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Tag: Tracy Hope Davis

  • 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.

  • BULLETIN: Trustee: ‘It Appears That [TelexFree’s] Merrill, Wanzeler, And Craft Have All Fallen Down The Rabbit Hole And Are Now Expecting The [Bankruptcy] Court To Follow’

    breakingnews72BULLETIN: In a blistering response to TelexFree’s bid to continue its business and move forward with its Chapter 11 bankruptcy case, the United States’ trustee said the embattled firm has not engaged “in full and fair disclosure.”

    “The former CFO and board members have disappeared with no explanation,” U.S. Trustee Tracy Hope Davis alleged. “The only declarations in support of the Debtors’ requests for relief have been signed by individuals that have been on the job for less than 3 weeks. Yet, Debtors are pressing forward with their motions for ’emergency’ relief so they can continue business ‘as usual.’ It appears that [James] Merrill, [Carlos] Wanzeler, and [Joe] Craft have all fallen down the rabbit hole and are now expecting the Court to follow.”

    Davis’ argument came in response to assertions by TelexFree interim CEO Stuart A. MacMillan that he had fired Wanzeler and caused the resignations of Merrill and Craft on April 17.

    “At the hearing on April 17, 2014, Craft was not present in the Courtroom,” Davis argued. “Counsel for Debtors informed the Court during the hearing that Craft was no longer an officer, director, or authorized signatory of the Debtor. No explanation was offered to the Court for the sudden change of management and the short duration (3 days) of Craft’s tenure.”

    And, Davis continued, MacMillan has provided “no explanation for why he felt it necessary to terminate Debtors’ entire former management team.”

    Among the trustee’s witnesses is Julio J. Defigueiredo Jr., a sheriff’s deputy from Bristol County, Mass. In a declaration to the bankruptcy court, Defigueiredo said he was present at an April 15 raid of TelexFree’s Massachusetts office by the U.S. Department of Homeland Security.

    Defigueiredo, according to the declaration, observed Craft “entering an office and attempting to grab a laptop and bag.”

    Craft, according to the deputy, claimed the items were “personal.”

    But nearly $38 million in TelexFree-related cashier’s checks were discovered in the bag, the deputy said.

    Davis described the situation as a series of “extraordinary changes of circumstances” and part of a confluence of events that makes it “unfathomable” that TelexFree is “still going forward on their cash management motions . . . as if business were proceeding as usual.”

    “Currently,” Davis argued, “Debtors have no operating business. Due to the TRO [in the TelexFree fraud case filed by the SEC on April 15], their accounts have been frozen and remain frozen for the foreseeable future. MacMillan admits their offices in Massachusetts have been shut down since the Federal raid and all remaining employees have been laid off.”

    MacMillan contended earlier this week that he did not believe that “Mr. Craft was attempting to divert any of the Debtors’ cash or other resources.”

    Davis appears not to be buying that assertion, alleging that “Craft was apprehended attempting to walk out the back door of Debtors’ offices with $38 million in negotiable cashier’s checks.”

    She further asserted that William Runge, a turnaround specialist hired to “to safeguard existing cash” by TelexFree three days before its bankruptcy filing, “[a]pparently . . . wasn’t able to perform his new job duties very well” given the circumstances surrounding Craft.

    MacMillan contended earlier this week that Craft “was acting at the direction of Mr. Runge and me to secure the cashier’s checks in a safe and reliable location for the benefit of the Debtors’ constituencies.”

    Key bankruptcy hearings for TelexFree are scheduled tomorrow.

    But emergency motions filed by the firm “have not been amended to reflect any change of circumstances in Debtors’ business operations such as the raid on their offices by Special Agents from Homeland Security, or the freezing of all their banks accounts and sources of revenue, or the fact that Craft, their former accountant, Chief Financial Officer, Board Member and signatory is no longer associated with the Debtors in any capacity,” Davis asserted.

  • 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.

  • BULLETIN: TelexFree’s Telecom License At Risk In Minnesota; Department Of Commerce Asks PUC To Deny Embattled MLM Firm Authority To Operate

    Part of a letter from the Minnesota Department of Commerce to the state Public Utilities Commission.
    Screen shot: Part of a letter from the Minnesota Department of Commerce to the state Public Utilities Commission.

    BULLETIN:  The Minnesota Department of Commerce has asked the state Public Utilities Commission to deny TelexFree’s authorization to provide long-distance service in the state.

