TelexFree bankruptcy over? Status conference cancelled.
Following the publication of TelexFree Trustee Stephan Darr’s status report a few days ago, a status conference pertaining to TelexFree’s bankruptcy proceedings was to be held today (February 5th).
Upon reading Darr’s status report however, it seems Judge Hoffman didn’t like what he saw.
Consequently, Judge Hoffman ordered the status conference cancelled and that Kurtzman Carson Consultants make Darr’s status report available on their website:
To be honest, I’m not 100% sure what this means.
Hoffman’s ordering that Darr’s report be placed prominently on their website (it was already available in the “court documents” section, suggests that he wholly endorses the findings. Chiefly that TelexFree was a $1.8 billion dollar Ponzi scheme.
It also suggests he wants as many eyeballs on it as possible, in particular those of TelexFree investors who might still be in denial.
Bankrupty law is uncharted territory for me, so I’m not versed in what happens next – but it seems to me that if Judge Hoffman is able to terminate the bankruptcy proceedings, that certainly seems to be where this is going.
Either that or converting the Chapter 11 proceedings into something more relevant to that of a Ponzi scheme, such as a Chapter 7 liquidation.
I think Darr’s report pretty much spelled out the true nature of TelexFree for Judge Hoffman, and now with the writing on the wall there wasn’t much point having a discussion about it.
Stay tuned for updates on this particularly interesting development…
A quick overview for what a status conference is:
NOLINK://onlinebankruptcyblog.com/bankruptcy-law/bankruptcystatusconference/
A First Interim Report should normally give an overview over all relevant matters. I have only read liquidation reports earlier, so I don’t know much about restructuring reports.
Reports will eventually lead to
* a plan (liquidation or reorganizing)
* a §341 Creditor meeting
SUMMARY
Interim Reports are meant to keep the creditors informed about the progress of the case, to give them all relevant information.
The status hearing was probably cancelled because it wasn’t necessary.
firstly , how in the name of heaven, did merrill and wanzeler manage to SWING a chapter 11 bankruptcy, in the face of an SEC and MSD [massachusetts securities division] investigation?
this bankruptcy is SO OVER, this case is going back to the SEC & MSD, and will probably restart like zeek with a receivership, to mop up everything [i think].
this is probably why the SEC or homeland security, while lending a hand, have not been bending backwards to assist darr in his bankruptcy proceedings.
from nolo:
judge hoffman may decide its not a worthwhile cause to successfully restructure a pyramid business, and dismiss the bankruptcy.
TelexFree listed its creditors as its top 30 owed affiliates (Carlos Costa’s wife was #1 on the list from memory).
Having a status conference with them, in light of the Trustee’s report would indeed appear to be not necessary.
Still, I hope the Judge publishes a reason for his decision at some point.
@anjali
As soon as they found about the investigation they ran off to the bankruptcy court.
They honestly thought Ponzi schemes could legitimately file for bankruptcy…
hahaha, that is so darn cute 🙂
judge hoffman may be in shock, lets give him time to publish his reasons.
Hoffman in shock? Not likely.
Its proper the affiliate/creditors be given an opportunity to understand why there is not going to be a reorganization. What better place than on the KCC-LLC website?
I expect the US Trustee will Motion to Dismiss the Bankruptcy or convert to Ch 7 shortly and Hoffman will refer to Darr’s report as his reason to approve one motion or another. There won’t be much more to it than that.
Since liquidation can be handled in or out of bankruptcy Darr may continue as Chapter 7 trustee or he be appointed as a receiver.
that was a joke hoss. am i such a poor ‘joker’? [no pun!] 🙂
yes, even i think darr will continue in a chapter 7 bankruptcy or receivership, whatever judge hoffman decides. he has enough expertise now, in this matter.
but, instead of wasting 7 months for darrs report, i’m wondering why the SEC or MSD did not intervene in judge hoffmans court, and state their case against the chapter 11 bankruptcy, due to the pyramid/ponzi fraud.
but, we can be sure that telexfree’s list of top 30 ‘creditors’ ie their top affiliates, will make a 180 degree jump from the ‘creditors’ column to the ‘debtors’ column. then they will also go into ‘shock’.
OZ the reason that the case has stayed in bankruptcy was clearly stated by the SEC when the case was still in Nevada.
The SEC agreed to keep the case in bankruptcy because, as stated by the SEC, Bankruptcy Court gives the feds greater powers to claw back funds paid out in last six months as preferential payments, along with greater penalties for Bankruptcy fraud than the SEC securities violations allow.
Looks like Merrill and Wanzeller walked into a bear trap with their slick move to shed their promised payouts.
Sorry I missed the joke. Blurg
The SEC essentially made their argument against Chapter 11 back in Las Vegas, and the net effect was the removal of all of Telexfree’s management and attorneys, the appointment of a trustee and transfer of the case to Massachusetts.
I don’t think its accurate to say the 7 months were wasted. Darr has accomplished the same tasks an SEC sponsored receivership would have needed to undertake anyway.
The filing of this bankruptcy under Chapter 11 has had very short term effect and will in the end be a negligible event in the saga of Telexfree.
There is easily ten to fifteen more years to go here.
Their claims as creditors will almost certainly be denied either by Darr under Chapter 7 or by a receiver. Are you saying they will become debtors because they are net winners and will be subject to clawback? That’s surely possible.
yes, this definitely fits the bill of a bankruptcy fraud, and the lawyer firm which assisted this fraud, is none other than the great ‘greenberg traurig LLP’ [will they be held liable too?].
well, that’s five years more of rent free,free food living, for merill and wanzeler. i guess they’ll be glad.
They probably believed too strongly in the automatic stay.
