BOSTON (CN) - The SEC said it has frozen millions of dollars of assets from a giant pyramid scheme that targeted Dominican and Brazilian immigrants.
A federal judge on Thursday unsealed the SEC complaint against TelexFree and eight of its operators and promoters.
TelexFree, of Marlborough, Mass., claimed to be a multilevel marketing company that sold voice over Internet technology, but the SEC in a statement called it "an elaborate pyramid scheme."
The complaint states: "Since at least November 2012, TelexFree and its principals ...
acting through promoters ... have raised more than $300 million, largely from the Brazilian and Dominican immigrant communities in Massachusetts and twenty other states, through a fraudulent and unregistered offering of securities. (TelexFree publicly claims to have raised more than $1 billion, but documentation for that claim has not been made public.) The securities take the form of "memberships" that promise substantial returns - 200 percent per year or more - for becoming promoters of the business." (Ellipses mark names of defendants, who are listed below.)
The complaint continues: "Despite the misleading appearance of having a legitimate VoiP business, the defendants are actually operating an elaborate pyramid scheme. Documents available to date indicate that its VoiP sales revenues - approximately $1.3 million - have generated barely 1 percent of the nearly $1.1 billion needed to honor its promises to promoters for placing internet ads. As a result, in classic pyramid fashion, TelexFree is paying its older investors, not with revenue raised from the sale of its VoiP product, but with money received from newer investors.
"TelexFree has been a money-making machine for the defendants. The company's financial records indicate that, since mid-November 2013, TelexFree has transferred approximately $30 million to be transferred from TelexFree operating accounts to themselves and to affiliated companies in the past few months to accounts owned and controlled by TelexFree or the individual defendants. Tens of millions of additional investor funds received by TelexFree are presently unaccounted for.
"The defendants are continuing to enroll new investors every day, but it is clear that the pyramid has collapsed."
Defendants include the scheme's principal's James M. Merrial, Carlos N. Wanzeler, Steven M. Labriola and Joseph H. Craft, and promoters Sanderley Rodrigues de Vasconcelos, Santiago de la Rosa, Randy N. Crosby and Faith R. Sloan.
The SEC seeks disgorgement of ill-gotten gains, with interest, penalties and injunctions.