic Cash International,” Bell said. “This inquiry includes an analysis of the flow of funds through Network Merchants and SecureNet, which facilitated the flow of funds between Rex Venture Group and Plastic Cash International.”

    Meanwhile, scrutiny of transactions involving NXPay, another Zeek Vendor, continues, Bell said.

    “The Receiver Team completed its reconciliation of account information for NxPay, determining an outstanding amount of over $13 million, including improper post-freeze Order disbursements, and is analyzing potential options to recover this outstanding amount,” Bell said.

    Negotiations with various parties over document production and information-sharing continue, Bell said.

    “As part of this effort, the Receiver recently conducted an interview of a key fact witness with knowledge of the scheme,” Bell said.

    He did not identify the individual.

    Read Bell’s May 7 report. Visit the receivership website.

  • BULLETIN: PonziTracker.com: Judge Moves TelexFree Bankruptcy Case To Massachusetts And Suspends Proceedings Until Transfer Occurs

    BULLETIN: (4th Update 3:28 p.m. EDT U.S.A.) U.S. Bankruptcy Judge August B. Landis of Nevada has transferred the TelexFree Chapter 11 case to Massachusetts, PonziTracker.com reported at 2:27 p.m.

    At 2:34 p.m., PonziTracker reported that Landis has suspended all proceedings in the case until the transfer to Massachusetts can be completed.

    Click here.

    The SEC sought the transfer to Massachusetts last month, arguing that the state was TelexFree’s “nerve center” and that the bankruptcy filing in Nevada on Oct. 13 was a “transparent attempt to avoid Massachusetts, where their ‘business’ and numerous witnesses are located and where various government agencies have been investigating their fraudulent conduct.”

    Also see follow-up story by PonziTracker.

  • EDITORIAL: TelexFree, Rabbit Holes And Vomit

    "man vomiting icon" download provided by OpenClipart.org.
    “man vomiting icon” download provided by OpenClipart.org.

    TelexFree, an alleged $1.2 billion Ponzi- and pyramid scheme targeted at immigrants, is an exceptionally dangerous MLM malignancy and criminal enterprise. The SEC, the Massachusetts Securities Division and the U.S. Department of Justice have an obligation to society at large to treat TelexFree with maximum legal prejudice and to annihilate it.

    This, we believe, is happening.

    MSD has filed an action. The SEC has filed an action. The office of the U.S. Trustee, the Justice Department’s watchdog arm in bankruptcy petitions, is seeking to intervene in TelexFree’s Chapter 11 case in Nevada. On Friday, Jordan Maglich of PonziTracker.com reported that the SEC asserted at a key bankruptcy hearing that federal prosecutors also have entered the TelexFree fray through the filing of forfeiture actions.

    TelexFree, it seems, finds itself the target of a richly deserved paper-nuking by a government righteously angered by the preposterous “opportunity” and its gaggle of reliably felonious pitchmen.

    Regardless, the process of killing TelexFree dead and delivering it to the judiciary for final pronouncement inevitably will create an opportunity for MLM’s criminal wing and robotic Stepfordians to serve up a vomitous spectacle. Members of the public at large should pay close attention to this spectacle and use it to inform their thinking.

    EXTREME CAUTION WARRANTED: Watch the rancid TelexFree spectacle from a distance: If you get too close to the ever-hurling Stepfordians and their upstream programmers who load the vomit-inducing talking points, you might find yourself suddenly wondering why your fellow man ever questioned the beauty of Soviet propaganda night at Jonestown. You even could find yourself waxing nostalgically for the Peoples Temple itself.

    Like Zeek Rewards and AdSurfDaily before it, TelexFree was a vessel created to divert the wages of the MLM proletariat to the MLM Politburo, known in HYIP scam circles as the “leaders.”  Some of those “leaders” have Ferraris and Hummers and BMWs and blue-chip investment accounts that reportedly contained millions and millions of dollars.

