telexfree-logoBroadening the scope of their complaint against TelexFree to include it being a Ponzi scheme, the SEC have filed an amended complaint on the 27th of May.

The initial complaint restricted the definition of TelexFree to that of an “illegal pyramid scheme”, with the new complaint kicking things up a notch. Much of the amended complaint reads the same as the original complaint (filed on April 17th), however there is some new information that’s worth going over.

One of Carlos Costa’s favourite arguments, and indeed that of the company’s top investors and those they continue to lie to, is that TelexFree was a bastion of retail activity surrounding VOIP service sales.

In their amended complaint, armed with actual facts and figures, the SEC completely destroy this argument once and for all.

First off there’s the obvious. TelexFree’s retail VOIP activity accounted for

$1.3 million over two years, or “barely 0.1%” of the revenue needed to pay out affiliates.

$1.3 million in retail sales might not be something to sneeze at in an otherwise legitimacy business operation, but in contrast to the hundreds of millions TelexFree took in from affiliates, and the $1 billion in liabilities they accrued (which, if the narrative was to be believed, was supposed to be paid out of retail VOIP subscriptions), the figure is entirely negligible.

That much we of course already knew (and yet to this day Carlos Costa will swear black and blue that TelexFree was sustained by retail activity), however in the amended complaint additional information is brought to light.

Referenced in the amended complaint, are the common “VOIP sales” arguments perpetuated by TelexFree management and insiders:

After the enforcement action in Brazil, the leaders of TelexFree publicly claimed that TelexFree was different from illegal multi-level marketing programs, because it had an actual product to sell – the VOIP service.

Merril, Wanzeler and Labriola can be heard on a slide presentation that was posted on YouTube on June 20th, 2013. All three tried to downplay the significance of the enforcement action in Brazil.

Merrill stated, “Inquires like this are very common in network marketing.”

Wanzeler stated, “Our company is different from any other network marketing.”

Labriola stated, “These things happen to network marketing companies over and over again.”

Gerald Nehra (appearing in a separate YouTube video), who is identified on the company website as TelexFree’s attorney, stated, “The special ingredient is that you have a real product.”

Carlos Costa (appearing in a separate YouTube video) stated that TelexFree “never was, never will be” an illegal pyramid scheme because it sell the VOIP service.

He added:

“People will pay the monthly fee [for the VOIP service]. That sustains our business.

We do not depend on everyone coming in order to pay the people who are already in.”

To anyone who has followed the TelexFree case or been even remotely involved with a TelexFree affiliate, you’ve no doubt heard the above arguments (or derivatives) parroted by TelexFree affiliates.

Here, courtesy of the SEC, is the definite answer to any such claims:

There was an actual VOIP service, but investors did not have to sell the service to get paid.

Because investors were strongly encouraged to recruit new investors and were not required to sell the VOIP service, the almost inescapable inference is that TelexFree was using funds from later investors to pay earlier investors.

The information to date confirms that the retail VOIP sales were only a tiny fraction of the money TelexFree promised to pay AdCentral investors.

Credit card and banking transactions indicate that, from August 2012 to March 2014, TelexFree received slightly more than $1.3 million from the retail sale of approximately 26,300 monthly VOIP contracts.

26,300 subscriptions over two years, that’s it. Anybody tells you otherwise or even tries to suggest TelexFree’s VOIP subscriptions were a retail success? They’re lying.

The revenues from retail VOIP sales covered barely 0.1% of TelexFree’s obligations to pay AdCentral investors who placed ads.

Because retail VOIP revenues were so small, TelexFree used money from later investors to make its payments to earlier investors.

The next time you see a Carlos Costa “news update” claiming otherwise (eg. “We do not depend on everyone coming in in order to pay the people who are already in.”), please link him to this article and politely inform him he’s telling porky pies (again).

Hell, that goes for anyone who tries to make the argument that TelexFree was able to pay investors with VOIP sales.

The primary reason for the existence of the VOIP service was nothing more than an attempt to try to negate some of TelexFree’s Ponzi ROI liabilities:

When existing investors “purchased” the VOIP service, they typically paid by having TelexFree debit their internal account for the $49.90 monthly charge.

In other words, VOIP “sales” to existing investors did not generate additional cash for TelexFree – they merely reduced the accrued payments to which the investor was entitled.

That’s it. End of story.

Other points of interest in the amended complaint are the figures behind TelexFree, pertaining to management and what they did with their funds.

TelexFree and its two owners Merrill and Wanzeler, assisted by company insiders Labriola and Craft and promoters such as Rodrigues, De La Rosa, Crosby and Sloan, raised more than $340 million from hundreds of thousands of investors worldwide.

Of note is that this figure is at odds with what TelexFree previously claimed it had taken in:

TelexFree publicly claims to have raised more than $1 billion from more than 700,000 investors.

What the story is there I’m not sure, but slight exaggeration would appear to be an understatement. If I had to guess, I’d say the discrepancy was part of the facade TelexFree hid behind, specifically in this case to create the illusion that they had enough money to pay out their AdCentral investors.

TelexFree has been a money-making machine for the individual defendants. TelexFree transferred approximately $33 million to the individual defendants, their family members and companies they controlled.