They even filed a Motion To Declare TRO Illegal (or something similar), i.e. they tried to get the Nevada Bankruptcy Court to declare certain Orders from the Massachusetts court illegal, “because of violation of the automatic stay”.
Wonder who gave them that idea? 🙂 Nehra?
nah. nehra and babener were providing the MLM advice.
advice regarding fighting off orders of the massachusetts bankruptcy court, by running to the nevada bankruptcy court, must have come from their ‘bankruptcy’ legal advisers:
1] Gordon Silver (postpetition bankruptcy counsel)
2] Greenberg Traurig (prepetition and postpetition securities and bankruptcy counsel)
feel free to pick, which one gave the ‘idiot’ advice 🙂
They probably got the idea themselves, with some assistance from various consultants or law firms. I don’t think Nehra suggested it.
It was rumoured that the bankruptcy had been planned as a “potential plan B” already from January 2014.
The timeline (approximate dates):
* Greenberg Traurig can have suggested some “necessary steps”, e.g. “hire a new CEO just in case”.
* Someone (Babener, Sheffield or Nehra) can have recommended Stuart A. MacMillan as an “experienced interim CEO” (or even as an affordable one).
Postpetition professionals (Greenberg Traurig, Alvarez & Marsal, Gordon Silver, Stuart A. MacMillan).
Prepetition professionals.
merill and wanzeler, were apparently so impressed by their own chapter 11 bankruptcy filing, that they went ahead and hired a ‘public relations firm’, for damage control in the post petition period.
what, they thought a ‘fresh start’ under chapter 11, and a public relations jamboree, would sweep everything under the carpet, and solve all the ponzi problems?
Joele Frank, Wilkinson, Brimmer, Katcher (postpetition public relations advisors):
well, i hope joele frank etc, were not paid any advance fees, because they didn’t do a fat lot of good.
I guess you guys have forgotten that Ympactus had tried the “bankruptcy exit” in Brazil back in September 2013 and, after having it denied, they tried again just to have it once more denied in February 2014.
So it seems they have decided to just try it again, that time in the US, and see if Americans would by it.
Nope, I tried to focus solely on TelexFree USA. But most of it was from memory, I didn’t check exact dates or other details.
They actually TRIED to get the TRO be declared illegal, a violation of the automatic stay. Further details can be found in the April 24 update:
NOLINK://behindmlm.com/companies/telexfree/telexfree-court-status-24th-april-2014/
The question was about WHO gave them the idea of using bankruptcy as an exit strategy. Nehra or other advisors?
I believe they got most of that idea from themselves, but with the assistance of various consultants and lawyers. The “timeline method” tried to identify which lawfirm / which advisors.
bankruptcy is merely the scammers latest attempt to stay out of jail when they know the scam is over. they think they can make the venture look legit by filing it and may even dodge an investigation.
Since Ympactus and Telexfree (USA or whatever) are basically the same company, with the same owners, in different countries, and they have tried the “bankruptcy strategy” in Brazil way before their “US version” has collapsed.
One can imagine that strategy was planned by the time they got shut down in Brazil or it was never a plan at all, just some desperated measures (they wanted to again try in American soil).
The funniest part of that happened when a Brazilian judge denied Ympactus’ first bankruptcy request and made clear one of the reasons for that was the fact Ympactus said Telexfree had broken the contract with them(selves) and was now figuring as one of their top creditors.
He then asked how could they own money to themselves. The answer? Just another poker face from Carlos Costa.
It was clear to everyone at that point they were just trying to desperately unfreeze funds in Brazil and send that money to their US accounts “legally” through bankruptcy procedures.
Ympactus/Telexfree “bankruptcy master plan” soundtrack: Yakety Sax – youtube.com/watch?v=ZnHmskwqCCQ
one interesting ‘factoid’ in the nevada story is that telexfree applied for chapter 11 bankruptcy on a Sunday Night, just Two Days before the SEC raided its office. this close call has led to a 7 month wastage of time.
the SEC seem pretty confident this case is coming back to them , because their case filing in nevada said:
so, the SEC knew that chapter 11 would be chucked, in favor of liquidation, at some point, in boston. and now judge hoffman is going to do just that.
It had to play out, but the outcome was predestined once the US Trustee Motioned to appoint Darr and the SEC concurred.
At that point the the Telexfree attorneys and consultants started cutting deals for fees and this was over. Darr was never going to reorganize the company under Chapter 11 and he announced as much four months ago.
Getting Darr into position to begin the process of liquidation consumed very little time.
Oh, fun fact: Brazilian telexzombies, amongst them Carlos Castilho, famous for his weekly 2 hours long Youtube videos praising Telexfree, at first were all “Yeah! Darr is our savior! He will save our beloved company! Praise the Lord!!!”.
After Darr’s latest report, they are now saying he’s sold himself to the US justice and is now acting on the plot to destroy Telexfree…
Don’t you just love people in eternal denial mode?
Telexfree filed Ch 11 on 4/13/2014
Darr appointed Trustee on 5/30/14
Darr Motions for first Rule 2004 Examinations 6/13/2014
So, two months between the Ch 11 filing and Darr’s first substantive motions to gather information.
I used that theory to start with in June 2013, but I gave it up in September the same year when nothing really happened in the U.S. (“nothing” in terms of legal actions).
It would have been different if the prosecutors in Brazil actively had initiated some legal actions in the U.S., e.g. some complaints to DoJ about money laundering (or something similar) when Brazilians joined TelexFree in the U.S.
I expected “something” to happen because of same ownership / same website / etc., e.g. I expected Merrill and Wanzeler to be subpoenaed for information much earlier (by the court in Acre, via some U.S. court or authority).
