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Tag: Stephen B. Darr

  • URGENT >> BULLETIN >> MOVING: Bankruptcy Trustee Says TelexFree Was ‘Pyramid Scheme’ That Gathered As Much As $1.8 Billion

    breakingnews72URGENT >> BULLETIN >> MOVING: (10th Update 8:53 p.m. ET U.S.A.) In his first formal report to the Massachusetts bankruptcy court, TelexFree Trustee Stephen B. Darr calls the company a “pyramid scheme” that may have involved 1 million or more participants globally and gathered as much as $1.8 billion through arms in the United States and Brazil.

    If the numbers hold up, it would mean that TelexFree has surpassed the Zeek Rewards scheme in both victims’ count and haul. Zeek is estimated to have created about 800,000 victims, while hauling about $897 million. Zeek was shut down by the SEC in August 2012.

    The SEC and the Massachusetts Securities Division brought actions against TelexFree in April 2014.

    Darr also revealed that 13 private lawsuits have been filed against TelexFree and/or related principals, including former executives James Merrill and Carlos Wanzeler.

    TelexFree’s Brazilian arm was known as Ympactus and “grew much more quickly than the Debtors and its shutdown by Brazilian authorities in the summer of 2013 was the first of many red flags that the Debtors were operating an unsustainable pyramid scheme,” Darr advised U.S. Bankruptcy Judge Melvin S. Hoffman.

    Darr also strongly implied that a black market existed both internally at TelexFree and externally to the cross-border enterprise. It is known that the U.S. Department of Homeland Security, through its Homeland Security Investigations arm, is deeply involved in the TelexFree probe.

    Today’s report by Darr may — at least in part — explain why. From the report (italics added/minor editing performed):

    The Debtors’ business plan was complicated in and of itself. The scheme’s complexity was expanded further, however, through a web of inter-Participant transactions that permeated the scheme.

    First, a new Participant could purchase a membership plan by making payment directly to the Debtors . . . or by redeeming accumulated credits.

    In lieu of paying funds directly to the Debtors, it appears that many Participants became involved in the scheme by paying their membership fee directly to a recruiting Participant who often did not remit the payment from the new Participant to the Debtors. Rather, the recruiting Participant frequently retained the payment from the new Participant in return for a reduction, or redemption, of their accumulated credits. The mechanics of this transaction were as follows:

    a) After an invoice was issued to the new Participant and marked as pending, the new Participant would forward the invoice through the system to the recruiting Participant for payment;

    b) The recruiting Participant would then pay the invoice using the recruiting Participant’s credits. The Debtors’ database would charge the recruiting Participant’s credits for the invoice and mark the invoice as paid.

    In this manner, new Participants often joined the Debtors’ scheme without any money actually being paid to the Debtors.

    In addition to the two scenarios outlined above, there appears to have been a third type of transaction that did not involve the Debtors at all. This type of transaction involved the transfer of credits by one Participant to another Participant in exchange for cash or other consideration. The motivation for the transfer of credits is not always clear, although in some instances recruiting Participants may have purchased credits so that such recruiting Participant had sufficient credits to be redeemed after receiving payment from a new Participant.

    Growth at the Ympactus arm in Brazil accelerated “in the fall of 2012 through the early summer of 2013,” Darr asserted.

    “The Debtors’ records indicate that by the spring of 2013, Ympactus had cash receipts of more than $100,000,000 per month,” he continued. “These receipts do not reflect inter-Participant transactions that did not involve direct payment to Ympactus.”

    After Brazilian authorities intervened in June 2013, freezing as much as $300 million in that country, the U.S. TelexFree arms — previously underperformers compared to Ympactus — began to surge, Darr alleged.

    “Following the shutdown of Ympactus, the Debtors’ revenues increased dramatically such that by the end of 2013 and early 2014, the Debtors were generating cash of as much as $50,000,000 per month, without regard to inter-Participant transactions for which consideration did not pass to the Debtors,” Darr said.

    TelexFree banking relationships crumbled, Darr said in the report.

    “Multiple banks closed the Debtors’ operating accounts apparently based upon suspicious activity in those accounts,” Darr said.

