Earlier today, federal authorities filed criminal charges against the owners of TelexFree, Inc. and related entities, alleging the companies were a massive Ponzi and pyramid scheme that may have taken in more than $1 billion from victims worldwide. Co-owner James Merrill was taken into custody, while the remaining co-owner, Carlos Wanzeler, is now a fugitive as he is believed to be in Brazil. The criminal charges were announced approximately four weeks after state and federal regulators filed emergency actions seeking to halt TelexFree.
A criminal complaint filed today contained a 27-page sworn statement by Special Agent John S. Soares of the Department of Homeland Security ("DHS") outlining the allegations against Merrill and Wanzeler. The complaint contains a significant amount of previously-nonpublic information, including the disclosure that authorities utilized undercover operations as part of their investigation of TelexFree. According to Soares, an undercover law enforcement officer (the "Undercover Officer") arranged to have himself recruited as an TelexFree promoter by an existing promoter referred to as Person A. Person A told the Undercover Officer that they could make $100 per week using an "AdCentral Family Package" by simply posting online ads for TelexFree, and that they could earn additional money from recruiting new promoters to TelexFree.
The next day, the Undercover Officer joined TelexFree as a new promoter by purchasing an AdCentral Plan for $1,425 using a check made payable to Person A. After setting up a "back office" account, Undercover Officer began placing online advertisements as a promoter for TelexFree - a process that took about 25 minutes per day. For the next seven months, the Undercover Officer posted more than 700 advertisements, which were simply included among hundreds of identical ads posted on certain websites. According to Person A, Undercover Officer did not need to sell the VOIP product advertised by TelexFree to make money, and Person A bragged that "he had earned $1,600,000 as a TelexFree promoter, without selling a TelexFree product."
In early January 2014, Undercover Officer linked an undercover bank account to his "back office," and was able to successfully obtain payments for posting the advertisements.
The undercover activity continued in March 2014 when Homeland Security agents, some undercover, attended a conference presented by TelexFree at a Boston hotel relating to the new compensation plan. Both Merrill and Wanzeler made remarks at the presentation which were included in the criminal complaint, including statements alleged to be false and misleading about TelexFree's customer base and revenue stream. Finally, on April 9, 2014, days before TelexFree's bankruptcy filing in Nevada, another undercover agent purchased a TelexFree VoIP package from a promoter via the TelexFree website.
A copy of the affidavit is below (special thanks to ASDUpdates):