Ponzi Tracker Reports: As Regulators Closed In, TelexFree Execs Scrambled To Move Assets

It reads like a spy thriller you would expect out of Hollywood.  As authorities closed in on a massive fraud, one of the company’s top executives sought to elude a raid on the company’s headquarters by walking out the front door with nearly $40 million in cashier’s checks concealed in his briefcase.  Except this series of events actually occurred – albeit not as successfully as a Hollywood story might pan out.
Earlier this week, both the Securities and Exchange Commission (the “Commission”) and Massachusetts securities regulators filed civil fraud charges against TelexFree, LLC and several related entities, alleging the operation was a massive pyramid and Ponzi scheme that had raised at least several hundred million dollars from investors worldwide.    The companies, which filed bankruptcy the beginning of the week, were also the subject of an asset freeze by the Commission in an effort to prevent the dissipation of investor funds.
On Tuesday morning, the same day civil charges were filed against TelexFree, federal authorities executed a search warrant on the company’s Marlborough headquarters.  In a sworn statement filed by a Commission attorney, the following events were detailed.  During the course of the search, sheriff’s deputies noticed that a man named Joseph H. Craft was attempting to remove a laptop and laptop bag from an office, claiming they were personal items.  Craft claimed he was a “consultant” helping TelexFree file for bankruptcy.  
However, deputies informed Craft that he would not be permitted to remove his “personal items” from the premises, and subsequently searched the bag.  During the subsequent search, no “personal items” ere discovered.  Instead, nearly $40 million in recently-issued cashier’s checks were discovered.  These included (i) multiple cashier’s checks totaling over $25 million payable to TelexFree’s current President; (ii) a $2 million cashier’s check to a TelexFree principal’s wife; and (iii) a $10.39 million cashier’s check to a TelexFree subsidiary.  With the checks bearing issue dates of April 11, 2014, just three days before TelexFree would declare bankruptcy, the checks likely served as a source of liquidity for insiders gearing up for possible civil and criminal charges.
After authorities discovered the cashier’s checks, it also turned out that Craft was not being forthright about his occupation.  Rather than a lowly “consultant” assisting with the company’s bankruptcy, Craft was actually the Chief Financial Officer of TelexFree.
Meanwhile, recently-appointed Chief Executive Officer James M. Merrill, to whom more than half of the cashier’s checks discovered in Craft’s possession had been payable to, was also trying to ensure he had access to unfrozen funds.  The SEC Declaration recounted a conversation with a representative of Waddell & Reed, where Merrill maintained a brokerage account, revealing that Merrill had placed an unsolicited order to sell $1.15 million of his mutual fund holdings on the same day of the TelexFree raid.
 
A copy of the SEC’s Declaration is below:

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Troy Dooly is recognized internationally as an influencer in the areas of personal branding, leadership development, marketing campaigns, organizational expansion, and corporate launch strategies. Dooly is a speaker, results coach, and radio host. He is a founding member, show host (Beachside CEO) and News Director of the Home Business Radio Network. He is a founding member, and currently serves on the Board of the Association of Network Marketing Professionals