SEC granted TRO against TelexFree, hearing set
Turns out the SEC don’t trust TelexFree management at all. And after the revelation yesterday that Joseph Craft lied about his position in the company while trying to make off with $37.9 million dollars, who can blame them?
The SEC pyramid scheme complaint against TelexFree was originally filed on the 15th of April, meaning it was filed on the same date as the Massachusetts Securities Division Ponzi complaint (double-whammy).
The reason we didn’t hear about it until yesterday, is because it was filed “under seal”.
Why did that happen?
In their complaint, the SEC request a temporary restraining order that would effectively freeze TelexFree’s assets. And, as the agency noted in their complaint:
In at least one prior instance, when the Commission did not seek to file a similar complaint under seal, its availability through the public Pacer filing system resulted in a defendant in a Commission action learning of a temporary restraining order and an order freezing assets that had been obtained ex parte (Ozedit: meaning the defendant was not present), before that order freezing assets was effectively served to prevent the dissipation of those assets.
In filing this motion, the Commissions seeks to to prevent such an occurrence in the future.
The Commission believes there is an ongoing threat that the defendants will dissipate assets. The corporate defendants have already transferred in excess of $23 million to defendants James Merrill and Carlos Wanzeler.
The motion was granted on the 15th, and that’s why we didn’t hear anything until the 18th – after the temporary restraining order against TelexFree had been granted and order freezing its assets had been served.
As to the temporary restraining order (TRO) currently in effect against TelexFree, it was granted after Judge Denise Casper acknowledged
the Commission has shown that
1. It is reasonably likely to establish that TelexFree and the individual defendants James Merrill, Carlos Wanzeler, Steven Labriola, Joseph Craft, Sanderly Rodrigues de Vasconcelos, Santiago De La Rosa, Randy Crosby and Faith Sloan have directly or indirectly engaged in the violations alleged in the complaint
2. There is a reasonable likelihood that these violations will be repeated
3. There is a strong indication that, unless restrained and enjoined by order of this court, TelexFree and the individual defendants may dissipate and conceal assets
4. entry of a temporary restraining order is in the public interest
In a nutshell, based on the SEC’s complaint, the court believed TelexFree was guilty of running a Ponzi scheme (technically a pyramid scheme in the complaint), and that management and their top pimps were probably going to do a runner (along with “their” stolen money) if given the chance.
The temporary order in place prohibits TelexFree, its management and top investors from
- continuing to defraud anyone
- obtain any money or property via the use of untrue statement of a material fact, or any omission to state a material fact in order to make the statements made (appear) not misleading
- engaging in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser, in the sale of offer of securities
- withdrawing, selling, paying, transferring, dissipating, assigning, pledging, alienating, encumbering, disposing of or diminishing the value of any assets held by them
The order extended to cover banking institutions, meaning assets held by the company and defendants are now effectively frozen. The Defendants were also prohibited from violating various Sections of the Securities Act (relating to the sale of securities, unregistered or otherwise).
As part of the order, TelexFree, its management and the named top investors are required within five days of being served to submit to the SEC information identifying
- all transfers or payment of funds to them or any other entity controlled by them from (TelexFree) investors
- the nature and results of any investment in which the funds were used
- any subsequent transfer or payment of the funds and
- any fees or expenses charged
- the name and address of any person(s), entities or accounts holding funds or assets derived via involvement and participation in TelexFree
- assets of every type of description with a value of at least $500 presently owned or held for any direct or indirect benefit or under control or indirect control, whether in the United States or elsewhere
- all accounts held at any bank or other financial instiutition, in the United States or elsewhere, for the direct or indirect benefit or under control or indirect control at any time from January 2012 to the present
I believe the first four points are designed to catch all the investor to investor payments top affiliates within TelexFree had been making and receiving. It was common practice for top TelexFree investors to directly accept payment from those they’d recruit, in exchange for TelexFree AdCentral positions (bypassing TelexFree’s accounting records).
The idea was that this would leave a paperless trail, however both the SEC and courts appear to be well-equipped to handle this type of fraud. No doubt Faith Sloan, Sann Rodrigues, Sandy Crosby and Santiago De La Rosa all figured their Ponzi proceeds wouldn’t show up on TelexFree’s books, and as such that they’d be safe.
Sucked in fellas.
Perhaps most crushing of all, and sure to be causing stomach ulcers among TelexFree management and named top investors, is the final order that they, within five days, must
take such steps that are necessary to repatriate and deposit into the registry of the Court in an interest bearing account, any and all funds or assets that presently may be located outside of the United States that were obtained directly or indirectly from (TelexFree) investors.
As additional overkill, the final orders also stipulate none of the defendants can open up new bank accounts or accept any further funds from TelexFree investors. Nor are they able to destroy any and all information relating to their involvement in TelexFree (records, documents, books, tape recordings, correspondence, contracts, agreements, assignments, computer media or other property).
The court also granted the SEC permission to begin serving discovery requests on the defendants (including the conducting of depositions), indicating that they’ve already got a fair idea of who and what to ask to aid their case against TelexFree and friends.
Attempting to put on a brave face after surely realising her Ponzi career is all but over, Faith Sloan wrote on her Facebook wall:
Who is on the run? LOL! I spoke with the Massachusetts SEC this morning. And my lawyer is on it. No more comments by me on this legal issue.
She later wrote on her TelexFree Power website:
April 17, 2014 The Massachusetts SEC division is somehow in love with me. No comment.
One can only imagine Sloan was referencing the kind of love that goes on between inmates behind bars.
Looking forward, a hearing for the SEC’s requested permanent injunction has been set for April 24th at 2pm. Nothing is of course certain, but I think one can safely assume it too will be granted.
Update 24th April 2014 – TelexFree have filed an emergency motion and had the permanent injunction hearing, for defendants TelexFree, Carlos Wanzeler, Jim Merrill and Joe Craft, postponed till May 7th.
A hearing on April 25th has been scheduled to decide upon a permanent injunction being put in place against the remaining defendants (Steve Labriola, Faith Sloan, Santiago De La Rosa and Sann Rodrigues).
The current temporary restraining order (which applies to all defendants), is to remain in effect till the April 25th hearing.