    A lawyer advised TelexFree in mid-2013 that its business plan constituted a pyramid scheme, Darr said.

    “Although the Debtors were apprised in mid-2013 by counsel that the business plan was a pyramid scheme, they continued to operate using that plan until March 2014. At that time, the Debtors introduced a new business plan, even though the Debtors were apparently advised that the new plan did not rectify the problem. The new plan was unanimously rejected by the Participants, which appears to have precipitated a ‘run on the bank’ inasmuch as $58,000,000 or more was paid out to certain Participants in the several weeks leading up to the filing of the petitions. An additional $100,000,000 was requested by Participants but was not paid.”

    In September 2014, Darr identified MLM lawyer Jeffrey Babener as an attorney who advised TelexFree it was operating a pyramid scheme.  Babener isn’t named in today’s filing, so it is not immediately clear if a second attorney also advised TelexFree that its platform was a pyramid.

    Darr also said in the report that TelexFree “wrote off” a receivable “in the approximate amount of $180,000,000” due from Ympactus. The write-off appears to have occurred in late 2013, after the action in Brazil.

    “Upon information and belief, the Debtors advanced the costs for the voice over internet protocol, or ‘VOIP’, service for both the Debtors and Ympactus,” Darr said. “Ympactus contracted to pay a portion of its revenues to the Debtors as a commission, but it is unclear the extent to which these payments were ever made. In December 2013, six months after the seizure of Ympactus’ assets by the Brazilian authorities, the Debtors established, and then subsequently wrote off, a receivable due from Ympactus in the approximate amount of $180,000,000, purportedly for unpaid commissions and related services.”

    Darr also identified a number of TelexFree subsidiaries or affiliates, noting there could be more. These are among the entities and ownership information listed in the report. (Please note that not all location information is listed):

    • TelexFree International LLC:: Ownership: Wanzeler, Carlos Costa, Merrill:: Location:: Nevis.
    • TelexFree Mobile Holdings Inc.:: Ownership:: Wanzeler and Merrill.
    • Graham Bell Telex LLC:: Ownership:: TelexFree Mobile Holdings LLC and Costa.
    • TelexFree Mobile LLC:: Ownership:: Graham Bell Telex LLC and Infinium Wireless.
    • TelexElectric LLLP: Ownership:: Wanzeler, Costa and Merrill.
    • Bright Lite Future LLC:: Ownership: Wanzeler, Costa and Merrill.
    • Brazilian Help Inc.:: Ownership: Wanzeler.
    • Sunwind Energy Group LLLP: Ownership: 1127 Enterprises LLC and Merchant Enterprises Inc.
    • Sunwind Energy Solutions:: Ownership:: 1127 Enterprises Inc., ACE.
    • LLLP: Ownership:: LLP, Executive Marketing Inc. and Sunwind Energy Group LLLP.
    • Sunwind Energy Doyle North LLC:: Ownership: Sunwind Energy Southern LLLP, ACE LLP, Adams Craft Ewing LLLP, Guasti LLC.
    • ACE LLP:: Ownership:: Undetermined.
    • Executive Marketing Inc.:: Ownership:: Undetermined.
    • 1127 Solutions LLC:: Ownership: Undetermined.
    • Merchant Enterprises Inc.:: Ownership: Undetermined.

    “There may have been other entities formed by the Debtors’ principals to conduct similar operations in other jurisdictions, including TelexFree Ecuador, TelexFree Columbia, TelexFree Dominican Republic, TelexFree Canada, and TelexFree International, Ltd. (Cayman Islands),” Darr alleged.

    And, he noted, “In addition, other entities appear to have been formed by the Debtors’ principals for related or unrelated purposes, including JC Real Estate Investments LLC; JC Real Estate Management Co., LLC; Above and Beyond the Limit LLC; CNW Real Estate LLC; CNW Realty State LLC; Acceris Realty Estate LLC; KC Realty State LLC; Makeover Investments LLC; Eagleview Realty Estate LLC; and Grandview Realty Estate LLC.

