A federal judge in Worcester has ordered that TelexFree Inc. co-owner James Merrill be released from jail while he awaits trial in a $1 billion global fraud case.
Merrill, 53, has spent the past five weeks in a Rhode Island detention center, after prosecutors argued that he was a flight risk. His business partner Carlos Wanzeler, fled to Brazil last month before he could be arrested.
US District Judge Timothy S. Hillman ruled Tuesday that the government had not proven that Merrill, a lifelong Massachusetts resident, would flee, despite facing 20 years in prison if he is found guilty.
As conditions of his release, Merrill will wear a GPS ankle bracelet and be placed in his wife Kristin’s custody. He and his family will put up a bond of $900,000, secured by Merrill’s Ashland home, the home of his sister, Julie Merrill Wisell of Sutton, and a friend’s house in East Falmouth.
Merrill also must remain in his house every day from 8 p.m. to 8 a.m. and cannot leave the state without permission. He has to relinquish his passport and promise to appear for court proceedings. He cannot have contact with any “co-conspirators.’’
Merrill could be released by Wednesday or Thursday, according to people involved in the case. His lawyer, Robert Goldstein, said, “Mr. Merrill is steadfast in maintaining his innocence.” He said the judge’s decision to release Merrill “is legally unassailable. It’s fully supported by the case law and the factual evidence elicited during the hearing, and is entirely consistent with judicial precedent in this area of law.’’
Prosecutors had warned that Merrill would be tempted to run because of the long potential sentence he faces. They described him in court as an executive with a rock star following in far-flung countries, where hundreds of thousands of people believed they were making lots of money on TelexFree.
The judge called it “a close case,” but cited Merrill’s “strong family and community ties” in his decision. Hillman noted that Merrill and his wife have been married for 23 years, have lived in Ashland since 1997, and are the parents of three children. He also cited Merrill’s record of coaching youth sports teams, and lack of any prior arrest record.
Hillman said given “the inability of the government to more fully substantiate its contention that Merrill has the international funds and contacts that would allow him to successfully flee the country, this court finds that Merrill should be released,” subject to the conditions.
The judge said the government “has not offered proof that there are any individuals, with the possible exception of Wanzeler, who would actually help Merrill flee.”
TelexFree, with US headquarters in Marlborough, started in Brazil as a long-distance phone company, selling inexpensive plans for people to call distant friends and relatives. The company was shut down by a judge in Brazil in June 2013 but was allowed to continue operating in the United States until April of this year.
Lawyers for Merrill and Wanzeler said the men did nothing wrong and were running a legitimate company. But prosecutors said the vast majority of their revenue came not from selling phone service, but from recruiting people around the world to open the equivalent of investment accounts with the company.
In the Boston area, many Brazilian and Dominican immigrants opened accounts for $1,375 apiece. In return for approving five purported online advertisements per day on the TelexFree website, they got $100 weekly payouts.
In Massachusetts alone, alleged victims believe they have lost $90 million, according to securities regulators.
On April 15, federal agents raided TelexFree’s Marlborough office, and Secretary of State William F. Galvin and the Securities and Exchange Commission filed civil fraud charges against the company and its principals. That day, Wanzeler drove to Canada with his adult daughter and soon after boarded a flight from Toronto to Brazil.
Days earlier, Merrill had traveled to Connecticut with Wanzeler’s wife, Katia, to withdraw $27 million in checks from a bank. And on a Sunday night, April 13, TelexFree hastily filed for federal bankruptcy protection in Las Vegas, far from the regulators investigating them.
On May 9, the US attorney in Boston charged both Merrill and Wanzeler with conspiracy to commit wire fraud. Federal agents arrested Merrill in Worcester but, by then, Wanzeler was long gone. A grand jury is investigating the case.
Wanzeler has been staying in the area of Vitoria, Brazil, a seaside city where his mother and other family members live, and where he grew up.
Under Brazil’s constitution, Wanzeler cannot be extradited to the United States, where he has dual citizenship and had lived since he was 19. The most time he could serve for fraud in Brazil is two years.