Much importance has been placed on the Ernst & Young report on TelexFree that was due out this month.
Despite the SEC’s case against TelexFree, criminal proceedings currently taking place against its owners and Trustee Stephen Darr’s damning evaluation of the company earlier this month, many Brazilian investors believed the Ernst & Young audit would somehow absolve the company.
Those hopes appear to have been dashed, with preliminary reports of Ernst & Young reports confirming fraudulent activity has been found.
The new case revolves around regulatory issues surrounding TelexFree’s VOIP offering in Brazil, and is the culmination of a criminal investigation that began back in 2013.
What he wasn’t planning on however was the report being leaked to media outlet Globo.
And surprise, surprise… turns out Costa has once again been caught out telling porky pies.
This is a translated story originating from Mikaella Campos, an economics reporter for A Gazeta Newspaper, as posted by her on patrickpretty.com:
Telexfree: the big Brazilian fraud
Known as Orion, an investigation by the Federal Police against Telexfree in Espírito Santo (ES) – situated on southeastern of Brazil – was close the company’s headquarters in Vitoria, after concluding that, in addition to pyramid financial, the network acted fraudulently, committing crimes against the financial system and the public economy.
The action was based on determination of the Federal Court for the fulfillment nine search warrants and seizure organization’s offices and the home of its owners.
In injunction, the 1st Criminal Court of Federal Vitoria / ES has decided to suspend all activities Telexfree, registered in Brazil under the name of Ympactus Comercial. Also decreed the sequestration of assets, breach of banking secrecy and tax those involved in the business and the owners were prohibited from leaving the country. Yesterday, in the operation, luxury cars were seized.
The blocking of assets of the company and owners extends to their families. It is the third freezing of assets of those involved. In addition to the accounts being blocked by Justice of Acre, the 4th Court of Tax Enforcement, the ES, a month ago, had already seized the funds for payment of tax debts totaling more than US$ 80 million.
The decision to block the assets of Telexfree and the federal judge was involved Aylton Bonomo Junior. The injunction reaches beyond the Brazilian company partners, six people involved, as American James Mathew Merrill; Jozelia Mirian Sangali, wife of Carlos Costa; Katia Helia Barbosa Wanzeler, Feber Vanzeler de Almeida and Souza, Lyvia Mara Camper Wanzeler and Marilza Wanzeler Machado, Carlos Wanzeler family. These people, according to Justice, participate in Ympactus.
The judge also blocked the assets of the daughter of Carlos Costa, Leticia. “Although initially (Leticia Costa) is not on the quality of investigation, it has been demonstrated, on the topic” II.7.1 “(Das searches and seizures), is reason to suspect that your parent is using your bank account for moving illicit funds. therefore, the corresponding removal of confidentiality must be upheld”, the judge said.
Operation Orion is the result of a joint effort of the federal police, federal prosecutors and the IRS. Investigations are in the final phase and is therefore the union of two investigations which dealt with the ES group can still be accused of acting as a financial agent, commanding a grand scheme to money laundering, tax evasion and conspiracy to promote. If proven irregularities, the sentence may still exceed 10 years imprisonment.
The operation name was chosen because the Egyptian pyramids have been made ??toward three stars of Orion.
At first, the survey evaluates the conduct of two members, but will be considered if other people would also be important parts in the scheme. Criminal investigations began early last year and was in charge of the Civil Police of ES. In August 2013, the investigation was transferred to the PF.
There are more than six months at the request of federal prosecutors, the PF began a new procedure to check the collective sale of securities without the authorization of the Brazilian Securities Commission (CVM), which is equivalent to U.S. SEC.
According to the sheriff for Combating Organized Crime of PF in SSc, Rodrigo De Lucca, were analyzed thousands of documents that prove Telexfree exerted a public company activities.
“The Telexfree created a system for capturing features of securities and created a kind of financial pyramid. She managed to June last year raised more than R$ 1.2 billion only in Brazil”, said the delegate.
In megaoperation worked 50 federal police officers and 18 IRS agents to gather evidence. Besides the offices of Telexfree, searches occurred at the headquarters of Disk Will, a company that was owned by Wanzeler, and also had arms in the United States. Also hit accounting firms. USB sticks, laptops, smartphones and several boxes of documents were seized.
Fraud involving Telexfree has roots in Vitória / ES, but the extent of the damage exceeded the borders of Brazil reaching over one million people worldwide. In Massachusetts, USA, where the company also had headquarters, three charges, and administrative, civil and criminal, against the members of the company on American soil, Carlos Wanzeler (Espirito Santo) and James Merrill (American).
