TelexFree owners withdrew $25M just before bankruptcy
Reymundo Torres: once the company comes back everybody is going to receive their money.
-snippet of a TelexFree social media discussion, published 6 hours ago
Although it’s sort of died down, one of the more persistent assertions TelexFree affiliates are making is that the company is flush with cash. The picture painted is that TelexFree would easily be able to pay out the $1 billion it accumulated in ROI liabilities.
Contrasting with this rosy vision however, is the reality that continues to be conveniently ignored by many of TelexFree’s affiliate investors. Having filed for bankruptcy just days before, we’ve already covered how TelexFree CFO attempted to flee with $37.9 million in checks as an FBI led raid was executed.
Now, as part of an exhibit of the SEC’s request for a jurisdictional change in the bankruptcy proceedings, comes even more sordid details of management’s last minute cash-grab before the Titanic-like TelexFree ship went under.
Exhibit 3 of the SEC’s jurisdiction change motion is a transcript of the hearing that led to the SEC being granted a TRO against TelexFree on April 16th. The dialogue in the transcript is mostly between Frank Huntington, an attorney with the SEC and Judge Casper, who up until recently was presiding over the case.
Amazingly, on the day of the ex-parte hearing, Huntington revealed that TelexFree management, despite having already filed for bankruptcy, were attempting to ‘withdraw money (from) one of the banks (SEC had) identified‘ held accounts belonging to TelexFree.
Unfortunately how much money was being withdrawn, which bank the withdrawal request was sent to and how made the request was not disclosed.
Meanwhile inbetween the April 11th checks Joe Craft was caught with and the April 16th withdrawal request above, TelexFree made one further attempt to deplete the coffers, despite knowing full-well that later that weekend they would be filing for bankruptcy.
On Friday, even though they knew they were about to file for bankruptcy, Mr. Merrill and the wife of the defendant (Carlos) Wanzeler, went into a bank and came out with $25 million in cashiers checks.
At the time of publication, whether the $25 million Merrill and Wanzeler’s wife’s withdrew has been recovered is unclear. The amount Craft was caught with was $37.9 million, so I’m not sure where the additional funds came from.
These are not people you can trust. They are moving a lot of money. They have already diverted $30 million in the last four months or five months that we’ve identified in our papers.
There’s plenty more money unaccounted for, and they’ve got — we’ve got to do our best to stop them right now.
Well said Mr. Huntington, well said.
As it stands now a hearing is scheduled today (24th of April) to decide whether or not a permanent injunction will be entered into against TelexFree.
For an idea of how that hearing will go, I’ll now leave you with the argument Mr. Huntington made that led to the granting of the current TRO:
Huntington: Your honor, every single one of the individual defendants, apart from Mr. Craft, who is the accountant for the enterprise, every single one of the others has made public statements at seminars, many of which have been videotaped so that you’re able to see them on YouTube, they’re all on record publicly promoting the TelexFree service but really promoting how you can paid for essentially doing nothing.
They’re all actively involved.
Thanks to several hours of watching YouTube videos myself and transcribing what I could, there are plenty of examples of each of those people helping to promote the scheme and helping explain how great it is, how much money you can make for virtually no effort and without — they’re all active enough these people — well, Merrill, Wanzeler and Labriola are officers – they certainly know this.
Judge: And then De La Rosa, Crosby and Sloan are promoters counsel?
Huntington: Yes… they’re all on record promoting the scheme, explaining how great it is and how you get money for doing little.
They all know the justification for this. The reason why it is supposedly not a pyramid scheme is that they have a supposedly real product that they’re selling, this VOIP service.
And they do have a real product.
The trouble is, the sales of that product generate a tiny amount of money, a million dollars based on the last two years’ worth of credit card payment processing data that we were able to get. That’s whereas they’ve taken in at least $300 million.
They’ve incurred obligation to pay, if they honor the promises, a billion dollars that we know of, and there is no way in the world that the amount of money they’re taking in from selling the actual product, which is way over-priced for what it is, and hence, hard to sell, they all know that they can’t possibly be satisfying the promises based on the sales of the product.
