telexfree-logoGearing up to battle US regulators in what is ““probably the largest pyramid scheme that’s ever been prosecuted by the Department of Justice” is James Merrill. All-round mister nice guy, devoted father, community pillar, loves his mum and owner of the billion dollar Ponzi scheme, TelexFree.

Having thus far appeared to cooperate with regulators, requests by Merrill to release non-TelexFree related funds have been assented to by the SEC. Now however Merrill is asking that $4 million in Ponzi funds be made available to fund his defense.

Has he gone too far?

By any measurable yard-stick, that TelexFree was a Ponzi scheme isn’t really up for debate. They took in a billion dollars from investors and used the money to pay off existing investors.

No real business was taking place outside of the investment scheme, and by the time they were shutdown by the SEC, TelexFree had already attempted to bankruptcy the billions in Ponzi liabilities they’d racked up.

Billions that, due to the nature of the Ponzi beast, affiliates owed were never going to see.

james-merril-founder-president-telexfreeThe question now is how guilty is Merrill (right), by way of his direct involvement in the day-to-day running of the scheme. His partner, Carlos Wanzeler, has already unofficially declared his guilt by fleeing the US for Brazil.

No matter what Wanzeler pays his lawyers to issue by way of press-releases and media interviews, the fact remains that, when given the opportunity to face the charges against him and prove his innocence, he ran.

Merrill was left holding the bag and facing a possible life sentence, want to put $4 million towards his legal defense.

In papers filed on Tuesday, Merrill’s lawyer argues that the funds should be released because

The government cannot establish probable cause to believe that the assets in dispute are traceable or otherwise sufficiently related to the crime charged in the criminal complaint.

The problem as I see it, is Merrill’s lawyer provides no explanation as to the source of the funds.

As is noted,

On or about June 18, 2014, with the assent of the Securities and Exchange Commission, Mr. Merrill moved for the release of certain accounts subject to a freeze order issued by Judge Gorton in the SEC litigation.

Attorneys for the SEC assented to the release of the accounts, concluding that they did not contain a sufficient nexus to TelexFree.

Judge Gorton has since allowed the motion.

The issue being that if this is TelexFree Ponzi money, then what happens later when the US Trustee starts suing insiders to recover funds to pay affiliate-investors with?

Surely Merrill’s lawyers don’t believe they’ll be entitled to keep any funds paid in light of the criminal and civil proceedings currently being currently played out?

Furthermore, that money is stolen affiliate money. What right does Merrill have to use it to bankroll a defense against his acquisition of said funds?

Logic would dictate that if the funds weren’t related to Merrill’s involvement in TelexFree, his lawyer would have included said reason in the motion. But instead there’s this:

Here, at the very least, Mr. Merrill seeks an adversarial hearing to determine whether the government can sustain its burden of demonstrating that “probable cause exists to believe that the assets in dispute are traceable or otherwise sufficiently related to the crime charged in the [complaint].”

Sounds to me like it’s a fishing expedition.

“We know the funds are from TelexFree but can you prove it? If not, Merrill is entitled to use the funds to pay us.”

I suppose it’ll come down to looking at how the money came to be in the four accounts Merrill is requesting access to.

Joe Craft helped Wanzeler launder his TelexFree money, so if the transactions in and out of the accounts aren’t enough, I suppose he could be called in to testify (or at least provide information on who was handling Merrill’s personal finances).

Either way I’m not liking Merrill’s chances. Proving Merrill’s $4 million was withdrawn from TelexFree shouldn’t be hard to prove one way or another.

 

Footnote: Our thanks to Don @ ASDUpdates for providing a copy of Merrill’s “Motion For Order Releasing Seized Funds Necessary For Legal Defense“.

 

Update 15th July 2014 – The SEC has responded to Merrill’s motion with an objection. The matter has yet to be ruled on.