BULLETIN: TelexFree Trustee Stephen B. Darr has moved for assessments of damage and default judgments against dozens of alleged overseas “winners” in the massive Ponzi- and pyramid scheme. The motion before Chief U.S. Bankruptcy Judge Melvin S. Hoffman of the District of Massachusetts asks for millions of dollars from about 33 TelexFree promoters with non-U.S. addresses who did not enter defenses after being properly served Darr’s class-action complaint brought in January 2016 and subsequently amended.
Like the class-action lawsuit and individual actions brought by receiver in the Zeek Rewards’ case, the action by the TelexFree trustee demonstrates that “winners” in corrupt MLM schemes will be pursued to return their gains, plus interest, to the hundreds and hundreds of thousands of “losers” created by such cross-border fraud capers.
One of the alleged overseas winners pursued by Darr received more than $2.92 million, according to a court exhibit. Seven others received at least $1 million. Others still received tens or hundreds of thousands of dollars.
In other corrupt MLM schemes, new recruits were encouraged to pay their sponsor directly, rather than paying the company directly. This also was the case at TelexFree, a situation that led to money not being forwarded to the firm, contributing to the deepening of the Ponzi.
UPDATED DEC. 22, 2016: The court has extended the claims deadline until March 15, 2017. Earlier story below . . .
** _____________**
With the Dec. 31 filing deadline for TelexFree claims fast approaching, court-appointed Trustee Stephen B. Darr has asked the court to extend the deadline until March 15, 2017.
Chief Bankruptcy Judge Melvin S. Hoffman has scheduled a hearing Dec. 21 to consider the request.
Darr advised the judge yesterday that about 121,000 claims had been filed. He added that the guilty plea of TelexFree’s James Merrill, Merrill’s agreement with prosecutors to forfeit tens of millions of dollars and publicity surrounding Merrill’s sentencing set for March 2 and 3 might encourage more participants to file claims.
Hoffman already has granted one extension — from Sept. 26 until Dec. 31. The scheme, which the judge ruled a combined Ponzi- and pyramid, may have created hundreds and hundreds of thousands of victims worldwide.
As things stand now, the claims-filing deadline remains Dec. 31 at 4:30 p.m. Prevailing Eastern Time.
The process of making participants as whole as possible has been “extraordinarily complex,” Darr advised the judge.
Challenges have included the number of victims, the geographic dispersion of victims throughout the world, the magnitude of losses, language barriers and the complexity of TelexFree itself, Darr advised the judge.
Criminal prosecutors said in Merrill’s plea agreement that his role in the TelexFree scheme created at least $550 million in losses.
Codefendant Carlos Wanzeler fled to Brazil, prosecutors said.
9TH UPDATE 2:08 P.M. EDT U.S.A. U.S. District Judge Timothy S. Hillman’s calendar shows a plea hearing for TelexFree operator James Merrill at 2:30 p.m. Monday at the federal courthouse in Worcester, Mass.
The office of U.S. Attorney Carmen Ortiz has confirmed the guilty plea to the PP Blog.
“President of TelexFree, James Merrill, has agreed to plead guilty on the eve of trial for his role in the billion dollar pyramid scheme,” a spokeswoman for Ortiz confirmed.
Details of the plea were not immediately clear. Merrill, who earlier pleaded not guilty to 17 charges, had been scheduled to go on trial Nov. 8.
A notation today on the court docket read, “Counsel is to contact U.S. Probation and Pretrial Services as soon as possible . . . to determine scheduling of the presentence interview.”
Stephen B. Darr, the court-appointed trustee in the TelexFree bankruptcy case, has described TelexFree as a combined Ponzi- and pyramid scheme that involved more than $3 billion in illicit transactions.
One of Merrill’s business partners — Carlos Wanzeler — allegedly fled the United States for Brazil in 2014. Wanzeler has been indicted in the United States. U.S. prosecutors have described him as a fugitive.
Paul Burks, the operator of the Zeek Rewards MLM scheme, was convicted on all criminal counts against him by a federal jury in July. Burks, 69, potentially faces decades in prison.
Merrill was 53 when indicted in 2014. Like Burks, he also potentially faces a long prison sentence.
BULLETIN: U.S. Bankruptcy Judge Melvin S. Hoffman has certified a defendant class-action lawsuit brought by TelexFree Trustee Stephen B. Darr against about 15,000 alleged TelexFree “net winners” in the United States.
