Author Archives: ASDUpdates

TelexFree: Final Judgment Against Steven Labriola

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23880 / July 14, 2017

Securities and Exchange Commission v. TelexFree, Inc. et al., No. 14-cv-11858 (D. Mass. filed Apr. 17, 2014)

SEC Obtains Final Judgment Against Officer of Pyramid Scheme Targeting Latino Community

The Securities and Exchange Commission announced today that it has obtained a final judgment in a fraud case against the international sales director of a pyramid scheme targeting Latino communities.

The final judgment, entered on consent by a federal district court in Boston, Massachusetts, permanently enjoins Steven Labriola from violating Section 5 and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, imposes a conduct-based injunction, and orders Labriola to pay approximately $25,000 in disgorgement and prejudgment interest. As part of the settlement, Labriola admitted that he was responsible for TelexFree’s relationships with its promoters, ran numerous training conferences, and that he was one of the main public faces of TelexFree, providing periodic “corporate updates” and appearing in other promotional videos that were posted on YouTube.

The SEC has previously obtained a final judgment by consent against a promoter of TelexFree, who also was ordered to jail for civil contemptarising from his repeated violations of court orders. Two other defendants in the SEC’s action – James M. Merrill, the co-owner and president of TelexFree, and Carlos N. Wanzeler, the co-owner and treasurer of TelexFree – were charged criminally. Merrill pled guilty to the criminal charges and was sentenced to six years’ imprisonment. Wanzeler is a fugitive from justice.

The SEC’s litigation continues against TelexFree, Merrill, Wanzeler, Joseph H. Craft, Telexfree’s CFO, and the remaining promoters of the alleged TelexFree pyramid scheme.

 

https://www.sec.gov/litigation/litreleases/2017/lr23880.htm

TelexFree: SEC Gets Final Judgment Against Sanderley Rodrigues

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23846 / May 25, 2017

Securities and Exchange Commission v. TelexFree, Inc. et al., Civil Action No. 1:14-cv-11858-NMG (United States District Court for the District of Massachusetts)

SEC Obtains Final Judgment Ordering Promoter of Pyramid Scheme to Pay Over $1.8 Million

The Securities and Exchange Commission announced today that on May 25, 2017, the federal court in Boston, Massachusetts entered a final judgment by consent against defendant Sanderley Rodrigues de Vasconcelos (“Rodrigues”) of Davenport, Florida, a defendant in SEC v. TelexFree, Inc., et al. Among other things, the Court’s order holds Rodrigues liable for over $1.83 million, including approximately $1.7 million in disgorgement and prejudgment interest and a $150,000 civil penalty. In April 2014, the Commission charged Massachusetts-based TelexFree, Inc. and TelexFree, LLC (collectively, “TelexFree”), plus four company officers and four promoters of TelexFree, including Rodrigues, with perpetrating an international pyramid scheme targeting Latino communities in the U.S.

In settling the SEC’s charges, Rodrigues admitted that he was a promoter of TelexFree, appearing at TelexFree-sponsored public events and other gatherings at hotels and resorts. He further admitted that he appeared in promotional videos that were posted on YouTube and posted at least one video himself.

Rodrigues consented to the entry of the judgment which permanently restrains and enjoins him from violating the securities offering provisions of Section 5 of the Securities Act of 1933 and the antifraud provisions of Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The judgment also permanently restrains and enjoins him from offering, operating, or participating in any marketing or sales program in which a participant is compensated or promised compensation solely or primarily (1) for inducing another person to become a participant in the program, or (2) if such induced person induces another to become a participant in the program.

To satisfy his financial obligation, the judgment orders Rodrigues to transfer certain assets to settle an adversary action against Rodrigues (among others) filed by Stephen Darr, the Chapter 11 Trustee of TelexFree LLC, TelexFree, Inc., and TelexFree Financial, Inc., entitled Darr v. Carlos Wanzeler et al., Adv. Proc. 16-04032, presently pending in the United States Bankruptcy Court for the District of Massachusetts as part of In re TelexFree, Inc., Case 14-40987 (Bankr. D.Mass.).

The Commission’s litigation in this matter continues against the TelexFree companies, their officers, and the remaining promoters of the alleged TelexFree pyramid scheme.