    With forensics well under way and with Darr in communication with investigators in the United States and Brazil, how big is the job ahead? (Bolding added):

    “The database identifies more than 2,100,000 electronic mail addresses for Participants in the operations of both the Debtors and Ympactus,” Darr said. “Of this amount, approximately 1,000,000 appear to be provided by Participants of the Debtors, with the balance related to the Ympactus Participants. The database identifies more than 17,000,000 different accounts, of which approximately 12,000,000 are those of Participants and 5,000,000 are those of Ympactus Participants. As referenced earlier, an individual Participant could maintain multiple accounts using a single electronic mail address, and an individual Participant could also maintain more than one electronic mail address. During the period February 2012 to April 2014, the total combined cash receipts for the Debtors and Ympactus were in excess of $1,800,000,000 and combined noncash revenue was approximately $4,200,000,000.

    Oddities abound, according to the report.

    ” . . . the Debtors’ computer system does not link all accounts for an individual Participant, and the Participant name field enabled Participants to use different variations of their name in the input process,” Darr said.

    “Certain accounts do not contain electronic mail address information. Of those accounts that do contain electronic mail address information, in some instances, the information is facially inaccurate, such as the Participant’s use of the Debtors’ electronic mail address as a placeholder such as [deleted by PP Blog]. In other instances, a Participant may have used the same electronic mail address as other Participants, including the sharing of electronic mail addresses with family members. Unlike the computer systems of similar type enterprises, the Debtors’ system did not require confirmation of an electronic mail address.

    “Similarly,” Darr said, “certain accounts do not contain physical address information. Some other accounts contain physical address information that is facially inaccurate, such as the use of a country code that is inconsistent with the address, e.g., ‘San Paulo, USA.’”

    From the report (italics/bolding added):

    Manual credits were credits assigned to a Participant’s account balance on account of money paid to the Debtors for one of several reasons, as distinguished from credits “earned” from the placement of advertisements or other components of the compensation scheme. The Debtors’ records reflect approximately $151,000,000 of manual credits issued to certain Participants. The issuance of manual credits appears to be a fraud within the larger fraud of the pyramid scheme with the Debtors’ insiders adding large amounts of credits to certain accounts whereby the credits could then be sold to other Participants. There appears to be no corresponding payment supporting many of these large manual credits.

  • BOSTON GLOBE: 60,000 TelexFree Victims In South Africa Alone, Lawyer Tells Trustee; 2 Million Across The World, 1.3 BILLION Customer Transactions

    The Boston Globe is reporting today that TelexFree bankruptcy trustee Stephen Darr has been told that 60,000 victims of the alleged MLM Ponzi- and pyramid scheme exist in South Africa alone.

    There may be 2 million victims worldwide, and Darr is poring over data from 1.3 billion TelexFree transactions, the paper reports.

    If the numbers hold up, TelexFree may pass the 2012 Zeek Rewards scheme as the largest cross-border MLM HYIP fraud scheme in U.S. history based on the number of victims. TelexFree also may surpass Zeek in terms of overall dollar volume. Zeek gathered on the order of $897 million. TelexFree could be higher.

     

  • BULLETIN: Zeek-Like Situation Surfaces In TelexFree Case — Dishonored Cashier’s Checks; Trustee Seeks Authority To Subpoena Banks, Including Bank In Puerto Rico

    newtelexfreelogoBULLETIN: The court-appointed trustee in the TelexFree bankruptcy case is seeking authority to issue subpoenas and obtain information from eight financial institutions, including Puerto Rico-based Oriental Bank.

    The other seven are Digital Federal Credit Union, based in TelexFree’s headquarters city of Marlborough, Mass., Bank of America, JPMorgan Chase, Citizens Bank, Santander, TD Bank and Wells Fargo.

    All of the banks ended up in the TelexFree stream of commerce, but precise details of the relationships are not known publicly. What is known is that some TelexFree bank accounts were seized in criminal or civil forfeiture actions and that a cascading avalanche of litigation continues to roar down the mountain.

    Why MLM firms continually tempt this ruinous fate is one of the great business mysteries of current times.

