Investigators combed through the Marlborough offices of TelexFree. Probes into the firm have had a global reach.
Investors worldwide allegedly victimized
Federal agents from the FBI and Homeland Security have raided the Marlborough headquarters of TelexFree Inc. in the intensifying investigation of an alleged billion-dollar scheme that has the potential to rank among the largest international financial frauds.
Regulators accused the company, which sells Internet telephone services, of luring investors from immigrant communities who sometimes put in their life savings. Some distraught victims have threatened suicide.
Federal agents acting on a search warrant combed the TelexFree office on Tuesday, the Department of Justice said. Authorities in other countries have reportedly been conducting fraud and money laundering investigations involving TelexFree.
The action this week by US authorities was triggered by TelexFree’s decision to file for federal bankruptcy protection in Nevada on Monday. Securities regulators in Massachusetts filed a civil lawsuit against the company the next day, accusing TelexFree of a $90 million fraud in the Commonwealth and $1 billion around the world. Secretary of State William F. Galvin said the company mainly targeted Brazilian immigrant communities in Massachusetts.
Galvin’s office alleged that TelexFree attracted tens of thousands of investors by offering annual returns of up to 250 percent in return for putting money into the company and agreeing to place online ads to promote its Internet telephone service.
Carlos A.F. Da Silva, a community activist on the South Shore for the Brazilian community, said he and others have been aware of TelexFree’s deep infiltration into immigrant circles for some time.
“I have warned people that this type of business was dangerous, that they should not get involved with it,’’ he said.
TelexFree was shut down in Brazil last June, after a judge ruled the operation a fraud, setting off a slow wave of worry across the company’s tens of thousands of investors around the world. The company is under investigation for money laundering in Brazil and the Dominican Republic, according to news reports, and is being investigated in countries as far away as Rwanda and Uganda.
Panicked investors e-mailed The Boston Globe this week from Ecuador, Spain, the Netherlands and South Africa, and from all over Massachusetts and several US states. Radio stations that carry Portuguese broadcasts in the Boston area were flooded with calls from listeners who lost their life savings with TelexFree.
TelexFree drew people in by the thousands with the allure of easy profits based on a business that seemed plausible to many: Internet phone service that provided for inexpensive international calls. The company appears to have preyed on a hard-working immigrant culture of saving money and staying in touch with family from their home countries.
Alleged victims said in interviews and court documents that they have lost vast sums with the company, from a single mother in Revere who invested $9,000, partly using her tax refund, to large creditors listed in the bankruptcy filing, who claim to be owed hundreds of thousands of dollars. The largest creditor, a Boston resident, lists a claim of $1.3 million.
The company has denied the allegations in press releases and online videos distributed in several countries. Mark A. Berthiaume of Greenberg Traurig, a white-collar criminal defense lawyer representing the company, did not respond to requests for comment.
Regulators and victims described a vast fraud that worked by reeling in participants to invest in “accounts” that would pay high returns. The investors were also required to go online daily to approve Internet ads promoting the company’s service.In Boston, a $289 account required one ad posting per day, according to the state’s administrative complaint, and could fetch a profit of $681. A $1,375 investment called for five ads a day, to reap a $3,675 gain.
Many victims told the Globe they never saw where the purported ads were posted. Some paid a service to place the ads on their behalf. Investors who failed to approve the daily placement of ads risked losing their $100 payout per account in a given week, alleged victims said.
Some US clients grew alarmed last month when the company began to tighten rules on withdrawing funds from their investment accounts. They were told they had to invest more money to take out earlier deposits. Victims, many of whom are undocumented immigrants, said they feared the risk of deportation if they complained to authorities.
Meanwhile, some large clients got an extra dose of wooing, they said, to assuage their concerns about a new and less attractive “compensation” plan. In Atlanta, large investors were invited to a conference and Millionaires Black & White Ball last month.
Authorities around the world have been investigating TelexFree since at least last summer. Months before US officials acted, the police in the British channel island of Guernsey warned residents about TelexFree on their Facebook page. Police in the nearby island of Jersey also issued a warning in February, asking people to call the Joint Financial Crimes Unit if they were contacted by the company.
The MetroWest Daily News first reported Homeland Security’s investigation Tuesday. A distribution list for filings in TelexFree’s bankruptcy case included US Attorney General Eric Holder, the IRS, and the secretary of the Treasury. Attorneys general in Massachusetts and Nevada also were alerted.
Galvin, the Massachusetts regulator, moved swiftly after the bankruptcy filing, fearful that victims’ assets were at risk. The Securities and Exchange Commission, which has the power to freeze the company’s assets, has been slower to act despite the alleged involvement of a promoter the commission previously sanctioned for preying on Brazilian immigrants in the Framingham area.
The SEC in 2006 won a case against Sann Rodrigues, whose real name is Sanderley R. De Vasconcelos, for operating a fraudulent prepaid phone card venture called FoneClub. His firm was ordered to repay $1.6 million, but the former Revere resident was not personally fined, according to SEC records. The men who Galvin says control TelexFree, Carlos N. Wanzeler of Northborough, and James M. Merrill of Ashland, have not been charged with any wrongdoing.
The company’s US website was taken down Tuesday. A version was still live in Canada, touting the wealth participants could garner if they invest. A banner across the top of the page reads, “It’s not a chance unless you take it.’’
“TelexFree is already creating MILLIONAIRES and now is YOUR turn to take advantage of the timing and explosive growth happening in TelexFREE,’’ the website says. “In a very short time with the debut of the TelexFREE business model in Brasil, there have been a number of individuals who have achieved millionaire status.’’