TelexFree: SEC Press Release on Merrill Pleading Guilty

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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23678 / October 25, 2016

Securities and Exchange Commission v. TelexFree, Inc. et al., No. 1:14-cv-11858-DJC (D. Mass. filed Apr. 15, 2014)

United States v. Carlos Nataniel Wanzeler and James Matthew Merrill, Criminal Action No. 14-cr-40028-TSH (D. Mass. filed May 9, 2014)

Telexfree President Pleads Guilty to Operating Pyramid Scheme in Related Criminal Action

On October 24, 2016, James M. Merrill, of Ashland, Massachusetts, the former president of TelexFree, Inc. and TelexFree, LLC, pled guilty to criminal charges related to his operating a pyramid scheme through TelexFree. On May 9, 2014, Merrill and another defendant, Carlos N. Wanzeler, who is a fugitive located in Brazil, were charged in a federal criminal complaint, charging them with conspiracy to commit wire fraud. The criminal charges against Merrill arose out of the same fraudulent conduct alleged by the SEC in a civil securities fraud action filed in April 2014.

The SEC’s complaint alleged that TelexFree, Merrill, Wanzeler, and other defendants claimed to run a multilevel marketing company that sold telephone service based on “voice over Internet” (VoIP) technology but actually were operating an elaborate pyramid scheme. In addition to charging Merrill and the company, the SEC charged several other TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of ill-gotten investor funds.

The SEC’s action, which remains pending against all parties, seeks injunctions against each of the defendants from further violations of the charged provisions of the federal securities laws, disgorgement of ill-gotten gains, and civil monetary penalties, among other things.

For further information, see Litigation Release Nos. 22974 (Apr. 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).

 

http://www.sec.gov/litigation/litreleases/2016/lr23678.htm


Modified: 10/25/2016

TelexFree: USA Motion to Exclude Civil Settlement with Gerald Nehra

carlos-wanzeler-and-james-merrill-telexfree-management-criminalsIn the federal criminal case against Merrill and Wanzeler, the government has filed a Motion in Limine (a motion filed by a party to a lawsuit which asks the court for an order or ruling limiting or preventing certain evidence from being presented by the other side at the trial of the case).

As most of you may recall, Nehra and Waak entered into a civil settlement agreement with the Zeek Rewards receiver in case 14-cv-351 in the Western District of North Carolina:

On September 21, 2015, the court appointed receiver filed a complaint against Nehra and Waak (both individually and against the firm Nehra & Waak) to recover damages from the harm that Zeek caused. Among other things, the complaint alleged that Nehra and Waak knew or should have known that Zeek was perpetrating an unlawful pyramid scheme.
In December 2016, Nehra, Waak, and their firm Nehra & Waak entered into a settlement agreement with the receiver. As part of the settlement agreement, Nehra and Waak agreed that “[w]hile they contend they acted in good faith as legal counsel, . . . acknowledge and agree that, based on their current knowledge, during the period of time they served as counsel for [Zeek, it ] in fact operated as an unlawful Ponzi and pyramid
scheme involving an unregistered investment contract that caused hundreds of millions of dollars in losses to innocent victims in the scheme.” As part of the agreement, Nehra and Waak agreed to a confession of judgement and paid $100,000 to the receiver. The district court accepted the settlement agreement and it was publicly filed on December 11, 2015.

I guess the public admission that Nehra and Waak knew they participated in one Ponzi scheme and then went on to participate in another might not look good for their veracity in the TelexFree criminal trial.

 

The United States respectfully moves this Court to exclude any evidence and/or
cross examination of government witness Gerald P. Nehra, a prior attorney for TelexFree,
regarding a December 2015 civil settlement agreement that Nehra and his firm entered
into with a court appointed asset receiver in the Western District of North Carolina. The
settlement agreement is not relevant to Nehra’s credibility and is entirely collateral to the
subject matter and issues of this case.