    In the instances of Bank of America and TD Bank, it is known that TelexFree affiliates were given instructions to make walk-in deposits at the banks, some in the name of TelexFree Inc., others in the name of TelexFree LLC. Those instructions were highly similar to instructions given to members of the $119 million AdSurfDaily MLM Ponzi scheme in 2008.

    Court filings by Trustee Stephen B. Darr say he is trying to get to the heart of TelexFree-related money flow and communications involving the banks. Notably, one of the concerns is that all eight of the banks allegedly issued TelexFree-related cashier’s checks prior to the firm’s April 2014 bankruptcy filing, and later dishonored some of the checks.

    Cashier’s checks also were an issue in the ASD case. At the time of the ASD related actions in 2008, the enterprise was the largest known MLM HYIP Ponzi scheme. It since has been surpassed by Zeek Rewards, TelexFree and others.

    Dishonored cashier’s checks became one of the earliest issues in the $850 million Zeek Rewards MLM scheme in 2012. Citing the Uniform Commercial Code, Zeek’s receiver and lawyers have been been pursuing remedies from the banks for more than two years — at a cost of money and time.

    Kenneth D. Bell, the Zeek receiver, has said that “[i]f a bank refuses to pay a cashier’s check or teller’s check presented by the Receiver, it may be required to pay for the Receiver’s expenses and loss of interest resulting from the nonpayment, as well as consequential damages.”

    In the Zeek case, the Virginia Bankers Association provided guidance to member institutions that “the court’s order relied on the Uniform Commercial Code to establish that the uncashed cashier’s checks in the receiver’s possession were receivership assets, and that the receiver was required to present those cashier’s checks for payment and had no discretion not to.”

    Now, the TelexFree trustee appears to be wading into the same or highly similar MLM waters. Among the information Darr is seeking is “information respecting the remitters of the cashiers’ checks and the reasons for the dishonor of such checks.”

    Because MLM Ponzi- and pyramid schemes spread virally, have common promoters and often rely on cashier’s checks, it is conceivable that some promoters might have bought their way into both “programs” with cashier’s checks, possibly even with cashier’s checks recruits paid to their upline sponsors, rather than to the “programs” themselves.

    In the case of Zeek, tens of millions of dollars in checks allegedly had backed up at Zeek’s office in North Carolina in the weeks prior to the SEC’s August 2012 Ponzi- and pyramid action.

    The TelexFree case may add a new wrinkle. Indeed, nearly $38 million in cashier’s checks from Wells Fargo allegedly were found in TelexFree’s Marborough office in the possession of Joseph Craft two days after TelexFree’s April 13 bankruptcy filing. Craft, who has denied wrongdoing, was a TelexFree executive. He has been charged civilly with securities fraud.

    In April, the SEC said that a check dated April 3 in Craft’s possession was “remitted to” TelexFree principal Carlos Wanzeler and made out to “TelexFree Dominicana SRL in the amount of $10,398,000.”

    One check for more than $2 million in Craft’s possession was made out to Katia B. Wanzeler, Wanzeler’s wife. She later was arrested at JFK Airport in New York and detained for more than a week as a material witness.

    The SEC alleged that Carlos Wanzeler was amassing a small-real estate empire in Massachusetts and Florida. He is alleged to have ducked out of the United States via Canada in April, ultimately flying to his native country of Brazil. The United States describes him as an international fugitive.

    Darr now is seeking not only information about the cashier’s checks, but also information on communications between the banks and TelexFree or its principals James Merrill and Carlos Wanzeler, and information on any TelexFree-related investigations conducted by the banks, including “information related to ‘Know Your Customer’” rules and regulations.

    In addtion, Darr is seeking bank statements, canceled checks, deposit slips, wire-transfer communications and remittances, documentation concerning fees and contracts, minutes from bank board meetings at which TelexFree matters were discussed, documentation on why the banks ended relationships with TelexFree, documentation on communications the banks had with the SEC and state regulatory bodies, documentation the banks may have on the Massachusetts Securities Division TelexFree investigation and documentation “concerning whether the remitters have been refunded any amounts advanced to purchase” the dishonored checks.