The only way they’ve been keeping this going for as long as they have is because they keep on recruiting new members, a classic Ponzi scheme and pyramid scheme.
We haven’t been able to do an investigation directly against the defendants yet because the — until yesterday, the US Attorney’s Office was operating in secret. We couldn’t reveal ourselves without tipping things, so we had to wait until the search warrant was executed.
So we’re relying on what we’ve been able to get from banks and brokerage firms, the payment processors (Ozedit: iPayout), independent third-party sources. So we don’t know everything, obviously, what the defendants have in their possession, and so it’s harder to prove their state of mind right now than it will be after we get discovery from them.
But it is a real plausible inference, it’s more than plausible, it’s got to be true that they know the money coming in is from people participating in this ad central program where they place the ads. The money is not coming in from selling the product. So they have got to know.
In the case of Mr. Rodrigues, who has experience with pyramid schemes — obviously, they know how this works, and they know the money they’re paying out is coming from new people they’re bringing in.
Mr Craft, he’s not making public statements, but he’s preparing financial statements, so he really knows where the money is coming from, and financial statements that they have represented as being accurate in terms of what revenues they’re bringing in. And revenue figures that we can’t document at all based on the financial information we’ve seen.
So it’s fair to include them all, your Honor, it’s fair to name them all, and it’s fair to have the asset freeze apply to every one of them.
Once we undertake discovery from the defendants, we hope to learn a great deal more. But we certainly believe we have enough on the record now to get the relief that we’ve requested.
Judge Casper agreed, and went on to grant the SEC a temporary restraining order.
How tomorrow will turn out when the same court decides whether a permanent injunction is entered against TelexFree, should now be pretty obvious.
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.
I introduce you Carlos Pina AKA “supply” one of the biggest promoters in the Dominican Republic, in this video he acknowledge of earning over 1 million dollars already.
The beauty of this video is that Carlos Pina being translated in English:
I wonder if U.S. prosecutors know half the story of how millions and millions were made in Brazil and how a Brazilian Judge froze all of TF’s money and assets way back in June 2013 for the same reasons.
Use google translator and see all that Brazil has published about TelexFraud: g1.globo.com/topico/telexfree
Sann also allegedly used key front-end Brazilian illegal, undocumented, visa overstayers Boston area immigrants to promote the scheme via Facebook to the Brazilian community in both the U.S. and Brazil.
They know. JJ. They know. In fact, Mass SecState’s Securities Division specifically stated that they were contacted by a Brazilian journalist regarding TelexFree, and they began their investigation then.
K Chang: now they have to be careful that the main players don’t flee the country to avoid prosecution and imprisonment.They must have put money away in Brazil, another country or with trusted friends in case the *hit hit the fan with authorities.
No wonder this people are fanatics. Look at this guy, omg!
What are the chances of pimp Sloan being brought to justice now she deleted all her youtube vids
Oz, is there the possibility that the 25 million cashier checks from Merrill and Wanzeler wife are the same as the ones caught with Craft during the raid?
The videos still exist somewhere and the Feds know how to find them. Most servers keep backup copies in the event of litigation.
I hope Faith Sloan spends some time in jail, she needs to.
@Restelo
I thought about that, but the numbers don’t add up. Craft was caught with $37.9. Still, I suppose there might have been some overlap. I’ll make the necessary changes to the article.
Article updated with news of TelexFree’s emergency motion seeking to delay the permanent injunction hearing being granted.
CASHIER CHECKS
$ 74.91 JC REAL ESTATE
$ 728.44 JC
$ 50.03 JC
$16,970,714.14 TELEXFREE LLC *
$ 27,855.57 TELEXFREE LLC
$ 6,152,341.44 TELEXFREE LLC *
$ 1,968,777.06 TELEXFREE LLC *
$ 429,120.31 TELEXFREE LLC *
$10,398,000.00 TELEXFREE DOMINICANA
$ 2,000,634.76 KATIA B. WANZELER
———————
$37,948,000
16,970,000
+6,152,000
+2,000,000+1,968,000
+ 429,000
———-
=25,519,000 = most likely the same Cashier’s Checks
Is your math supposed to add up?