Almost seeking to minimize Nehra’s involvement, the motion states:

While Nehra had some interactions with Burks, it was Nehra’s partner Waak who
was the primary attorney on the case. Waak was named as possible witness at trial, but did not testify. Nehra was not named or called as a witness.

As if this was not already a “side-show” the USA states:

The defendant should be precluded from questioning Nehra, or introducing any
evidence, about a civil settlement agreement in a case entirely unrelated to TelexFree and the charged defendants in this case. The settlement does not constitute proper
impeachment, and if admitted, would amount to confusing and timely side-show.

Their reasoning is this:

  1. unless shown otherwise, the agreement is not relevant to the typical proper avenues of impeachment; bias, perception, or recollection of events.
  2. specific rules of evidence prohibit its’ admissibility.
  3. while Nehra’s firm represented Zeek, it was Nerha’s partner Waak who primarily represented Zeek, not Nehra. Waak was called as witness, not Nehra. For this reason, Nehra’s connection to Zeek was more tangential and, for that reason, is less relevant.
  4. it should be noted that the government is not moving to prohibit any reference, Nehra & Waak’s representation of to Zeek or the fact that Zeek and its principal ultimately faced SEC enforcement action and criminal prosecution.

During the charged conspiracy, Nehra received several emails from various TelexFree promoters who raised concerns about possible enforcement action against TelexFree, citing Zeek. Nehra forwarded each of these emails to the defendant.
Instead, the government is seeking a pre-trial ruling to preclude the introduction of
any evidence or any reference to the settlement agreement.

TelexFree: Merrill and Wanzeler Charged in Superseding Indictment

newtelexfreelogoIn a 27 page document filed yesterday, the Grand Jury has added a few charges to the 2 individuals running TelexFree in the USA.  The co-defendants are now charged with 17 counts each, as indicated below:

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The superseding indictment also lists all items up for possible forfeiture and the list is huge. I have added this new Indictment and attachments onto the Files Website.

TelexFree: Judge Denies Merrill’s Motion to Suppress Evidence

newtelexfreelogoBack in May of this year, James Merrill filed for a motion for a Franks Hearing and also to

suppress all evidence derived from any and all search warrants issued pursuant to an affidavit of Special Agent John S. Soares, as the affidavit submitted in support of the search warrants contained false statements and/or reckless misstatements of fact, as well as material omissions of facts, all of which ultimately render the search warrants invalid, see Franks v. Delaware, 438 U.S. 154 (1978).

Just like other scammers caught in the act, he claims the search warrants were obtained through false statements, omitted material information, and that the search warrant affidavit does not establish probable cause to issue a warrant.  Seems like many other Ponzi operators have made the same claim when they got caught; it did not work out well for them, either.

Today, Magistrate Judge Hillman denied these motions.

TelexFree: Judge Denies One Motion, Grants Another, and Rodrigues Remanded into Custody

newtelexfreelogoNot hard to believe, Judge Gorton has denied Sann Rodrigues’ recent Motion to Stay Contempt Proceedings and Approve a Payment Plan. It might have something to do with this motion being filed a day before the Court’s ordered deadline to return a large sum of money he used after the Asset freeze. Rodrigues wanted to enter into a payment plan to repay this money, but without disclosing the length of time or monthly payments he proposed.  It was a waste of paper, actually.

 

And his lack of compliance with the Court’s Order has annoyed the judge greatly; this Order was entered on January 15th:

ORDER
This Court, by order entered December 18, 2015 (Docket No. 359), held the defendant, Sanderley Rodrigues de Vasconcelos, in contempt but deferred the imposition of sanctions to give him an opportunity to purge his contempt. Defendant, having failed to comply with the conditions of that order to restore assets dissipated in violation of the asset freeze imposed upon him by the temporary restraining order (Docket Nos. 13, 42 and 52) and preliminary injunction (Docket No. 89), is hereby remanded to the custody of the United States Marshals Service to be incarcerated until further order of the Court.

But, Judge Gorton did approve a Motion allowing Rodrigues to open a new bank account so he has some where to place all the money he plans on making with his motivational books and videos.  This account is not subject to the Injunction.

