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Unfortunately how much money was being withdrawn, which bank the withdrawal request was sent to and how made the request was not disclosed.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.