Bankruptcy trustee offers details on alleged TelexFree fraud
The bankruptcy trustee in the TelexFree Inc. fraud case said the former Marlborough company took in $1.03 billion from investors in just 16 months, according to its internal records.
The alleged global fraud, which was run from a small city west of Boston after being shut down in Brazil, had nearly 1.9 million participants, according to the trustee’s filing in federal court in Boston.
The list of people was so long that it would have filled 35,110 pages, the trustee said — the largest alleged pyramid scheme in history in terms of the number of people affected.
Stephen Darr, the court-appointed trustee, said in his filing submitted late Friday that he could not be certain the information was accurate because “the physical books and records available to the trustee are extremely limited and incomplete.” He also said the debtor’s principals, who have been indicted on criminal fraud charges, have provided no assistance to his office.
TelexFree filed for federal bankruptcy protection in April, as prosecutors and regulators were preparing to bring charges against the company and its top executives. The company purported to sell cheap Internet phone service, targeting thousands of Brazilian immigrants in Eastern Massachusetts and participants as far away as Uganda, Australia, and Indonesia.
The trustee is looking to set up an electronic system for participants to file claims, to save time and expense given the number of alleged victims. He also intends to alert the participants electronically.
The company lured a vast network of participants by encouraging them to buy memberships for about $1,400 and promising to pay them large returns if they promoted the company in online ads and among their friends and family. Early participants have said they did in fact reap returns, which encouraged later entrants to invest large portions of their savings.
In the Boston area alone, Secretary of State William F. Galvin has alleged, the company took in $300 million.
TelexFree brought in the bulk of the $1 billion in revenue from January 2013 until April 2014, when it was shut down, the trustee said.
The trustee’s filing was first reported Saturday by the blog Ponzitracker.
The filing and its schedules list $172 million in assets in bank accounts and property, as well as money seized and held by the US attorney in Massachusetts. There are also $23.4 million in liabilities listed, predominantly taxes owed to the IRS and to the Commonwealth of Massachusetts.
There may be other funds available to victims, including in Brazil, where the company was shut down in 2013. In the United States, funds will not be distributed until there is a result in the TelexFree criminal proceedings.
TelexFree’s two US principals, Carlos Wanzeler and James Merrill, are facing up to 20 years in prison if found guilty of fraud. Merrill, of Ashland, is home with an electronic tracking bracelet and a curfew pending trial. Wanzeler, who had been living in Northborough with his family, fled the country in April for his native Brazil.
Prosecutors have been trying to negotiate Wanzeler’s return to the United States. But under Brazilian law, he does not have to be extradited. Authorities in Brazil also are pursuing a TelexFree fraud case.
Wanzeler and Merrill allegedly withdrew millions of dollars from the company before authorities closed in on them. In April, when the FBI raided TelexFree’s offices, a man who was paid to be interim chief financial officer tried to leave the building with a laptop and nearly $38 million in cashier’s checks.
That man, Joseph H. Craft, has said he was unaware the firm was operating a global fraud. The trustee’s filing shows that Craft Financial Solutions, of Boonville, Ind., received more than $2 million in payments from TelexFree going back to June of 2013.