 

TelexFree: Bankruptcy Claims Disqualified?

In addition to finding that TelexFree was a Ponzi/Pyramid, Judge Melvin S. Hoffman also issued this decision; allowing the Motion to find TelexFree a Ponzi Pyramid causes “all prior claims files by any person against the debtors or governmental authorities to be disqualified.”

The Trustee must serve a Notice of this by December 7, 2015.


 

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Case Updates, Nov 15, 2015

Achieve Community

  • Kristine Johnson – 15-cr-158 (WDNC) – The majority of docket entries are sealed by the Court. In June 2015, Johnson entered into a Plea Agreement (also sealed), sentencing was set for November 19. Forfeiture of moneys (over $7,301,255 ) and property ordered on November 10th.
  • Troy Barnes – 15-cr-254 (WDNC) – Case filed October 22nd, 4 Felony Counts; Trial was originally set for 30 days following arraignment; Motion to Continue was granted, Trial set for January 19, 2016.
  • SEC v Johnson, et al – 15-cv-299 (Colorado) – Trial set for December 5, 2016, at 8:30 a.m. United States Courthouse Annex, 901 19th Street, Denver, Colorado 80294

DFRF Enterprises, Inc.

  • SEC v DFRF Enterprises, Inc – 15-cv-12857 (Massachusetts) – On October 10, 2015, the SEC filed a ‘Motion to Intervene and Stay Discovery’ pending the resolution of a parallel criminal investigation.  The case was Ordered as Stayed on October 23, 2015.
  • USA v Filho – 15-cr-10214  (Massachusetts) – Case was filed August 5, 2015. Initial appearance was on September 3, 2015. Filho was remanded into custody. At the initial status conference on October 8, 2015, the defendant, represented by counsel, elected to voluntarily consent to detention without prejudice.  (the defendant was committed to the custody of the Attorney General for confinement in a corrections facility separate, to the extent practicable, from persons awaiting or serving sentences or being held in custody pending appeal)

eADGear / GoFunPlaces

  • USA v Wang, et al – 14-cr-488 (NDCal) – Both Wang and Yuen pleaded Guilty, judgement was ordered on October 27th; both men were sentenced to 46 months, and 3 years of supervised release.

Profitable Sunrise / Inter Reef, Ltd

  • SEC v Inter Reef, Ltd. – 13-cv-1104 (Northern Georgia) – This case has been static since July 2015. The last Order issued was for the repatriation of funds from a European Bank

TelexFree

  • USA v. Wanzeler et al – 14-cr-40028 (Massachusetts) – Due to the complexities of this case, things are progressing slowly. So far, 6 status conferences have been held, with another one prior to the scheduled trial date set for April 4, 2016. Carlos Wanzeler is still outside of the USA.
  • SEC v TelexFree, Inc., et al – 14-cv-11858 (Mass.) On October 8th, an Order was issued Granting the USDOJ’s Motion to Intervene and Stay Discovery pending the resolution of a parallel criminal proceeding. Fourth Status report was issued on October 15th.

USFIA

  • SEC v. Steve Chen et al – 15-cv-7425 – (Central Cal) Preliminary Injunctions, Asset Freezes, Receiver Appointed, Restraining Orders and Required Accounting are issued on October 8th.

Vemma Nutrition Company

  • FTC v. Vemma Nutrition Company et al – 15-cv-1578 (Arizona) On October 28th, an Order was issued Denying defendant’s Motion to Approve Revised Compensation Plan. The FTC is also opposing Vemma from using “Affirmative Defenses”.

