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TelexFree Owners Charged with Fraud Related to Multilevel Marketing

On Friday, federal prosecutors brought criminal charges against the co-owners of TelexFree LLC, James Merrill and Carlos Wanzeler. Wanzeler could not be apprehended and is currently considered a fugitive, supposedly fled to his home country, Brazil. The U.S. attorney’s office in Massachusetts charged each man with wire fraud related to the allegedly $1 billion pyramid scheme. If held guilty, each owner could face up to 20 years in prison.

TelexFree is a multilevel marketing service that provides unlimited VOIP to 70 countries for a monthly subscription of $49.99. The organization is supposed to have over 700,000 salespeople worldwide.

Merill, 53, appeared in U.S. District Court in Worcester after being arrested by federal agents. U.S. Attorney for Massachusetts, Carmen M. Ortiz, said, “The scope of this alleged fraud is breathtaking.” She added, “As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.”

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TelexFree had filed for Chapter 11 bankruptcy protection in April, ostensibly to restructure the business. However, almost immediately, both the Securities and Exchange Commission and Massachusetts Secretary of State file complaints against TelexFree. Though the initial filing of bankruptcy was made in Nevada, a federal judge later moved the case to Massachusetts.

Investigators say that the pyramid scheme primarily targeted immigrants from Brazil and other countries of Latin America, some of who invested tens of thousands of dollars in the scheme.  The scam charged investors for accounts that allowed them to earn money by posting daily ads for the company. While TelexFree was based on the concept of selling a service, prosecutors alleged that only 0.1 percent of the total revenue of the company came from sales of the product.

TelexFree was launched in 2012, and according to the estimates of the Securities and Exchange Commission, it raised more than $300 million in two years.

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