    Little wonder some angry affiliates showed up at TelexFree’s broom closet office in Massachusetts to voice their displeasure a mere 12 days before TelexFree filed for bankruptcy protection in Nevada, a state from which TelexFree operated a billion-dollar business through a mailbox.

    Merriam-Webster.com defines “rabbit hole” as a “bizarre or difficult state or situation — usually used in the phrase down the rabbit hole.”

    In the hours leading up to last week’s key hearing for TelexFree in bankruptcy court, the U.S. Department of Justice saw fit to recommend looking down the TelexFree “rabbit hole.”  Based on the Merriam-Webster definition, our take is that the take of the Justice Department — through U.S. Trustee Tracy Hope Davis —  was practically perfect.

    We believe the Justice Department, the SEC and MSD will find Chernobyl, Bhopal and Love Canal down that hole. There’s also a fair chance they’ll find Al Capone wearing an Easter Bunny suit.

    TelexFree provided the financial world with a glimpse into what an Extinction Level Event driven by hapless MLM buffoons and their Stepfordian followers might look like. TelexFree was an attack on free enterprise, not an innocent expression of the same.

    Kill it. Kill it dead.

  • URGENT >> BULLETIN >> MOVING: TelexFree, Gerald Nehra MLM Law Firm, Banks, Processors Sued In Prospective Class Action That Alleges RICO Violations

    breakingnews72URGENT >> BULLETIN >> MOVING: (18th update 3:49 P.M. EDT U.S.A.) TelexFree, MLM attorney Gerald Nehra, “Doe” insiders and several banks have been sued in a prospective class-action that alleges fraud and violations of the federal RICO (racketeering) statute.

    “Certain Defendants share joint and severable liability, including the Doe Inside Promoters, the licensed professionals such as the RLP Defendants, including certified public accountants and lawyers that specialized in sheltering so-called Multi-Level Marketing schemes having aided and abetted TelexFree’s Pyramid Ponzi Scheme by providing TelexFree with legal and financial advice and assistance during the course of the fraud, despite knowledge of the fraudulent nature of TelexFree’s operation,” the complaint alleges.

    Among other things, Nehra was accused in the complaint of turning a blind eye to securities issues at TelexFree, encouraging others to conceal those issues and engaging in other misconduct.

    Nehra, according to the complaint, was not merely providing zealous representation to TelexFree, he counseled “TelexFree on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”

    With Nehra understanding that “his legal opinions and representations would be used by TelexFree as a marketing tool to further and advance their business model,” his “opinions were packaged and promoted as part of TelexFree’s total ‘post Brazilian shut down package’ to the members of the putative class,” according to the complaint.

    The complaint further alleges that Nehra’s actions in misrepresenting TelexFree as a legitimate business encouraged TelexFree members “unknowingly” to “participate in the evasion of federal and state securities laws.”

    Named defendants included TelexFree LLC, TelexFree Inc., “Paralegal Doe [who] served as TelexFree, LLC’s agent, servant or employee,” TelexFree Financial Inc., TelexElectric LLLP, Telex Mobile Holdings Inc., James M. Merrill, Carlos N. Wanzeler, Steven M. Labriola, Joseph H. Craft, Craft Financial Solutions LLC, Carlos Costa, Gerald P. Nehra, Gerald P. Nehra, Attorney at Law PLLC, Richard W. Waak (Nehra law partner), Law Offices of Nehra and Waak, Richard W. Waak Attorney at Law PLLC, TD Bank NA, Citizens Financial Group Inc., Citizens Bank of Massachusetts, Fidelity Co-Operative Bank, Middlesex Savings Bank, Global Payroll Gateway Inc., International Payout Systems Inc. (I-Payout), ProPay Inc., “Banks Doe,”  “Doe Inside Promoters” and “Credit Processors Doe.”