Zeek Rewards

  • SEC v Rex ventures, et al – 12-cv-519 (WDNC) – Currently, the receiver, Kenneth Bell is still marshaling funds he has collected from a portion of “net winners”. The claw backs continue. Checks have been issued twice to approved claimants.
  • USA v Olivares, et al – 13-cr-335 *closed* – (WDNC) Dawn Wright-Olivares and Daniel Olivares pleaded guilty. Final judgements entered on February 28, 2014.
  • USA v Burks, et al – 14-cr-208 (WDNC) – After 3 Motions to Continue, a Court for a peremptory trial setting was requested for November 2015. A fourth Continuance was granted, trial is now set for the May 2016 term.
  • Bell v Burks, et al – 14-cv-89 (WDNC)  Default judgement entered against Defendant Darryle Douglas for $2,271,239.20
  • Bell v Disner, et al – 14-cv-0091 (WDNC) –
    • Default judgment entered for Defendants Trudy Gilmond and Trudy Gilmond LLC in the amount of $2,129,522.27.
    • Default Judgment entered against Defendant Sorrells in the amount of $1,197,241.12.
    • Order approving Class Counsel for Net Winners,  Kevin Edmunson .
  • Bell v Nehra, et al – 15-cv-437 (WDNC) – Malpractice lawsuit, Nehra was Zeek’s “Compliance Officer”, also a “prominent MLM attorney”.

 

USA v Sanderley Rodrigues de Vasconcelos (TelexFree and iFreeX)

  • 15-cr-10227 – (Mass.) – Rodrigues is charged for Visa Fraud, falsifying documents in order to enter the USA. His first lawyer quit for non-payment. Rodrigues has a second attorney now, but for how long?

 

 

TelexFree: Joint Motion for Status Conference in Criminal Trial

telexfree-logoThe USA and James Merrill have filed a Joint Motion, asking the Court to schedule a status conference. Although Carlos Wanzeler is party to this case, he is still in hiding somewhere in Brazil, last we heard.

The parties hereby move for a brief status conference with the District Court so the parties may address the April 4, 2016, trial date recently set by the Court.
The parties respectfully submit that more time is needed to have this case ready for trial. The parties can of course elaborate in open court should the Court choose to schedule a status conference, but, essentially, the case involves a vast quantity of data and significant amounts of evidence in foreign countries. The underlying transactional data alone for TelexFree amounts to about as much information as is in the Library of Congress. The government estimates that the transactional data represents approximately $3,000,000,000 in transactions and that the company hosted about 11,000,000 accounts, reflecting roughly a million investors, in nearly every country.

I suppose they are saying as complex as this case actually is, based on the numbers, April 2016 is way too soon to begin the criminal trial.

In this unique case, the parties respectfully suggest a trial date of October or November 2016. In light of the time needed to review the transactional data and other available productions, negotiate additional productions if needed, obtain expert analysis (probably from more than one expert per side), and marshal evidence (including international evidence) for trial, the additional time will not go to waste and is in the public interest.

 

TelexFree: Motion Filed to Amend Complaint and Approve “Net Winners” Class

on September 23rd, a Motion was filed to Amend the Second Amended Complain, and if approve it would become the Third Amended Complaint in a Multiple Federal District case, 14-md-2566. Attorney Robert J. Bonsignore, Esq. (NH Bar No 21241) filed the Motion for Leave to Amend, and add an “unjust enrichment cause of action”, and a putative Defendant Class.

“Upon information and belief, in excess of 20,000 persons were “net winners.”

“Since these Direct Payment Recipients profited purely through their participation in an unlawful Scheme, and since they provided nothing of real and lawful value to the Scheme’s victims in exchange for the Direct Victim Payments they received, their gains constitute unjust enrichment.”

“The proposed amendment is brought in good faith, without dilatory motive, and will not result in any undue delay of these proceedings. In fact, Plaintiffs Executive Committee strongly advances the position that the sooner the cause against the Net Winners is advanced, the better the interests of the Putative Class of Net Losers will be served. In sum, Plaintiffs’ proposed amendment, which includes the addition of a class of Defendant Net Winners to the unjust enrichment claim, are important to Plaintiffs’ recovery in this matter, but will otherwise not affect existing claims or the schedule of this Court. The addition of the putative class will serve to increase the efficiency of this litigation and reduce the burden of this court and the parties while preserving the rights of all parties involved. The Plaintiffs’ Motion should therefore be granted.”