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Embattled TelexFree rose from humble beginnings

Alleged scheme rooted in cleaning partnership

Homeland Security Investigators raided telecommunications and marketing firm TelexFree in Marlborough, Mass., this week. AP Photo/MetroWest Daily News, Allan Jung

The TelexFree phone service that authorities say is a $1.1 billion global marketing scam started with a Brazilian immigrant who two decades ago was scrubbing office floors for an Ashland cleaning contractor for $6 an hour.

Carlos Wanzeler (pictured) and some of his relatives went to work for James Merrill at his cleaning service in the 1990s. The men would later became partners in TelexFree. telex media

The immigrant, Carlos Wanzeler, would soon become partners in James Merrill’s cleaning business. Along the way, Wanzeler would complain about the high cost of calling family members back home in Brazil, and the germ of an idea was born.

The pair began to hawk low-cost long-distance calls that over time morphed into their own business, a slick multilevel marketing operation that recruited tens of thousands of people, regulators say.


The genesis of TelexFree and how Wanzeler came to meet Merrill are spelled out in interviews each gave under oath in March to federal securities regulators who say the business, TelexFree Inc., was nothing more than a pyramid scheme that stretched from Marlborough, Mass., to Brazil, South Africa, and Cambodia.

This week Wanzeler, Merrill, and six of their associates were charged with fraud by state and federal securities regulators. The Securities and Exchange Commission said it has frozen the assets of TelexFree and eight individuals.

On Tuesday, agents from the FBI and US Department of Homeland Security raided TelexFree’s offices in Marlborough, where they said the company’s chief financial officer, Joseph Craft, attempted to leave with $38 million in cashier’s checks in a bag. Authorities in several other countries have investigations underway for money laundering and other alleged wrongdoing.

Merrill, Wanzeler, and the others charged this week have not responded to numerous requests for comment, nor has the company’s lawyer.

In Massachusetts alone, Secretary of State William F. Galvin said TelexFree’s alleged victims had lost $90 million. Across the United States, the company had raised $300 million from residents in 21 states, according to the SEC.


Many of the alleged victims are immigrants from Brazil or the Dominican Republic, drawn into TelexFree’s marketing scheme by other members of their community who preached of the huge sums they were making for the simple job of promoting an Internet telephone service that made calling overseas cheaper.

“Just place your ads every day and everyone gets paid,” boasted one of TelexFree’s top promoters, Sanderly Rodrigues de Vasconcelos, in a promotional video on YouTube. “I am not the first USA millionaire. I am the first multimillionaire — $3 millions.”

Also known as Sann Rodrigues, he is a former Revere resident who was sanctioned by the SEC in 2007 for defrauding Brazilian immigrants in the Framingham area with a scheme involving prepaid phone cards.

According to interviews with securities regulators, Wanzeler came to the United States in 1988 at about the age of 19, and like many immigrants started out at low-paying service jobs: He would start washing dishes at one restaurant at 9 a.m., and head home from the second restaurant job after midnight. Eventually, he took a janitor’s job at UMass Memorial Medical Center, working the overnight shift for 11 years.

In 1993, Wanzeler’s mother, sister, and brother joined him in Massachusetts from his hometown of Vitoria Espirito Santo. He found Merrill by chance, in the phone book, searching for cleaning companies that could offer the family work.

Merrill agreed to hire the family members if Wanzeler joined them, too. Wanzeler got $6 an hour, while each additional family member got $1 an hour.


Wanzeler must have impressed Merrill, because eventually the owner of the cleaning company told him, “now I want you to be my partner,’’ Wanzeler told securities regulators. The two worked together first in the cleaning business, which at its height grew to about 40 corporate clients and more than $800,000 in revenue, Merrill testified.

The idea for the phone service came up when Wanzeler complained to Merrill that the bill for his wife’s daily calls to her mother in Brazil was astronomical — $400 per month. There had to be a better way, they both thought.

Their research led them to an outfit called WorldxChange that offered long-distance rates 50 to 70 percent lower than the big phone carriers, according to records filed in the security regulators’ case. Merrill and Wanzeler became agents for the company, taking their first plunge into so-called network marketing, in which they recruited more people to help sell the product to friends and family.

They brought in their friend Steven Labriola, too, a persuasive public speaker who would later be featured at TelexFree’s rousing conferences.

James Merrill.

Within a few months, Merrill said, Wanzeler had built a network of “thousands of people and thousands of customers that were using this service and we were growing like crazy and that went along for a few years.’’

With the Internet taking off, Merrill said, they tried to persuade WorldxChange to introduce an online phone service. “They refused. So that was the beginning of our telecom business,’’ Merrill said in his interview with securities investigators.


Beginning in 2002 they launched a string of companies, starting with Common Cents Communications Inc., which resold WorldxChange services, and Disk Avontade and Brazilian Help Inc. Then Wanzeler hooked up with an old friend from Brazil, Carlos Costa, a network-marketing guru.

Costa is “basically our marketing guy,’’ Merrill told the regulators. Wanzeler first introduced him to Merrill on a business trip to Brazil, and the three became cofounders of TelexFree.

Wanzeler was seemingly a million miles from his dishwashing days. He owned 50 percent of a company, Costa owned 30 percent, while Merrill was in for 20 percent. Costa has not been charged in the SEC case.

To this day, Merrill told regulators, he has never had a conversation with Costa without Wanzeler present. Costa speaks only Portuguese, Merrill told regulators. Eventually, Merrill would buy out Costa’s stake in the US business, but Costa would remain an important promoter and leader in Brazil.

Whatever their plans when they started out, the phone service sales would become a tiny sideshow — producing $1.3 million in revenue. Authorities said TelexFree’s real business was luring in members who would invest relatively modest sums in “accounts” and promise to click on online ads to promote the company and its Internet phone service.

Bringing in layers of new recruits was rewarded with bonuses that could add up to 250 percent annual returns.

The system only worked, regulators now allege, if new money kept coming in the door. A judge in Brazil shut down the company’s operation in that country last June, calling it a pyramid scheme. Yet TelexFree continued to recruit tens of thousands of people as far away as Uganda, who gave their hard-earned savings to the company. The promised returns were just too good to pass up.


Investors continued to plow money into the scheme, even as criticism of TelexFree mounted on websites and several banks refused to do business with the company, without explanation. Meanwhile more government regulators, including the US government and Massachusetts Secretary of State William F. Galvin, launched investigations.

By the time FBI and Homeland Security agents arrived at the company’s Marlborough office with a search warrant last Tuesday, the company purportedly owed more than $1 billion to its members, many of them immigrants who are now panicking at the prospect of losing their life savings.

On Wednesday, the SEC received a judge’s approval to freeze the assets of TelexFree and its owners, Merrill and Wanzeler, as well as Labriola, Rodrigues, and four other associates.

Merrill, 52, lives in Ashland and still has his cleaning business, though it’s much smaller, he said. Wanzeler, 45, lives in Northborough and has a vacation home in Boca Raton, Fla., plus three houses in Brazil, he told regulators. He told investigators he works in real estate. Rodrigues, 42, now lives in Davenport, Fla., regulators said.

During his interview, regulators grilled Merrill on various aspects of TelexFree’s website, including photos of him standing in front of their Marlborough building and one in Rio de Janeiro. In particular, they asked him about the claim on the site that he was an economics graduate from Westfield State University in Massachusetts.

Merrill told the investigators that was not true, that he had not finished school. He had tried to get his colleagues to correct the site, he said, “to no avail.”

Beth Healy can reached at Follow her on Twitter @HealyBeth.