Hoffman appointed alleged winner Frantz Balan as the putative class representative. The law firm of Milligan Rona Duran & King LLC will be class counsel. Class counsel will be paid with funds from the Trustee estate: up to $225,000 for legal fees and costs, and up to $87,500 for a class expert.
Balaan was a net winner of $516,875.00 and received $315,572.00 in net preference payments from TelexFree, Darr alleged. Balaan disputes those numbers, according to counsel.
Darr also is suing tens of thousands of alleged TelexFree international winners in a proposed class action. The international case hasn’t yet proceeded to the certification phase.
TelexFree created more than $3 billion in illicit transactions and hundreds of thousands of net losers, Darr has contended.
James Merrill, the alleged president of TelexFree, is scheduled to go on trial on 17 criminal counts next month. The trial initially had been set for October.
EDITOR’S NOTE: This story, which easily could be titled “What NOT To Do In MLM,” summarizes a few of the witnesses and exhibits the U.S. government may use against TelexFree’s James Merrill when his trial gets under way Oct. 24 in Massachusetts. The background provided below is based on research by the PP Blog. Prosecutors filed their witness/exhibit lists on Sept. 26 in U.S. District Court. For our Brazilian readers, we’ll note here that the United States is expected to call at least one member of the Brazilian Federal Police to testify. U.S. District Judge Timothy S. Hillman is presiding. In total, dozens of witnesses may testify, including some who have been sued by the SEC, TelexFree Trustee Stephen B. Darr or private attorneys. There are hundreds of government exhibits, some collected by the Massachusetts Securities Division and the U.S. Department of Homeland Security.
**______________________**
EXHIBIT: The government may introduce a document filed by TelexFree with the Alabama Public Service Commission in March 2014.
BACKGROUND: This document potentially could be used to demonstrate Merrill lied to regulators and business consultants. It was filed on March 20, 2014, and asserts TelexFree was “financially qualified” to operate in the state as a telecom company and that its “current financials Show considerable net worth.”
Less than a month later, however, TelexFree filed for bankruptcy, raising questions about the truthfulness of its telecom applications in various states. The document, which the PP Blog published before TelexFree’s bankruptcy filing, also ties Merrill to Indiana MLM accountant Joe Craft, a former interim TelexFree executive listed Sept. 26 by the government as a witness. Craft was sued alongside Merrill and others by the SEC in April 2014. He later filed a pleading in which he said he had concluded TelexFree was a Ponzi scheme selling unregistered securities and that he had been misled by TelexFree insiders.
Joseph Isaacs, a Florida-based consultant for TelexFree, helped prepare TelexFree’s telecom filing in Alabama and other states. Isaacs also now is listed as a government witness. Filings in Missouri say Isaacs told regulators there that Merrill had not been truthful when submitting an affidavit.
EXHIBIT: The government may introduce a photo of Merrill posing with a Hummer vehicle in TelexFree promos.
BACKGROUND: Ponzi/pyramid schemes and flashy rides are virtually inseparable.
In 2014, a federal judge ordered TelexFree pitchman Santiago De La Rosa — an SEC defendant — to sell two BMWs and a Land Rover Range Rover. De La Rosa now is listed as a government witness.
EXHIBIT: The government may introduce a September 2013 email that shows Merrill was aware of a criminal indictment and prison term imposed against AdSurfDaily President Andy Bowdoin in a Ponzi case with remarkable similarities to TelexFree.
BACKGROUND: The email described above allegedly was sent to Merrill by MLM attorney Jeffrey Babener. Babener now is listed as a government witness. Darr, the bankruptcy trustee, has said Babener informed TelexFree in August 2013 that it was operating a pyramid scheme, but TelexFree nevertheless continued to gather money.
EXHIBIT: A video by Thomas More of Newport Beach, Calif.
BACKGROUND: The SEC has warned for years that scams spread on social media. More, now listed as a government witness, was a TelexFree pitchman who was listed as a “winner” in the Zeek Rewards Ponzi- and pyramid scheme. Nehra once was a speaker at a TelexFree event in Newport Beach.
EXHIBIT: Records from various banks and financial vendors for Merrill or TelexFree.
BULLETIN: At the request of Trustee Stephen B. Darr, U.S. Bankruptcy Judge Melvin S. Hoffman has extended the deadline to file TelexFree claims until Dec. 31, 2016, at 4:30 p.m. Prevailing Eastern Time.
