Epic scope of US case against TelexFree revealed
I tried to maintain tabs on what was going on with TelexFree while I was on break. Mostly it was paper pushing between the parties involved (scheduling, replies etc.), but there was one court document filed that I felt was a must-read.
On the 18th of August the SEC filed a “Motion For Complex Case Designation And Exclusion Of Time” and in it, the scope of case the US government are putting together against TelexFree was revealed for the first time.
Simply put: It’s nothing short of epic.
The nature of the motion is the request by the government that the court grant “complex case” designation, and for additional time to put everything gathered thus far together.
The government states that this case is sufficiently unusual and complex that it is unreasonable to expect adequate preparation for trial within the time limits established by 18 U.S.C. § 3161.
The raid on the TelexFree’s Massachusetts office resulted in the seizure of no less than ‘400 terabytes of data spanning 46 servers‘.
Much of the data is highly complex, including data related to operating TelexFree’s VOIP system and to TelexFree’s virtual “back office” compensation system for TelexFree participants.
Based on government counsel’s discussions with computer forensics personnel at Homeland Security Investigations (“HSI”), processing and copying this data for discovery and review is an ongoing but slow process, because of the technical nature of the data and its size.
Beyond the servers, the government also seized about 26 separate computers from TelexFree’s headquarters – all containing independent drives that are not networked to the servers described above – as well as about three other computers obtained via grand jury subpoena.
And that of course is just the electronic Ponzi booty. Offline data seized includes ‘38 boxes of paper materials from TelexFree’s headquarters.‘
Note that the computers seized via grand jury subpoena could be particularly interesting, all dependent of course on whose computers have been seized. One would imagine it is likely to be key TelexFree insiders, but a this preliminary stage we don’t know for sure.
And speaking of grand jury subpoenas,
The government has also issued approximately 185 grand jury subpoenas in the course of its investigation so far, nearly all for large productions of business records, including from multiple banks, brokerage houses, and payment processing services.
The government is in the process of scanning the seized documents and, along with the subpoenaed materials, compiling a single database for production to the defense.
Because the evidence underlying this case is closely tied to certain foreign countries, especially Brazil, it is likely that the parties will need to review evidence in foreign countries and arrange for foreign witnesses and/or law enforcement officers to travel to the United States to testify at trial.
One hundred and eighty-five grand jury subpoenas? Foreign law enforcement being called on to testify against TelexFree?
Blimey, thorough is an understatement.
At this stage (or at least as of August 18th), it appears the government is still collecting or waiting on requested evidence to be presented to them.
Beyond the time required to access and review the electronic data and subpoena returns described above, it is likely that interpreting data concerning TelexFree’s VOIP service and back office compensation system will require significant time, including review and interpretation by one or more hired experts.
That process will require, among other things, that computer forensics personnel first determine which servers cover the needed data and then figure out how to re-start those servers, after which the data can begin to be reviewed.
If the parties require authenticated evidence from foreign countries, the process for securing that evidence by formal request is extremely time-consuming, including review of the request by U.S. authorities (locally and at the Office of International Affairs), review by authorities in the host country, collection and transmittal of the evidence, and certified translation.
Due to the gargantuan effort required to put together a case against a multi-national Ponzi scheme of the size and scope of TelexFree, the US government argues
Relief from the requirements of the Speedy Trial Act is needed to allow the parties enough time to produce and examine discovery and evidence in this case and to prepare for trial.
In the event of trial, substantial lead time will be required to secure the attendance of foreign witnesses, including the permission of host countries and travel.
The ends of justice served by relief from Speedy Trial Act requirements in this case outweigh the best interests of the public and the defendant in a speedy trial; failure to grant relief may deny the parties the time needed for effective trial preparation, taking into account the exercise of due diligence, and may result in a miscarriage of justice.
Opposing the government’s motion is of course James Merrill, who complains that exemption from the Speedy Trial Act will hurt his feelings.
Before his arrest in this case, Mr. Merrill enjoyed an impeccable reputation in his community.
To say that his arrest and prosecution has been a jarring event would be a serious understatement.
Mr. Merrill’s entire life has been upended. He spent more than a month in jail, isolated from his wife and children, and missed his daughter’s graduation from high school. He has been vilified in the press.
Uh, as the head of one of the biggest MLM Ponzi schemes for roughly two years… Merrill enjoyed an impeccable reputation?
Yo, can I get some internet and a clue for the city of Massachusetts?
Merrill’s involvement in TelexFree was only ever a mouse-click away. And such that his neighbors and community were not aware of his activities in the Ponzi scheme, their ignorance is hardly an excuse to jeopardize the case against one of the most damaging Ponzi schemes yet.
Yet Merrill argues,
He has steadfastly maintained his innocence, and his family and friends remain incredibly supportive, but nothing is the
same, particularly while the prosecution remains pending.The government has seized and/or restrained virtually all of Mr. Merrill’s assets, and to date the only assets released (by the SEC) are those that are subject to significant penalties and taxes if accessed by Mr. Merrill.
