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”.
I certainly didn’t expect Merrill to take the fall for the guy who escaped to Brazil – his lawyer couldn’t make many billable hours from that move.
That is the logical next move to Merrill… blame the guy who’s not here to defend himself.
I wonder how many of the Telexfree members also had ” clear notice and knowledge of the government’s ongoing criminal investigation” and how many are hearing about it for the first time.
It’s obvious that TelexFREE, Merrill & Wanzeler kept under tight wraps the government’s ongoing investigations from not only the promoters/investors but also from all of the other people like the consultants they had engaged.
It is also becoming more obvious that the fool McMillian was clueless and merely wanted the $$$ for his gig. Now he is unemployed once again.
I really think that Merrill will turn on Wanzeler to cut a plea deal with the SEC & DOJ. Time will tell.
Why would the SEC be interested in cutting a deal? They can’t get to Walzeler. Merrill is toast.
I believe the heavily armed TelexFree Rambo is being briefed and dispatched on a search and rescue mission to get Merrill out of the claws of the U.S. gov. in time for the 4th of July celebrations.
Because of the secretive nature of the TF ponzi operation and the possibility of hidden cash, it would be nice to have someone on the inside spilling the beans.
This sure would make it easier for the authorities in the pursuit of the other defendents as well as if they broaden the scope of the investigation to include more ponzi pimps.
I’m not saying that is what is going to happen (ie. SEC cutting a deal with Merrill), but it is a logical argument.
Merrill is trying to play himself the Mr. Cooperative and Law abiding, but I believe that he would have made a run for it himself given more time. It looks like he missed the boat so to speak similar to Wanzeler’s wife.
Remember authorities captured him while driving along Route 9 a state highway that leads to an airport in either direction. I know I’m speculating here, but I wouldn’t call the circumstances surrounding his capture free of suspision.
Law enforcement generally cuts deals with lower level people so they can get to the top level, not the other way around.
Merrill may squeal like a pig to implicate anybody he can find in the hope of getting some leniency, but I think all of the records seized and otherwise available will provide ample information to find the net winners, bank accounts, property, etc., without having to go easy on Merrill.
The message must be: If you’re going to run these scams, be ready to face severe consequences. PERIOD.
And what about Steve Labriola ? What’s the latest on this guy ? He as “the face” to many of the affiliates and he’s a big part of this mess as well. Why isn’t he behind bars or monitored so he doesn’t make a run as well ?
Steve Labriola is working night shift as manager at Domino’s Pizza to keep up with home bills.
Merrill needs to spill the beans on ALL of them. He was taken by con-artists and as a “laranja” – that a guy that cons in Brazil set up to take the fall when things go bad as it did for TelexFree – Merril is entitled to disclose all he knows about the crooks.
The fact that he and Katia are the only ones arrested to date is very puzzling. Can’t justice find any crime to charge the others with? Seriously? And make it stick.
Wanzeler is getting away with it. Surprisingly, the Brazilian justice system is also a failure in terms of arresting Wanzeler. But the Brazilian system was good to free millions from telexfree.
Merrill is an idiot. He is the only one in jail while the others have escaped with a fortune. If Merrill had any brains, he would turn on all the other leaders, cut a deal with the government, so they can reduce his jail time.
He should spill the beans on labriola, rodrigues, wanzeler, sloan, craft, and all his other crime buddies. Wanzeler is out of the country so obviosly he is outside u.s. justice, but most of the other leaders appear to be here in USA. Either way, I hope Merrill stays in jail until 2034.
Why not 2054?
Sadly, Wanzeler will probably run for congress in october elections and then win parliamentary immunity
Are you serious?
It would take time… Brazil never will extradict a brazillian even if he had commited a crime in another country. But it doesn’t mean that he won’t be punished, because if US and Brazil have an international agreement to law enforce certain situations like tax evasion, pyramid schemes and etc., he could be sentenced in US and pay for his crime in Brazil with their penal code as a standard.
Let me do an example: if he is sentenced to be jailed to 40 years in US, he could be jailed in Brazil because of that, but not more than 30 years (accord to brazilian’s law), and it will happen only if they had such international agreement.
None to less, telexfree is also being persecuted in Brazil, and with the US information about this being a pyramid scheme, it will be used against them (telexfree) in that country. He will be jailed.