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.
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”.