Hence, Mr. Merrill may be forced to pursue as speedy a trial as possible given the financial reality he and his family are presently confronting.
The burdens of a significant white-collar prosecution such as this case defy adequate description. In short, the defense is likely to seek as speedy a trial as possible in this case, such that Mr. Merrill can obtain his chance to prove his innocence at trial on the earliest possible date.
Interesting.
That TelexFree was a Ponzi scheme is a given. Ditto Merrill’s involvement in it. So what’s this crap about “proving his innocence”?
There’s nothing about TelexFree not being a Ponzi scheme in Merrill’s opposition, with the argument instead focusing on claims of his innocence. I might be misinterpreting things here, but sounds to me like Merrill might be looking to peg this all on Wanzeler and/or Carlos Costa.
Supporting this is an earlier statement in the motion that requests the court to ‘defer a ruling regarding the exclusion of any time until the September 10,
2014 status conference‘.
Is Merrill planning on selling Wanzeler out come September 10th?
Maybe. But if anyone else has any other theories as to how the owner of a billion dollar Ponzi scheme might prove his innocence, I’m all ears.
The case the government are building against Wanzeler, Merrill, Costa and TelexFree sounds gargantuan. And with 20 years jail time on the cards, objections based on hurt feelings and reputations indicate that Merrill perhaps hasn’t fully yet grasped exactly what he’s up against.
In a 28th of August motion filed in objection to the government’s recent request they be granted leave to use “alternative measures” to notify TelexFree victims of what’s going on, Merrill argued
additional press releases and newspaper notices is unnecessary and creates an intolerable risk of creating substantial pretrial prejudice to the defendant and thereby compromising his constitutional right to a fair and impartial trial.
First, the proposed press releases and/or newspaper notices create a real risk of pretrial prejudice to Mr. Merrill. Every press release and/or newspaper notice issued by the government will likely repeat the government’s characterization of TelexFree and Mr. Merrill.
Ladies and gentlemen, this is what happens when online Ponzi rhetoric meets reality. Merrill’s trial will be decided on evidence, not what people read in a press-release or newspaper.
But when you’ve spent so much effort in flooding the internet with irrelevant press-releases about hotel deals, investment insurance contracts that don’t exist, bullshit about non-existent VOIP customers… it’s easy to see the mindset Merrill is coming from.
Ironically, Merrill goes on to argue
With the advent of the Internet, we live in a global community.
Anyone who truly believes they were victimized by TelexFree can readily learn of the instant proceeding through a very quick Internet search.
This … renders the (requested) press releases and/or newspaper notices unnecessary.
Oh if only it were that easy. Yet before regulators shut Telexfree down, having ready access to copious amounts of information explicitly detailing the TelexFree fraud didn’t stop Merrill and friends from defrauding upwards of half a million affiliate investors globally.
Indeed, I still receive requests for updates on what is going on with TelexFree from affiliates in all four corners of the globe.
To that end what comes first? Merrill’s feelings or keeping the hundreds of thousands of victims TelexFree stole over a billion dollars from by as many channels of communication as possible?
How much advice Merrill might be following from his lawyer(s) is a mystery, but it seems to be that we’re still seeing the “nothing can touch us” culture TelexFree fostered during its run.
Guess we’ll have to see how the court rules regarding the Speedy Trial Act then. But in the meantime, to any Ponzi scheme owner wannabes – try thinking about your reputations before you launch them hey?
That Merrill was arrested for his part his part in orchestrating a billion dollar Ponzi fraud is not what damaged his reputation – it was the billion dollar fraud itself.
Oh and it seems Middlesex Savings Bank now want nothing to do with TelexFree, with the bank recently refusing Stephen Labriola access to a new account.
Labriola’s request was backed by an SEC assented court order, however the bank still denied his request to open up a new account to deposit non-TelexFree funds. It would appear the Middlesex Savings bank want nothing to do with Labriola or his money.
Labriola’s had to ask the court to amend the order granting him permission, removing the phrase ‘at Middlesex Savings Bank’ so that Labriola can attempt to open an account elsewhere.
Footnote: Our thanks to Don @ ASDUpdates for providing a copy of the US government’s “Motion For Complex Case Designation And Exclusion Of Time”, Merrill’s opposing motion and “Opposition To Government Motion To Use Alternative Procedures To Notify Potential Victims”, and Labriola’s “Motion For Modification Of Consent Order”.
Merrill has to try, wouldn’t lose anything if he lost this attempt.
Did you read the news that the various TelexFree consultants and lawyers now wants $4 mil for “services rendered”? Alvarez and Marshal, Gordon Silver, and Traurig.
Saw it, but figured they had buckley’s chance.
Zeek has anyone who made anything from the scheme having to pay it back. These guys are in lala land if they think they are keeping stolen investor funds.
That said if the bankruptcy proceedings have any effect on the case, toss the lawyers the proceeds of the retail VOIP sales and let them fight over it.
