More than 14,000 Massachusetts victims of the TelexFree Inc. fraud received checks this week as reimbursement for some of their losses, the first such return of funds since the alleged $1 billion global Ponzi scheme unraveled last year.
State regulators said the investors received $205.52 each, or a total of $2.9 million, as part of a $3.5 million settlement with a Fitchburg bank tied to the case. Secretary of State William F. Galvin acknowledged the checks covered only a slice of the alleged losses but said people were glad to recoup something.
“Many people never expected to receive anything,” Galvin said. “I’m pleased that my office was able to get some money back for these victims.” Many of the victims are Brazilian immigrants.
An estimated 1.9 million victims around the world are still waiting for any relief in the case, which stretched from Vitoria, Brazil, to Marlborough, Mass., and spread virally across the globe by word of mouth and through the Internet.
The alleged scheme involved selling people cheap Internet phone service for long-distance calls and then recruiting them to sign up as members in increments of about $1,400. For bringing other people to the program, and purportedly spreading the word through Internet ads, the recruits were promised large financial returns.
People who got in on the alleged scheme early say they did reap payoffs. But thousands who joined later, lured in by evangelical style meetings run by the firm’s owners and promoters, lost everything.
Philip Watson, a 43-year-old electrician in the Boston area, said he invested $8,700 in TelexFree in the summer of 2013. He said he believed the company was legitimate because the phone service worked as advertised.
But soon after investing, Watson was unable to get his money out. He was among those to receive a check this week, though he hopes he’ll get more money back.
“It’s great to see that someone’s trying to help,’’ he said.
TelexFree was shut down in mid-2013 in Brazil, where investigations of the company and its principals are ongoing. The operation continued after that in Marlborough, under owners James Merrill of Ashland and Carlos Wanzeler, a Brazilian native who raised his family in Northborough. Both men are facing criminal and civil fraud charges, and they face up to 20 years in prison if they are found guilty.
Merrill and Wanzeler have denied wrongdoing through their lawyers.
Wanzeler fled to Brazil in April 2014, when the company filed for bankruptcy protection and federal authorities raided its offices. He remains in Vitoria, safe from US authorities. Merrill is home awaiting trial, with a curfew and a GPS tracking device.
In June, Wanzeler made his first public statement in the case in an e-mail to the Globe. Despite negotiations among authorities to bring him back to the United States to go to trial, he said he was unwilling to leave Brazil because he would face imprisonment here.
The bank in the Galvin settlement is Fidelity Cooperative Bank, run by Merrill’s brother John. The bank was one of several that held deposits for TelexFree. Its executives denied any knowledge of the fraud but agreed to settle allegations that they should have reviewed the operation more thoroughly.
The rest of the settlement money will be distributed to a second and third group of Massachusetts claimants, Galvin said, after more work is done to verify their claims. The state victims could still possibly recoup more of their losses, Galvin said, depending how much money the bankruptcy trustee ultimately has to distribute.
At last count, the trustee had $150 million in seized assets to distribute. However, the money will not be available until there is a verdict in the criminal case.
Meanwhile, the Securities and Exchange Commission this week filed a motion in federal court to hold a TelexFree promoter in contempt for allegedly failing to obey a judge’s order freezing his assets.
Sanderley “Sann” Rodrigues de Vasconcelos allegedly moved assets after the court froze them in April 2014. According to the motion, a “shell company” he controls sold a Ferrari for $79,700, and Rodrigues and his wife bought a BMW for $59,621, among other transactions. He also allegedly transferred the title to the family’s home in Davenport, Fla., to another entity he controls.
Rodrigues, who also faces criminal charges for visa fraud, is under house arrest in Florida on $200,000 bond. According to the SEC’s motion, he is also under investigation in Brazil for his role in TelexFree and another alleged pyramid scheme, and left Brazil against a judge’s order.
Beth Healy can be reached at firstname.lastname@example.org.