The TelexFree Ponzi bust: One year on…
Following the suspension of e-wallet services by iPayout and a pyramid scheme case filed by the SEC, April 17th 2014 marks the date the TelexFree Ponzi scheme was shut down.
A billion dollars in losses to investors, one owner hiding out in the US and concurrent civil and criminal trials still making their way through the courts, today we take a look at where we’re at.
At the time of publication, I have penned some one hundred and seventy two articles on TelexFree.
This started with BehindMLM’s initial TelexFree review on July 27th 2012, covered regulatory action in Brazil for most of 2013 and then subsequent regulatory action in the US in 2014.
What with TelexFree management’s attempt to manipulate bankruptcy proceedings to escape criminal charges all but thwarted, primary focus has now shifted to the criminal proceedings against owners James Merril and Carlos Wanzeler.
The SEC’s civil proceedings against the pair and several top TelexFree investors have been put on hold until the conclusion of the criminal trial.
Along with Carlos Costa, Merril And Wanzeler masterminded a scheme which saw a billion dollars stolen from victims around the world.
With upwards of a million investors taken for a ride, needless to say the criminal proceedings have been tediously slow.
An update filed by the DOJ on April 10th shares some more info:
Since the last status date, the government has produced approximately 45 GB of additional information received as a result of a search warrant executed at an internet service provider.
This information consists largely of TelexFree-related YouTube videos and back-up and subscriber data.
The government has also produced the contents of a personal email account belonging to defendant James Merrill.
Discovery is the primary reason for delays in starting the trial, due to the sheer scope of TelexFree’s Ponzi operations.
Of note is the fact that alot of the incriminating evidence is being sourced from Brazil, the precursor to TelexFree’s US activities.
The government recently met with Brazilian prosecutors and law enforcement agents, who are conducting a separate investigation of TelexFree and certain individuals.
The Brazilian authorities have produced a large amount of data and will be producing additional materials in the coming weeks.
This additional data, mostly derived from multiple search warrants executed in Brazil, will likely amount to 100s of gigabytes.
Once the government has received all of the materials from the Brazilian authorities it will copy the materials for the defendant.
In light of the vast amount of discovery yet to be produced, the DOJ has requested postponing a scheduled status conference for another 60 days.
The proposed conference was to be held on April 13th, with Judge Hennessy rescheduling it now for June 12th.
Unfortunately these conferences have to be held and discovery completed before the case can progress through to a trial.
It should be pretty evident that none all of the information being produced is going to help Wanzeler and Merril with their defense, but legally they have a right to the information that will be used to bring them down in court.
And that’s what we’re currently waiting on.
Meanwhile down in Brazil things are also slowly progressing, with a recent court-ordered audit report from Ernst & Young identifying TelexFree a “financial pyramid” scheme.
Both Public Prosecutors and TelexFree’s lawyers have been given time to file comments on the report, which will then be gone over by the Judge handling the case.
A decision will hopefully follow sometime after that, but that depends on what’s in the responses filed.
A decision against TelexFree will probably speed up the trial in the US, or likewise if the US proceedings wind up first.
Following the conclusion of the criminal trial, the SEC’s civil case will then resume. It’s expected once Merril and Wanzeler are convicted, that there’s not going to be much in the way of defense offered in the civil proceedings.
On the victim front the court-appointed Trustee has been quiet of late.
Following the filing by Stephen Barr, in which he claimed TelexFree was a $1.8 billion dollar Ponzi scheme, Judge Hoffman cancelled a status conference scheduled for February 5th.
Since then nothing much has happened.
I’m not too familiar with bankruptcy proceedings but I believe Hoffman might be waiting for the criminal case to conclude before turning TelexFree’s failed Chapter 11 bankruptcy bid into a Chapter 7 liquidation.
That would see funds recovered thus far marshaled and a process for TelexFree victims who lost money to file claims.
It is presumed clawback litigation against TelexFree’s top net-winner investors would then also be filed at some point.
And one year on from the shutdown of the largest MLM Ponzi scheme in history, that’s where we’re at.
We’ll keep you updated as things progress.
Footnote: Our thanks to Don@ASDUpdates for providing a copy of the DOJ’s April 2015 Interim Status Report and Judge Hennessy’s subsequent rescheduling order.