As some folk might say…
“This stuff’s about to get more real.”
Just received an invitation to attend a meeting in Fresno, CA, with Faith Sloan as a guest speaker.
I went to Sloan’s Facebook page and what I found looks like an illegal scheme… am I wrong?
Wasn’t there an injunction against Sloan? Or is that state specific?
RE247365 is on the review list, can’t say when a review will be published though.
Sidenote: That video was uploaded by “Coach Van”. From memory he’s being sued by the Zeek Rewards Receivership under his real name is he not?
I like at the end of the video how he mentions to thank the person who sent you the video and make sure you sign up “now” and “not six months” from now where you will have “missed the boat”.
What a farce!
Is Faith Sloan dipping her toes in this also?
She’s been pimping it hard on Facebook so I imagine so.
I was wondering the same thing!
From search results:
Thanks for that refresher.
Not sure if it’ll be useful to anyone (perhaps the Zeek Receivership?), but here’s three checks made out to “Coach Van” that Leeuwen received mid-August from RE247365 (click to enlarge):
Tracing where those checks were cashed might prove fruitful in fund recovery. Bottom two seem to be dupes though, so it might just be marketing smoke and mirrors.
Yeah, why would all three checks have the SAME check number, but different amounts, hmmm?
Well we’ve got T. LeMont recently coming out of retirement and pegging his name to multiple scams, Sloan and Coach Van have jumped on board this RE24365 thing… guess clawback’s a bitch.
What’s a few doctored checks among friends?
I believe Sloan was given permission to start a bank account to deposit non-TF funds (Doc 235). Technically, funds from any MLM that she is involved with currently can be cycled throught this bank account.
She can always continue her current line of reasoning that she has not idea that the companies she is involved with are doing anything illegal and she is merely a pawn.
At this point, I think Sloan is adopting a “I don’t give a shit what people think” attitude. “They can keep talking while I keep making (and hiding) money”.
Doc 244 provides an excellent summary of where the TF case stands currently with regards to each defendant and proposed dates for future actions in the case.
Some of the dates are well into 2015 and 2016, which highlights the complexity of the case and basically reiterates what has been said on this forum that the TF case is not ending any time soon. At this rate, it will be a loooong while before victims see any money back.
(Oz please add link to Doc 244 if you think it will be helful to the readers)
Link to ASDupdate –> SEC v TelexFree:
NOLINK://sites.google.com/a/asdupdates.com/files-website/sec-v-telexfree-inc
Link to Doc-244:
https://docs.google.com/viewer?a=v&pid=sites&srcid=YXNkdXBkYXRlcy5jb218ZmlsZXMtd2Vic2l0ZXxneDozY2IxNTE0NDExMjA2Yzgw
The proposed dates can be found from page 11 (of 15).
@Naz
I missed that doc. It is a fair enough summary of the case thus far.
Will update if the court approves any dates. I think once discovery kicks in things will get far more interesting.
It’s easy to blab on about denials etc, but when you have mountains of evidence (marketing efforts and bank account transfers) totally undermining your “I thought TF was a legit business” assertions, things come undone pretty fast.
“Maybe. But if anyone else has any other theories as to how the owner of a billion dollar Ponzi scheme might prove his innocence, I’m all ears.”
Well, taking into consideration james merrils brtoher, john merril, is president of Fidelity bank (or was im not sure if he got booted after telexscandal), then perhaps this guy really knew how to launder and hide his telexmonies away, so much so that see how hes asking for 4 mil of inestor fubd to pay for his lawyer wich he adamantly claims he can PROVE dis not come from telex.
Im thinking this guy hid his profits so well, it will look like he made very little money, and his evil partner wanzeler was getting his pockets full running his conpany like a ponzi scheeme behind his back.
Or maybe, they planned it from the start.
Hey james heres what well do:
I take off to brazil where theres not extradition and not even the rapture can take me out of there,
You stay here in US and pretend you didnt know anything. You pin it all on me. And make sure your brother has your money safe in untraceable account all
OVEr the globe.
In another note…
Oz, what would you speculate the minnimum chaseable amount in this case will be? In zeek theyre after anyone who made 1k or more.
Do you think teyd go as low on telex net winners?
On the evidence revealed so far, it looks liked there is a huge discrepancy between what Wanzeler made and what Merrill made considering the cars and properties listed in Wanzeler’s name.
However, I do not believe that the actual discrepancy was this great. I just think that Merrill was a more modest spender and was much better at hiding money.
Of course, there is a possibility that this could be preplanned as you say.
As the TF case moves on, I’m sure some of the defendants will break down and cooperate with the authorities if they haven’t done so already and then the spicy details will hopefully be revealed.
Yup they will surely all become telex rats…
Well, technically these are “show checks”… The kind you held up on stage for showing off the “winnings” (compare to the size of the caps next to them) but still… that’s one lazy Photoshop(tm)er…
Randy Crosby is over there also. Sickening….