In terms of legal actions, Brazilian authorities and U.S. authorities have seen TelexFree USA (including international operations) and Ympactus as “separated legal entities”. It may change in the future and be seen as a whole rather than as separated entities, but currently it’s about separated legal actions.
A receiver would probably have used the same amount of time, but receiverships are generally more flexible than bankruptcies (based on court orders rather than statutory rules).
Your conclusion is based on the theory that the bankruptcy court will dismiss the case because of fraud?
I don’t think that will happen. If it does happen, it will be based on recommendations in the Creditor Report rather than on fraud allegations.
uh, norway, i don’t know what you mean by ‘creditor report’, but darr’s report clearly delineating a ponzi/pyramid fraud, is reason enough for judge hoffman to dismiss the chapter 11 bankruptcy. ‘fraud’ companies are not ‘re-organised’ or given a ‘fresh start’ which is what chapter 11 tries to accomplish.
this will go to chapter 7 liquidation, under the eye of the district court of massachussets, where the SEC will pursue their civil case against telexfree. i don’t think it will be converted to receivership.
and the SEC will add bankruptcy fraud charges, to their civil/criminal cases.
yes, and this is worrying. the fact that control over the ‘original website’ of telexfree, is in the hands of a canadian registrar is also worrying.
to build a ‘complete civil/criminal’ case against telexfree and merrill, data from brazil and the website are both necessary. a lot of time may get wasted in inter government/agency negotiations .
another thing is, that unlike burks/zeek, merrill/telexfree has no settlement with the SEC. i have a dirty feeling, that the moment judge hoffman dismisses this bakruptcy and announces a liquidation on the basis of ponzi fraud, merill will run to the district court boston [mass], and file a motion to dismiss [or some equivalent], challenging the SEC’s finding of ‘securities’.
after all, he has access to some money and top lawyers, he’s on bail from his criminal case, he will try to chase the SEC in circles.
I cited and linked to some sources in post #1.
I meant that plan, §1106(5). The current report is a §1106(4) report.
A dismissal of the case now, initiated by the court itself, will mean the court will need to reverse some decisions, even some sound decisions. It will need to lift the stay and give the company back to Merrill and Wanzeler.
Dismissal of a case will usually require some additional factors, e.g. “the estate doesn’t have enough assets to pay for the work” or “the court doesn’t have the competence or jurisdiction to handle the case as a whole (it isn’t primarily a bankruptcy case)”.
I believe you should remove the argument “the moment judge Hoffman dismisses this bankruptcy” from your logical reasoning. It may or may not happen, so you can’t treat it like it will happen. You will need to replace it with “IF judge Hoffman …”.
I had the same dismissal theory initially based on some factors, e.g. based on the lack of flexibilty in bankruptcy rules. But I had to change my theory when the case wasn’t dismissed in the late May 2014 hearing, when the case took another course than I had predicted.
I have also had “conversion to Chapter 7” theories, but I had to change those theories too. It may or may not happen, so I can’t see it like it will happen.
the chapter 11 can be dismissed ‘or transferred’ to a chapter 7 liquidation. you missed post#3. in this case the trustee has presented a report, from which the bankruptcy court can easily infer, that it is impossible to successfully reorganize a ponzi/pyramid scheme.
from nolo:
well, then norway, please supply your theory on WHY judge hoffman cancelled the status hearing, and asked for darr’s report to be displayed on the claims portal.
do you think he’s upset with darr progress, or the bankruptcy filing?
the thing is, even a transfer to a chapter 7 bankruptcy, which will be under the aegis of the SEC civil case against telexfree, in the district court, will not bring ‘immediate results’.
like zeek , the trustee may start ‘collecting orders’ for repatriation of funds to the bankruptcy estate, but actual’collection’ and ‘distribution to creditors/victims’ will remain pending till the civil trial is resolved.
the civil trial will be delayed, due to the DOJ’s success in staying ‘discovery’ in the civil case, from the district court.
no discovery = no civil trial.
in telexfree therefore, only the ‘Criminal Trial’ is of any importance.
the civil case will trudge along as background noise, and the criminal conviction of merrill/wanzeler, will bring it to a halt later, by the principle of ‘estoppel’:
so, if merill/wanzeler are convicted in the criminal trial, they cannot argue ‘no securities’ in the civil trial. game over.
It doesn’t mean the case will need to be dismissed, but it may be dismissed. There’s a difference between “will be” and “may be”.
It doesn’t mean the case will need to be converted to a Chapter 7 case either. It may be converted.
Post #3 use “judge hoffman may decide”, but your reasoning after that has changed to “judge hoffman will decide”. Your own idea, the one you found on the internet in post #3, has probably been corrupted by some of your other ideas. 🙂
The status hearing was probably cancelled because it wasn’t necessary. The report didn’t contain any elements that would require decisions from creditors, or “any legal issues to be resolved”.
The May 27 2014 status hearing had several legal issues to be resolved, and it required an oral hearing. It resulted in the appointment of a Trustee, i.e. it resolved a dispute between different parties. The professionals were hired “nunc tunc” something on a temporary basis, so they later could be fired correctly by the Trustee.
The current status report didn’t contain any legal issues to be resolved by the court. An oral hearing wasn’t required, and it wouldn’t have had any practical function.
I was unable to follow your reasoning in that post as a whole, e.g. when you brought in discovery, criminal case, estoppel.
Civil case(s) and criminal case(s) are usually separated. They can come to the opposite conclusions, e.g. O.J. Simpson could be found “not guilty” in the criminal case but he could still be found liable for civil damages.
There’s 3 different cases here (not including the class actions).
1. Criminal case against Merrill and Wanzeler
2. Civil case against Merrill, Wanzeler, Labriola, etc.
3. Bankruptcy case.
Only the second case has been affected by stay of discovery. That stay will eventually be lifted.
