TelexFree bank to pay $3.5 million settlement
Over two years of operations, TelexFree has employed multiple financial accounts, including domestic and international bank accounts and various online payment processors, to facilitate the fraudulent offer or sale of securities in Massachusetts.
Almost all financial institutions have terminated their relationship with TelexFree after only a few months of business.
Recently, frantic emails between TelexFree management and financial institutions paint an entirely bleak picture of continuing TelexFree financial operations.
TelexFree operations have become a risk that financial institutions are no longer willing to bear.
As described by one financial institution, “no US bank or processor… will accept your [TelexFree] business given that you are on month five of the Visa Chargeback monitoring program. You are only one of three merchants in the USA on month five so you are a real hot-potato as they say.”
–TelexFree is a “billion dollar Ponzi scheme” lawsuit, filed by Massachusetts Securities Division (April 2014)
Against the backdrop of ongoing banking issues due to the problematic nature of their business model, TelexFree hopped from one bank to another in a desperate bid to keep the company’s financial channels open.
Around August 2013, TelexFree co-owner James Merrill approached Fidelity Bank for help and was permitted to open up two accounts. That approval stretched to the granting of permission to open a third account in September.
Despite multiple banks shutting down TelexFree’s accounts after the sheer number of volumes raised alarms, it seemed TelexFree had found a long-lasting relationship in Fidelity.
Just one small problem…
The President of the bank was James Merrill’s brother, John F. Merrill.
It was under this backdrop of questionable ethics and professionalism that, after charging TelexFree with being a billion dollar Ponzi scheme, the Massachusetts Securities Division hauled John Merrill in for questioning.
The end result?
Fidelity Bank has today settled with the Securities Division and will pay up $3.5 million dollars.
In what I believe is a first in MLM regulation, Fidelity Bank has been held accountable because it ‘did not do enough due diligence when it opened the account and did not have sufficient oversight in place to handle TelexFree’s large deposit accounts.‘
Despite granting permission to TelexFree to open two accounts in August, it wasn’t until November that John F. Merrill requested his compliance staff investigate TelexFree’s business operations.
An Internet search by his staff turned up TelexFree’s legal problems in Brazil, and the bank in December told TelexFree to close its accounts by the end of the year.
All in all, TelexFree held accounts with Fidelity Bank for roughly five months. How many millions of dollars they assisted the scheme in transferring among its members is unclear.
What is clear is that, even after the company’s own accounts were shut down, Fidelity still permitted TelexFree’s owners to launder money overseas through personal accounts.
Leaning on his personal relationship with his brother, James Merrill managed to get approval for a personal account of his own and for at least one account in the name of Carlos Wanzler, the other owner of TelexFree.
Wanzeler’s last recorded transaction was to launder funds offshore into another personal account:
Wanzeler allegedly moved $3.5 million from his personal account at Fidelity Bank to an account in Singapore.
The Department of Justice had previously uncovered that this transaction was made on January 2nd:
Federal wire transfer records show that Wanzeler wired $3.5 million to the Oversea-Chinese Banking Corporation in Singapore on January 2, 2014.
This was almost six months after TelexFree opened its first account with Fidelity, and past the “end of year” deadline the bank had given TelexFree to shut down its accounts.
All in all, the Securities Division claim that $10.5 million was personally laundered by James Merrill and Carlos Wanzeler through personal accounts Fidelity approved.
Karen Schwartzman, a spokeswoman for the bank, said Fidelity Bank and its principals did not know TelexFree was running an alleged fraud. She said the bank agreed to settle with Galvin’s office rather than engage in prolonged and costly litigation.
In true “Wall Street” fashion though,
Schwartzman said the bank will be profitable this year despite the $3.5 million settlement and has ample capital to cover the payout.
How much Fidelity collected in fees from the millions of dollars TelexFree transferred through it is unclear. Rest assured though that Fidelity Bank is safe and at absolutely no risk of running up a loss this year.
As for TelexFree’s victims,
Secretary of State William F. Galvin said the funds would go to help victims in Massachusetts, who believe they may have lost as much as $90 million.
“This is a small start, but nevertheless a start,’’ he said.