FRAMINGHAM — Nubia Gaseta had never expressed an interest in TelexFree, but for months company representatives pursued her through phone calls, e-mails, and visits to the florist shop she owns. Friends and family, including her husband, kept prodding Gaseta to invest in TelexFree, which sold long-distance phone plans at discount prices, targeting Brazilians and Dominicans.
“It was everyone, everyone, everyone,” Gaseta said, waving her arms around her head as if she were swatting flies.
Eventually, the tide of enthusiasm proved too much. Gaseta, promised a quick and easy profit, invested $2,500.
Similar marketing tactics, fueled by personal testimonies and word of mouth, helped the embattled Marlborough company attract hundreds of thousands of investors in Massachusetts and around the world. As more of them come forward to tell their stories, it is becoming easier to understand how TelexFree expanded so quickly across continents, in what is now alleged to have been a $1 billion pyramid scheme.
Investors who claimed to have reaped huge gains evangelized about TelexFree on radio programs, over family dinners, and at extravagant events, including one near Orlando last year at which the company raffled off iPads and Mercede-Benz SUVs. Some people quit their jobs to promote the company full time, earning bonuses for each family member or friend they persuaded to invest.
“We are here to help you make money,” TelexFree co-owner James Merrill told a crowd at the Boston Marriott Copley Place Hotel in March, according to court records — even as the company was imploding.
But it was the unbridled enthusiasm in the immigrant community that sold many people on TelexFree. Investigators said the company encouraged investors to recruit those close to them by offering $20 or $100 bonuses if they could persuade people to invest. Major recruiters, called “team builders,” could earn upward of $39,000 a year, according to a federal officials.
One T-shirt with lettering in Spanish called TelexFree “a form of brotherly love.”
Maryanne Oller, a promoter with an office in Jamaica Plain’s Hyde Square, estimated she recruited scores of family members and friends. Her father in the Dominican Republic borrowed $5,000 to invest. Oller said some people she recruited still have money in TelexFree, but declined to say how much.
“They trusted me,” she said. “We thought it was a good business.”
Just weeks after Merrill’s Boston appearance, TelexFree’s dizzyingly fast expansion ended abruptly. The company declared bankruptcy and federal investigators shut down its headquarters, leaving about 1 million promoters worldwide in limbo, according to federal prosecutors. They have charged Merrill and co-owner Carlos Wanzeler with criminal fraud. Merrill is being held without bail, and Wanzeler is a fugitive after fleeing to his native Brazil.
Investigators say the phone service business constituted less than 1 percent of TelexFree’s revenue. They allege the real money came from new investors, who received little or nothing in return once TelexFree collapsed. It was a “classic pyramid scheme,” they said.
TelexFree officials have declined to be interviewed, but in court records they said they ran a legitimate business that grew too fast. They claim the company took in $3 million a day at its height and could not keep up with the demand.
The business troubles intensified last year when a judge in Brazil shut down TelexFree’s operations there after ruling it was a pyramid scheme. In court records, the company later said that some promoters had been abusing the compensation system, straining its accounts.
Investigators tell a markedly different story. They say TelexFree investors in Massachusetts lost as much as $90 million, including the $2,500 Gaseta handed over.
“It’s a lot of money,” Gaseta, an immigrant from Brazil, said as she glanced at her husband during a recent interview at her shop in downtown Framingham. “I work very hard.”
When TelexFree began publicizing its phone service business two years ago, many were skeptical of its offers to deliver sky-high profits in return for modest investments and minimal work. But doubters became believers once they saw friends buy new cars or renovate homes using TelexFree payouts.
“Money was coming in like a flood of water,” said Sidney Pires, a community activist in Framingham who invested about $3,000 this year — at the urging of a close friend — and lost it all.
He spoke at a meeting of worried investors who gathered at Missionary Assembly of God Church in Chelsea in April, where success stories were swamped by tales of financial devastation.
A Brazilian man who refused to identify himself said he stopped painting houses to promote TelexFree full time and had earned $30,000. “For me, it was good,” he said.
But across the room, Fausto da Rocha said he probably lost $45,000, the proceeds of an insurance payment from an auto accident. He had initially resisted TelexFree, but after friends profited, he decided to join, hoping the investment would accelerate his recovery from bankruptcy a few years earlier and losing his house. Da Rocha, well known in the Brazilian community, said he recruited about 20 relatives and friends.
“I feel guilty,” da Rocha said as tears clouded his eyes. “My career is gone. I’m going to clean houses with my wife. Cleaning houses is a good business.”
TelexFree focused primarily on Brazilians and Dominicans, two of the largest immigrant groups in Massachusetts. But Secretary of State William F. Galvin said the alleged scheme also involved Haitians, Salvadorans, and Americans. Galvin filed a civil complaint against the company, which was followed by the Securities and Exchange Commission’s filing, and federal criminal charges.
Investors pitched TelexFree as a path to a better way of life for immigrants, who often work long hours for low pay.
In a 2012 Facebook posting, Edgar Borelli, a former Baptist pastor in Weymouth, said TelexFree was akin to a gift from God. He said he earned a paltry wage in a cafeteria while overseeing the church on the side, but after he joined TelexFree, his salary soared from $330 a week to $5,000. He posted photos online of his family vacationing on the beaches of the Dominican Republic.
“Look at the presents God gave me,” he wrote on Facebook just before Christmas 2012. “Best of all, this gift is reserved for you in 2013.”
Borelli did not respond to messages from the Globe.
Some investors said they had warned friends that TelexFree’s promise of generous returns seemed unrealistic.
“It was too easy, I always said it,” said German’s colleague, Juan Medina, a 49-year-old Dominican immigrant who rejected advice to invest his 2013 tax refund in TelexFree.
Ilma Paixao, general manager of Langer Broadcasting Group, which owns WSRO-AM in Framingham, the largest Brazilian radio station in Massachusetts, said she refused to sell advertising time to TelexFree and prohibited on-air hosts from promoting it.
“I feel so sick to my stomach,” she said. “I tried so hard to ask the people not to join.”
Josimar Salum, a minister and leader of the Brazilian Ministers Network, said he blogged against the company last year and confronted a few pastors he heard were defending TelexFree. “I have a holy anger,” Salum said. “I have been talking to these people for a long time. They should respond before God and before man.”
In December, TelexFree courted investors over roast pork and rice in a Framingham hall decorated with holiday garlands and dangling stars. And as recently as April, some promoters held out hope that TelexFree would rebuild.
But at the Brazilian Times, a Massachusetts newspaper that wrote about Borelli’s success in 2012, executives say TelexFree is probably finished, leaving investors in the lurch.
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