A Massachusetts grand jury indicted TelexFree co-founders James Merrill and Carlos Wanzeler on multiple fraud charges in what authorities have alleged was a massive Pyramid/Ponzi scheme that may have defrauded victims out of hundreds of millions of dollars. Merrill and Wanzeler were charged with one count of conspiracy to commit wire fraud and eight counts of wire fraud. Each wire fraud count carries a maximum twenty-year prison term as well as monetary penalties. The indictment also seeks the forfeiture of tens of millions of dollars, real estate, and luxury vehicles and watercraft belonging to the two men. Merrill is currently in custody after his arrest in early May, while Wanzeler remains a fugitive and is believed to be in Brazil.
The indictment does not appear to contain any new revelations, alleging that Wanzeler and Merrill operated TelexFree as a Pyramid and Ponzi scheme that took in hundreds of millions of dollars from victims who were promised substantial returns through minimal efforts. Authorities allege that TelexFree's compensation system incentivized the recruitment of new investors to the scheme, and that Merrill and Wanzeler made deceiving statements to induce new investors. This included promotional and instructional videos that were distributed through social media and at conferences known as "evtravaganzas."
Three TelexFree entities filed a late-night bankruptcy on April 13, 2014, two days before both the Massachusetts Securities Division and the Securities and Exchange Commission filed civil complaints accusing the company of operating as a massive fraud. The Nevada bankruptcy court where the bankruptcy cases were initially filed later transferred the cases to Massachusetts on the motion of the government, thwarting TelexFree's hopes that it could use the bankruptcy as a way to fend off regulators and reorganize the company. A court-appointed bankruptcy trustee recently stated in court filings that TelexFree "engaged in a Pyramid or Ponzi scheme."
The indictment contains a lengthy list of assets the government seeks to forfeit as proceeds of the crimes, including tens of millions of dollars in bank accounts and cashier's checks. Additionally, the government seeks to forfeit several dozen parcels of real estate located in Massachusetts and Florida, as well as the following motor vehicles:
- 2014 BMW X6;
- 2013 BMW X5;
- 2013 BMW Z4;
- 2009 Ferrari 430;
- 2013 Porsche Boxster;
- 2013 Toyota Highlander;
- 2007 Sea Ray 40 Motor Yacht; and
- 2003 Maxum boat.
According to a report from Patrick Pretty, these assets appear to be the "small real estate empire" prosecutors allege Wanzeler purchased using investor funds.
The indictment is below (special thank you to ASD Updates):