TelexFree linked to Colombian drug cartel?

As the $1.8 billion dollar Ponzi scheme TelexFree created financial havoc around the world, one of the prominent recruitment hotspots to emerge was the Dominican Republic.

One of the ringleaders driving the recruitment of new TelexFree investors was Jorge Mercedes Cedeño, a pastor at a Dominican Protestant church.

Following the arrest of Cedeño in connection to laundering funds for a Colombian drug cartel, authorities are now looking into his ties with TelexFree.

Targeting religious groups to invest in scams is nothing new, with scammers honing in on strong belief structures and abusing positions of authority to steal from their victims.

Such was the case of Jorge Mercedes Cedeño (right), who Colombian police allege

pastor Jorge Mercedes Cedeño interacted between Dominican Republic and Colombia, using his “religious leader” status to launder large amounts of money registered as “alms from the faithful.”

These “alms” were infact sourced from Clan Úsuga, a Colombian drug-trafficking cartel.

The ‘Clan Úsuga’ forms part of the ‘Los Urabeños’ cartel which stems from a paramilitary group associated with the now weakened ‘Cartel Norte del Valle,’ with several drug shipments to Dominican Republic detected in recent months.

“According to the investigation, this man, using his position as leader of a Christian sect, acquiring assets abroad in exchange for large sums of money sent to Dominican Republic disguised as offerings from parishioners,” said Colombia’s Attorney General in a statement.

Also known as Los Urabeños, Clan Úsuga is

a Colombian, drug trafficking neo-paramilitary group involved in the Colombian armed conflict.

It is considered the most powerful neo-paramilitary group in Colombia with some 1,200 members in the inner circle of the organization.

How long Cedeño has been laundering funds for Clan Úsuga is still under investigation. In the lead up to TelexFree’s shutdown in April 2014 though, he was apparently doing the same with funds he encouraged Dominicans to invest in the scheme.

The Justice Ministry’s Anti-money Laundering Unit on Wednesday reviewed computer files looking for evidence that a Colombian cartel used a local evangelical church to launder money is the same on that swindled hundreds of Dominican out of millions of dollars in the Telexfree scandal last year.

Whatever funds Cedeño squirreled away from TelexFree investors remain unaccounted for, but might be recovered (partially or in full) through efforts to uncover how and where he laundered funds for Clan Úsuga.

Underscoring all of this is Cedeño’s calculated targeting of victims through his position of authority in the church.

Organized crime + religion + a $1.8 billion dollar Ponzi scheme = millions of dollars in losses.

What penalties Cedeño will face now that he’s been arrested in Colombia are unclear. Ditto whether or not he’ll be extradited to the Dominican Republic to face charges for his scamming of victims through the church.

Previous attempts to investigate TelexFree ringleaders in the Dominican Republic have been lukewarm at best.

In other TelexFree news, recent videos from Carlos Costa that attempt to discredit E&Y’s audit report into TelexFree appear to have backfired.

The report, part of the criminal case into TelexFree brought by Acre’s Public Prosecutors, concluded that data provided by TelexFree suggested it was a Ponzi scheme.

TelexFree initially tried to suppress the report, but after that failed resorted to angry YouTube videos attempting to debunk it.

Costa’s latest efforts sheds some more light on the specifics of Ersnt & Young’s conclusions.

We observed that the services and products offered by Telexfree are paid in advance by affiliates.

However, this element itself is a feature that aggregate to the other and becomes relevant when corroborated the feasibility study.

Thus, as noted elements that indicate the lack of financial support in the Telexfree network, we note that the prepayment would have been used for short-term settlement with members of senior levels of the network.

What they’re basically saying there is that TelexFree took newly invested funds and shuffled it around to pay off existing investors.

Due to the high earnings generated to publishers and partners, the contracts of products and Telexfree services define the cost position reserve (CRP), which deducts 20% of the compensation advisers and partner’s obtained during the contract period so that the promoter position in the network is maintained.

Thus, we understand that the CRP constitutes a form of encouraging reinvestment and hence maintaining the promoter in Telexfree network indefinitely.

The result of this reinvestment is to support the pyramid scheme for longer.

This fact can be corroborated with the scenarios presented in the feasibility study of the services contained in the discussion below, because when renewing contract with Telexfree the 13th month.

according to the CFE manual, at least 70% of the remuneration of a distributor to be coming from direct sales.

In this regard, we note that the proportion relating to direct and indirect compensation arising from the announcement post, is 67% of the remuneration generated by Telexfree network.

Regarding the direct commission, we observed that these represent 30% and indirect commission 3%, both on the total remuneration of the network.

The examination of contract legitimacy guides legal aspects that is not part of the scope of our audit.

However, by comparing the database and contracts, we found that would not respecting the limitations of payments involving daily wage binaries, trinários and royalties.

In addition, we observed that the promoters agreement not explicit all the conditions of use of the product.

The high remuneration promise in a short time, with low sales effort is indicative of the existence of a pyramid scheme.

As a result of our procedures on this aspect it was observed the existence of elements indicating promises of high earnings and high financial returns in a short time.

In addition, we can see the attraction of advisers and partner’s by high yields, since it and its promoters networks, have low use of minutes and a high volume of ad posting, activity is allowing access to the volume of benefits to the universe of publishers, without generating economic value for this activity, and representing 67% of total compensation of Telexfree.

We also point out that we observe the existence of computer programs that performed posts ads automatically, a fact that was corroborated in the database, and that would be evidence of low effort (work) to achieve the targets for the gain of benefits.

Based on the procedures performed and the results obtained and the responses presented in this regard, we note that there are elements that indicate that the activities of Telexfree have characteristics of a “financial pyramid”.

As shown in the question this, we see elements that indicate that even in a financial pyramid would be possible to have a product or service, but with low utilization.

The results of our tests indicate that in addition to a low use of VoIP minutes, there were limitations regarding the functionality of the product warranty, as Telexfree guarantee only 10% quality in service provision and does not use minutes made provision for commercial activities.

We also note that the main promoters did not use the minutes that had at their disposal; and the use of minutes of Telexfree network comprises 0.23% of the total available to its users. (translation credit goes to Joaldro Dalla Costa)

The E&Y audit report is expected to be a major contributing factor to Judge Thais Borges final decision, due out later this year.

The E&Y report is also being translated for use by US authorities, to aid them in the criminal case against TelexFree and its founders, Carlos Wanzeler and James Merrill.