Brazilian SEC: “No doubt TelexFree is a pyramid scheme”
After a flurry of action these past three months as US regulators took action against TelexFree, things have finally settled into a lull.
One owner, James Merrill, is currently out on bail and awaiting trial. The other, Carlos Wanzeler is on the run in Brazil. Regulators boned his wife’s attempts to flee the US to join him. To date, Wanzeler remains geographically cut off from his family.
The US Trustee is currently investigating TelexFree, with the results expected to lay the foundation for possible bankruptcy fraud charges against the company at a later date.
One could argue that in the grand scheme of things, US regulators should have acted much sooner. Despite there being signs well in advance, I will say that these cases take time to build.
With the speed with which US regulators shutdown TelexFree, raided their offices, threw one owner in jail boned the other owner’s wife’s plans to leave the US, ongoing concerns over the pace of regulatory action in Brazil remain.
James Merrill, recently released on bail, has been left holding the bag after his partner-in-crime fled to Brazil. And at least one top promoter, who earned millions and sees himself as a victim, is also hiding out there.
Earlier this year it was hinted that the criminal case against TelexFree might be “resolved by mid-2014“.
With auditors Ernst & Young recently granted an extension to file their report though (due to the “complexity” of TelexFree’s business operations (read: fraud)), and then time granted for both TelexFree and the Acre Public Prosecutor’s Office to file replies, all of which then must be considered by a Judge before a ruling is made, that the case will be resolved anytime soon seems unlikely.
The end of 2014 might be more realistic, but with the ongoing fluidity of regulatory action against TelexFree in the US, even that might be a stretch.
Not helping the existing impression that regulatory justice in Brazil moves slower than a quadriplegic turtle, comes the revelation that the Brazilian SEC concluded TelexFree was “undoubtedly a pyramid scheme”.
Wait for it… all the way back in January 2013.
After conducting their own investigation into TelexFree, the Brazilian SEC (CVM)
recommended action against the company before the losses (to investors became) greater.
Startingly, despite millions of dollars in securities fraud taking place, CVM themselves took no further action against TelexFree. They concluded
(TelexFree was) a pyramid (scheme and thus CVM) was free of responsibility for it.
The argument is that as members – in the case of Telexfree, called (promoters) – need to convince more people to put money into the business in order to profit, the pyramids are not (a) collective investment contract and therefore are not something against which CVM has to act.
CVM believes that (it) has no power to curb financial pyramid (schemes).
Huh? How’d they miss the whole AdCentral Ponzi investment scheme?! And why CVM believe that aspects of a business model that embody that of a pyramid scheme cancel out that of a Ponzi scheme is baffling.
Even moreso when you consider that, for reasons unknown, CVM totally ignored the hotel investment offer that was widely publicized by TelexFree and its affiliates.
A contract between TelexFree and Best Western was purportedly signed in October of 2012, before CVM concluded their investigation. Yet why the agency failed to instigate any action against TelexFree, or even acknowledge the illegal offering of unregistered securities by way of hotel investment remains a mystery.
When questioned by Brazilian media outlet iG about their apparent cock-up, CVM cited “confidentiality” and ‘did not elaborate on their investigating (of) the case‘.
But that’s not even the half of it. After absolving themselves of any regulatory responsibility for what is believed to be the largest Ponzi scheme in Brazilian history, CVM were supposed to refer ‘the case to the competent authorities for appropriate action‘.
This forwarding, however, was not done.
The Federal Special Prosecutor with the CVM ruled that the (Public) Prosecutor’s Office of Acre (MP-AC), the competent authority to investigate Telexfree in his view, had knowledge of the case and filed (their own) investigation.
Even stranger was TelexFree lawyer Danny Cabral Gomes’ commentary.
Gomes insisted that because CVM concluded TelexFree was “undoubtedly” a pyramid scheme but didn’t file a case, that this ‘proves Telexfree (is not a) financial pyramid (scheme)‘.
Whether or not any of the information from CVM’s investigation might have aided Acre’s Public Prosecutors in bringing a case against TelexFree sooner is unclear. CVM decided TelexFree was a pyramid scheme in January, but it wasn’t until late June that Acre’s Public Prosecutors were granted a business-crippling injunction against TelexFree.
