Ahead of Faith Sloan’s scheduled February 2019 TelexFree trial, the SEC filed for a $1.2 million partial summary judgment in late November.

Sloan filed her response on December 7th, in which she makes four primary arguments;

  1. that the SEC ‘failed to identify a security that Sloan sold without a registration statement‘;
  2. that the SEC is ‘not entitled to injunctive relief against Sloan because she is unlikely to violate the securities laws again‘;
  3. that she only stole $650,339.55 from TelexFree victims, not the $1,073,316 the SEC have claimed; and
  4. that her lawyer is entitled to keep $30,000 Sloan stole from TelexFree victims.

In a filed December 20th response to Sloan’s response, the SEC stated ‘none of (her) arguments are availing‘.

Faith Sloan’s selling of securities

Although they’re not entirely certain, the SEC has put forth that Sloan has argued they ‘failed to identify a security for purposes of a violation of the securities laws‘.

I suppose the premise of the argument is that if the SEC hasn’t identified a security, then Sloan can’t have sold a security.

If the notion that the SEC hasn’t identified a security with respect to TelexFree sound silly to you, rest assured it sounded just as silly to the SEC.

Sloan is clearly wrong.

Section II.B of the Commission’s brief clearly identified that membership units in TelexFree are investment contracts, which are securities as defined by … the Securities Act.

Moreover, Sloan does not dispute that TelexFree was a Ponzi scheme because she has admitted those facts that support that finding.

The First Circuit has held that a Ponzi scheme such as TelexFree are investment contracts.

Additionally, this court when denying Santiago De la Rosa’s motion to dismiss held that “TelexFree’s agreements with investors with respect to the AdCentral scheme were ‘investment contracts’ and thus unregistered securities.”

The SEC also cited previous judgments against other TelexFree promoters which, in order to be granted, relied on the prerequisite ‘that the TelexFree fraud had involved the buying and selling of securities‘.

This Court entered final judgment against the two relief defendants, necessarily finding that a violation of the securities laws had occurred.

With respect to the actual selling of TelexFree securities;

Sloan does not appear to dispute that she promoted the sale of membership units in TelexFree through the internet.

At most, Sloan quibbles that she only appeared at TelexFree members-only conference, which were social occasions not used to offer or sell unregistered securities.

Yet, she admitted that some of the events were used to promote TelexFree.

She also admitted to speaking at another conference directed at encouraging other distributors in the organization and explaining the compensation scheme.

Finally, she ignored that she attended an event in Nigeria where she promoted TelexFree and encouraged people to become members.

Is the SEC entitled to injunctive relief?

Sloan argued the SEC isn’t entitled to injunctive relief because she’d

learned her lesson and is unlikely to violate the securities law in the future.

Sloan also argued that she should be let off because she’s “not Merril or Wanzeler”, referring to TelexFree’s two owners.

Ignoring the various unregistered securities cryptocurrency schemes Sloan has joined and promoted in secret, the SEC instead focuses on her non-crypto conduct post TelexFree.

Sloan has been involved in numerous multi-level marketing schemes.

As she has admitted, she has received income from at least one of those entities after the Commission filed suit.

Although she did testify that she learned not to place ads while involved in a multi-level marketing scheme, she did not indicate
that she was not going to be involved in multi-level marketing in the future.

Moreover, although she is “no Merrill or Wanzeler” as Sloan observed, this Court has entered injunctive relief against the other three similarly situated promoters for violations of … the Securities Act.

In such circumstances, injunctive relief is warranted.

Finally, to address her throw away sentence that no penalty is justified because she is not Merrill or Wanzeler, this court has ordered a penalty against one promoter.

As for the other two promoters, the Commission did not seek a penalty because of the promoter’s financial condition – an issue not before the Court in this circumstance.

Did Faith Sloan steal $650,339 or $1,073,316?

In her response to the SEC’s motion, Sloan argued that while she did steal $650,339, it didn’t constitute “pecuniary gain”.

