Promoters added to class action suit vs. TelexFree
A class action lawsuit against TelexFree Inc., the bankrupt Marlborough company that prosecutors allege was an illegal pyramid scheme, was amended this week to pursue profits allegedly taken by the firm’s promoters.
The lawsuit, amended in federal courts in Arizona and Worcester, has added to its list of potential defendants high-profile TelexFree promoters like Sann Rodrigues, who is already facing civil fraud charges brought by the Securities and Exchange Commission. Kiersten Taylor, an attorney with the Boston law firm Brown Rudnick who is corepresenting the alleged victims in the case, said there could be thousands of people who both made profits on the investment scheme and received funds from other people they brought in to participate.
It was unclear how the plaintiffs and lawyers in the case would identify members of the expanded class of defendants. While some, like Rodrigues, are well known, others are scattered around the globe and took payments from new participants in cash, in largely undocumented transactions.
Authorities believe TelexFree is the largest financial fraud of all time in the number of participants involved — numbering 1.9 million from Brazil and the United States to South Africa and Ghana. They invested an estimated $1 billion in the company, which sold cheap long-distance phone service but allegedly made most of its money by bringing in waves of investors who were promised large returns for promoting the company.
Carlos Costa, one of the company’s owners in Brazil, has repeatedly denied that TelexFree was a fraud, including in a recent video sent to the Globe. But federal officials shut down TelexFree’s office in Brazil in 2013 and the US office a year later. The company’s two US owners, James Merrill and Carlos Wanzeler, are facing criminal charges and up to 20 years in prison. Both men have denied wrongdoing; Wanzeler has fled the country and is considered a fugitive, living in his native Brazil.
Among the people the class action suit has named as defendants are the owners; Wanzeler’s wife, Katia, who has also denied wrongdoing; and a number of banks and other companies that did business with TelexFree. The lawyers in the case said they are cooperating with the Boston trustee in the company’s bankruptcy case, who is responsible for gathering as many assets as possible to distribute to alleged victims.
Costa, in his video, mocked the idea that some people were being considered victims who in fact reaped profits on TelexFree. The video was in response to the Massachusetts Securities Division having obtained small settlements for alleged victims within the state. In some cases, Costa alleged, people who made money received one of the checks for $205.52.
Secretary of State William F. Galvin acknowledged that that may have happened in some cases. But it was for the greater good, he said, to distribute the funds. He said that in many cases documenting losses was a challenge.