This is recommended reading:
If you’re Randy Crosby or Santiago De La Rosa, you disappear off into the night and are never heard from again.
If your Faith Sloan, after attempting to brush off the severity of situation as a play-date with regulators, you quietly begin to selectively delete all of the incriminating evidence you’ve uploaded to the internet these past two years.
And if you’re Sann Rodrigues, who is perhaps facing the greatest threat of retribution from those he recruited into the scheme, you first pretend to be a victim of the scam you were a leader in, and then start making all manner of promises to your downline. [Continue reading…]
Yesterday saw the continuation of the first day hearings in TelexFree’s bankruptcy application. Barring any additional information being made public, it looks like the hearing saw three significant events take place:
- The DoJ have formally objected to KCC’s fees and compensation
- Some of KCC’s actions have been “troubling” to the Judge presiding over the application
- A “final hearing” date has been set for May 2nd, with no relief being granted in the interim
As demand for reliable updates on the case surges, below you’ll find my break down of the April 21st bankruptcy hearing and what’s next in the road ahead.
Here are the high point of this filing, I have skipped around. Mr. Bell makes some valid points. The complete filing is on the Files website, ZeekDoc202.
In an effort to create the most appropriate claim payment process, the Receiver decided that it would be best to pay claimants and not third parties on claimants’ behalf. This Court has already approved this decision. Unfortunately, unable to let go of their own pecuniary interests, Movants’ attorneys are yet again challenging the Court’s decision by seeking to change the approved distribution process to require the Receiver to aid the Movants’ attorneys in collecting their attorneys’ fees from the Movants. The Receiver has not and should not be required to interject himself into the relationship between the Movants and their attorneys, and it is situations such as these that the Receiver wishes to avoid by making distributions solely to claimants. For the reasons set forth herein, the Receiver respectfully requests that this Court deny the Motion and permit the Receiver to pay distributions to claimants only. To the extent that there is any so-called “clarification” necessary, the Receiver asks that this Court find that the Receiver be authorized to make distributions solely to claimants and not to third parties.
A motion for reconsideration should be treated as a motion pursuant to Rule 59 or 60 of the Federal Rules of Civil Procedure (the “Rules”). See Fed. R. Civ. P. 59 and 60. In the Motion, however, the Movants fail to allege any of the necessary grounds to permit reconsideration of the Order. As such, there is no basis to reconsider the Order, and the Motion may be denied on that basis alone.
The Receiver has stated and continues to maintain that where a law firm’s address is listed as the recipient to receive a claimant’s distribution, the Receiver will not issue the distribution check until the claimant amends its address on the Claim Portal to provide the actual claimant’s address for payment. Until the amendment of a claimant’s address is made, no distribution will be made to such claimant.
Moreover, the Receiver does not wish to become embroiled in the midst of a potential debtor-creditor dispute such as the one between the Movants and their counsel. The Receiver, therefore, previously determined and has repeatedly stated that a claimant’s actual address is the only address to which he will send a distribution check, absent a judicial or regulatory body requiring payment to an alternative address.
The assertion that the Receiver is punishing claimants for having counsel is wrong. Claimants are receiving equal treatment regardless of whether they have counsel or represent themselves. Distributions will be sent directly to claimants—which is, in fact, equal treatment of all claimants. Requiring for all the legitimate purposes discussed above that a distribution be paid to a claimant and not a third party is not punishment for retaining an attorney. It may not assist Movants’ attorneys’ efforts to collect their fees (and it ought not to be the responsibility of the Receiver to act as the Movants’ attorneys’ collection agent), but it does not in any way punish their clients to treat them in the same way as other claimants.
Accordingly, no clarification of the Order is necessary, as no ambiguity exists regarding where distributions will be sent.
The article below is written by Jordan Maglich, a well know complex-litigation attorney who gives a different perspective on scams and those who run them
Last week was a busy week for TelexFree. After filing for bankruptcy protection on Monday in a Nevada bankruptcy court, state and federal securities regulators filed civil actions accusing the company of operating a massive pyramid and Ponzi scheme that, by one estimate, may have raised $1 billion from investors worldwide. That same day, federal agents from the FBI and the Department of Homeland Security raided the company’s headquarters in Marlborough, Massachusetts, which later drew headlines after authorities discovered TelexFree’s Chief Financial Officer attempting to remove $38 million in cashier’s checks from the offices. (The company later claimed there was no nefarious purpose behind this effort.)
Now, one week after TelexFree’s bankruptcy filing and as reality begins to set in to an estimated 700,000 company “affiliates,” the focus turns to the next steps. This includes not only the various pending court and regulatory proceedings, but also the future of those “affiliates” that made substantial investments based on promises of extravagant returns.
Currently, there are three pending court proceedings that interested parties should consider following. The first is a Chapter 11 bankruptcy proceeding pending in the District of Nevada Bankruptcy Court (the “Bankruptcy Case”). The second and third are civil actions pending in Massachusetts: one, an administrative action filed by the Enforcement Section of the Massachusetts Securities Division (the “Massachusetts Case”), and the other an enforcement action filed by the Securities and Exchange Commission pending in U.S. District Court (the “SEC Case”) (collectively, the “Civil Cases”). There are no current pending criminal cases, although it has been reported that criminal authorities were involved in the search warrant executed on the company;s headquarters last week.
Both the Massachusetts Case and the SEC Case are enforcement actions premised on alleged violations of state and federal securities laws. As civil regulatory actions, the purpose of these proceedings is purely remedial — each seeks injunctive relief prohibiting future violations of securities laws by the TelexFree entities (and in the SEC Case, by TelexFree principals and top promoters), civil penalties, and disgorgement of ill-gotten gains from the violative conduct. The respective defendants will be entitled to varying forms of discovery (likely more in the SEC Case due to the administrative nature of the Massachusetts Case), and will then likely file dispositive motions seeking a court order finding in their favor without the necessity of trial. If necessary, a trial could be held. Notably, neither the Massachusetts Case nor the SEC Case includes a request for the appointment of a receiver to secure and marshal assets; rather, as explained below, the consensus seems to be that responsibility for the recovery of assets is properly in the realm of the Bankruptcy Case.