The SEC has pointed out that this pertains to a penalty provision, as opposed to the equitably basis for disgorgement they are seeking.

This Court has entered orders of disgorgement against every other promoter in this case.

Sloan provides no reason that she should be treated differently.

As to the disputed $1,073,316 amount, the SEC asserts that the forensic accountant who went over Sloan’s declaration is ‘unable to tie her total to the information provided‘.

In the alternative, Sloan herself failed ‘to indicate with any particularity
numbers out to her calculation‘.

Moreover, some of her statements regarding the lack of TelexFree related entries in a particular month are contradicted by the actual entries.

I believe the above is in relation to TelexFree’s records, which don’t sync up with Sloan’s figure.

The SEC argues that Sloan’s lack of record-keeping is the basis for any uncertainty which, as per cited case-law, is a risk she and she alone bears.

I.e. if Sloan can’t disprove what TelexFree’s records show with facts, that’s on her.

The $30,000 Sloan’s lawyer wants to keep

What with him currently being owed $55,355, you can understand why Sloan’s lawyer is eager to access the $30,000 Sloan previously paid him.

The problem is that the $30,000 payment Sloan made was in violation of a court-ordered asset freeze.

Not withstanding the funds themselves have been tied to Sloan’s participation in TelexFree.

Strangely, counsel for Sloan failed to disclose that this Court has specifically addressed on two occasions the $30,000.

On June 14, 2014, two weeks after counsel for Sloan first started
to provide legal services for Sloan, Plaintiff moved this Court to release $15,000 of these funds for a retainer.

The Commission opposed the motion explaining that she had
repeatedly violated the asset freeze including transferring the $30,000 to her attorney.

On June 26, 2014, this Court denied Sloan’s motion to release the funds.

On April 1, 2016, she again attempted to have this Court release the funds held by her attorney relying on a then recent criminal case, Luis v. United States and the Sixth Amendment to argue that the funds were not “tainted” and she was entitled to them for her legal defense.

On April 4, 2016, the Commission opposed the motion explaining that the criminal case was inapplicable because defendants only have a Sixth Amendment right to counsel in
criminal cases, not civil cases.

Moreover, the Commission explained that the purpose of an asset freeze is to ensure that a defendant does not dissipate funds during the pendency of the case so that the funds would be available for a distribution to defrauded investors upon entry of a final judgment and it is unnecessary for those funds to be tainted.

On April 7, 2018, Sloan filed a reply citing to Massachusetts state constitutional law and the Eighth Amendment while conceding that Sloan did not have a right to counsel in a civil case.

On May 17, 2018, this Court denied Sloan’s motion.

Citing these two orders, the SEC argues

his Court has previously specifically found on two occasions that the $30,000 was properly frozen and should be available if the Court ordered disgorgement as the Commission seeks here.

Counsel for Sloan was on notice since two weeks into his representation that these funds would be used for disgorgement if ordered by this Court.

He incurred fees at for the next four years squarely with that knowledge.

Counsel provides no basis for why he is more deserving of this money than victims of Sloan’s TelexFree related activities.

Yeah, Sloan’s attorney probably isn’t getting that $30,000 or, let’s face it, the rest of the fees he’s owed.

Maybe he can ask Sloan to pay him some of the cryptocurrency she’s sitting on?

Looking forward…

The SEC’s sees their partial summary judgment motion as key to resolving their case against Sloan.

If granted, the SEC states they are ‘confident that the remaining
fraud charges can be resolved without a trial‘.

Once stripped of her ill-gotten gains, the SEC isn’t anticipating much of a fight from Sloan.

Right now though Sloan is fighting to keep what she’s stolen. And as long as the stolen $1 million is in play, the dance continues.

A decision on the SEC’s motion remains pending. Beyond that the February 2019 trial looms. Stay tuned…

 

Update 20th January 2019 – Owing to Trump’s government shutdown, Sloan’s TelexFree trial has been delayed to late March.