Merrill: Carlos Wanzeler “fled” US to “avoid prosecution”
Resentment over TelexFree co-owner Carlos Wanzeler’s escape to Brazil and leaving of his partner-in-crime James Merrill to take the fall, might finally be starting to show.
As it became clear regulators were going to move in on Wanzeler’s $1 billion Ponzi scheme empire, the night before his house was raided he jumped in a car with his daughter and fled across the Canadian border.
After lying low for a few days (Wanzeler is believed to have bunked with some of his top investors), Carlos then jumped on a plane and escaped to Brazil. Shortly after touching down, Wanzeler used some of the stolen investor money he had stashed away to hire the services of high-profile lawyer, Antonio Carlos de Almeida Castro.
How much Wanzeler had to pay Castro to convince him TelexFree wasn’t a Ponzi scheme is unclear, but Castro was quick to draft and report a fictional account of the circumstances Wanzeler fled to Brazil under.
Castro claimed Wanzeler was not a fugitive because he escaped “before an arrest warrant was issued”. He also claimed that Wanzeler was born in Brazil and simply wanted to return home, which was “perfectly natural”.
When it was evident nobody outside of a few Brazilian TelexFree YouTube heroes were buying his story, Castro tried a different approach and adopted a tone of motherly protection:
(Carlos Wanzeler) will definitely stay in Brazil. (I will) not let (Wanzeler) go to a country that does not respect individual rights, as (we have) seen when they arrested his wife (Katia Wanzeler), (when she) hasn’t even been accused of anything.
Wanzeler’s wife Katia was arrested after she was also caught trying to flee the US for Brazil. She has subsequently been released and, to the best of my knowledge, remains in the US.
James Merrill, Wanzeler’s partner in the $1 billion TelexFree Ponzi scheme was apprehended early last month and, along with Wanzeler, is facing wire fraud criminal charges.
After being denied bail, Merrill has remained in custody for approximately three weeks. Now he wants out.
Making it to the list of reasons Merrill’s newly appointed lawyer cites as a reasons he should be granted pre-trial release, is the fact that
unlike his co-defendant in this case (Carlos Wanzeler), Mr. Merrill did not attempt to flee or avoid this prosecution, despite clear notice and knowledge of the government’s ongoing criminal investigation.
While the above argument is pretty solid, the primary “critical” argument Merrill’s lawyer raises is, in contrast, pretty weak.
Merrill’s lawyer writes
As detailed herein, many arguments made by the government at the original bail hearing are subject to significant doubt, are simply unsustainable, and/or are unsupported by evidence.
Most critically, significant doubt exists regarding the accuracy of the government’s main contention—i.e., that TelexFree sales of its VoIP product amounted to approximately 1% of total revenue, and the company therefore constitutes an unlawful pyramid scheme.
The SEC have contended that TelexFree’s retail VOIP activity accounted ‘$1.3 million over two years, or “barely 0.1%” of the revenue needed to pay out affiliates‘.
The key word there is retail, which appears to have been lost on Merrill’s lawyer. He claims
the company’s revenue from the sales of its VoIP product may have amounted to more than two hundred million dollars ($200,000,000.00).
Gerry Nehra had TelexFree affiliates operate under the premise of buying TelexFree VOIP “stock”, which was then resold back to the company. This appears to be revenue Merrill’s lawyer is trying to pass off as legitimate VOIP sales activity. Or at least suggesting that the SEC should consider it to be retail.
Fact of the matter is though, without the Ponzi scheme there would be no retail VOIP revenue whatsoever. As one US-based TelexFree affiliate put it, TelexFree’s VOIP service was “impossible to sell“.
As for evidence, Merrill’s Motion wholly acknowledges that
In March 2013, the Massachusetts Securities Division (“MSD”) began in inquiry of TelexFree.
Add to that the subsequent requests and providing of information to both the MSD and SEC, and it’s a bit silly to claim their findings are not based on evidence.
That aside, I do think Merrill might have a solid argument to justify a pre-trial release. Especially if any or all of the following proposed conditions are imposed:
- Home detention, in his residence, in Ashland, Massachusetts, 24 hours a day, 7 days per week, with the ability to leave the house only after receiving authorization from Pretrial Services for verified appointments with his lawyer or doctors as needed.
- Electronic monitoring with a Global Positioning System.
- Surrender all passports and an agreement not to seek or obtain any new passport during the pendency of this matter.
- Surrender passport of wife, Kristin Merrill, with agreement not to seek or obtain any new passport during the pendency of this matter.
- A third-party custodianship agreement to be entered into by his wife, Kristen Merrill, who has agreed to abide by any and all conditions of the third-party custodian agreement, including immediately notifying authorities if Jim violates any condition of release.
- A personal recognizance bond in the amount of $900,000, or some other amount satisfactory to the Court, secured by deeds to the properties being offered by family and friends, according to the customary practice in this District.
- The defendant will provide Pretrial Services random access to the house
I suppose given the case hasn’t gone to trial yet, it’s a bit early to expect a plea agreement, but if the tone of Merrill’s latest filing is anything to go by, I suspect we might see some dirt dished up on Wanzeler at a later date.
Carlos Wanzeler’s fugitive lifestyle and attorney costs can’t be cheap, and that money is being withdrawn from somewhere…
One of the more amusing aspects of Merrill’s motion is his lawyers questioning of the SEC case on the basis of the bankruptcy farce Merrill and Wanzeler orchestrated.
At an evidentiary hearing in this matter, the defense is prepared to meaningfully challenge the factual platform offered by the government at the original hearing.
Many arguments advanced by the government during the bail hearing have no basis in fact. Mr. Merrill does not have access to “incredibly large amounts of cash” (May 16, 2014 Tr. at 64), he does not have access to “all this unknown money that is out there” (May 16, 2014 Tr. at 53), nor does he have access to “additional accounts all over the world,” (May 16, 2014 Tr. at 52-53).
Indeed, Mr. Merrill’s signatory authority was removed from all corporate accounts in April 2014, as part of the company’s restructuring efforts
Somehow, I don’t think the SEC were referring to accounts on the books. Carlos Wanzeler also purportedly had his “signatory authority” removed to, and it doesn’t seem to have stopped him from accessing the hidden TelexFree Ponzi funds that remain unaccounted for.
Naturally we’re talking accounts “off the books” here, so arguing for Merrill’s release on the basis of TelexFree’s bankruptcy circus doesn’t appear to be the smartest of moves.
Footnote: Our thanks to Don @ ASDUpdates for providing Merrill’s June 2nd “Motion to Revoke Detention Order and for Pretrial Release and Memorandum of Law”.