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Stunned, friends rally behind TelexFree cofounder

Family man James Merrill surprises some as alleged co-author of massive fraud

James Merrill is accused of helping to mastermind a $1 billion business fraud, one of the biggest of all time.

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James Merrill is accused of helping to mastermind a $1 billion business fraud, one of the biggest of all time.

Neighbors knew James Merrill as the guy always playing ball with his kids in the yard or jogging with the family’s rescue dog, Hunter. He coached Little League for years, and provided a well of support for a friend stricken with ALS.

He sometimes had to travel for work, but the Worcester native much preferred being home with his wife of 23 years and their three children.

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Today, that consummate family man is wearing an electronic ankle bracelet in his Ashland home. Federal law enforcement officials say he helped mastermind one of the largest business frauds of all time, a $1 billion scheme that lured hundreds of thousands of people around the world to invest in TelexFree Inc.

“It breaks my heart,” said Pam Cahill, a next-door neighbor of the Merrills. “This is not the kind of guy who belongs in jail. They’ve got the wrong person here.’’

People who know Merrill say the alleged swindler in the headlines bears no resemblance to the man they’ve known and admired. Merrill, 53, was arrested in May and held for six weeks in a Rhode Island jail as a grand jury was convened to investigate and prosecutors warned there was a risk he would leave the country — as his longtime business partner, Carlos Wanzeler, did.

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Friends and relatives rallied to support Merrill, sending 32 letters to federal court in Worcester. Even the minister from his church wrote. A judge released him on bail last month after Merrill pledged his family’s home, as well as his sister’s and a friend’s, to meet the $900,000 bond. He had to surrender his passport and promise to stay home every night after 8 p.m.

RELATED: TelexFree co-owner finds refuge in Brazil

Meanwhile, his TelexFree co-owner, Wanzeler, is living in relative freedom in Vitoria, Brazil, the seaside city where he grew up and where the company once had its headquarters. In Brazil, Wanzeler faces two years in prison, at most; here, both men face up to 20 years if they are found guilty.

‘They’ve got the wrong person here.’

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“I was truly shocked when I learned of his legal troubles,’’ wrote one longtime Merrill friend, Warren F. O’Donnell Jr. of Dorchester, in a letter to the court. “It just is not in Jim’s nature to harm anyone, and I really do not believe that was his [intention] or that he would ever try to accumulate wealth at the cost of anyone else.’’

But prosecutors, as well as state and federal securities regulators, allege the two men oversaw an enterprise that could stay afloat only with an ever-growing ring of promoters bringing in new investors who were eventually duped.

Lawyers for Merrill and Wanzeler say the men did nothing wrong. They were running a legitimate business, their attorneys say, selling cheap Internet-based phone service to immigrants with family in far-flung places.

“Mr. Merrill steadfastly maintains his innocence,’’ said his lawyer, Robert Goldstein. He said he has offered “voluminous evidence undercutting the government’s contention that he has engaged in any wrongdoing.”

As recently as March, when the alleged scheme was unraveling, Merrill assured a crowd of TelexFree promoters at a Boston hotel, “You’re going to get paid.’’ Weeks later, Merrill moved millions of dollars to himself and his business partners, prosecutors allege, just before the company filed for bankruptcy protection.

In court, prosecutors called Merrill the American face of TelexFree. He did not speak Portuguese, the language of Brazil, where the company had started. But they say he was greeted at business conferences around the world as a rock star, with music blaring and loud applause.

In an interview with state regulators, Merrill professed not to know all the details of the business’s structure. He could not say, for instance, why his 20 percent stake in the company rose to 50 percent in 2013, as Carlos Costa, their Brazilian partner, transferred his share to Merrill.

“It was a legal decision on his part,’’ Merrill said. “I’m not 100 percent sure of why that happened.’’ Merrill also said he did not pay for the added stake in the company.

In court, Merrill’s wife, Kristin, said she also did not know all the details of her husband’s work. She knew he had traveled to Brazil on TelexFree business trips but said she was unaware of the stature he enjoyed at company events.

In a letter to US District Judge Timothy S. Hillman seeking her husband’s release, Kristin Merrill wrote of a simple family life built on respect, honesty, “a deep, abiding love for one another and first and foremost, for God.’’ She said her husband would never abandon the family, in part because “Jim adores me, as my friends often remind me.’’

Now, Merrill is legally in his wife’s custody, a condition of his release.

Merrill, called Jamie by friends and family, did not finish college. He is a son of teachers, born and raised in Worcester, with four sisters and a brother. Some people called him Max as a young teen, according to friends who wrote letters to the court, because Merrill was small and had to work “to the maximum’’ to keep up with his peers on sports teams.

He graduated from Doherty Memorial High School in 1979, where he was a member of the finance club. In his yearbook, he listed his favorite song as Bruce Springsteen’s “The Promised Land,’’ a rock anthem about a frustrated working man searching for something more.