  • TelexFree Probe Continues; ‘Substantial Amount’ Of YouTube Video Content Sought In Search Warrant Served Oct. 16

    newtelexfreelogoThe TelexFree probe continues in the United States, with prosecutors revealing today that federal agents served a search warrant on Google on Oct. 16 that sought a “substantial amount” of content on YouTube.

    Precisely what content prosecutors are seeking was not immediately clear.

    Google told agents that “compliance will take several weeks,” according to the prosecution filing.

    Regulators have warned for years that HYIP scams are spreading through promos on social media such as YouTube, Facebook and Twitter.

    Today’s prosecution filing also revealed that undercover agents attended multiple TelexFree functions, not just a conference in Boston in March.

    In the government’s possession, prosecutors said, are “[v]arious recordings made by undercover [Homeland Security Investigations] agents at TelexFree conferences and in conversations with a TelexFree promoter.”

    The information eventually will  be provided through discovery, prosecutors said.

    The office of U.S. Attorney Carmen Ortiz of the District of Massachusetts is leading the TelexFree probe.

    According to today’s prosecution filing, other material pending processing and production for discovery includes:

    About 40 boxes of documents seized from TelexFree’s offices in Marlborough, Mass., in April 2014. These materials are being scanned and processed by a vendor, a process that will take several weeks.

    About 81 gigabytes of data (about 355,000 pages) received in October 2014 from the Trustee supervising TelexFree’s affairs in bankruptcy. (PP Blog note: Stephen B. Darr is the court-appointed TelexFree trustee.)

    Additional financial records received from the U.S. Securities & Exchange Commission pursuant to an access request, and from Homeland Security Investigations, totaling approximately 12 boxes of material.

    The results of five email search warrants served on or about Sept 25, 2014. As of this date, the government has only received materials for one of the email accounts and is following up with the other internet service providers.

    Through the discovery process so far, according to the prosecution filing, the government has “produced an electronic database containing most of the data and records the government has collected via subpoena while investigating this case (about 100,000 pages). The government has also made several productions of additional material in response to specific requests from counsel, including all bank and brokerage records, and has made available the electronic evidence seized during execution of search warrants in April 2014.”

    NOTE: Our thanks to the ASD Updates Blog.

  • TELEXFREE BRIEFS: (1) False Claims That ‘Program’ Has Been Cleared Of U.S. Pyramid-Scheme Charges; (2) Name Of Model/Racecar Driver Used In Sanitization Campaign; (3) TelexFree Members Targeted In Ongoing ‘IFreeX’ Reload Scheme

    newtelexfreelogo1.) Reports began to surface late Thursday on Twitter and Facebook that TelexFree has been cleared by a judge of U.S. pyramid-scheme charges. These reports are false. Period.

    Perhaps to add credibility to the claim, a photo that appeared to depict a female TV reporter sitting in a studio was posted on Facebook. A computer to which a TelexFree logo was affixed sat to the reporter’s right. Below these images was a text message in Portuguese.

    The headline was “FORTE VITÓRIA TELEXFREE NOS ESTADOS UNIDOS.” Google’s translate tool (to English) translated it to this: “STRONG Telexfree VICTORY IN THE UNITED STATES.”

    Another Portuguese section read as such: “Corte americana declarou que a empresa não pratica “Pirâmide Financeira” e nomeou um interventor, Stephen B. Darr, que deve dar início ao processo de recuperação judicial, que tem autonomia de liquidar ou manter o funcionamento da empresa.”

    The Google translation tool translated this section to: “American Court stated that the company does not practice “financial pyramid” and appointed a receiver, Stephen B. Darr, who shall initiate the process of bankruptcy, it has autonomy to liquidate or keep running the business.”

    No American court has said that TelexFree was not a pyramid scheme or not a “financial pyramid.” Darr is the court-appointed trustee in the TelexFree bankruptcy case in Massachusetts. He has said he has no intention of reorganizing or reopening the company.