In any event, the commonly pushed notion that TelexFree’s regulatory troubles in Brazil are isolated to a few states is now shattered.
In related news, the National District Attorney of Santo Domingo has revealed that the office has ‘received 75 formal complaints of fraud against’ TelexFree.
When one considers that there were an estimated 150,000 TelexFree investors in the Dominican Republic, the number of complaints seems small.
Alternatively, when one considers the grossly misleading information about TelexFree that is routinely dissipated by local affiliates in Spanish, and in some cases even by local media outlets, that any complaints were filed would seem miraculous.
If I recall correctly, the infamous fictional account of five bankruptcy judges in Nevada who supposedly ruled TelexFree was not a pyramid scheme and granted the company’s Chapter 11 application, made headlines in the Dominican Republic at the time.
As to the complaints themselves,
Carlos Montilla Vidal, director of the Department of Citizen Services of the Office, stated that these actions have taken place in a period of two months.
The official specified that the mode of action were that a person had seven packages as part of the clientele, with contributions of up to $ 1,500 each.
The average (amount of funds invested in) TelexFree was RD $ 7.500 RD $ 50,000 per person.
Montilla said the Office is receiving complaints and lawsuits against the company pyramidal everywhere, and cases have already reached Samana, San Cristobal, La Romana, Higuey, the province of Santo Domingo and the National District.
What, if anything, becomes of the complaints received remains to be seen.
The problem with these international financial crimes, with complex “business models” that are hybrid Ponzi/pyramid schemes with pyramid selling (i.e. product-based pyramid schemes) is most countries had previously divided the line too fine between the different types of schemes, resulting in a turf fight or “not my problem” among various agencies.
One recalls that when SpeakAsia was first investigated there was a huge turf fight among the various departments of government, most of them had a flurry of activity before declaring “not my problem”. It’s EOW, CID, the agency that enforces “Companies Act” of registration, and a couple other places, I think.
Here we basically have Brazil SEC saying this does not involve “securities” (as defined in Brazilian law) so it’s not our problem, but/because it’s a pyramid scheme.
Sometimes, it’s easy to forget that not all countries define securities using the US “Howey Rule”… which means ANY sort of promise/contract where you put money in with expected profit (over and above what you put in) later.
Hey Oz, once again, great article and big thanks to all of the contributors. Please tell me as mentioned above, why does the US take so long to shut these ponzi’s down?
Once again, I will mention MAPS (Ozedit: Offtopic).
Keep up the great work Oz and friends!
Oz,
I have a firm of consultants here in the Dominican Republic, and we have set up the “unofficial” claims agency, we currently have set up 3 claims processing agencies nationwide, there are 150,00 creditors here, but as you well stated, we are fighting against misinformation and falacies every day.
We are currently processing the official Proof of Claim B10 forms that the court has provided for creditors and there are thousands of people already being processed, but we are not filing complaints with the department of citizen services, instead we are filing the claims with KCC as per the courts directions.
Your site and articles are something that have helped the claims team at DR a whole lot, however i am challenged by the fact that people here are non-english speaking persons, and cannot read your blog, they instead turn to “UniversoMLM.com” instead, where the readers are very prone to missinterpret the articles.
This task that we have embarked upon is an initiative started by me and my associate, we are currently struggling to handle the demand of thousands of creditors who are just now learning they can claim their money.
These people are humble people, many of them people without access to a computer, who relied on their uplines to handle teir accounts and post the ads.
Its not only the overwhelming amount of people here Oz, its the amounts of cash they put in too.
The average Dominican had minimum 5 ADcentral Family accounts, and the majority of people had 40-50 accounts each. The average claim we process daily are ranging from 25-250 thousand dollars invested. There is one person, from La Romana, a pastor, who invested 300 thousand dollars, and enrolled his entire congregation(he is now, sadly, MIA).
There are humble people here now, farmers, who didnt even have direct access to “their accounts”, paying bank loans of more than 15 thousand dollars, students loosing their semesters at school being unable to pay their tuition, buisness owner going banrkupt, and many many people loosing their home and assets to now defaulted loans.
