Twelve Defendants in the TelexFree class-action filed motions to dismiss the latest Fifth Amended Complaint.

Five motions were granted and one was partially granted, leaving six Defendants fully on the hook.

The five Defendants who successfully got the case dismissed against them are:

  1. The Sheffield Group;
  2. PNC Bank, N.A.;
  3. International Payout Systems;
  4. Garvey Schubert Barer, P.C.; and
  5. PricewaterhouseCoiopers LLP

The Estate of Jeffrey A. Babener had its Motion to Dismiss partially granted. The court granted the Babener Estate a dismissal on tortious aiding and abetting and civil conspiracy claims.

The remaining allegations against the Babener Estate in the Fifth Amended Complaint were upheld.

Defendants who failed to get the case dismissed against them are:

  1. Mauricio Cardenas;
  2. Bank of America, N.A.;
  3. Dustin Sparman and Vantage Payments, LLC;
  4. TD Bank, N.A.;
  5. Wells Fargo Advisors LLC and Wells Fargo Bank N.A.; and
  6. ProPay, Inc.

Addressing why the above Defendant’s Motions to Dismiss were denied, the court advised;

Wells Fargo and Mauricio Cardenas

The Fifth Amended Complaint adequately pleads an underlying fraud.

Bank of America

The 5CAC does not support an inference that, before June 2013, Bank of America had actual knowledge that TelexFree was operating a fraudulent scheme.

The Fifth Amended Complaint does support an inference, however, that Bank of America had actual knowledge that TelexFree was operating a fraudulent scheme by late 2013.

It is plausible … that Bank of America’s facilitation of a $30 million transfer from IPS to TelexFree on March 17, 2014 substantially aided TelexFree in absconding with victim funds.

Indeed, the day after TelexFree filed for bankruptcy, law enforcement intercepted Craft leaving the TelexFree headquarters with $38 million in cashier’s checks issued by Wells Fargo Bank; later, law enforcement uncovered $20 million in cash in an apartment connected to Wanzeler.

Importantly, on March 17, 2014, it is plausible that Bank of America knew that TelexFree was operating a fraudulent pyramid scheme, that IPS was processing payments for the fraudulent scheme, and that the transfer from IPS to a TelexFree account at Wells Fargo Bank would further the scheme.

Accepting the factual allegations in the 5CAC as true, the plaintiffs’ financial losses plausibly were a direct and reasonably foreseeable result of Bank of America’s facilitation of the $30 million transfer.

TD Bank

TD Bank’s reactions to red flags, as alleged in the 5CAC, constitute circumstantial evidence that TD Bank “actually knew” that TelexFree was a fraud.

The Fifth Amended Complaint alleges that TD Bank transferred TelexFree funds from account to account to help TelexFree conceal the source of its funds.

Given the inference of actual knowledge, these allegations are sufficient at the pleading stage to establish substantial assistance.

The same alleged facts that support an inference that TD Bank knew of the underlying fraud yet continued to assist the underlying fraud by helping TelexFree conceal and abscond with funds also support an inference that TD Bank shared TelexFree’s intent to defraud.

Dustin Sparman & Vantage Payments

When Vantage began working with TelexFree, Vantage was aware that TelexFree operated a multilevel marketing scheme that guaranteed returns for passive investments, and that TelexFree’s business model could not support the returns it promised.

Nonetheless, Vantage solicited payments processors for TelexFree and registered an entity, TelexFree, LTD, in the United Kingdom to serve the scheme’s EU-based operations.

The Court previously determined, based on a review of evidence submitted in conjunction with the plaintiffs’ motion for a preliminary injunction, that the plaintiffs have a reasonable likelihood of success on their tortious aiding and abetting claim against Vantage and Sparman.

Because the Fifth Amended Complaint states a claim against Sparman for tortious aiding and abetting, the Fifth Amended Complaint also states a claim against Sparman for “substantial assistance” conspiracy.


ProPay provided payment processing services to TelexFree from October 2012 to at least January 2014, processing at least $110 million in payments for TelexFree during that time.

Meanwhile, ProPay was aware of TelexFree’s business model and legal issues in Brazil.

By alleging that ProPay furthered the unlawful scheme — whether before or after their investments — the plaintiffs have sufficiently established at the pleading stage that their losses are “fairly traceable” to ProPay.

In related news, the class-action’s Fifth Amended Complaint also survived multiple Motions to Strike, a Motion to Remand and a Motion to Stay.

I’ll continue to monitor the case docket for updates.