    It is unclear whether the person depicted as a reporter has any association with TelexFree or any of its media outlets. It is not unusual for MLMs and their affiliates to try to create the impression that specific media figures or media brands endorse an “opportunity.”  (See April 7 PP Blog story: “TelexFree, An Alleged Pyramid Scheme, Promotes Itself During Probes By Wrapping Logos Of Local Fox, CBS, ABC, NBC Affiliates Into Video.”) Also see Oct. 15, 2013, PP Blog story: “PROFITABLE SUNRISE CASE: Did Fake Reporter Use Photo Of Real Reporter In ‘Story’ Titled ‘Nanci Jo Frazer WINS in Court – A Case Of Innocent Ignorance?’)

    2.) Some of our readers may recall the flap over TelexFree’s sponsorship of a professional soccer club in Brazil. Could a new flap be in the offing, one that involves a Brazilian model and racecar driver?

    Twitter and Facebook were used today to drive TelexFree visitors to images of Helena Soares. She is wearing an old TelexFree logo on her racing outfit.

    Whether TelexFree had or has sponsored her was not immediately clear. What is clear is that there are a number of references to Soares in the context of TelexFree online. One of them is a YouTube video titled “Deaf Deaf TelexFree.” Promo text appears to be in Russian.

    This may spark questions about whether TelexFree was targeted at members of the international hearing-impaired community. HYIP scams such as Noobing and Imperia Invest have been targeted at investors who cannot hear.

    Today’s Twitter/Facebook references to Soares depict her as a “Campeã” (champion) of TelexFree.

    It is not unusual for Ponzi schemes to seek to associate themselves with celebrities, politicians, business stars and sports stars. This particular form of brand-leeching surfaces in scheme after scheme after scheme. A recent major example of this is the WCM777 scam, which tried to associate itself with the sport of golf, Jesus Christ, Harvard College, the Denny’s Restaurant chain, Apple co-founder Steve Wozniak and former U.S. Vice President Al Gore — and many others.

    The practice is so common that it has become a virtual signature of a scam. Like TelexFree and the Profitable Sunrise scams, WCM777 traded on the image of the Christ the Redeemer statue in in Rio de Janeiro.

    3.) As the PP Blog reported on Sept. 30, 2014, Massachusetts Commonwealth Secretary William Galvin issued a warning on a an emerging “program” known as IFreeX that is being targeted at TelexFree members. iFreeX may be a reload scheme designed to fleece TelexFree members for a second time. On Oct. 1, the Blog reported that IFreeX appears to have lifted branding material of T-Mobile, including images of Carly Foulkes, “the T-Mobile Girl” famous for wearing pink summer dresses in TV spots.

    T-Mobile said it was looking into the situation.

    A large image of Foulkes appeared today on Twitter in an iFreeX promo targeted at TelexFree members.

    The use of the letter “X” in HYIP scams has led to questions about whether purveyors are speaking in a sort of secret code. The OneX scheme used an “X” and an image of a bomb as part of its logo, and HYIP scams have been known to have ties to “sovereign citizens” and antigovernment extremists.

  • TelexFree Website Will Not Load

    The website of TelexFree will not load this afternoon. Whether this signals a development in the TelexFree Ponzi, pyramid and bankruptcy cases was not immediately clear.
    The website of TelexFree will not load this afternoon. Whether this signals a development in the TelexFree Ponzi, pyramid and bankruptcy cases was not immediately clear.

    EDITOR’S NOTE ADDED 1:32 P.M. EDT SEPT. 28 U.S.A. TelexFree.com appears to be back online. At this time, why the landing page wouldn’t load remains a mystery. Our earlier story is below . . .

    The website of TelexFree, alleged in April by the SEC and the Massachusetts Securities Division to have operated a billion-dollar pyramid and Ponzi scheme across state and national borders, will not load. Nor will the domain return a ping.

    This condition appears to have surfaced in recent hours. The site previously included TelexFree-authored words written in April or May that suggested TelexFree somehow could emerge from bankruptcy. Stephen B. Darr, a court-appointed trustee, is now administering TelexFree. He has said he has no intention of reorganizing or reactivating the company.

