Alleged Ponzi Scheme Made Billions, Had Nearly 2 Million Participants

According to a bankruptcy trustee, an alleged ponzi scheme that ran under the business name TelexFree LLC made $1.8 billion in two years, and drew close to 2 million participants, reported the Telegram and Gazette.

Based in Marlborough, TelexFree sold Internet phone services and filed for bankruptcy in April 2014 when agencies called it a “fraudulent scheme.”

A claim form may need to be created for the many who say they are owed money from the scheme, as well as a procedure to handle the claims.

Many U.S. immigrants paid to promote TelexFree; they would place ads in exchange for packages they could sell for cash.

James M. Merrill of Holliston and Carlos Wanzeler, formerly of Northborough, were identified as the business’s principals, said a press release. Investigators have seized 46 computers, and more than $17 million has been recovered for TelexFree creditors.

The Federal Bureau of Investigation and Homeland Security Investigations in May of 2014 began seeking customer assistance relating to TelexFree Inc. and posted a questionnaire for anyone who may have possibly been defrauded.

Merrill and Wanzeler and related entities were charged on May 9, 2014, in a federal criminal complaint t with conspiracy to commit wire fraud.

The following is an excerpt from the press release issued by the U.S. Attorney’s Office, District of Massachusetts:

According to the complaint affidavit, TelexFree, Inc., and TelexFree LLC (collectively, TelexFree) provided Voice over Internet Protocol (VoIP) telephone services, for which customers can sign up via a website maintained by TelexFree. It is alleged that TelexFree was actually a pyramid scheme, and that between January 2012 and March 2014, TelexFree purported to aggressively market its VoIP service by recruiting thousands of “promoters” to post ads for the product on the Internet. Each promoter was required to “buy in” to TelexFree at a certain price, after which they were compensated by TelexFree, under a complex compensation structure, on a weekly basis so long as they posted ads for TelexFree’s VoIP service on the Internet.

It is alleged that the ad-posting requirements were a meaningless exercise, in which promoters cut and pasted ads into various classified ad sites provided by TelexFree which were already saturated with ads posted by earlier participants. According to the affidavit, TelexFree derived only a fraction of its revenue from sales of VOIP service—less than 1 percent of TelexFree’s hundreds of millions of dollars in revenue over the last two years. The overwhelming majority of its revenue—the other roughly 99 percent—came from new people buying into the scheme. TelexFree was allegedly only able to pay the returns it had promised to its existing promoters by bringing in money from newly recruited promoters.