The deadline had been Sept. 26.
Darr asked for the extension on Sept. 21.
Why was the extension needed?
“The Trustee has determined that, given the unique circumstances of these cases, an extension of the bar date is appropriate.,” Darr advised Hoffman. “These circumstances include the number of participants involved in the Debtors’ program, the geographical dispersion of participants throughout the world, language barriers, and the time that participants may need to complete the assembly of records and to seek assistance in completing the ePOC.”
About 80,000 claims had been filed through Sept. 20, Darr noted.
With a scheme such as TelexFree that affected hundreds and hundreds of thousands of people, it seems likely that many, many more claims could be filed.
UPDATED 1:05 P.M. EDT U.S.A. SEPT. 23 In April 2014, TelexFree declared corporate bankruptcy. Now, an alleged “key figure” in TelexFree being pursued by the court-appointed trustee has declared personal bankruptcy.
Jay Borromei of Opt 3 Solutions Inc. filed his petition Sept. 13 in U.S. Bankruptcy Court for the Central District of California, according to a new filing in the TelexFree bankruptcy case. Borromei, who resides in California, is requesting an automatic stay of TelexFree Trustee Stephen B. Darr’s April 2016 lawsuit against him and Opt. 3 in Massachusetts Bankruptcy Court for the return of more than $1.8 million.
Both Borromei’s bankruptcy filing and Darr’s adversary action against him demonstrate one of the often-ignored dangers of becoming involved in an MLM scheme that promises or suggests a return on investment: financial ruin and the emotional consequences of one court appearance after another in multiple jurisdictions.
Darr accused Borromei of aiding and abetting the TelexFree Ponzi- and pyramid scheme that affected hundreds and hundreds of thousands of people worldwide.
Specifically, Darr accused Borromei of helping shape TelexFree’s compensation plan and continuing to assist the company even after TelexFree’s Ympactus branch in Brazil was accused of operating a pyramid scheme in that country.
On July 13, Borromei notified the Massachusetts Bankruptcy Court that he and Opt3 “have been and continue to be in discussions with counsel to the Trustee regarding the claims in this action, and expect to continue those discussions over the next several weeks.”
No defense has been entered to Darr’s claims, and Borromei declared bankruptcy in California two months later.
Many people in the antiscam community applauded Kenneth D. Bell, the receiver for Zeek Rewards, when he sued more than 9,000 individuals more than two years ago for return of their gains from the scheme. Those gains — more than $200 million — came from Ponzi proceeds, Bell alleged.
And he pointed out that the money rightfully should go to the hundreds of thousands of Zeekers globally who were “affiliate victims.” Court filings later would show that Zeek gathered on the order of $940 million in less than two years. Only TelexFree, another MLM HYIP scheme that was disintegrating when Bell announced his lawsuit against the Zeek “winners” in March 2014, may be bigger.
Thanks to the willful blindness and serial disingenuousness brought to you by serial MLM HYIPers such as Todd Disner, T. LeMont Silver and “Ken Russo,” huge class-action cases in which “winning” promoters of MLM securities schemes are named defendants now are a reality.
Bell, unfairly maligned among some MLM HYIPers and even some apparent “sovereign citizens,” deserves a lot of credit for trying to bring a measure of financial justice to the hundreds of thousands of individuals ripped off by Zeek and for establishing a sort of blueprint for how Darr could proceed.
This blueprint also is there in case the Traffic Monsoon receiver needs it. Traffic Monsoon, an alleged $207 million scheme, was broken up by the SEC last month. There already is evidence that Traffic Monsoon had promoters in common with TelexFree.
It is true that the number of potential defendants across the HYIP sphere is staggering. But it is equally true that the number of victims of these cross-border schemes is even more staggering. This number is in the millions. The global losses are in the billions. Absent actions such as those brought by Bell and Darr, however, there would be virtually no financial accountability. Society would be saying that it’s OK to profit through the promotion of online Ponzi schemes.
For years, the PP Blog has raised questions about the national-security implications of cross-border HYIP schemes. The narratives surrounding such schemes typically are bizarre, with anonymous Ponzi-board pitchmen typically beginning with “I am not the admin” of the “program.” It all goes recklessly downhill from there.