    Websites involved in Ponzi schemes sometimes are seized by court order or voluntarily surrendered by the operators. Receivers and trustees later sometimes use the URLs for the domains to publish news that concerns investors.

    Why TelexFree.com won’t load is unclear. The office of U.S. Attorney Carmen Ortiz, which is leading the criminal prosecutions of TelexFree figures James Merrill and Carlos Wanzeler, did not immediately respond to a request for comment.

    Merrill and Wanzeler have been charged with wire fraud and wire-fraud conspiracy.  U.S. prosecutors have called Wanzeler a fugitive who ducked out of the United States through Canada under cover of darkness — and later flew to Brazil.

    Like their U.S. counterparts in April, Brazilian federal police conducted TelexFree-related raids in July.

    The SEC yesterday filed a pyramid-scheme action against a “program” known as Zhunrize that also allegedly operated across state and national borders.

  • Trustee Confirms TelexFree Did Not Own Building

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

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

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

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

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

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

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

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

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

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

    As for the overall TelexFree morass?

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

  • Illinois Bans TelexFree Figure And Veteran HYIP Pitchwoman Faith Sloan From Selling Securities; Violation Of Ban Could Result In Felony Charge

    newtelexfreelogoLongtime HYIP huckster and TelexFree figure Faith Sloan has been banned by Illinois from selling securities. The prohibition order is dated June 9. It was issued by the Securities Department of Illinois Secretary of State Jesse White.

    The state found that Sloan, an Illinois resident, operated a TelexFree-related website and acted as an unregistered securities dealer, salesperson and investment adviser.

    Violating the order could result in a felony charge, the state said.

    Sloan, who faces TelexFree-related civil charges of securities fraud from the U.S. Securities and Exchange Commission, is associated with the website TelexFreePower.com. The website now appears not to be loading properly.

    When Illinois observed the site, the state said in the prohibition order, the site loaded an image of an “exotic sports car” with a statement that read, “I made $200 in 7 days working 3 minutes a day.”

    The image implied that “one would be able to afford the exotic sports car by becoming a member of TelexFree,” the state said.

    The SEC also has referenced the TelexFreePower website. In addition to promoting the massive TelexFree pyramid- and Ponzi scheme, the SEC said, Sloan violated the asset freeze in the case and lied to a federal judge.

    Faith Sloan. Source: YouTube.
    Faith Sloan. Source: YouTube.

    The order also bans TelexFree managers or executives James Merrill, Carlos Wanzeler, Joe Craft and Steve Labriola from selling securities in the state.

    Attorneys handling the TelexFree bankruptcy case appear to have became aware of the order at least by June 16, according to billing records in the bankruptcy case. The effect the order had on decision-making in the bankruptcy case is unclear.

    On July 16, bankruptcy trustee Stephen B. Darr said in court filings that he has “no intention of reorganizing or reactivating” the TelexFree businesses. TelexFree, its former manager or executives and some of its promoters, including Sloan, are facing a mountain of litigation.

    Merrill and Wanzeler have been indicted on U.S. charges of wire fraud and wire-fraud conspiracy. Brazilian federal police conducted TelexFree-related raids last week.

    Sloan has blamed TelexFree, Merrill, Wanzeler and MLM attorney Gerald Nehra for her TelexFree-related troubles.

     

     

     

  • 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.
    From a July 16 motion by the SEC.

     

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

    breakingnews72URGENT >> 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.

     

  • BULLETIN: Stephen B. Darr Appointed TelexFree Trustee

    Stephen B. Darr, senior managing director of Mesirow Financial Consulting LLC of Boston, has been appointed trustee in the TelexFree bankruptcy case.

    The appointment was made by William K. Harrington, the United States’ Trustee, based on the order of U.S. Bankruptcy Judge Melvin S. Hoffman. The office of the U.S. Trustee is the bankruptcy watchdog arm of the U.S. Department of Justice.

    News of Darr’s appointment first was Tweeted by Timothy J. Durken, an attorney writing about the TelexFree case.

    Here is a link to a Darr bio brief.

    Here is a link to a website of Cornell University Law School that includes information on the duties of trustees.