For further information, see Litigation Release Nos. 22974 (April 17, 2014)(SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants); 22992 (May 13, 2014) (Criminal Charges Filed Against Two Principals of Massachusetts-Based Telexfree); 23450 (Jan. 20, 2016) (Florida Resident Ordered to Jail Based On Violating Court Orders Obtained by the SEC); 23678 (Oct. 25, 2016) (TelexFree President Pleads Guilty to Operating Pyramid Scheme in Related Criminal Action); 23788 (March 24, 2017) (Massachusetts-Based TelexFree President Sentenced to 6 Years Imprisonment for Operating Pyramid Scheme).

 

https://www.sec.gov/litigation/litreleases/2017/lr23846.htm


Modified: 05/26/2017

Zeek Rewards: Paul Burks Listed as Federal Inmate

In a February article, the Winston-Salem Journal reported the sentencing for Paul Burks, mastermind behind the $939 million dollar Ponzi scam known as Zeek Rewards. Burks is 70 years old and his sentence would amount to life in prison.

A federal judge Monday handed Paul Burks, founder of ZeekRewards.com, three concurrent prison sentences of 14 years and eight months for his lead role in the Lexington Ponzi scheme.

 

PAUL BURKS
Register Number: 29723-058
Age: 70
Race: White
Sex: Male
Located at: Lexington FMC
Release Date: 02/08/2030

Zeek Rewards: Paul Burks Will Spend His Sentence in Lexington

This comes from the Winston-Salem Journal, an article stating Paul Burks will be housed in Lexington to serve his prison term.

Paul Burks, the founder of ZeekRewards.com, will serve his federal prison term in Lexington, Ky., beginning no later than May 1.

Burks, 70, was sentenced March 8 to three concurrent prison sentences of 14 years and eight months for his lead role in the Lexington, N.C., Ponzi scheme.There is no parole in the federal system for defendants sentenced in the past few decades. Burks could have been sentenced to up to 59 years.

Here is a link to the full article.

 

 

Zeek Rewards: Keith Laggos Sued by SEC

Ah, finally. It looks like they are starting to go after the paid people who pontificate and speciously sanitize these online schemes; couldn’t happen to a more deserving ass-hat. He is described as a “consultant” in the press release; I would have chosen a different descriptor.


U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23787 / March 23, 2017

Securities and Exchange Commission v. Dr. Keith Laggos, No. 3:17-cv-00150 (W.D.N.C. filed Mar. 22, 2017)

SEC Charges former ZeekRewards Promoter and Consultant for Unlawfully Promoting the Scheme

On March 22, 2017, the Securities and Exchange Commission charged Keith Laggos, formerly the publisher of the Network Business Marketing Journal (NMBJ), for his involvement in and unlawful promotion of the ZeekRewards fraudulent scheme.

The SEC alleges that, from at least June 2011 through July 2012, Laggos, through NMBJ and while acting a paid consultant for ZeekRewards, was paid at least $64,000 for publishing several editorials providing crucial publicity to the ZeekRewards scheme. These publications promoted ZeekRewards as the “company of the month” and touted, among other things, the scheme’s supposed record earnings and opportunity to generate income for participants. Laggos failed to disclose the fact that he was paid for the favorable editorial coverage, the amount that he was paid, and that he was a paid consultant for ZeekRewards.

The SEC further alleges that Laggos’s favorable editorials of the scheme contained material misstatements and omissions. Laggos published theses misstatements despite being made aware of their inaccuracy and otherwise being in a position-as a paid consultant for ZeekRewards-to know of their falsity.

The Commission’s complaint, filed on March 22, 2017 in the U.S. District Court for the Western District of North Carolina, charges Laggos with violating Sections 17(a) and 17(b) of the Securities Act of 1933 (“Securities Act”). To settle the matter, Laggos, who previously consented to a permanent injunction against violating Securities Act Section 17(b) in a 2005 case, consented to the entry of a court order ordering: (i) Laggos to pay disgorgement, prejudgment interest, and a civil penalty totaling $79,190.68; and (ii) permanently enjoining Laggos from future violations of Sections 17(a) and 17(b) of the Securities Act, from participating in future securities offerings, and from providing paid publicity to securities.

The SEC’s investigation was conducted by Brian M. Privor, Alfred C. Tierney, John J. Bowers, and Joshua Braunstein. The case was supervised J. Lee Buck, II.