    Minnesota regulators now are questioning whether TelexFree financial and background information submitted to the state to gain telecom authority was accurate. The PUC granted the authority on April 18, after the Department of Commerce recommended approval of the application.

    But a Department of Commerce letter and attachment to the PUC dated yesterday asks the agency to mothball TelexFree “until it demonstrates that the information provided in its application is accurate.”

    The move comes on the heels of TelexFree’s April 13 bankruptcy filing in Nevada and fraud charges filed against the firm on April 15 by the Massachusetts Securities Division and the U.S. Securities and Exchange Commission.

    In the letter and attachment from the Department of Commerce, the agency asked the PUC to question whether TelexFree was in any financial position to provide service in Minnesota and whether “any other factors” exisited that could be relevant in determining its suitability to operate in the state.

    Among the considerations in granting a telecom license is “the extent to which the applicant has had any civil, criminal, or administrative action taken against it in connection with the applicant’s provision of telecommunications services,” the Department advised the PUC.

    “A certificate to provide local facilities-based service must not be granted unless the applicant establishes that it has the financial, technical, and managerial capability to provide the services described in its petition consistent with the public interest,” the Department said.

    In asking the PUC to deny TelexFree’s authority, the Department pointed to an April 18 email from “TELEX FREE’s former [telecom-registration] representative, Joseph Isaacs.”

    The Isaacs’ email, the Department said, “indicates that TELEXFREE provided false and misleading information to the Department in its application for certification to provide long distance service.”

    From the Department’s assertions to the PUC (italics added):

    The allegedly misleading information provided in TELEX FREE’s application relate to the basic filing requirements of Minn. Rules pts. 7812.0300, subpt. 2 (E, F, and N): civil and administrative action pending, financial statements, and information relating to the technical, managerial and financial capabilities of TELEX FREE in support of its application for certification. The allegedly misleading information in the TELEX FREE’s application relate to the decision criteria in Minn. Rules pt. 7812.0300, subpt. 2 (C, D, and H).

    If the Department had known this information, it would not have recommended approval of the application for certification to provide long distance service, without further investigation.

    TelexFree operates as an MLM. Some of its members now are asking a federal bankruptcy judge to “bail out” the “program.”

    Beyond that, the U.S. Trustee for the region in which TelexFree filed its bankruptcy petition (Nevada) said in court filings that “[t]here is compelling evidence of fraud, dishonesty and gross mismanagement of the affairs of the TelexFree debtor entities, TelexFree, LLC, TelexFree, Inc. and TelexFree Financial, Inc.”

    TelexFree LLC was the entity granted authority to operate in Minnesota on April 18.

    Tracy Hope Davis, the trustee, also alleged there are “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.

    Challenges to its authority to provide telecom services could affect TelexFree’s ability to persuade a bankruptcy judge that it could continue as a going concern. Litigation against TelexFree is occurring at both the state and federal levels, and the firm also might face the prospect of class-action lawsuits from its distributors.

    The Massachusetts Securities Division alleged on April 15 that information provided investigators in that state did not agree with information provided the Washington State Utilities and Transportation Commission.

    In Nevada, meanwhile, Attorney General Catherine Cortez Masto has posted a notice to intervene in TelexFree-related matters before that state’s Public Utilities Commission.

    Records in Nevada show that TelexFree’s pending telecom application in the state potentially could be denied for failure to advertise its application in newspapers as required by the state.

    Although ads did appear in two newspapers, they did not appear as required in three others, records show.

  • BULLETIN: U.S. Trustee Says ‘Compelling Evidence Of Fraud’ And ‘Reasonable Grounds’ To Believe ‘Criminal Conduct’ Occurred On Road To TelexFree Bankruptcy Filing

    breakingnews72BULLETIN:  (11th Update 2:35 p.m. EDT U.S.A.) The United States’ trustee who serves the region (Nevada) in which TelexFree’s bankruptcy case was filed on April 13 has alleged there are “reasonable grounds” to believe that “criminal conduct” occurred at TelexFree.

    Trustee Tracy Hope Davis, who works for a division of the U.S. Department of Justice, says in Bankruptcy Court filings that the court should appoint a Chapter 11 trustee because “[t]here is compelling evidence of fraud, dishonesty and gross mismanagement of the affairs of the TelexFree debtor entities, TelexFree, LLC, TelexFree, Inc. and TelexFree Financial, Inc.

