Lawyers from the US Securities and Exchange Commission said Wednesday they believe one of TelexFree Inc.’s owners has left the country for Brazil, amid a grand jury investigation of the Marlborough phone-service company and its principals.
There would have been nothing to stop co-owner Carlos Wanzeler from leaving the United States, as no criminal charges have been brought against him or anyone else involved with the company. Lawyers for Wanzeler, co-owner James Merrill, and other defendants were in federal court Wednesday facing civil fraud charges filed by the SEC.
Regulators sued TelexFree and froze the company’s assets last month, alleging the business and its principals were operating an illegal pyramid scheme that may have raised more than $1 billion from people around the world. Prosecutors are presenting the case to a criminal grand jury in Boston, according to several lawyers involved in the case.
Wanzeler’s lawyer, Paul Kelly, declined to comment on whether his client is in Brazil. He said that Wanzeler has dual citizenship in the United States and Brazil and that it “wouldn’t terribly surprise anybody’’ if he had traveled there recently.
A spokeswoman for the US Attorney’s office in Boston declined to comment on what it might mean to its investigation if Wanzeler has left the country.
Merrill and Wanzeler met in the 1990s, when Wanzeler and his family of Brazilian immigrants went to work for Merrill’s Ashland cleaning company, according to court records. In time the two became business partners, and since at least November 2012 they have run an enterprise that raised more than $300 million from predominantly Brazilian and Dominican immigrant communities across the country, according to the SEC’s complaint filed last month.
In court Wednesday, TelexFree’s lawyers argued that the company’s owners have a legitimate business selling Internet-based telephone service for long-distance calls and a mobile phone application to accompany it. They said the company filed for federal bankruptcy protection in Nevada last month so it can reorganize the business and generate more revenue for its participants.
But the SEC said in court Wednesday that there is no meaningful business to speak of at TelexFree.
“We believe there’s nothing to reorganize here,’’ said Frank Huntington, an SEC lawyer.
Huntington said that, by TelexFree’s accounting, the company has about $100 million in assets that could be available to creditors, most of whom are the company’s participants and promoters. That figure includes $38 million in cashier’s checks the company’s acting chief financial officer allegedly carried with him last month as he attempted to leave TelexFree’s offices while federal agents were there seizing computers and records.
In court records in Las Vegas, TelexFree said it had about 700,000 participants around the world, and some company executives estimated they had promised them as much as $5 billion. But that number is far from certain, according to both TelexFree representatives and SEC lawyers.
Secretary of State William F. Galvin, who also filed fraud charges against TelexFree, has pegged the global losses at $1.1 billion. In either case, those figures may include the investment returns participants expected to get, rather than money they actually lost.
That distinction may affect the amount of money victims will ultimately be able to claim.
In the Bernard Madoff fraud case, for instance, the bankruptcy trustee determined that investors could claim only the original funds they had invested, not the gains they had been falsely promised. And the trustee pursued large, early investors who had reaped vast gains, in order to repay some of the later investors who lost money.
Since potentially hundreds of thousands of participants stretch from Boston to Tanzania, the SEC’s Huntington said, “That’s going to be a massive problem to figure out the accounting.’’
On Tuesday, TelexFree’s separate bankruptcy case was moved to Massachusetts by a federal judge in Las Vegas after the SEC argued there were no grounds for the case to be filed in Nevada. On Wednesday, an SEC lawyer said the regulator would ask a judge to move the case from Worcester to Boston.
Lawyers for Merrill and Wanzeler asked the judge to release some of their personal assets, which were frozen by an earlier court order, so they can cover their living expenses. They also said each of the men would like to be able to run their cleaning businesses, which, the lawyers said, predate their work at TelexFree.Beth Healy can be reached at firstname.lastname@example.org. Follow her on Twitter @HealyBeth.