While the Civil Cases contain a somewhat predictable path to finality, the Bankruptcy Case is not as certain. On April 14, 2014, TelexFree Inc., TelexFree LLC, and TelexFree Financial, Inc. (collectively, “TelexFree”) each filed voluntary bankruptcy petitions under Chapter 11 of the U.S. Bankruptcy Code. Under a Chapter 11 proceeding, the filing entity seeks to continue operating during and bankruptcy and ultimately emerge from bankruptcy after restructuring various aspects of the business, including debts. In comparison, a Chapter 7 bankruptcy involves the cessation of operations and a complete liquidation of a business, with the proceeds being distributed to company creditors.
In the press release announcing its bankruptcy, TelexFree cited “certain operational challenges,” and indicated it intended to “restructure its debt obligations.” In a subsequent bankruptcy filing, the company sought approval from the Bankruptcy Court to reject “all agreements between the debtors and the promoters under both the Original Comp Plan and the Revised Comp Plan.” According to the Commission, this included at least $174 million in compensation demands submitted by “promoters” after the company drastically revamped its compensation plan.
On the date it filed bankruptcy in a Nevada federal court, and just days before Massachusetts regulators and the Securities and Exchange Commission accused the company of being a massive pyramid and Ponzi scheme that had raised at least hundreds of millions of dollars from investors worldwide, TelexFree LLC filed a rather innocuous-sounding motion to “Authorize the Debtors to Reject Certain Executory Contracts Nunc Pro Tunc As Of The Petition Date.” Cloaked in bankruptcy parlance, the title of the motion holds little meaning to the estimated hundreds of thousands of “promoters” that, until recently, were promised lucrative returns for placing daily advertisements and recruiting new investors.
However, a casual read of the Motion makes clear that the company accused by regulators of being an “egregious” pyramid scheme seeks now to use the Bankruptcy Court’s power to eliminate the obligation to pay accrued compensation likely totaling hundreds of millions of dollars to “promoters” – under the theory that elimination of these obligations will allow the company to “ultimately prove successful and profitable.” Ironically, one of the chief concerns cited by TelexFree related to questions “raised as to whether the Original Comp Plan is compliant with law, which jeopardized the Debtors’ business.”
- The Massachusetts Securities Division charged TelexFREE Inc., with running a Ponzi scheme targeting Brazilian-Americans that has raised over $90 million from Massachusetts residents and around $1 billion globally. – Forbes (See item 5)
5. April 15, Forbes – (International) Massachusetts regulators allege TelexFREE is $1 billion Ponzi scheme. The Massachusetts Securities Division charged TelexFREE Inc., based in Massachusetts and TelexFREE LLC based in Nevada with running a Ponzi scheme targeting Brazilian-Americans that has raised over $90 million from Massachusetts residents and around $1 billion globally. Source: http://www.forbes.com/sites/jordanmaglich/2014/04/15/massachusetts-regulators-allege-telexfree-is-1-billion-ponzi-scheme/
For the full press releases, click here.
Case 1:14-cv-11858-DJC Document 2 Filed 04/15/14 Page 1 of 28
SECURITIES AND EXCHANGE COMMISSION, )
JAMES M. MERRILL,
CARLOS N. W ANZELER,
STEVEN M. LABRIOLA,
JOSEPH H. CRAFT,
SANDERLEY RODRIGUES DE VASCONCELOS,
SANTIAGO DE LA ROSA,
RANDY N. CROSBY and
FAITH R. SLOAN,
TELEXFREE FINANCIAL, INC.,
TELEXELECTRIC, LLLP and
TELEX MOBILE HOLDINGS, INC.,
I will be adding this case to the Files website.
The Securities and Exchange Commission today announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S. The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze. That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets. After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.
The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme. In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds.
According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites. The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters. As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.
“This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work,” said Paul G. Levenson, director of the SEC’s Boston Regional Office. “Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.”
According to the SEC’s complaint, the defendants have continued enrolling new investors but recently changed TelexFree’s method of compensating promoters, requiring them to actually sell the VoIP product to qualify for payments that TelexFree had previously promised to pay them. The complaint also alleges that since December 2013, TelexFree has transferred $30 million or more of investor funds from TelexFree operating accounts to accounts controlled by TelexFree affiliates or the individual defendants.
In addition to the TelexFree firms, the complaint charges TelexFree co-owner James Merrill, of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler, of Northborough, Mass., TelexFree CFO Joseph H. Craft, of Boonville, Ind., and TelexFree’s international sales director, Steve Labriola, of Northbridge, Mass. The SEC also charged four individuals who were promoters of TelexFree’s program: Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa, of Lynn, Mass., Randy N. Crosby, of Alpharetta, Ga., and Faith R. Sloan of Chicago. The SEC’s complaint alleges that TelexFree, Inc., TelexFree, LLC, Merrill, Wanzeler, Craft, Labriola, Rodrigues de Vasconcelos, De La Rosa, Crosby, and Sloan violated the registration and antifraud provisions of U.S. securities laws and the SEC’s antifraud rule. The SEC also charged three entities related to TelexFree as relief defendants based on their receipt of investor funds.
The SEC’s investigation was conducted by Scott R. Stanley, James M. Fay, Mark Albers, John McCann, Frank Huntington, and Kevin Kelcourse, all of the SEC’s Boston Regional Office.