BULLETIN: (3rd Update 1:34 p.m. EDT U.S.A.) A Massachusetts bank that established accounts for TelexFree and whose president is the brother of alleged TelexFree Ponzi- and pyramid-schemer James Merrill has settled with the Massachusetts Securities Division for $3.5 million.
The settlement between MSD and Fidelity Co-operative of Fitchburg means that an escrow account consisting of the $3.5 million and whatever interest it draws will be set up for TelexFree victims who reside in the state. With MSD helping shepherd the process and maintaining veto power to protect the interest of victims, the bank will retain an independent claims administrator at its own expense to manage claims and disbursements.
The escrow account will be called the “Massachusetts Victim Relief Fund.”
At some point at least 120 days in the future, the administrator shall “determine an independent plan of Distribution.” TelexFree victims in Massachusetts will be able to file claims. Those with approved claims will be compensated under a formula established by the claims administrator.
Precisely when the claim-filing period will begin was not immediately clear. Also unclear is precisely how many TelexFree victims reside in Massachusetts. What is clear is that MSD — with the consent of Fidelity Co-operative — has arranged a means by which TelexFree victims residing in the state will receive money some of them may need desperately.
Using a series of banks and payment vendors, TelexFree might have scammed as much as $90 million in Massachusetts alone. Its overall scam may have gathered more than $1.2 billion across the world.
MSD brought alarming allegations of fraud against TelexFree in a civil action on April 15. By April 30, it had opened an investigation into Fidelity Co-operative’s role in the TelexFree case.
As part of the settlement, the bank neither admitted nor denied the state’s allegations that it did not perform adequate due diligence on TelexFree before permitting the company to open three accounts in August and September of 2013.
Only after receiving millions of dollars in TelexFree deposits for a period of between two and three months did Fidelity Co-operative conduct any legitimate due diligence on TelexFree, MSD alleged. On Nov. 27, 2013, according to MSD, bank president John Merrill asked Fidelity’s compliance and Bank Secrecy Act officer to review TelexFree’s banking activivity.
Merrill is the brother of TelexFree figure James Merrill, later to be indicted with fellow TelexFree figure Carlos Wanzeler on charges of wire fraud and wire-fraud conspiracy.
The bank’s compliance officer — by performing simple Internet searches — soon came to realize that TelexFree’s operations in Brazil had been shuttered amid pyramid-scheme allegations, according to MSD. The officer notified John Merrill of his findings and also relayed his concerns to an outside consultant the bank used for compliance and BSA issues.
By Dec. 3, the bank advised TelexFree that it was closing its accounts by Dec. 31, MSD alleged.
And, MSD alleged, Fidelity Co-operative also had opened personal accounts for James Merrill and Carlos Wanzeler. After the bank began conducting due diligence on TelexFree in earnest on Nov. 27 and during a period in which TelexFree accounts were pending closure, MSD alleged, Wanzeler transferred $3.5 million from his personal account at Fidelity Bank “to an overseas bank account held in Singapore at the Oversea-Chinese Banking Corporation.”
Citing evidence listed by prosecutors in the office of U.S. Attorney Carmen Ortiz of the District of Massachusetts, MSD alleged that James Merrill and Wanzeler transferred more than “$10.4 million out of Fidelity Bank, in multiple transactions using personal accounts, to various other financial institutions after November 27, 2013.”
Through both business and personal accounts at Fidelity Co-operative, “TelexFREE and its principals caused further harm to Massachusetts victims of the TelexFREE scheme,” MSD alleged.
Massachusetts Commonwealth Secretary William Galvin oversees MSD, which has been squaring off against multiple cross-border pyramid schemes.
Read the consent order between MSD and Fidelity Co-operative.