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TelexFree bankruptcy judge approves $150 million for pyramid scheme victims

About 100,000 people will get payouts six years after scam was exposed

Homeland Security investigators raided TelexFree's offices in Marlborough in April 2014.Alan Jung

After six years of legal wrangling, people who fell prey to the $3 billion TelexFree pyramid scheme will get some of their money back.

During an online hearing held Wednesday, Judge Melvin S. Hoffman of US Bankruptcy Court in Boston approved a plan to disburse more than $150 million to about 100,000 people who lost money when TelexFree collapsed in 2014.

The compensation plan, developed by Stephen Darr, the court-appointed bankruptcy trustee, will provide an initial distribution of 39 percent to 43 percent of approved claims.

Hoffman’s ruling is a milestone in a complicated case with victims in Massachusetts, Brazil, and around the globe. A protracted fight between the IRS and the trustee over taxes owed to the government held up approval of Darr’s plan.


Most of the money for the payouts came from the liquidation of TelexFree assets seized by the Justice Department in 2014. It took until 2019 to free up the proceeds. A smaller amount came from “net winners” — people who put money into TelexFree and were able to take profits before the scheme fell apart.

A “small number” of disputes with victims still need to be resolved, said attorney Andrew Lizotte of Murphy & King, which served as legal counsel to the trustee. Lizotte said those issues should be settled within six to 12 months.

TelexFree initially sold Internet phone-service plans but devolved into what is known as a pyramid or Ponzi scheme. Most of its money came from participants who were persuaded to buy memberships — essentially small investment accounts — with the promise of large returns, ostensibly for posting TelexFree ads on the Internet.

Members got credits to their accounts for the ad postings, which prosecutors said were seen by very few people, and bonuses for recruiting new participants. Early participants were able to cash in their credits, which lured others to put money in. The scheme collapsed in 2014 when TelexFree couldn’t bring in enough new money to pay the credits and bonuses.


The company was started in Brazil and operated in Marlborough in 2013 and 2014. It recruited many of its Massachusetts members from the Brazilian and Dominican communities. Nearly 1 million people lost money as an estimated $3 billion flowed between multiple levels of investors and the company, prosecutors said.

James Merrill, a former cleaning company owner who became president of TelexFree, pleaded guilty to multiple counts of wire fraud in October 2016 and agreed to turn over $140 million in assets. He was sentenced to six years in prison and three years of supervised release.

Merrill’s business partner, Carlos Wanzeler, fled to Brazil after charges were filed against him, and the United States has been trying to extradite him.

In January 2017, Cleber Rene Rizerio Rocha was arrested in a sting operation that prosecutors said linked him to money laundering by Wanzeler.

Prosecutors said at the time that Wanzeler was sending people to the Boston area to pick up some $40 million he had left here. Rocha led authorities to $17.5 million in cash stored in a bed’s box spring in Westborough.

Rocha was sentenced to 33 months in prison and one year of supervised release after pleading guilty to one count of conspiring to commit money laundering and one count of money laundering.


Correction: An earlier version of this story incorrectly described the small number of claims that are expected to be resolved within the next year.

Larry Edelman can be reached at larry.edelman@globe.com. Follow him on Twitter @GlobeNewsEd.