telexfree-logoAfter 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.