 

https://www.sec.gov/litigation/litreleases/2017/lr23787.htm

TelexFree: Merrill Sentenced to 6 Years

Department of Justice
U.S. Attorney’s Office
District of Massachusetts

FOR IMMEDIATE RELEASE
Wednesday, March 22, 2017

Former President of Telexfree Sentenced for Billion Dollar Pyramid Scheme

BOSTON – The former President of Telexfree, Inc., a global pyramid scheme disguised as an internet telecom company, was sentenced today in U.S. District Court in Worcester.

James Merrill, 55, of Ashland, was sentenced by U.S. District Court Judge Timothy S. Hillman to six years in prison and three years of supervised release. In October 2016, Merrill pleaded guilty to one count of wire fraud conspiracy and eight counts of wire fraud. He also agreed to forfeit approximately $140 million and other assets.

“Despite knowing that Telexfree was a pyramid scheme, Mr. Merrill profited for years at the expense of the hard-working individuals who invested in the fraudulent company,” said Acting U.S. Attorney William D. Weinreb. “For the hundreds of thousands of investors, here and around the world, who were taken in by the lies promoted by Mr. Merrill and Telexfree, today’s sentence provides a measure of justice. Mr. Merrill’s greed damaged the livelihoods of thousands of people who were simply struggling to make ends meet.”

“While the harm and damage James Merrill caused by stealing more than $3 billion from innocent investors can never be repaired, his victims in more than 240 countries around the world can take some small measure of satisfaction that he is now looking at six years in federal prison and a substantial forfeiture as repayment for his crimes.” said Matthew Etre, Special Agent in Charge of Homeland Security Investigations in Boston. “HSI special agents will continue to aggressively investigate those who seek to profit by taking advantage of others.”

Between February 2012 and April 2014, Merrill was the President of TelexFree, Inc., which sold a “voice-over-internet-protocol” (VOIP) telephone service, similar to Skype, for which customers could sign up on a website maintained by TelexFree. TelexFree, however, was a pyramid scheme; all of the money TelexFree paid out came, not from sales of its product, but from new participants paying TelexFree to sign up as “promoters” for the company.

TelexFree’s website prominently featured Merrill as the leader of the company and as an experienced businessman in the telecom field. As the website advertised at various times, participants paid $1,425 or $339 to sign up with TelexFree, after which they would be paid $100 per week or $20 per week to post classified ads every day on the internet. The company couched those payments in terms of “buying back” unused VOIP packages the participants were unable to sell, but the reality was that participants were guaranteed an annual return of over 200% on their money without having to sell anything. Among other things, emails showed Merrill’s awareness that the ad-posting was intended only to ensure that people visited TelexFree’s web site as opposed to generating actual retail sale of the VOIP product. Participants spent minutes a day cutting and pasting ads into various classified ad sites provided by TelexFree, which were already saturated with thousands of ads posted by earlier participants.

Participants were also given substantial financial incentives to recruit others to join the scheme. To receive bonuses for recruiting others, in theory each participant needed to have one VOIP customer. But in reality, participants met this requirement simply by buying the product themselves and, in 97% of instances, never using it. In this way, TelexFree created the illusion that it had hundreds of thousands of legitimate VOIP customers. On paper the company sold about 12.4 million VOIP plans, but in reality it had a tiny number of legitimate customers, an even smaller number of which had actually paid money to TelexFree for the service. Overall, the nearly 2 million who participated in TelexFree made 96% of their compensation, not from selling the company’s VOIP service, but from ad-posting and recruiting others to join.

TelexFree derived only a fraction of its total revenue in a two-year period from sales of VOIP service – approximately 2%. The remaining 98% came from new people buying into the scheme. TelexFree could only pay the returns it had promised to its existing promoters by bringing in money from newly-recruited promoters.

Beginning in late 2012, involvement in TelexFree spread rapidly, and by April 2014, well over a million people worldwide had signed up with the company. This included over 20,000 people in Worcester, Mass. alone, and thousands more in Boston, Framingham, Chelsea and other communities statewide. Meanwhile, beginning in 2013, Merrill received increasingly frequent warnings that the company was a pyramid scheme. Beginning in August 2013, Merrill began to take steps to change how the company did business, but Merrill never alerted the public, even though over a million people signed up for TelexFree between that month and TelexFree’s collapse.