    Merrill, Wanzeler, Labriola and Craft are former TelexFree managers or executives. The Massachusetts Securities Division has described TelexFree as a combined Ponzi- and pyramid scheme that gathered more than $1.2 billion and crossed national borders. The SEC also has charged TelexFree, Merrill, Wanzeler, Labriola and Craft with fraud, alleging that the firm conducted business in at least 20 U.S. states and mainly targeted Brazilian and Dominican immigrants.

    Plaintiffs are identified as Waldemara Martins and Leandro Valentim.

    The complaint alleges that Craft incorporated TelexFree Financial and that the entity “was fraudulently set up for the purpose of sheltering funds rightfully belonging to the putative class.”

    Among the contentions in the complaint (italics added):

    On March 9, 2014, TelexFree changed its compensation plan, thereby requiring Promoters to sell its VoIP product to qualify for the payments that TelexFree had previously promised to pay them.

    TelexFree’s former officers or employees stated to the TelexFree transition team that under the Pre March 2014 standard form contract TelexFree owes its promoters over $5 billion dollars.

    The rule change generated a storm of protests from Promoters who were unable to
    recover their money. On April 1, 2014, dozens of Promoters descended upon TelexFree’s Marlborough, Massachusetts office to protest this change and attempt to regain access to their money.

    Reporting on TelexFree-related matters by BehindMLM.com, a publication that reports on evolving MLM frauds, is referenced in the complaint.

    In addition, according to the complaint, “TelexFree mailed fraudulent and inaccurate 1099 (Miscellaneous Income) forms to investors, possibly to create the illusion that they had made payments to investors.”

    HYIP schemes in recent years have advised participants to avoid calling the “program” an “investment program.” Here is what the complaint alleges on this subject:

    “TelexFree’s Contract at Section 2.6.5 (m) mandates that Promoters are not to use the term investment with respect to the registration costs . . . Co-Defendant and Company Counsel Attorney Gerald P. Nehra, through his affiliated companies (Law Offices of Nehra and Waak , Gerald P. Nehra, Attorney at Law, PLLC, and Richard W. Waak, Attorney at Law, PLLC), and under the direct supervision of Co-Defendants Richard W. Waak and Richard W. Waak Attorney at Law, PLLC provided this deceitful advice for the purpose of furthering perpetuating Defendants unlawful Pyramid Ponzi Scheme.”

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

    Craft was accused in the complaint of “Overseeing TelexFree’s creation of falsified accounting records,” “Fraudulently certifying TelexFree’s business operations and accounting practices as good and lawful, despite actual knowledge of their unlawful and illegitimate nature” and “Concealing the fact that the AdCentral Packages purveyed by TelexFree were actually securities.”

    At the same time, Craft was accused of “Concealing and absconding with investor assets.”

    Costa, a TelexFree figure in Brazil, was accused of publicly supporting “TelexFree’s illegal and corrupt activities.”

    The banks and processors were accused of aiding and abetting a fraud scheme.

  • SEC: TelexFree’s Sann Rodrigues On YouTube: God Started MLM And Made ‘Binary’; ‘I Am Never Going To Stop This’

    Screen shot from section of SEC filing.
    Screen shot from section of SEC filing.

    (UPDATED 8:21 P.M. EDT U.S.A.) The U.S. Securities and Exchange Commission says in new court filings that accused TelexFree promoter and securities fraudster Sann Rodrigues appeared in an April 16 YouTube video and asserted that “God” made MLM and “binary” and that Rodrigues claims he’s “never going to stop this.”

    Rodrigues is now a two-time SEC defendant. He settled charges in 2007 that he was operating a pyramid scheme targeted at the Brazilian community through the purported sale of phone cards.

    TelexFree is a combined Ponzi and pyramid scheme with a phone product that masked a massive, underlying fraud that gathered more than $1.2 billion, the Massachusetts Securities Division alleged on April 15. The SEC said the TelexFree scam mainly was targeted at Brazilian and Dominican immigrants.