Merrill went on to attend Westfield State University for two years but never graduated. Starting in 1981, he took “different sales jobs, nothing that worked,’’ he told state regulators investigating TelexFree. “I took some more classes at a community college that never really went anywhere, unfortunately,’’ he said.

In 1986, Merrill started Cleaner Image Associates Inc., an office-cleaning business that grew to nearly $1 million in annual revenue at its height. That’s how Merrill met Wanzeler, who went to work in the business along with other family members in 1993. Wanzeler initially toiled as a cleaner for Merrill for $6 an hour, joining him later as a partner in the business.

Merrill was a tinkerer, inventing a button to unplug vacuum cords easily for his workers, according to a friend’s account. Later, he moved into telecom sales ventures with Wanzeler and the two eventually established another company, Common Cents Communications Inc., to handle the work. In February 2012, they changed the name to TelexFree, and money soon started flooding in.

Merrill’s biography on the TelexFree website says he earned a degree at Westfield, an inaccuracy he told investigators he repeatedly tried to correct. He said he even sent a rewritten version to Wanzeler and Costa because what appeared online was “horribly written. It’s embarrassing.’’ But the change was never made.

Court filings show Merrill started to make a lot of money from TelexFree last year, including $3 million around Christmas. The family remodeled their kitchen and improved the porch, but they still had a mortgage to pay. Wanzeler, by contrast, reaped $13.7 million in just over a year and spent millions on real estate, luxury cars, and boats.

Even as TelexFree grew, friends said, Merrill remained the same down-to-earth person they had always known.

Trish Miller, owner of the Learning Center of Hopkinton, a day-care center and longtime client of Merrill’s cleaning company, said he still jumped to help customers, even as he grew busier with TelexFree.

“If I had a problem he’d come right over,’’ Miller said. “You don’t find a nicer family or a man with more integrity.”

In the court letters, old friends told of Merrill’s dropping everything to help empty their Quincy apartment after a fire. Others called him an empathetic listener who helped a friend through a divorce; a nephew said Merrill helped him stay on the straight and narrow.

Merrill visited his childhood friend Steve McManus in Dallas when he discovered McManus was dying of Lou Gehrig’s disease. After his friend died in 2007, Merrill raised money for ALS in road races.

“He did a lot for my brother,” said James McManus, Steve’s brother. “I’ll never forget it.’’

Other friends talk about Merrill’s providing many jobs to immigrants, like Wanzeler, at his cleaning company. His wife would cook for the workers at their annual Christmas party.

But TelexFree ended up preying on the very immigrants the TelexFree’s founders professed to want to help, prosecutors allege. In Massachusetts alone, participants in the marketing scheme believe they are owed $90 million, according to regulators. Most of them live in Brazilian and Dominican immigrant communities here and throughout the country.

The scale of the TelexFree fraud was massive and global, prosecutors say, with as many as one million victims believing they are owed at least $1 billion. It created a tidal wave of transactions for TelexFree to process. Many large banks would not do business with the company, so Merrill went to smaller institutions. One of them was Fidelity Bank of Leominster, where his brother, John, was president.

Years earlier, John and James had stood together to give their father’s eulogy. John’s daughter called her uncle a hero in a letter to the court.

It’s unclear how much John Merrill knew about his brother’s business. He is well known in the Worcester business community, an officer at the Greater Worcester Chamber of Commerce and a board member at several nonprofits. In his role at the bank, he was recently subpoenaed by state securities regulators. The bank has denied any wrongdoing. John Merrill has declined to comment to the Globe.

Former lieutenant governor Timothy Murray, now chief executive of the Worcester Chamber, vouched for John Merrill, as his neighbor. He described the banker as a “next-generation community leader in Worcester. A solid guy.’’

As the pressure mounted this past spring, Merrill and Wanzeler assured their investors all would be well, even though TelexFree had been shut down by a judge in Brazil last year. But on April 11, Merrill and Wanzeler’s wife, Katia, went to a Connecticut bank to withdraw $27 million in cashier’s checks.

Four days later, Department of Homeland Security and FBI agents arrived at TelexFree’s Marlborough office with search warrants. Merrill was not there, according to court records. Wanzeler was in a car headed for Canada, where he would board a flight to Brazil.

It’s unclear if Merrill knew Wanzeler was leaving. Two years ago, at a company “extravaganza” in Brazil, Merrill called Wanzeler and Costa his friends, and “two of the greatest leaders I’ve ever met in my life.’’

Today, those friends are far out of reach of US authorities, ensconced in a country with the roar of the World Cup in its ears. Merrill sits in quiet Ashland, under curfew, waiting for the findings of the grand jury.

Related coverage:

Judge: TelexFree co-owner can go free on bail

TelexFree co-owner finds refuge in Brazil

Fervor for TelexFree swayed thousands

TelexFree president appeals his detention

Judge frees wife of TelexFree owner accused of fraud

FBI sets up website for TelexFree victims to file claims

Beth Healy can be reached at beth.healy@globe.com. Megan Woolhouse of the Globe staff contributed to this report.
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