The cases in Brazil will be a different set of cases, i.e. Merrill and Wanzeler can potentially be sued in BOTH countries. They acted as organizers for Ympactus in Brazil, and they probably received some of the “profits” from Ympactus’ operations in Brazil.
norway, are you saying, that even after reading darr’s report , judge hoffman will/may continue with the chapter 11 bankruptcy?
in the face of darrs report, of course, the status hearing became ‘unnecessary’! why will judge hoffman’s court, sit down with carlos costa’s wife and top affiliates of telexfree, to discuss how much is owed to them, for heavens sake!
wait for an order from judge hoffman, converting this to a chapter 7 liquidation, under the SEC civil action.
the DOJ from the criminal case, had intervened in the civil case, asking for a stay of discovery, since discovery could help merrill build a defense for himself in the criminal case, and give him undue advantage.
the stay on discovery was granted, hence the civil trial cannot commence till the criminal trial is over.
if guilt is proved for ‘security violations’ in the criminal trial, merrill cannot argue innocence on the same subject in civil court. oj simson was different, because since they could NOT prove guilt criminally, they had to find comfort in getting him civilly.
as the telexfree civil trial cannot start before the criminal proceedings are over, they are of no importance.
after the bankruptcy is converted to liquidation, it will be tagged to the civil case, so while work will continue, no ‘results’ such as payments to ‘creditor/victims’ will commence, till the DOJ wins the criminal case, and the civil case is ordered in favor of the SEC and bankruptcy court, by the principle of ‘estoppel’.
what are you not getting, norway ?
this is what the DOJ has said in its MOTION FOR LEAVE TO INTERVENE AND FOR A STAY OF DISCOVERY PENDING RESOLUTION OF PARALLEL CRIMINAL PROCEEDINGS:
basically what the DOJ said was – why go into the costs and headaches of two parallel cases, we’ll get these guys criminally, and then this civil case will also be almost over, due to that.
Merril and Wanzeler are not charged with criminal “security violations,” but multiple counts of wire fraud and conspiracy to commit wire fraud.
Yes, the case will most likely continue as a Chapter 11 until the court gets a recommendation from the Trustee. It will neither be dismissed nor converted before that.
It was unnecessary because there were no legal issues to be resolved by the court. The court could simply order that the report should be made available through KCC “in a prominent place” = “don’t just drown it among all the other court documents”.
I believe that is the best explanation.
I don’t get that idea about “placing the bankruptcy case under the SEC civil action”. It sounds like you’re trying to make the TelexFree case become more similar to the ZeekRewards case.
merril/wanzeler are charged with wire conspiracy/fraud, not while playing golf, but while running a ponzi/pyramid scheme.
so the charges arise from the ponzi fraud [securities violations].
mr hoss, we have thrashed this through in the zeek thread, no purpose in repeating it.
uh norway, did the trustee recommend cancellation of the status conference, to judge hoffman? no. judge hoffman took that decision all by himself.
similarly judge hoffman will take the ‘decision’ on converting the bankruptcy, all by himself, based on the trustee’s ‘report’.
trustees/receivers ‘report’ and judges ‘decide’.
The charges arise from the misrepresentations and money transfers associated with Merril and Wanzeler”s management of Telexfree’s business (a ponzi/pyramid) but nobody has to prove there were security violations to prove any of that.
Merril and Wanzeler were not charged with criminal securities fraud (which you incorrectly call a “securities violation.”
Security violations are civil, NOT criminal, therefore there is no need for the DOJ to prove security violations, and they have not charged Merril or Wanzeler with securities fraud. Thus any idea that you have formed that Darr can do nothing until the Merril & Wanzeler have been convicted of “securities violations” in the criminal case is entirely misplaced.
The DOJ may prove fraud and conspiracy to engage in wire fraud without ever mentioning securities because the accounting proves the existence of the ponzi, the misrepresentations concerning the source of payments proves the fraud, and the fact that they used the wires proves the case. Who knows if they will be convicted of wire fraud since the threshhold is beyond a reasonable doubt. But they will not be “convicted” of any security violations.
Darr need not worry about any of it anyhow. He can proceed based on the preponderance of evidence, and as his report to the court shows there is ample cause to convert, and liquidate the estate regardless of what happens in Merril and Wanzeler’s criminal trial.
The court will follow the law, and it can’t convert the case at the current stage. But the court can easily cancel a hearing.
Conversion of a case can first be done after the Plan (mentioned earlier) have been filed, and creditors have had a chance to object to the plan.
Conversion of the case to Chapter 7 is plausible but not necessary. A company can be liquidated under Chapter 11 too.
Dismissal of the case is highly unlikely. If it had been dismissed, it would have happened much earlier (e.g. in May 2014). Dismissal means “restoring status quo” to how it was before the petition date = give the ownership back to Merrill and Wanzeler. That doesn’t make much sense.
so, securities fraud are criminally chargeable too.
