Many of our Brazilian clients have been stung by the actions of TelexFree, an “investment” firm that looks more like a Ponzi scheme. Shut down in Brazil last year, TelexFree has somehow been allowed to collect significant dollars in the United States, much of them from innocent Brazilians in Massachusetts who are simply trying to get ahead in a tough economy. Many may have to file for bankruptcy as they are out tens of thousands of dollars; monies they were counting on to pay their bills.
The Brazilian Ministry of Justice claimed the company was fraudulent.
The US SEC filed civil fraud charges on April 15, 2014.
How did the Ponzi Scheme Work?
According to sources, victims would send $1,425 to TelexFree to finance telephone services. Within a week, “investors” would get a check for $100, and every week thereafter. This came to a crashing halt around April 1, 2014, when in true April Fool’s Day fashion, the checks stopped. The pyramid ended. Many folks were fooled. The return on investment, for the early to invest folks, was over 250%, plus commissions for promoting the company.
Estimates are that TelexFree stole $90 million from Massachusetts residents, again, many from the Brazilian community, while the rest of the country lost $300 million, and over $1 billion worldwide. Most of this lost money was taken in by TelexFree in the past year.
TelexFree filed for federal bankruptcy protection in Nevada last week. The official announcement said they were simply filing to reorganize facing “operational challenges”. What assets the company has to divide among the victims, we don’t know. What resources the bankruptcy trustee will have available to find monies sent overseas, we also don’t know. Most significantly, if the company is deemed to have engaged in fraudulent activity, they will not be able to discharge their debts and get a fresh start.
Prior to the bankruptcy filing, it was not clear what, if any, significant investigation was undertaken by the Massachusetts Secretary of State, or the Attorney General. However, TelexFree, a Marlborough, Massachusetts company was under their jurisdiction, and did receive numerous complaints. The Secretary of State did close down another multi level marketing company last year and claims to have received numerous complaints about TelexFree
It is clear, however, that neither Attorney General Martha Coakley nor Secretary of State William Galvin were sufficiently convinced to either shut down the company or to warn Massachusetts residents, until it was too late – after payments stopped and the bankruptcy was filed.
Who are the Masterminds Behind this Alleged Fraud?
TelexFree was founded by Carlos Wanzeler, a Brazilian who immigrated to Worcester, Massachusetts, and James Merrill, a commercial cleaner from Ashland, Massachusetts, who attended Westfield State University for a brief period. According to the Securities and Exchange Commission, over $10 million was transferred to Wanzeler and Merill in late December, and transfers were immediately made to a Chinese bank in Singapore.
One report is that when the FBI raided the company, the CFO Joseph Craft tried to walk out the door with $38 million in bank checks! Those checks included a $2 million cashier’s check to Carlos Wanzeler’s wife. The company responded that there was a misunderstanding – because of the bankruptcy, checks were in the form of bank checks.
What Can Massachusetts Victims do?
Victims can file a proof of claim with the Nevada bankruptcy court. While a fraudulent claim is not dischargeable, and victims could conceivably get an Order for full repayment, this is only if there are sufficient assets to pay.