At least some of the cashiers checks were paid for on the 11th. The $25 million attempt to withdraw is alleged to have taken place on the 24th or 25th. Hard to see why anyone would attempt a withdrawal on the 24th to pay for some cashiers checks that had already been paid for on the 11th.
Nope. I rounded down to whole 1,000 amounts, and ignored the 27,000 amount.
The first part is the actual amounts …
If you want the exact amount, you can probably calculate it yourself.
You seemed to have ignored whatever you needed to ignore to come up with approximately $25 Million. You dropped off the Dominica amount and the Wanzeler amounts too. I have no idea what you were thinking but ignoring cashiers checks in the total sum of approximately $40,000 is not a rounding error.
From Federal Bankruptcy Court, Las Vegas, Nevada concerning JOINT Administration of the Chapter 11 filings…..
ETCETERA
What was that about? The court obviously had jurisdiction. “The joint case” is case 14-12524, 14-12525 and 14-12526, filed together as a joint case.
A court must first analyse and establish its own jurisdiction. It shouldn’t come as a complete surprise to you that it did exactly that?
This is not the first time Pastor Julio Silva have been scamming the brazilian community in the boston area. It goes back over decade. When will these people stop it? Maybe when they see some punishment.
2003-2009 – National Lending Mortgage – Closed by the state of MA because of fraudlent documents
2009-2012 – Hope Debt Solutions – Helping people repair their credit score, after selling them fraudlent mortgages
2010-2011 – Omni World trade – Selling gold and representing gold mines
2012-2014 – Telexfree Boston – Team Builder –
What is next? Wings network group or click prime?
Excellent resume. I’m sure he knows this business inside and out.
I must have misunderstood you. I thought you said that the Bankruptcy Court in Nevada had no jurisdiction because Telexfree was only a mailbox company.
You must have meant that the court HAD jurisdiction because Telexfree was a duly constituted Nevada company, conducting business in Nevada filing bankruptcy in Nevada instead. My bad.
I interpreted the “on Friday” in the oral hearing to be about Friday April 11th. Page 53 in the transcript.
Before you start a discussion about details like dates and amounts, please check the initial question in post #1?
I simply gave people a list of the amounts, and one EXAMPLE showing that the $38 million and $25 million can have been about the same checks.
If you come to a different conclusion, please focus on that rather on the details in my posts? Try to answer it with “NO, there’s absolutely impossible that the $25 million and the $37.9 million can have been about the same checks, because …”.
I pointed out that the bankruptcy court doesn’t have the correct jurisdiction for other than the bankruptcy case, e.g. it can’t rule in conflict with the TRO.
I have simply looked at the realities of the whole case, including the 2 Massachusetts complaints. You have probably looked at the bankruptcy case as something separated from the Massachusetts cases.
The SEC lawyer came to the same conclusions as I did, but added much more details to the arguments.
The SEC lawyer argued for a change of venue, not that Nevada had no jurisdiction. His conclusion was nothing like yours.
That was explained initially in the other thread. The court would have been able to continue through all the initial steps, but it would suddenly come to a point where jurisdiction issues would have prevented it from making decisions.
“Jurisdiction issues MAY arise IF the Massachusetts court doesn’t reject the 2 complaints and the TRO” isn’t a valid legal argument. The court will only analyse its CURRENT jurisdiction, not a POTENTIAL one. “Lack of jurisdiction” would first have become a valid legal argument AFTER or IN the May 2nd hearing.
It’s valid when I’m posting it here as basis for a prediction. A prediction will always be hypothetical. A prediction will focus on the RESULT rather than on all the different details.
The SEC lawyer came to the same conclusion as I did = the bankruptcy case should probably be transferred to the Massachusetts court. She has pointed out similar factors as I did, but with different words.
* “Change of venue” and “transfer the case” is about the same thing.
* “The Debtor’s Companies, etc. are centered in Massachusetts” is about the same thing as “the Nevada company is a mailbox company”. We have looked at similar factors, but from slightly different perspective. We have both looked at the realities of the case as a whole.