In December 2013, Merrill wired himself and two co-conspirators a total of $10 million from TelexFree accounts. On April 14, 2014, Telexfree filed for bankruptcy, at which point it owed approximately $6 billion to its participants, while having only about $120 million on hand (about 2% of what it owed). At that point, approximately 1,855,000 participants worldwide lost money in the scheme, with total losses of about $3,045,000,000. Overall, these victims came primarily from the United States (all 50 states), Brazil, China, Portugal, Peru, other Central and South American nations, Italy, and Russia, with smaller victim populations in dozens of other countries.

Acting U.S. Attorney Weinreb and HSI SAC Etre made the announcement today. The U.S. Attorney’s Office also received valuable assistance from the Federal Bureau of Investigation, the Brazilian Federal Police based in Vitoria, Brazil, the Securities & Exchange Commission, and the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth of Massachusetts. Assistant U.S. Attorneys Andrew E. Lelling and Neil J. Gallagher, Jr., of Weinreb’s Economic Crimes Unit are prosecuting the case.

Topic:
Financial Fraud
Updated March 22, 2017

Zeek Rewards: Paul Burks Sentenced to Over 14 Years

Department of Justice
U.S. Attorney’s Office
Western District of North Carolina

FOR IMMEDIATE RELEASE
Monday, February 13, 2017

Former ZeekRewards CEO Sentenced To More Than 14 Years For Operating $900 Million Internet Ponzi Scheme

CHARLOTTE, N.C. – U.S. Attorney Jill Westmoreland Rose announced today that U.S. District Court Judge Max O. Cogburn, Jr. sentenced the former CEO of ZeekRewards to 176 months in prison for operating a $900 million Internet Ponzi scheme. Paul Burks, 70, of Lexington, N.C. was also ordered to serve three years of supervised release and to pay $244,000,000 as restitution. A federal jury convicted Burks in July 2016 of wire and mail fraud conspiracy, wire and mail fraud, and tax fraud conspiracy following a three-week trial.

Michael Rolin, Special Agent in Charge of the United States Secret Service, Charlotte Field Division and Thomas J. Holloman III, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation Division (IRS-CI) join U.S. Attorney Rose in making today’s announcement.

According to filed court documents, evidence introduced at Burks’ trial and today’s sentencing hearing:

From January 2010 through August 2012, Paul Burks was the owner of Rex Venture Group, LLC (RVG), through which he owned and operated Zeekler, a sham Internet-based penny auction company, and its purported advertising division, ZeekRewards (collectively “Zeek”). Burks and his conspirators induced more than 900,000 victims – including over 1,500 victims in the Charlotte area – to invest in their fraudulent scheme, by falsely representing that Zeekler was generating massive retail profits from its penny auctions, and that the public could share in such profits through investment in ZeekRewards. Burks and his conspirators, including Zeek’s former Chief Operating Officer Dawn Wright Olivares and her step-son and Zeek’s Senior Technology Officer Daniel C. Olivares, claimed at one point that investors would be guaranteed a 125% return on their investment.

Burks and his conspirators represented that victim-investors in ZeekRewards could participate in the Retail Profit Pool (RPP), which supposedly allowed victims collectively to share 50% of Zeek’s daily net profits. Burks and his conspirators did not keep books and records needed to calculate such daily figures. Instead, Burks simply made up the daily “profit” numbers. Contrary to the conspirators’ claims, the true revenue from the scheme did not come from the penny auction’s “massive profits.” Instead, approximately 98% of all incoming funds came from victim-investors, which were then used to make Ponzi-style payments to earlier victim investors.

In addition to promising massive returns on investments, Burks and his conspirators used a number of ways to promote Zeek to current and potential investors. For example, the conspirators hosted weekly conference calls and leadership calls, where participants could call in listen to Burks and others make false representations intended to encourage victim-investors to continue to invest money and to recruit others to invest in Zeek. Burks also organized and attended “Red Carpet Events,” where victim investors came to hear details of the scheme in person. During these events, Burks and his conspirators made false representations about the massive retail profits generated by Zeek. They also used electronic and print media, including websites, emails and journals, to make false and misleading statements about the success of Zeekler to recruit victim investors.