The Federal Court allowed the ES to evidence collected in the USA are used in Brazil to incriminate the owners.
According to the sheriff, Rodrigo De Lucca, with the loan of evidence, the intention is to find out how many people were registered on the network after the blockade in Brazil, occurred on June 18, 2013.
There will also be lending evidence to the Justice of Acre, which is processing a civil action, which paralyzed the activities of Telexfree. The action of Acre has no relation whatsoever with Operation Orion, but was crucial to the collection of materials to support criminal investigations.
To take evidence with the United States, Brazil want to determine the amounts handled by the company after the blockage in Brazil. Possibly, too much money left Brazil illegally.
Estimates of the Securities and Exchange Commission (SEC) Massachusetts – equivalent to the Securities Commission in Brazil – show revenues of almost US$ 1.2 billion from February 2012 until April 2014, when the Telexfree had its prohibited operating in the United States.
“There was the first exchange of information with the United States. We now only awaits the formal request for the evidence to come from there to Brazil. The conclusion of the investigation is very transparent and coincides with U.S. foundations”, said the delegate.
The company’s activities in the U.S. started after June 2013. But even with the ban on registering people in Brazil, representatives of the company inscribed enrolled, issuing contracts with a second Telexfree, based in Nevada.
Both here and in the U.S., the activities are characterized as hybrid Ponzi pyramid. “The company used the VoiP to attract advisers who paid fee to be part of the business. They had an obligation to make daily announcements on free pre-formulated with the promise of profit up to 200% per annum sites”, he adds.
Although federal prosecutors have requested the arrest of Carlos Wanzeler and Carlos Costa, owners of Telexfree, the restrictive measures taken by the Federal Court in the ES were alternatives. They will have to submit monthly Justice ES. However, Espirito Santo was accused Wanzeler in Federal Court in the United States being one of the masterminds of the scheme and can be arrested in Brazil.
A grand jury in the United States denounced Wednesday for nine counts of fraud. A federal detention order was issued in Massachusetts. If the U.S. court ask the Brazil, the arrest may be executed by the Brazilian PF.
Last May, Fantastico, Rede Globo TV’s show, showed that Telexfree continued to work in Brazil. According to lawyer Antonio Carlos de Almeida Castro, also known as “Kakay”, the operation performed yesterday was unnecessary because the company did not work. “MPF did what it thought was necessary, but I do not agree. We want to expedite the investigation and we can not accept this amount of claims against the company. Ideally, everything is in one place. The people who worked at the headquarters of Telexfree preparing documentation for the bankruptcy filing”, said Kakay. At the time of the reportage on Fantastico, Carlos Costa, director of the company, said the employees worked for Telexfree money back for advisers.
Thanks to PatrickPretty.com for providing this link:
Federal Police meets search and seizure warrant at the headquarters of Telexfree in Victoria
24/07/2014 – 9:42 a.m. – Updated 24/07/2014 – 15h19
“Operation Orion” broke out on the morning of Thursday (24)
On the docket today were entries regarding Merrill’s Conditions of release, along with a signed “Arrest Warrant in Abeyance”. I guess that it is good to be prepared for violating Curfew or any other condition. You may read the new documents here.
In addition, there is an entry regarding the $900,000 Bond secured by 3 properties, a Motion for Release of Funds and a record of Mortgage on one of the properties held for Bond.
The Motion to release Funds mentions that the Order to freeze assets on May 9, 2014 included:
- Middlesex Savings Bank, $10,643.00
- Middlesex Savings Bank, $104,988.64
- Waddell & Reed, $3,985,097.33
- Waddell & Reed, $79,684.28
Merrill is asking the Court to release funds so he can pay for his legal defense, since the Court found him to be “indigent” based on his money was frozen and inaccessible. The Motion goes on to say that:
On or about June 18, 2014, with the assent of the Securities and Exchange Commission, Mr. Merrill moved for the release of certain accounts subject to a freeze order issued by Judge Gorton in the SEC litigation. Attorneys for the SEC assented to the release of the accounts, concluding that they did not contain a sufficient nexus to TelexFree. Judge Gorton has since allowed the motion. The following accounts have been ordered released by Judge Gorton, only the last of which is covered by the seizure warrants identified above:
Waddell & Reed, IRA, $33,851
Waddell & Reed, Savings (for benefit of son) $14,719
Waddell & Reed Savings (for benefit of daughter), $29,641
Waddell & Reed, IRA $91,692
Waddell & Reed IRA $158,289
Waddell & Reed 401K $80,272
In the first group of numbers above, Merrill has around $4.1 million dollars in frozen assets and only has that little pittance set aside for his children’s education? And his “retirement” savings amount to around $ 375,000?