The DOJ may prove fraud and conspiracy to engage in wire fraud without ever mentioning securities because the accounting proves the existence of the ponzi—hoss
ponzi = securities violation = securities fraud
you may use any terminology from above, according to your comfort. in court , if you use any of these words you have to prove, WHY it is a security. the accounting [no external funds] can be a pyramid fraud , why necessarily ponzi? law is technical.
i saw a couple of criminal ponzi appeals, regarding overturning convictions of the district court [eg, sellamerica].
the criminal cases were not decided on the ‘accounting’ but by doing the proper howey test for securities.
i think neither of us knows the ‘exact process’ of how and when the court will convert the bankruptcy chapter 11, initiated by merril/wanzeler.
suffice to say, the court will not accept the bankruptcy as it stands, and will run this bankruptcy, as arising from the SEC/telexfree civil case. the SEC complaint says:
– Enter a preliminary injunction, order freezing assets,
– Require defendants to disgorge their ill-gotten gains and losses avoided, plus prejudgment interest, with said monies to be distributed in accordance with a plan of distribution to be ordered by the Court’
– Order defendants to pay an appropriate civil penalty pursuant to Section 20(d} of the Securities Act
assets have been freezed already by SEC, they will release it to the trustee for distribution later.
guess what hoss? the criminal indictment of merrill/wanzeler by the DOJ, is based on ‘pyramid scheme’ not ‘ponzi scheme’!!
so, in the telexfree criminal case, the presence of a pyramid scheme has to be proved. that is easier than proving ‘ponzi scheme’ with howeys/investment contracts!
proving a pyramid scheme can be based on the lack of external funds [think burnlounge], misrepresentations etc, it does not need to go into complexities of howeys prongs/investment contracts.
you can read the indictment here:
docs.google.com/viewer?a=v&pid=sites&srcid=YXNkdXBkYXRlcy5jb218ZmlsZXMtd2Vic2l0ZXxneDo2ZDZiOWNkMDQ3NjE3MDE3
I hate to be the one pointing out the obvious, but these two terms are interchangeable in regulatory filings.
Darr’s TelexFree report also refers to the company as a pyramid scheme. Where hybrids exist US regulators tend to go with pyramid scheme terminology.
What term they use has no bearing on the investigation or subsequent legal action.
i hate to be the one to disagree with the boss, but please note that:
the zeek indictment was based on ‘ponzi’
the telexfree indictment is based on ‘pyramid’.
these are not interchangeable since they require different proofs in court.
have you seen howeys test applied to a pyramid scheme, like what burnlounge was alleged to be?
did you notice that in sell america, where it was claimed to be a ponzi/pyramid scheme, the pyramid ruling was upheld, but ponzi ruling was denied on appeal.
if these words were interchangeable, we would not see such examples from a court.
What part of “interchangeable” or “Ponzi pyramid hybrid” did you not understand?
Zeek Rewards was a Ponzi scheme. TelexFree was a Ponzi scheme.
The owners of both schemes are likely to spend a significant part of the rest of their days in prison.
In other news, still no cure for cancer.
may i be allowed to answer?
neither the zeek or telexfree indictment says “Ponzi pyramid hybrid”
zeek establishes ‘ponzi’ so that’s what they have to prove in court.
telexfree establishes ‘pyramid’ so that’s what they have to prove in court.
i think a legal ‘indictment’ is a very serious document, words are never ‘interchangeable’. darr being a trustee, can use more ‘casual descriptions’ if he likes, but in an indictment? never. no.
I don’t care what terms the indictment uses. The business models described therein (in both cases) are Ponzi/pyramid hybrids.
Stop focusing on irrelevant nitpicky garbage that has no bearing on either case.
Actually they have to prove wire fraud and conspiracy to commit wire fraud, no more and no less.
It is….. but…. Merrill and Wanzeler have not been charged with it!
While a ponzi by its nature constitutes a securities violation and perpetrates a fraud, it is not necessary for the DOJ to allege or prove securities fraud (or the existence of a security) to convict Merrill and Wanzeler of wire fraud and conspiracy.
The elements of securites fraud and wire fraud are not the same. Apparently you believe they are.
You would have Darr unable to marshall assets and make distributions until Merrill and Wanzeler are convicted of a crime for which they have not been charged. Obviously there are inconsistencies and problems with your approach.
Right
1]one day merrill was running a ponzi/pyramid hybrid, and committed wire fraud/conspiracy
2] one day merrill was running a ponzi scheme, and committed wire fraud/conspiracy
3] one day merrill was running a pyramid scheme, and committed wire fraud/conspiracy
4] one day merrill, randomly committed wire fraud/conspiracy, without any underlying fraud.
which three explanations would be acceptable to a court? [ hint: ONE answer is wrong!]
logic: wire fraud/conspiracy is not generated out of thin air, but arises out of some fraudulent underlying scheme.
method : prove the underlying fraud and hence show that wire fraud/conspiracy occurred.
The wrong answer is that you think that security violations have to be proved.
Presuming, of course,
* your logic is correct
* they are the only three possibilities
1) it isn’t
2) they aren’t.
really hoss! how wonderfully direct of you!
just come on out and say : Your’e Wrong!
must be the worlds easiest and bestest argument.
easy peasy!
if there is an allegation of ‘ponzi’, in a criminal indictment, there are some possibilities :
1] the scheme is a pure ponzi ie individual investors pay in money, to the promoter, who pays ‘profits’ from ‘new investor’ investments. [think madoff]
2] the scheme includes some ‘product sale’ to investors, and that ‘product’ is supposed to generate the ‘profit’, via the efforts of the promoter. at this point howey got invented by the Supreme Court. [think SEC vs howey]
3] fast forward to ‘ponzi’/’pyramid’ schemes, where howey test has to be established, to prove the ponzi [think koscot, sellamerica ]
but, hoss, except for sell america why cant i find criminal trials of ‘ponzi/pyramid’ schemes? every case i look at [except sellamerica] ended in plea bargains? where’s the case law 🙁
The criteria for mail/wire fraud are these ones:
1. Intent;
2. A “scheme or artifice to defraud” or the obtaining of property by fraud; and,
3. A mail or wire communication
It’s about an unspecified type of fraud, covering both pyramid scheme, ponzi scheme, securities fraud, general fraud, fraudulent contracts, etc.