As the Ponzi scheme grew in size and scope it became unsustainable and it eventually began to unravel as the outstanding liability resulting from the bogus 125% return on investment continued to rise beyond control. By August 2012, Burks and his conspirators fraudulently represented to the collective victims that their investments were worth nearly $3 billion, but had no accurate books and records to even determine how much cash on hand was available to pay such liability. Contrary to representations made to victim investors, at that time, Burks and his conspirators had only $340 million available to pay out investors. Over the course of the scheme, Burks diverted approximately $10.1 million to himself.

Burks also failed to file corporate tax returns or to make corporate tax payments for his companies, among other things. In addition, for tax year 2011, Burks issued fraudulent IRS Forms 1099s, causing victim-investors to file inaccurate tax returns for phantom income they never actually received.

At sentencing, Judge Cogburn stated that for the defendant’s scheme to work would have required a miracle on the order of the “loaves and fishes.” Judge Cogburn stated that a significant sentence was necessary to promote respect for the law, provide just punishment, and also deter others considering committing fraud. Judge Cogburn further noted that the scheme was “almost breathtaking” and emphasized that the defendant had time to stop it.

Burks will be ordered to report to the Federal Bureau of Prisons to begin serving his sentence upon designation of a federal facility. All federal sentences are served without the possibility of parole.

Burks’ co-conspirators, Dawn Wright Olivares, Zeek’s Chief Operating Officer, and her step-son and Zeek’s Senior Technology Officer, Daniel C. Olivares, were previously sentenced to 90 and 24 months in prison and three years of supervised release, respectively, for their involvement in the scheme.

In making today’s announcement, U.S. Attorney Rose thanked the U.S. Secret Service and IRS-CI for investigating the case, and the U.S. Securities & Exchange Commission, Division of Enforcement for its assistance with the investigation.

The prosecution is handled by Assistant United States Attorneys Jenny Grus Sugar and Corey Ellis of the U.S. Attorney’s Office in Charlotte.

Additional information and updated court filings about this and related cases filings can be accessed at the district’s website: http://www.justice.gov/usao/ncw/ncwvwa.html.

Updated February 13, 2017

BehindMLM: Brazil indicts twenty-two TelexFree scammers

Here is a link to an article on BehindMLM.  http://behindmlm.com/companies/telexfree/brazil-indicts-twenty-two-telexfree-scammers/

Mentioned in the indictments are Carlos Wanzeler and Carlos Costa (and their family members) for their roles in TelexFree Brazil.

Thanks Oz for another great article.

Zeek Rewards: Receiver’s Announcement for February 2

ANNOUNCEMENT FROM THE RECEIVER – February 2, 2017

As I previously announced, I continue to pursue Final Judgments requiring each member of the Net Winner Class of those who won at least $1000 in ZeekRewards to repay their net winnings to the Receivership for distribution to victims of the scheme. On January 27, 2017, United States District Judge Graham Mullen entered an Order on Process for Determining the Amount of Final Judgments Against Net Winner Class Members, which sets forth the process for determining the amount of the net winnings received by each member of the Net Winner Class. That amount plus prejudgment interest will then become the amount of the Final Judgment to be entered against the net winner. I intend to pursue collection of these judgments vigorously, and expect the ultimate amount collected, while uncertain, will be a substantial sum.

The Court’s Order, which describes the process in detail, may be viewed by following this link. The first step in the process – notifying each Net Winner of the amount of their net winnings – is expected to begin next week. After notification, each Net Winner is required to provide a response stating whether he or she accepts or disagrees with that amount within 60 days of the notification using a website Net Winnings Determination Response Portal. More information and links to the Response Portal will be sent to the Net Winner Class members in the notification email. If a Net Winner does not receive their notification by February 13, 2017 then he or she should email netwinningsresponse@zeeknetwinnerclass.com to receive instructions on how to obtain the notification.

Throughout the Receivership, the Receiver has expressed a willingness to consider voluntary final settlements with ZeekRewards’ Net Winners to efficiently resolve the claims against them. Hundreds of settlements have been negotiated with Net Winners and approved by the Court. If a Net Winner wants to discuss a settlement of the Receiver’s claims prior to Final Judgment being entered, please communicate with the Receiver at zeeksettlement@mcguirewoods.com.

1 2 3 124