You’re mixing up arguments and conclusions.
“Jurisdiction issues” is the argument, “the case will probably be transferred to the Massachusetts court” is the conclusion (the main prediction).
You predicted that the Court in Las Vegas would have no jurisdiction over the Bankruptcy case because Telexfree was a “mailbox” company.
That prediction was a flop.
You have managed to misinterpret it (as usual). 🙂
The Massachusetts cases will eventually come in conflict with the Nevada bankruptcy case.
The “mailbox company” argument was about that the company’s business operations were organized from Massachusetts. It didn’t have any real business activity in Nevada (other than recruiting promoters).
I focused on the REALITIES of the cases as a whole, but I didn’t check any law theories or laws. Laws are normally about the realities rather than about constructed law theories.
Here’s my initial post with the PREDICTION.
I specified “AFTER the initial hearings”. Please don’t ignore the “AFTER”.
I didn’t specify on which grounds there would be conflict between different laws. I didn’t analyse any laws, only the realities.
I used “lack of jurisdiction / justiciability”. A case can be unresolvable in court / the court can be unable to make a valid decision based on its limited jurisdiction.
“Mailbox company” was about where the company physically and operationally was located, and which TelexFree company the promoters signed into (interpreted based on comments here).
Recruiting promoters was the “real business activity” everywhere Telex showed it face…. In Brazil, Dominica, Mass, Rwanda and yes, Nevada, California, and Timbuktu. To somehow conclude that because Telexfree had less activity of this type in Nevada than it had somewhere else does not deny the fact that there WAS business activity in Nevada.
I do not know what reality you think you are focusing on but to say “I focused on the REALITIES of the cases as a whole, but I didn’t check any law theories or laws. Laws are normally about the realities rather than about constructed law theories.” is gibberish.
It’s the reality. I posted the prediction based on general knowledge about TelexFree rather than based on legal knowledge. I even SPECIFIED it in the initial post.
You have misinterpreted “real business activity”.
Selling unregistered securities isn’t a real business activity, it’s an illegal activity. Recruiting people into a pyramid or Ponzi scheme is an illegal activity.
You will need to separate between “real business activity”, “illegal activity” and “meaningless activity”.
* Selling the VOIP service to bona fide end users is a “real business activity” if it generates any significant revenue.
* Selling VOIP service to fake customers isn’t. It’s a method to generate false and misleading statistics about how the business operates.
Go share your theories with neophytes. The bankruptcy filing is based on the premise that Telexfree had “real business activity” and it will treated as such until proven otherwise.
Your Prediction is: The case will be “rejected or transferred….after the initial hearings” based on “lack of jurisdiction / justiciability.”
Sorry. That’s the wrong answer.
The Court has not rejected the case, and if the Nevada Court lacked jurisdiction as you believe it could not sign a valid order transferring the case to Massachusetts.
Your prediction was poopy.
The “initial hearings” was used vaguely. The main point was about the lack of jurisdiction / lack of justiciability of the case, not about WHEN and WHERE in the process that would be discovered.
It was a PREDICTION, not a “complete legal analysis of the whole case”. And I clearly pointed that out in the first post. If you have interpreted it otherwise then it’s related to your own ideas, not to the realities in my post.
The Nevada bankruptcy court has the correct type of jurisdiction UNTIL the right type of dispute is introduced, then it suddenly won’t have it anymore.
It can order hearings for some aspects of the case, but it will be unable to make final decisions for some major points. I’m talking about VALID decisions, not about decisions rejected by a higher court.
As an example, the Supreme Court of India handled the case writ 383/2011 for almost a year before it finally reversed all its orders due to lack of jurisdiction. A court will need the right types of arguments to be able to identify a case correctly.
A valid argument that leads to lack of jurisdiction can be:
“This case is about MORE THAN a bankruptcy, the bankruptcy case can’t be resolved before other parts of the case have been resolved. And this court doesn’t have the correct type of jurisdiction for those other parts”.