    Fellow TelexFree defendant Faith Sloan, meanwhile, appears to have removed certain videos but nevertheless has invoked “divine authority” elsewhere, according to SEC filings.

    On March 15, the SEC alleged, Sloan claimed on her website that the TelexFree compensation plan was changing and was not in final form — “[b]ut is Getting BETTER as Jesus said.”

    Sloan, a former promoter of the Profitable Sunrise and Zeek Rewards securities swindles,  earlier claimed that the SEC was “picking on” her.

    Separately, the agency alleged that TelexFree may be violating a temporary restraining order by putting its website back online.

    “It appears that TelexFree and/or one or more of the individual defendants may be improperly using investor funds for that purpose,” the SEC alleged.

    Moreover, the SEC said, none of the defendants has submitted the written accounting required under the order.

    Sloan and Rodrigues are among four promoters charged by the SEC. TelexFree executives or co-owners James Merrill, Carlos Wanzeler, Joe Craft and Steve Labriola also were charged. The firm and related entities filed for bankruptcy protection in Nevada April 13.

    Claims of divine authority or inspiration are not unusual in MLM HYIP frauds. In the 2008 AdSurfDaily case, for instance, accused operator Andy Bowdoin claimed God was on his side and compared the U.S. Secret Service to “Satan” and the 9/11 terrorists.

    Bowdoin, who also fraudulently traded on the name of then-President George W. Bush to sanitize the ASD scam, had experience as a securities swindler prior to ASD, according to court records. He is now serving a 78-month term in federal prison for his role in the $119 million ASD swindle. One of his business partners, according to federal records, was implicated by the SEC in the 1990s in three prime-bank swindles, including one that touted a return of 10,000 percent.

    Brazil-based TelexFree figure Carlos Costa also routinely invokes God over TelexFree-related issues.

    On Dec. 19, 2013, the PP Blog reported that TelexFree puff pieces were appearing in a publication that featured a columnist who asserted Jesus Christ was the person who inspired modern network marketers through his recruitment of 12 disciples.

    Ads for an apparent cash-gifting scheme appeared in the same publication.

    Images of Jesus Christ also were used in the alleged Profitable Sunrise and WCM777 HYIP swindles.

    NOTE: Thanks to the ASD Updates Blog.

  • URGENT >> BULLETIN >> MOVING: Interim TelexFree Chief Tells Bankruptcy Judge That He Has Fired Carlos Wanzeler And Caused James Merrill And Joe Craft To Resign

    Prior to TelexFree's bankruptcy filing, this graphic was used to promote the "programs" purported "international convention" in Spain.
    Prior to TelexFree’s bankruptcy filing, this curious graphic was used to promote the “program’s” purported “international convention” in Spain. Red highlight by PP Blog.

    URGENT >> BULLETIN >> MOVING: Carlos Wanzeler refused to resign from TelexFree-related entities and has been fired by interim CEO Stuart A. MacMillan, according to new filings in the TelexFree bankruptcy case.

    MacMillan also caused the resignations of former TelexFree President James Merrill and interim CFO Joe H. Craft, according to the filings. MacMillan now is controlling the TelexFree businesses.

    “Mr. Merrill, Mr. Wanzeler and Mr. Craft no longer have access to the Debtors’ facilities and their access to the Company’s email has been terminated,” MacMillan advised U.S. Bankruptcy Judge August B. Landis of Nevada. “I am the only person authorized to act as a signatory on any bank account that the Debtors have or may have.”

    Whether the moves would satisfy the SEC and the U.S. Bankruptcy Trustee, however, was far from clear early this morning. Tracy Hope Davis, the trustee, alleged last week that there were “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.

    Among the Davis allegations was that  “[t]wo companies controlled by Craft received more than $2,010,000.00 between November 19, 2013 and March 14, 2014.” She also contended that “[t]he modus operandi of Merrill and Wanzeler and their cohorts suggests that it is more likely than not that anyone handpicked by them to manage their wholly owned companies will be another cohort.”

