Settle resolves Brazilian-targeted pyramid scheme

BOSTON – More than 14,000 Massachusetts residents have received about $2.9 million from the first round of a settlement stemming from an illegal pyramid scheme that targeted the state’s Brazilian community.
Fidelity Co-operative Bank of Fitchburg, based in Fitchburg, Mass., entered into a consent order with the Massachusetts Securities Division of Secretary of the Commonwealth after the bank failed to detect in “a reasonable time period” suspicious activity in accounts held for TelexFree, whose principals James Merrill and Carlos Wanzeler were indicted on federal charges of wire fraud and conspiracy.
The U.S. Attorney’s Office of Massachusetts alleges TelexFree, and its principals, ran an illegal pyramid scheme in which it hired thousands of “promoters” to post ads endorsing its Voice over Internet Protocol (VoIP) telephone services on the Internet. Each promoter was required to buy-in to TelexFree at a certain price and was supposed to be compensated on a weekly basis so long as they kept posting ads.
But the U.S Attorney’s Office alleges the ad-posting was an exercise in futility from which Telexfree received less than 1 percent of its “hundreds of millions of dollars in revenue” during the last two years.
Meanwhile, the other 99 percent of its revenue came from new people buying into the scheme.
The secretary of the state’s office says the scheme targeted the Massachusetts Brazilian community.
Fidelity Co-operative Bank of Fitchburg president, John Merrill, is the brother of TelexFree principal James Merrill, according to the consent order, and was holding the company’s accounts.
Under the terms of the settlement, the bank has set up a victim relief fund of $3.5 million and each investor will receive $205.52. A second group will be eligible for distribution after additional information is provided to validate their claims, according to the secretary of state’s office.
“While this money does not make the TelexFree victims whole, the distribution does provide the first real monetary relief received by Massachusetts victims of this international pyramid scheme,” said William F. Galvin, secretary of the state, in a statement. “I am very pleased that my office was able to get some money back for these victims.”

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