Sell America was about whether or not it was securities fraud. SEC or the Public Prosecutor argued that the contract should be interpreted as it had been orally presented (as a low risk investment), rather than based on the written presentation.
thank you, mr norway, sir.
of course ‘wire fraud’ can be accomplished in many ways.
the court would just like to know, under which “scheme or artifice to defraud” , the wire fraud was conducted.
why should this be an issue at all ?
There’s no need to provide criteria, the prosecution is quite specific when it says in the indictment;
and then goes on to list eight transfers (counts 2 through 9) as proof of execution of said scheme
You’re confused. Not only is the Howey test long “established” but it has nothing to do with proving “the ponzi.” The Howey test is used to determine whether securities are being offered. That is its only use.
You can not use Howey to prove a ponzi, but you can use Howey to prove/disprove that a ponzi was offering securities.
You are trying to use a meat thermometer to measure tire pressure. It will never work.
Call it “elements” rather than “criteria”?
1. Intent is a required element. “having knowingly devised and intending to devise “ is about the intent
2. “Scheme or artifice to defraud” is a required element. “a scheme and artifice to defraud and to obtain money and property by means of materially false and fraudulent pretenses representations and promises” is about that.
3. Mail (or wire) is a required element. “transmitted and caused to be transmitted by means of wire communications in interstate and foreign commerce writings signs signals pictures and sounds for the purpose of executing the scheme” is about that.
I suggest you look at ponzitracker.com There may be some material there.
Though there are similarities, a complaint for criminal securities fraud is different from a complaint for wire fraud or conspiracy to commit wire fraud.
Compare the applicable statutes invoked in the Madoff Complaint alleging criminal securities fraud
Nolink://www.justice.gov/usao/nys/madoff/criminalcomplaint.pdf
with the statutes invoked by the DOJ when charging Merrill for wire fraud.
Wire fraud is obviously much easier for a jury to understand and prove than criminal securities fraud so it should be no surprise that the DOJ is going for multiple counts of wire fraud rather than try to convict on the more complex and difficult to understand and prove criminal charge of securities fraud.
It would not surprise me if you researched wire/mail fraud cases you would find case law applicable to ponzi/pyramids.
en.wikipedia.org/wiki/Mail_and_wire_fraud links to en.wikipedia.org/wiki/List_of_confidence_tricks
uh, hoss this statement is so seriously mangled, its been in a train wreck.
firstly, howey is used to prove ‘securities’, in a transaction, which may or may not be a ‘ponzi’.
secondly, ‘ALL’ ponzi schemes sell securities. some are in the shape of the financial markets securities we are familiar with, and some in the form of investment contracts, which are outside the regular financial markets space.
a] simple straight up ponzis, only need to show the flow of money, to prove the ponzi. they don’t need howey.
b] complex ponzis, where investors are playing a role/have an exchange of products, need to prove the howey test.
so, if you call a scheme, a ‘ponzi’, it means that securities ARE being sold, and you have to categorize the scheme as a] or b], and prove your case accordingly.
question: will the telexfree ponzi/pyramid, fall in a] or b], and hence how will the telexfree ponzi have to be proved?
That’s utter nonsense, Anjali.
A criminal fraud and/or wire fraud case doesn’t even have to touch on whether or not “securities” or “pyramid scheme” are involved.
Which is why the prosecutions used the heading “General allegations about the nature of pyramid schemes” and following the heading “Manner and Means of the Scheme and Artifice to Defraud” no further mention is made of the term “pyramid scheme”
A “pyramid scheme” or an “endless chain recruitment scheme” or a “ponzi scheme” are in violation of United States Code Title 18, Sections 1349, 1341 and 1343, just as are many other forms of “fraud” and “wire fraud” and can be prosecuted without making mention of any of the terms “pyramid, endless chain recruiting or ponzi”
did you miss norways post#61 ?
any wire fraud/conspiracy, will have an underlying ‘scheme to defraud’.
if a ‘quack’ uses ‘wire’ communication to propagate his quackery, you will have to prove his quackery [fake degrees etc]
if a ‘real estate scam’ uses ‘wire’ communication to cheat, you will have to prove the cheating [fake paperwork etc]
if a ‘pyramid scheme’ uses ‘wire’ communications to propagate, you will bloody well have to prove the pyramid.
ditto for ‘ponzi scheme’.
wire fraud can arise from a whole host of underlying reasons, HOW the wire fraud occurred, is the main question to be addressed in court.
you cannot say: there was ‘sometypeof’ fraud which used ‘wire’ communications, and hence there was wire fraud. sounds silly.
It’s not a question that needs to be addressed.
TelexFree investors invested funds in the scheme and were paid subsequently invested funds. There are no unknowns in TelexFree’s compensation plan.
You’re pulling your Zeek Rewards spam bullshit here again…
And the fact we’re talking about an 850 million dollar plus fraud with purportedly in excess of a million victims gives the prosecutors the luxury of choosing which charges and tactics will have the greatest chance of resulting in a successful prosecution/s.
United States Code Title 18, Sections 1349, 1341 and 1343 as well as USC 981 (a)(1)[C] and 28USC 2461[c] together with the terrabytes of information they have in their possession, give them ample scope for obtaining convictions without the need to define whether Zeek was a ponzi or a pyramid, or any other of the many variations of fraud and wire fraud covered under the relevant codes.
1] if an indictment starts with a first heading of ‘nature of pyramid schemes’, it becomes obvious the indictment deals with a ‘pyramid scheme’
2] under the heading “Manner and Means of the Scheme and Artifice..’ ‘pyramid scheme’ is mentioned again, at the top of page 5.
3] under the heading “Manner and Means of the Scheme and Artifice..’ an entire ‘reasoning’ is submitted for why the scheme is a pyramid.