Maybe it’s just me but Merrill seems to need to reevaluate his priorities, especially since he can lose it all if convicted. Maybe it is not such a good idea to run a Ponzi/Pyramid scheme?
How long will these nimrods take to figure this out??
One owner, James Merrill, is currently out on bail and awaiting trial. The other, Carlos Wanzeler is on the run in Brazil. Regulators boned his wife’s attempts to flee to the US to join him, and Wanzeler remains cut off from his family.
The US Trustee is currently investigating TelexFree, with the results expected to lay the foundation for possible bankruptcy fraud charges against the company at a later date.
One could argue that in the grand scheme of things, US regulators should have acted much sooner. Despite there being signs well in advance, I will say that these cases take time to build.
With the speed with which US regulators shutdown TelexFree, raided their offices, threw one owner in jail boned the other owner’s wife’s plans to leave the US, ongoing concerns over the pace of regulatory action in Brazil remain.
James Merrill, recently released on bail, has been left holding the bag after his partner-in-crime fled to Brazil. And at least one top promoter, who earned millions and sees himself as a victim, is also hiding out there.
Earlier this year it was hinted that the criminal case against TelexFree might be “resolved by mid-2014“.
With auditors Ernst & Young recently granted an extension to file their report though (due to the “complexity” of TelexFree’s business operations (read: fraud)), and then time granted for both TelexFree and the Acre Public Prosecutor’s Office to file replies, all of which then must be considered by a Judge before a ruling is made, that the case will be resolved anytime soon seems unlikely.
The end of 2014 might be more realistic, but with the ongoing fluidity of regulatory action against TelexFree in the US, even that might be a stretch.
Not helping the existing impression that regulatory justice in Brazil moves slower than a quadriplegic turtle, comes the revelation that the Brazilian SEC concluded TelexFree was “undoubtedly a pyramid scheme”.
Wait for it… all the way back in January 2013.
There was a motion filed today by James Merrill’s new attorney, Robert M. Goldstein requesting the release of his client from detention. It seems Mr. Merrill’s previous attorney, Beverly B. Chorbajian, has filed a Motion to Withdraw as his Appointed Counsel; Mr. Goldstein has been retained by Merrill.
The Motion contends the following:
Now comes the Defendant, James Merrill, by and through undersigned counsel, pursuant to 18 U.S.C. §§3142, and 3145(b), and hereby moves the Court for an order (1) revoking the detention order imposed by U.S. Magistrate Judge David Hennessy and (2) granting Mr. Merrill pretrial release in the above-captioned matter, with whatever conditions the Court believes necessary, as the government cannot sustain its burden of proving that no combination of conditions exist that would reasonably assure his appearance in court.1
1 The government has moved for detention based only on an alleged risk of flight.
There are 32 attachments to this motion, mostly “Letter Exhibits” attesting to the wonderful-ness of Mr. Merrill, his ability to coach girl’s basketball and lacrosse, and extolling what a wonderful man that he really is, despite the part of him being co-owner of a Billion dollar Ponzi/Pyramid scheme.
This is all reminiscent of the ASD case where many hundreds of people wrote letters also extolling the virtue and honesty of Saint Uncle Andy Bowdoin, the grandfatherly head of a Ponzi scheme who eventually plead Guilty to Wire fraud. That’s what con men do, they get you to believe what they want you to believe, which is usually 180 degrees from reality.
The same seems true of Mr. Merrill; he may well be a good coach and general all around nice guy, but he is the co-owner of a Ponzi/Pyramid scheme and is living off the hard work of unsuspecting people who bought into this pipe-dream in an effort to better themselves and their families. He has damaged an untold number of lives, all for his own greed.
I imagine that Mr. Merrill is none too pleased that his cohort, Carlos Wanzeler, fled the country like a frightened little school girl to avoid what was deservedly due to him for his part in all of this. Carlos Wanzeler has several million dollars stashed around in several countries and can live quite comfortably while his partner is sitting in jail and eatin hj. Yeah, I’d be a bit peeved about that, too. Maybe Merrill will help the Feds find Wanzeler; I certainly would.
But Merrill, like Wanzeler, can afford excellent and expensive legal counsel, all of which will be paid for with the money they stole from the thousands of people who bought into their scam. I hope they both decompose in prison. Nothing can ever repay what they have purposefully taken from so many hard-working people who were only trying to better their situation and feed their families.