Chapter 11 trustee to run TelexFREE case in light of SEC complaint

By Caroline Salls

Pittsburgh, May 30 - A Chapter 11 trustee will be appointed to oversee TelexFREE, LLC's bankruptcy case, according to a Friday filing with the U.S. Bankruptcy Court for the District of Nevada.

Before TelexFREE's case was transferred to Massachusetts from Nevada, U.S. Trustee Tracy Hope Davis asked the U.S. Bankruptcy Court for the District of Nevada to order the appointment of a Chapter 11 trustee in light of a complaint filed against the company by the Securities and Exchange Commission.

Davis said that the company is in need of a Chapter 11 trustee because "there is compelling evidence of fraud, dishonesty and gross mismanagement of the TelexFREE debtor entities" and further claimed "there are reasonable grounds to suspect that the members of the governing board who selected the debtors' new executives participated in actual fraud, dishonesty and criminal conduct in the management of TelexFREE."

Specifically, Davis based the request for the trustee on the April 15 complaint filed by the SEC accusing the company of operating a $1 billion Ponzi scheme through "a fraudulent and unregistered offering of securities to Brazilian and Dominican immigrants," according to the motion.

The SEC complaint alleges that while TelexFREE claims to run a "multilevel marketing company" selling telephone service based on voice over internet technology (VoIP), it actually is operating an elaborate pyramid scheme.

Citing the complaint, Davis said that the company has been a "money-making machine" and that "financial records indicate, since November 2013, TelexFREE has transferred approximately $30 million from its operating accounts to its principles and officers and to affiliated companies" while "millions of additional investor funds are presently unaccounted for," the motion stated.

As a result of the SEC's investigation, all company assets were frozen along with those of eight principles and directors of the company.

Davis also said that the company's sole owners and sole members of its board of managers/directors, James Merrill and Carlos Wanzeler, are not adequate representation for creditors as they are now defendants in the pending SEC case.

TelexFREE, a private, Marlborough, Mass.-based telecommunications and multi-level marketing company filed bankruptcy April 14. The Chapter 11 case number in the Massachusetts court is 14-40987.

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