We are doing the best we can to educate our people on this matter, on the fact that TelexFree will NOT come back. Hell, my people here dont even know TelexFree Requested to court to have all contracts rejected (the rejected contracts clause in their bankrupcy petition), they believe myths pf TelexFree winning the case and getting the chapter 11 approved.
And this is in great part because the local news here, are doing NOTHING, to follow up on the case, give put the relevant news, and educate the Dominicans on how to properly claim their money, be officially registred as creditors, and be able to participate in the companys liquidation when the time comes.
Regards,
Domincan Claims Team.
The for the local update Andrew. And good luck with the mess!
Get the government involved is probably your best bet in dispelling the misinformation. If one of your ministers say it, it may get covered in the news. You may also want a minister to like ‘validate’ your translations of official documents as ‘accurate’ to turn the tide of misinformation.
I don’t know if it’s legal, but in your claim forms, see if you can add a clause where the victims acknowledge they are a victim of fraud, and make sure the victims understand it. Once they sign it, ask them if they are willing to show who recruited them. You want to trace the scam back to the root. I don’t know if your justice system will ever be able to prosecute the local head (didn’t he run for the US when the news broke in April?) but you need a newspaper to run an expose` on the roots of TelexFree to destroy the credibility of ALL of the uplines once and for all. Isn’t there an official newspaper? TV news program? Start there.
How much do you charge for your filing service? Flat fee? or a percentage of recovery?
Oz,
Amazing, eh? Because their SEC said they had no jurisdiction, it is therefore “legal”?? I bet the Brazilians still think the world is flat.
Re Andrew’s post #3. I am not without empathy BUT….
When are people going to be held accountable for common sense? Is everyone suggesting low income farmers lack it? I’m not buying it. Farmers know hard work and then all of a sudden money comes into their account FOR DOING NOTHING!!!
In one of the Boston Gobe articles, a lady talks about knowing better and it being too good to be true but got asked so many times and saw others making money, she invested. To her credit, she’s owning her own bad decision driven by easy money.
Maybe government agencies are tired of dealing with all these “victims” finding out their money making tree was an illusion. I don’t think anyone held a gun to their heads to invest.
Please, don’t call every Brazilian stupid just ’cause some telexdorks are.
“I have a firm of consultants”….. not volunteers.
Maybe I am terribly cynical but Andrew seems like just another vulture trying to make a buck off the uniformed.
Filing bankruptcy claims is simple, the trustee (or receiver) will be contacting potential creditors via their back office with detailed instructions when the time comes and Andrew and his “consultants” are already “processing” “thousands of people” even though The Claims process has not opened, it may not be handled by KCC and Telexfree may not even stay in bankruptcy.
Why would anyone be processing B10s for “thousands” of people before being certain a B10 will be used. Does not pass my sniff test.
hey Andrew can i contact your claim team? i would like to have information about how can you guys make it to recover something. Thanks in advance
Diego, there are some that don’t believe that Neil Armstrong and other americans have been on the moon…and you know, lots of them are americans! LOl
@Diego
Every country has it’s share of dopes and scum bags. Don’t take on any shame that you don’t own. I certainly don’t take on the shame that the Telex tops come from the USA.
I am proud that my government is taking steps to try and stop it. And you should be proud that yours was the first to recognize there was a problem and froze them in their tracks.
It’s not going to be as quick as people may like but at least actions are being taken by many different agencies in many different countries.
Not here in Portugal…
Don’t lose the faith. This is world wide. There’s money and bandits everywhere and if it’s going to be taken down, countries will have to work with one another. Hang in there.
If people had 40-50 accounts, they have probably reinvested some of the payouts?
You have 3 types of investments:
1. People paying DIRECTLY to TelexFree.
2. People paying to a sponsor.
3. People reinvesting back office payouts.
Those 3 types of investments will need to be separated from eachother. You can’t mix them together in a claim.
The 2 first are losses of real money to someone, but you will need to identify WHO received the money (TelexFree or the sponsor).
Number 3 is not a loss of money. People have simply used worthless back office funds as some type of payment, but they haven’t brought in any fresh money.
where is Andrew?
where is xuxa? where is pele?