    MacMillan advised Landis today that “I did not have a pre-existing relationship with the Company, Mr. Wanzeler or Mr. Merrill prior to this initial engagement by TelexFree.”

    Whether he had a preexisting relationship with Craft was not immediately clear.

    Davis is seeking the appointment of a trustee, a process that could put the firm on the path toward liquidation, rather than reorganization under Chapter 11.

    The firing of Wanzeler and the resignations of Merrill and Craft, according to MacMillan, occurred on April 17, a day after the SEC alleged that Craft was in the TelexFree office in Massachusetts with nearly $38 million in cashier’s checks and sought to leave the premises with the checks while a federal raid was under way.

    News of the management maneuvers came on the same day it was learned that the state of Montana had halted TelexFree, alleging that it was unable to obtain complete and accurate information from the MLM company after months of trying. Other states are questioning TelexFree’s ability to provide telecom service

    In a separate filing in bankruptcy court today, TelexFree pledged to “cooperate with the SEC and the Massachusetts Securities Division in their ongoing investigations related to the Debtors and prosecutions against third parties, including the Debtors’ former employees and equity holders of TelexFree Nevada and TelexFree Massachusetts.”

    Wanzeler and Merrill are the asserted equity holders. They, along with Craft and TelexFree marketing director Steve Labriola, were charged with fraud April 15 by the SEC. Four alleged TelexFree pitchmen also were charged with fraud.

    Despite the pledge to cooperate, TelexFree is resisting the SEC’s bid to transfer the bankruptcy case from Nevada to Massachusetts.

    From an assertion today by TelexFree (italics added):

    The Debtors chose the Nevada Bankruptcy Court because inter alia TelexFree Nevada, a Nevada entity, is a counter-party to more than 700,000 contracts governed by Nevada law. The Debtors anticipate that nearly all of the claims against the Chapter 11 estates will result from these contracts. Although both Nevada and Massachusetts residents will be asserting some of these claims, the Debtors’ creditor base resides all over the world. Some 90% of the creditors reside outside Nevada and Massachusetts. In fact, approximately three-quarters of the creditors are from foreign countries.

    MacMillan also suggested today that Wanzeler and Merrill owned TelexFree Dominicana, a company to which a cashier’s check for more than $10 million was made out just days before the April 13 bankruptcy filing. The check and nine others, including one for more than $2 million made out to Wanzeler’s wife, were seized by federal agents on April 15, after being found in Craft’s possession.

    MacMillan said he did not believe that “Mr. Craft was attempting to divert any of the Debtors’ cash or other resources.

    “Instead,” MacMillan continued, “he was acting at the direction of Mr. [William] Runge and me to secure the cashier’s checks in a safe and reliable location for the benefit of the Debtors’ constituencies.”

    Runge, a turnaround specialist, is TelexFree’s chief restructuring advisor.

    MacMillan, in his declaration today, said it was his “understanding” that TelexFree “struggled to maintain a consistent cash management system.

    “It is also my understanding that on or about March 14, 2014, Wells Fargo Bank, N.A. . . . notified the Debtors that Wells Fargo was closing their depository account and that the Debtors needed to remove their cash on deposit.”

    This may be the cash that was used to acquire the cashier’s checks. Regardless, the account closures signaled serious trouble for TelexFree, which the SEC and the Massachusetts Securities Division alleged have a history of not disclosing important information to members.

    The assertion by MacMillan potentially means that TelexFree continued to gather money from both existing participants and new recruits after one of its key vendors notified it that an account was being closed.

    Beyond that, if Merrill and Wanzeler owned a company in the Dominican Republic, it could lead to questions about whether they owned other firms in offshore venues and diverted money to those entities.

    The same circumstance of account closures by major vendors arose in both the AdSurfDaily Ponzi scheme in 2008 and the Zeek Rewards Ponzi scheme in 2012.