The right type of argument will also need to be supported by the right type of evidence / factual information. Note that I’m only showing an EXAMPLE for “right type of argument”.
A court will use “innocent until proven guilty” logic, i.e. a case will be interpreted to be within its jurisdiction until proven otherwise. It will not handle hypothetical conflicts, it has to be about a real conflict of laws.
The bankruptcy court will accept the current bankruptcy agent until US Trustee shows legal reasons for WHY it should be denied. Some controversies about the payments and the agreement were not the right types of arguments.
The bankruptcy court will continue to rule towards a resolved Chapter 11 bankruptcy case until someone shows legal reasons for WHY it will need to be handled differently. The TRO wasn’t the right type of argument for an immediate decision. “Forum shopping” wasn’t the right type of argument for an immediate decision.
The right type of argument will need to bring in conflict between laws, e.g. “This case should be interpreted differently, it’s not a real bankruptcy case”. That’s about the facts supporting the case rather than about the filings of type of case. Litigants can file all types of cases available through the legal system.
The Year is 1964, and an M_Norway predicts that Converse will will put springs on the bottom of sneakers and men will be able to bounce themselves onto the moon.
Five years later Neil Armstrong steps out of the Lunar Lander and M_Norway screams “I predicted it!”
I have identified WHAT = “jurisdiction issues” and “justiciability”. I have identified “conflict of laws”, and that the case will have to be identified as a whole.
I have partly identified the method. The agencies will need to bring valid legal arguments to the court, to help the court identify the case correctly.
As of now, Telexfree, (called “the Debtor in Possession,” or DIP in Bankruptcy parlance,) is authorized to send legal notices to over 700,000 worldwide promoters via the Back Office accounts.
—
The TRO does not expressly prohibit the website from operating. What it does instead is freeze financial accounts and prohibit the Debtor and many named individuals, their associates (downlines) and attorneys from promoting or selling Telexfree securities ANYWHERE, which of course includes the internet.
—
Bankruptcy Law accords the DIP freedom to run and reorganize its business relatively unimpeded, but that being said, it is also true that serious allegations by the SEC and Division of Securities in Massachusetts may derail the DIP’s intention to reorganize.
In such an event a Bankruptcy Trustee might be expected to come in and oversee a Chapter 7 Liquidation and it would be he, rather than the DIP that could use the Back Office system to communicate with the many foreign creditors.
I agree ( I changed your words to put them in the proper context) How does that work for you?
I can’t make any comments to that type of argument, i.e. when you replace the reality with your own ideas.
It works okay for me, but I don’t actually see any point in doing that. I have pointed out several times that you’re to focused on making comments about comments, rather than focusing on the topic discussed.
Wow
TelexFree will probably be vulnerable to one specific evidence in the bankruptcy case = to the credit card transactions from 2012 to 2014, listed in the SEC complaint.
Point #34 in the complaint describes that new members could pay the $50 membership fees by credit card or pay directly to the recruiting promoter (whose internal account was debited with the amount of the fee).
That point needs to be clarified, by clearly showing that people could pay directly to promoters for AdCentrals and VOIP subscriptions, not only membership fee. There’s a lot of missing details in the description.
Point #50 in the complaint is about analysed credit card transactions August 2012 – March 2014.
* $1.3 million from VOIP subscriptions (26,300 contracts)
* $302 million from sale of AdCentrals.
$1.3 million in VOIP revenue in 18 months isn’t a significant commercial activity.
TelexFree may be able to prove other monetary transactions in addition to the credit card transactions, but most of the VOIP sale was about internal transactions of “monopoly money”.
CORRECT ARGUMENT + CORRECT EVIDENCE
The argument here should be that this is not a real Chapter 11 bankruptcy case. The commercial activity has been too insignificant to allow for a Chapter 11. The case is primarily about illegal activity.
A case will need to be interpreted correctly, but that will need to be based on evidence rather than on presumptions. The credit card transactions can act as evidence.
The arguments related to the evidence will need to be described more clearly. The complaint was too vague about the functions of the internal transactions.