To those who feel a chill every time one of these schemes gains a head of steam, it came as no surprise that the alleged Zeek “winners” are arguing they should get to keep their hauls. It is simply the natural progression of the HYIP narrative.
Bell, a former federal prosecutor, is having none of this. Indeed, his is the voice of common sense.
From his argument (italics/bolding added):
Defendants still act as if Zeek was a legitimate business and Defendants were “internet marketing specialists” entitled to be paid as employees rather than investors in the scheme, all of which is of course pure fiction.
Specifically, Defendants ask the Court to absolve the scheme’s net winners from their obligation to repay the victims’ money because of an alleged “limitation” on the timing of future claims included in the scheme’s website’s “Terms of Service” (or “TOS”), which in any event do not limit the Receiver’s claims against Defendants. The Court should resist Defendants’ invitation to create the dangerous loophole of allowing a fraudster to use the terms implementing a Ponzi scheme to limit the right of a subsequently appointed Receiver to recover funds paid to the winners of the fraudulent scheme. While such a rule would be a great recruiting tool for future Ponzi scheme operators, it is surely an unacceptable legal rule and public policy.
Also, Defendants urge the Court to rule that by purchasing bids, posting online advertisements (which Zeek boasted would take only three to five minutes a day), and recruiting thousands of victims to the scheme, they provided “reasonably equivalent value” to ZeekRewards such that they get to keep the victims’ money that they won in the scheme. In other words, Defendants claim that those Defendants who spent the most time successfully promoting the scheme and multiplying the number of its victims should be given the most credit against the Receiver’s claims to recover their fraudulently transferred winnings. In fact, in arguing that they were supposedly rightly paid for their “services,” Defendants stretch to compare themselves to the utility company, which among many other differences does not invest money in their customers’ businesses hoping to share in compounding profits of 125% every ninety days.
UPDATED 11:23 A.M. EDT U.S.A. DEC. 22, 2016: The claims deadline has been extended from Dec. 31, 2016 to March 15, 2017, at 4:30 p.m. Prevailing Eastern Time. This marks the second deadline extension. Claims must be filed at TelexFreeClaims.com.
Our brief on the earlier deadline is below:
**_________________**
The claims information below was received July 22, 2016, by the PP Blog from Stephen B. Darr, the court-appointed trustee in the TelexFree bankruptcy case.
** __________________________**
September 26, 2016 at 4:30 p.m. (prevailing Eastern Time) has been established as the deadline for each person or entity (including individuals, partnerships, corporations, estates, trusts, joint ventures, and governmental units, wherever located), and Participants (collectively, “Claimants”) to file proofs of claim against the Debtors. Participants means persons or entities who purchased a membership plan in, or a voice over internet package (“VoIP”).
Proofs of claim must be submitted electronically through the Portal and the Portal’s internet address is Telexfreeclaims.com.
Dorian da Silva Santos. known simply as Dorian. Source: TelexFree promo on YouTube.
3RD UPDATE 3:17 P.M. EDT U.S.A. Dorian da Silva Santos, described by Bloggers and in media accounts as a politician and promoter of TelexFree in Brazil, reportedly has been found murdered execution-style in the Brazilian state of Bahia.
The news adds to a disturbing series of events that, since at least 2013, have become part of the TelexFree story.
One account in Portuguese says Dorian was found Tuesday. He reportedly was shot about six times in the head “and had his hands tied behind him with a mobile phone charger wire,” according to a Google translation from Portuguese to English of a story at criativaonline.com.br.
Authorities reportedly are trying to determine if the crime has any link to Dorian’s TelexFree participation through a company known as Ympactus in Brazil. With illicit business reportedly totaling more than $3 billion and hundreds of thousands of participants globally, TelexFree may be the largest MLM-related Ponzi- and pyramid-scheme of all time.
Blogger Paul Joseph (Paulo José) wrote that Dorian was running for mayor of the city of Serra Preta and was found in the Humble district in Feira de Santana. The body was found in a vacant lot. Attributing information to police, Joseph reported that the body was found with “signs of torture and firearm shots to the head,” according to a Google translation of the original report in Portuguese.
In the United States, Stephen B. Darr, the court-appointed bankruptcy trustee for TelexFree, said he was aware of the reports in Brazil about Dorian’s death. The news was awful, he told the PP Blog.
“We do not believe he was a participant in the US-Based TelexFree operation — just Ympactus,” Darr wrote.