Several of the defendants used investor funds to support a lavish lifestyle of large homes and expensive cars.

As they whispered sweet nothings into investor’s ears to encourage them to hand over their money, individually, here’s what TelexFree management, insiders and top affiliates did with the funds they stole:

James Merrill

Merrill received more than $3.2 million from TelexFree.

  • on December 27, 2013, TelexFree paid $3 million to an account jointly held by Merrill and his wife
  • on December 26, 2013, TelexFree paid $136,200 to Merrill
  • between September 2012 and February 2013, TelexFree paid a total of $85,000 to Merrill, primarily in monthly payments of $7,500

Carlos Wanzeler

Wanzeler and members of his family received $13.7 million from TelexFree.

  • on April 3, 2014, Wanzeler obtained a cashier’s check for nearly $3.8 million
  • on February 28, 2014, Katia Wanzeler (wife), received $2.5 million
  • on December 26 and 27, 2013, Wanzeler received a total of $7,317,800
  • between November 2012 and April 2013, Fabio Wanzeler (brother), received more than $53,000
  • on April 11, 2014 – two days before the bankruptcy filings – Katia Wanzeler and Merrill obtained cashier’s checks for more than $25 million (one check, in the amount of $2,000,634 was payable to Katia Wanzeler)

Wanzeler’s activities are of particular interest, as he appears to have profited the most from the running of TelexFree (which explains why he was quick to flee once he knew the gig was up):

Wanzeler transferred a significant portion of the money he received from TelexFree to at least one bank outside of the US:

  • on November 25, 2013, he sent $50,000 to an account at the Oversea-Chinese Banking Corporation in Singapore
  • on January 2, 2014, he sent an additional $3.5 million to the account at the same bank

Wanzeler refused to repatriate this money and hand it over the SEC before he fled. As I understand it, these are the funds he’s likely currently living off (along with whatever else he might have stashed elsewhere, under the guidance of Joe Craft).

Wanzeler also used significant funds to build a “real estate empire”, which he acquired through a multitude of money laundering corporations in his name. All in all, Wanzeler pumped $6.3 million into 34 properties during July 2012 and February 2014.

Wanzeler also spent stolen funds on two Ferrari F340 Spyders, a Porsche, three BMWs, a Toyota Highlander and three boats (including a 40ft yacht).

Steve Labriola

Current information reveals that in 2013, Labriola received $8500 from TelexFree and $46,600 from Above and Beyond (one of Carlos Wanzeler’s money laundering companies).

Joseph Craft

Between September 2013 and March 2014, companies under Craft’s control (Craft Financial Solutions Inc. and Craft Trust Services LLC), received more than $2 million from TelexFree.

Sanderly Rodrigues

Rodrigues and companies under his control received more than $317,220 from TelexFree

Santiago De La Rosa

Magica Medica Corp., which belongs to De La Rosa, received a total of more than $2.2 million ($2.1 million of which was from TelexFree investors).

Randy Crosby

The information to date does not identify the amount that Crosby received from TelexFree.

Faith Sloan

Sloan received more than $160,400 from TelexFree.


It should be noted that the SEC investigations continue, and the above figures are by no means conclusive. Steven Labriola’s received funds for example, stick out like a sore thumb. As do Sann Rodrigues, considering he claimed to have earned “multiple millions” from TelexFree.

I imagine the actual figures collected by the individuals above will be revealed (likely after forensic accounting takes place after a Receivership or similar body is established).

Also of note is, in the case of management, the clear shift towards large withdrawals as 2013 came to close. TelexFree paid out annual ROIs, so management would have been able to see the inevitable collapse months off.

How far back they decided to opt for a bankruptcy ploy I can’t say, but it’s clear Wanzeler in particular was withdrawing an escape fund in the later months of 2013.

With the Ponzi collapse writing on the wall, TelexFree’s attempt to shaft their investors only served to cause a run on the bank:

TelexFree stated that, in the five weeks after the compensation plan changed, investors tried to withdraw $174 million from their accounts with the company.

At the time, discounting the funds management had been withdrawing in the months prior, TelexFree only had $100 million or so in the bank.

That’s what prompted the whole bankruptcy charade.

Not only that, as TelexFree CEO in hiding Stuart MacMillan was busy bullshitting the Nevada bankruptcy court with projections of $50 million a month in TelexFree VOIP sales, TelexFree simultaneously admitted that

VOIP sales under the new plan “have been disappointing” and “do not allow the company to meet its obligations.”

They were done for.

Management of course didn’t care. MacMillan had been roped in on the promise of a $300,000 lump sum payment and then $50,000 a month, and the rest of TelexFree’s management had been busy withdrawing their retirement funds in the months prior.

Investors? Fuck ’em, we’ll just bullshit our way through bankruptcy court and as long as MacMillan, pillar of integrity that he is, continues with his $50 mill a month in VOIP crap, everyone will eventually swallow the same nonsense Carlos Costa has been getting away with in Brazil for a year.

If only…


Footnote: Our thanks to Don @ ASDUpdates for providing a copy of the SEC’s amended complaint.