The Massachusetts SEC complaint form may potentially provide the right type of evidence.
The link was posted in another thread. The complaint form is for Massachusetts. Here’s the questions:
The questions are for investigation purposes. It’s NOT a “proof of claim”. People will probably be contacted by phone.
The $25 million WAS part of the $38 million seized from Joe Craft.
Source:
Bankruptcy Docket 136, Declaration of Julio J. Defiguereido (Sherriff Deputy).
5 cashier’s check, dated April 11, totalling $25,548,808.52 were among the 10 cashier’s checks seized from Joe Craft.
We have got the results.
* “rejected or transferred”. The case was suspended (abstension) on May 6th by Judge Landis, and Massachusetts was identified to be the correct venue.
* “After the initial hearings” was correct. The May 2nd hearing was clearly an initial hearing.
* “Lack of jurisdiction” was mentioned among the arguments from the SEC lawyer, but as specific arguments rather than as general ones. “This court will not have the authority to pass fraudulent conveyance orders” is about lack of jurisdiction.
If the Nevada Court did not have jurisdiction it could not have ordered transfer.
If it had no jurisdiction it could not have signed interim orders.
If it had no jurisdiction it could not have suspended the case.
If it had no jurisdiction then Landis would have plainly stated so.
You are grasping at any straw you can find and coming up empty handed every time. The Nevada Court absolutely had jurisdiction over the Bankruptcy filing as the record shows.
Quoted arguments by opposing counsel may be instructive or interesting but they are not definitive and do not bind the Court.
Secondarily the SEC argument you cited pertains to “fraudulent conveyance orders” that the SEC stated the Nevada Bankruptcy Court could not issue. That is because the SEC v Telexfree case is not only NOT a Bankruptcy case, but also because it its properly venued in the District Court Massachusetts.
Either court can have jurisdiction as both the SEC v Telexfree and the Telexfree Bankruptcy case are Federal matters. Its only a matter of which Court is the proper venue. That is why Landis took that up and ONLY took that up.
Justiciability pertained to whether there was a question of law that the Nevada could answer. The answer is a resounding yes because Jurisdiction was proper in Nevada (and also in Massachusetts.) Either one could decide the issues.
You predicted the case would be transferred or rejected on the basis of judiciability/jurisdiction. That was wrong. It was transferred on the basis of venue alone.
I have already covered that in a previous comment. You have misinterpreted “initial hearings” completely. May 2nd was an initial hearing, the first oral hearing where the points I mentioned was handled by the court.
You are grasping at your own misinterpretation straws, nitpicking all the details you can find in your own misinterpretations. 🙂
A prediction is normally about a RESULT = “the bankruptcy case will probably be transferred or rejected”. Change of venue plus abstention should be close enough for most people?
You probably predicted the opposite result = “Its a duly constituted Nevada company with a Nevada presence filing Bankruptcy in Nevada District Court”.
You misidentified the mechanism and misunderstood the legal concepts. If that’s close enough for you then so be it.
I never claimed it was a complete and perfect legal analysis, I clearly specified the opposite.
A prediction is typically about a RESULT. My prediction was that the bankruptcy case in Nevada most likely would be rejected or transferred to Massachusetts. The May 6th ruling was very close to that prediction.
“AFTER the initial hearings” should be close enough. May 2nd was an initial hearing. I didn’t specify any specific initial hearing, e.g. “the first” or “the next”. May 2nd was actually the first of the initial hearings where change of venue was on the agenda.
One of the arguments I used was that Stuart A. MacMillan (“McMullin” as you prefer to call him) would be vulnerable to specific questions about revenue and profit from VOIP subscriptions vs AdCentrals, narrowed down to the use of internal funds to pay for VOIP subscriptions. MacMillan and Runge were vulnerable in a different way than I predicted, they were unable to answer the questions.
You persisted in flogging your faulty notions of jurisdiction to the bitter end, and now want to take credit for predicting outcomes that you logically could never have foreseen.
Had you claimed a pink bunny would carry a man to the moon and later Neal Armstrong walked the lunar surface I am certain you would claim you predicted it.