4] this reasoning is not about ‘accounting’ or some ‘general fraud’, but exclusively targeted to ‘pyramid fraud’. they are the same arguments that are used, in say, a civil case like burnlounge/koscot, ie no retail, recruitment commissions, focus on recruitment, no or barely any consumption of products, misrepresentations etc.
5] point 4 is clearly an argument to ‘proving’ the pyramid. the DOJ fully expects to prove the pyramid in the criminal court, but, for some reason y’all don’t want them to!
6] once the DOJ proves the pyramid they’ve got the wire fraud/conspiracy all tied up!
Not so much as don’t want them to, as accepting it’s a given. It’s not a point of discussion.
Why do you continue to unnecessarily harp on about this?
..because LRM and hoss were unnecessarily harping on about how the DOJ does not have to prove the pyramid in court. i was just clearing their confusion.
They don’t have to. They’ll just state the facts, as Darr recently did.
That TelexFree was a Ponzi scheme is not in question. Wanzeler and Merrill were indicted on charges of wire fraud and conspiracy to commit wire fraud.
Moving on…
I didn’t make the same claims you do. I have never claimed a criminal case (Zeek, TelexFree) will need to prove Ponzi or pyramid scheme. I have always claimed the opposite, that Ponzi scheme simply is a description used for communication purposes.
You will need to prove that he received money or property under false pretenses, and that communication or payments by wire was a part of his devised scheme or artice to defraud.
A quack was a poor example for wire fraud, because quackery doesn’t need to be typically about money or property.
i strongly disagree with that. the telexfree indictment in itself, clearly states the DOJ’s delineating of a’pyramid scheme’. they have to prove this indictment in a criminal court.
lets agree to disagree.
of course norway. it will have to be proved that the quack used wire communication, to sell his quack products to somebody and collect payment from them, under his devised scheme or artifice, which was to make money from quackery.
so, you prove he was a quack [fake degrees], and it follows his wire communications were a fraud.
If history is any guide, it will be approximately two years from when Telexfree was shut down until Wanzeler and Merrill have exhausted all the legal avenues of appeal available to them and this fraud case finally makes it into court and then probably a further two years until a final judgement is reached and sentence enacted.
Just think how many far fetched scenarios Anjali can invent in three years.
Howey tests for securities…. OK
….so does Charles Schwab Inc.,but its not a ponzi, so it follows that the sale of securities is not what defines a ponzi even though all ponzis offer and sell securities.
+++++++++++++++++++++++
Meeting the Howey criteria proves that securities were offered (suggesting why Peter parted with his money in the first place ) but does not demonstrate that that Peter’s money was used to pay Paul.
It is of course the robbing of Peter to pay Paul that defines a ponzi.
Therefore to determine if there is a ponzi one must look beyond Howey to the promoter’s intent and representations, the cash flow analysis and the financial sustainability of the program….not only whether securities were offered.
Considering the criminal wire fraud charges briefly. The DOJ does not have to prove beyond a reasonable doubt that Merril ran a ponzi or that he offered securities, but only… beyond a reasonable doubt… that Merril used the wires and mail to “defraud and to obtain money and property by means of materially false and fraudulent pretenses representations and promises.”
All things considered it does not appear that it will be difficult to do.
Darr will not have to “wait” for the outcome of the Merril trial to marshall assets and distribute because the question for the jury is not whether Merril ran a ponzi/pyramid or offered securities.
EVEN IF Merril were acquitted of wire fraud based on the criteria of “beyond a reasonable doubt” it would little hinder (if at all) Darr who only has to prove that he is authorized to act based on a preponderance of evidence.
(Ozedit: That TelexFree was a Ponzi scheme is not in question. Wanzeler and Merrill were indicted on charges of wire fraud and conspiracy to commit wire fraud.)
All they will do is hold up the facts and figures. Providing proof != proving something.
Again, and anything further will be marked as spam, whether TelexFree was a Ponzi scheme is not under question.
and the DOJ will have no problem in proving the ‘pyramid scheme’ they have alleged in the indictment. just like burnlounge. no retail, all recruitment, and recruitment
commissions, this is an easy case.
and the SEC civil telexfree case also clearly says ‘pyramid scheme’ selling ‘securities’ so a conviction from the district court will create estoppel in the civil case too, because a ‘pyramid’ will have been proved.
Whhhhhhhyyyyyyyyy dooooooooooooeeeeeeessssssssss sheeeeeeeeeeeeeeee keeeeeeeeeeeeeeeeeep goooooooiiiiiiiingggggg ooooooonnnnnnnn aaaaaaaboooooooouttttttttt ittttttt?
I understand you will say that one can not look beyond Howey since Howey itself measures the significance of the investors contribution to profit expectations and if significant enough then the scheme is not a ponzi.
That is unfortunately a chicken vs the egg discussion which we have beaten to death.
Soon enough the facts will speak for themselves.
Why do people feel compelled to spray unintelligible symbols on the side of derelict buildings ???
Why do trolls troll ???
The great unsolvable mysteries of life
My comment was about “I have never claimed”.
I have never claimed that prosecutors will need to prove Ponzi or pyramid scheme in the criminal cases against organizers in neither Zeek nor TelexFree.
I have claimed that “Ponzi” or “pyramid scheme” are descriptors, similar to e.g. “boiler room fraud”, “Nigeria fraud”, “white van fraud”. They are used for communication purposes, e.g. to simplify something and to make it become more understandable.
Indictments will have an informal part, e.g. a description of the scheme and how it was operated. And then it will have a formal part = the formal charges. A jury will only need to answer the formal part.
Right. To find the defendant guilty on the formal charges the trier of fact (judge or jury) need not find every allegation true beyond a reasonable doubt, nor necessarily even true at all.