There have been various threats surrounding TelexFree. In 2014, for example, there were reports in Peru about a TelexFree promoter being kidnapped and held in a van. The kidnapping reportedly was carried out by TelexFree members who ordered the man to withdraw money from a bank to make them whole.
At least one judge and prosecutor in Brazil reportedly received death threats. American MLMers continued to promote TelexFree, despite the disturbing news in Brazil and the blocking of TelexFree assets there in 2013.
NOTE: On July 21, Globo.com reported in Portuguese that two suspects have been arrested. They reportedly are bandits who sought to rob Dorian because they believed he was rich and later engaged police in a gunfight.
UPDATED 11:14 A.M. EDT U.S.A. TelexFree Trustee Stephen B. Darr has requested a stay in the lawsuit against MLM attorney Gerald Nehra, the Nehra and Waak law firm and certain other individuals or entities accused civilly of helping the judicially declared Ponzi- and pyramid scheme gain a head of steam.
“The Trustee seeks this stay at the request of the United States so as not to interfere with the proper administration and prosecution of the Criminal Action” against James Merrill, Darr advised Chief U.S. Bankruptcy Judge Melvin S. Hoffman of the District of Massachusetts.
Merrill, an alleged TelexFree principal from Massachusetts, has been under indictment for wire fraud and conspiracy since July 2014. His alleged business partner Carlos Wanzeler also was indicted, but fled to Brazil, prosecutors said. Merrill’s trial is scheduled for this fall.
Wanzeler allegedly fled the United States via Canada after TelexFree declared bankruptcy in April 2014. Darr has said the cross-border program generated more than $3 billion in illicit business.
“The Trustee was required to commence the Adversary Proceeding before the Criminal Action could be resolved because the expiration of the Statute of Limitation relevant to these actions was approaching and was clearly going to expire before the Criminal Action was resolved,” Darr advised Hoffman. “However, in commencing these actions, the Trustee does not intend to interfere with the proper administration of the Criminal Actions nor prejudice the Government’s prosecution of those actions.”
The government’s concern about proceeding with the adversary actions against Nehra, the firm and others appears to be that Merrill could gain an advantage in the criminal case through discovery in the adversary actions.
In April, Darr alleged that Nehra and the law firm were “actively involved” in promoting TelexFree’s Ponzi scheme and “duping” participants. Nehra and the firm are fighting the claim.
Nehra and the firm advised Hoffman they “anticipated participation in criminal proceedings related to the case,” but did not define the nature of the criminal proceedings or say whether they anticipated being called as witnesses or potential indictees.
“The Adversary Proceeding arises from the TelexFree Ponzi scheme that was perpetrated on thousands of mostly working class investors, domestic and worldwide, by James Merrill and Carlos Wanzeler and assisted by various individuals including those named in the Adversary Proceeding,” Darr advised Hoffman.
The judge has set a hearing on the request for the stay at 10 a.m. on July 27 in Courtroom 2, J.W. McCormack Post Office & Court House, 5 Post Office Square, 12th Floor, Boston.
BULLETIN: TelexFree Trustee Stephen B. Darr has moved for assessments of damage and default judgments against dozens of alleged overseas “winners” in the massive Ponzi- and pyramid scheme. The motion before Chief U.S. Bankruptcy Judge Melvin S. Hoffman of the District of Massachusetts asks for millions of dollars from about 33 TelexFree promoters with non-U.S. addresses who did not enter defenses after being properly served Darr’s class-action complaint brought in January 2016 and subsequently amended.
UPDATED DEC. 22, 2016: The court has extended the claims deadline until March 15, 2017. Earlier story below . . .
BULLETIN: U.S. Bankruptcy Judge Melvin S. Hoffman has certified a defendant class-action lawsuit brought by TelexFree Trustee Stephen B. Darr against about 15,000 alleged TelexFree “net winners” in the United States.
EXHIBIT: The government may introduce a photo of Merrill posing with a Hummer vehicle in TelexFree promos.
BULLETIN: At the request of Trustee Stephen B. Darr, U.S. Bankruptcy Judge Melvin S. Hoffman has 
UPDATED 1:05 P.M. EDT U.S.A. SEPT. 23 In April 2014, TelexFree 
UPDATED 11:14 A.M. EDT U.S.A. TelexFree Trustee Stephen B. Darr has requested a stay