    Davis was appointed trustee of the region by U.S. Attorney General Eric Holder in November 2013.

    The motion by Davis cites separate fraud actions against TelexFree filed April 15 by the Massachusetts Securities Division (MSD) and the U.S. Securities and Exchange Commission (SEC). MSD is the state-level securities regulator in Massachusetts. The SEC is the top securities regulator in the United States.

    “In response to subpoenas issued by the MSD in January and February, 2014, TelexFree changed its compensation plan so that promoters would now be required to sell its VoIP product in order to qualify for the payments that TelexFree had previously promised to pay them,” Davis alleged. “The rule change has generated a storm of protests from promoters who cannot recover their money. The change has also caused a precipitous decline in investor revenue which has pushed TelexFree into bankruptcy.”

    Meanwhile, the Davis motion cites an SEC complaint and emergency motion in Massachusetts federal court on April 15 that successfully sought an asset freeze against alleged TelexFree co-owners James Merrill and Carlos Wanzeler and TelexFree CFO Joseph Craft (and others), along with a Temporary Restraining Order.

    “Millions of additional investor funds received by TelexFree are presently unaccounted for,” Davis alleged. “Fortunately, the TRO was granted by the District Court for the District of Massachusetts and all of the Debtors’ accounts have been frozen pending a preliminary injunction.”

    As a result of TelexFree, Davis alleged, “[t]wo companies controlled by Craft received more than $2,010,000.00 between November 19, 2013 and March 14, 2014.” Millions more allegedly went to Merrill and Wanzeler.

    Among the assertions by Davis:

    • The Debtors did not disclose that several banks and at least one payment processor stopped doing business with them, apparently due to concerns about the legality of its multi-level marketing program.
    • It appears that part of the reason for the Debtors’ cash flow problems was the diversion of funds to insiders.
    • Craft was caught “holding the bag” when the U.S. Department of Homeland Security was executing a search warrant at TelexFree headquarters in Massachusetts on April 15.

    “When Craft was caught ‘holding the bag’ during the execution of the HSI search warrant on April 15, 2014, nine of the ten cashier’s checks that were confiscated were dated April 11, 2014 and were remitted to Merrill,” Davis asserted. “Of these checks, five were made out to TelexFree, LLC totaling $25,548,809.00, and one was made out to Katia B. Wanzeler (Wanzeler’s wife) in the amount of $2,000,635.00. The tenth check, dated April 3, 2014, was remitted to Wanzeler and was made out to TelexFree Dominicana SRL in the amount of $10,398,000.00.”

    Davis also expressed concern about a TelexFree board meeting that occurred in the hours leading up to the bankruptcy filing. (See April 21 PP Blog story that references the same meeting.)

    From the Davis motion to appoint a trustee (italics added):

    The minutes of the special meeting of the Board of Managers of TelexFree, LLC held on April 13, 2014, indicate that Merrill and Wanzeler comprise the entire Board of Managers (the “Board”). . . At this meeting, Merrill and Wanzeler selected Craft and [Stuart] MacMillian as the Debtors’ “Authorized Persons,” empowered to execute and file pleadings on behalf of the Debtors, to employ counsel and other professionals (including Craft’s accounting firm), and to exercise signature authority over the Debtors’ accounts. Although the minutes include language revoking any prior signature authority of other individuals, there is no language stating that Merrill and Wanzeler are stepping down from the Board or that anyone else is stepping up to serve as their replacements. On information and belief, the new interim CFO and CEO still report to and take direction from the Board which is still comprised of 2 individuals – Merrill and Wanzeler.

    And, Davis alleged, “Merrill, Wanzeler, Craft, and possibly others have engaged in securities fraud, withheld material information from investors, and improperly diverted millions of dollars of estate property to themselves or their entities, as set forth in the SEC Complaint and Memorandum.”

    In the trustee’s view, according to the allegations, “[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.”

    Davis asserted “on information and belief” that there have been “no allegations to date regarding the involvement of MacMillan (the new CEO) or [William] Runge (the new CRA) in the Debtors’ Ponzi scheme, neither is there any indication that these interim officers are truly independent of the fraud of ‘former’ management.”

    And, Davis continued, “[t]he only way to ensure honest and independent management of these Debtors going forward is for the Court to direct the United States Trustee to appoint a Chapter 11 trustee.”