Pyramid schemes pay the participants like that? 🙂
And so do matrix schemes, e.g. “forced matrix with spillovers”. And so do cyclers, and so do cash gifting schemes.
“Robbing Peter to pay Paul” can be common for many types of schemes, so you will need some additional factors to make it become typical for Ponzi schemes.
That’s why you won’t find any legal definitions for Ponzi schemes, you will only find some “descriptions” based on how some known Ponzi schemes have operated.
What additional factors would you add?
You will need something to separate it from recruitment based schemes, where profit only can be paid out if additional investors join after yourself. Ponzi schemes will need a factor not related to the recruitment of additional investors.
That factor is probably some false proofs for a “profit generating mechanism”, e.g. a vague but believable story about how the profit is being generated or how it will be generated in the future, something both early investors and late investors can believe in.
Ponzi schemes will also need something to prevent investors from withdrawing too much profit too early. They will need delays between money coming in and money being paid out.
Great. Next time I will add a factor that is “not related to the recruitment of additional investors,” emphasize that a ponzi needs a believable story that “both early and late investors can believe in” and indicate that ponzis are defined by having “something to prevent investors from withdrawing too much profit too early.”
Anything else?
Hey, Oz, you may like this:
Source (PT-BR): acrealerta.com/capa/menu/noticias-da-hora/telexfree-urgente-ernest-yong-protocola-laudo-pericial-sobre-legalidade-da-empresa.html
Note: according to TF’s Facebook profile, Carlos Costa will make an appearance on Monday 23rd, probably to play the victim once more and blame the results on EY being paid by “the government” or “powerful companies”… You know the drill…
Just another info: “Acre Alerta” is known for being a “pro-Telexfree” portal and we’re not sure they really had access to part of the audit report or are just making things up to increase their website’s traffic.
Anyway, have fun.
This link is better:
conjur.com.br/2015-fev-12/defesa-telexfree-laudo-piramide-inconclusivo
Which basically says “E&Y Report says TelexFree shows signs of financial pyramid”, then TF lawyers say “hey, that’s not conclusive”
O M G.. ARE YOU SERIOUSSSSS?!?!?!?!?!?! the facepalm levels on this matter are astronomical.
I wonder how Ernst & Young have managed to come up with vague conclusions like that? 🙂
“Show signs of” is the same conclusion various government agencies came to in February 2013
Currently the first link seems to be better, with its latest update “UPDATED TO 11h07min (Acre time) – Excerpts from the Report:”. But it’s missing a lot of information, e.g. about the AdCentrals.
the judge did not ask for the E & Y if it was financial pyramid or not.
This is the ultimate goal. The E & Y responded to 60 questions of the judge on the evidence. And the evidence were confirmed by the expertise of E & Y. The E & Y does not condemn. only confirms that the evidence is positive. the conclusion is pyramid or not the judge based on the expertise of the answers to 60 questions.
the expertise is clear. conclusive. said yes, that the evidence that the judge saw the case are confirmed. what judge wanted to know is clear. the conclusion now is it. clues were confirmed. have not doubt that the sentence is a matter of time.
is inevitable and very clear. … this is the end… my only friend…the end
questionnaire website Justice of Acre
diario.tjac.jus.br/display.php?Diario=3050&Secao=374
One problem with the report is the expression “transfer of balance”. It doesn’t clearly separate between internal transactions (“monopoly money”) and external ones (real money).
The internal transactions can never be counted as equivalent to any monetary value.
It doesn’t specify in which direction either. “Between Promoters and Partners” can be in both directions. I had expected the report to be much more specific about factors like that.
– – – – – – – – – – –
A similar problem, internal transactions not separated from real monetary transactions.
It isn’t very understandable. 🙂
– – – – – – – – – – –
A similar problem, counting VOIP minutes rather than amounts of money paid for the services. BOTH factors can be of interest, but the amount of money should be more important than the amount of minutes.
what does this mean? is the report saying 33% ‘retail’ was going on in telexfree? or 67% ‘retail’ was going on !! 🙂
there’s something wrong with these percentages, or there’s a translation error!
point to note however, is that brazil has decided, that telexfree was a pyramid, so it will move for a wrap up, from hereon .
since the criminal trial of merill/ wanzeler in the district court of massachusetts, has precedence over the civil trial, here’s a quick update of how things stand at the criminal trial stage:
1] according to the speedy trial act, the trial of a defendant has to start within 70 days of the indictment, unless the court allows exclusion , for a variety of reasons , which includes complexity of the case.
2] telexfree criminal case has been designated as a’complex case’ due to humongous data, cooperation and witness testimony required from foreign countries[mainly brazil], and the sheer numbers of people involved etc.
3] a third interim status conference, was to be held on feb 10,2015. this conference has been rescheduled to april 13,2015.
reason:
@anjali
It means AdCentral ROIs made up 67% of the commissions TelexFree paid out. The remaining was mostly recruitment commissions, with whatever fraction of a pecentage remaining being actual retail sales.
in reference to the above, the criminal district court of massachusetts, has been encouraging the DOJ, to:
this means the court does not want the DOJ to bog itself down, with too much hair splitting, and on the basis of some ‘clear and conclusive documentary evidence’, prosecute as early as possible.
maybe end of this year, we may see the criminal trial commence, because even merril has been harping on, about how he wants a speedy trial, to you know, ‘clear his goodname’. i wonder how merril feels after the E&Y report?
since merill didn’t bother to answer that question, let’s ask a fresh one.
how does merril feel about the sentencing handed out in massachusetts district courts?:
Jan 21,2014:
Feb 3, 2015 :
if i was merril, i wouldn’t be writing to the district court, ‘demanding’ an early trial!