Pyramid Scheme Targeting Immigrants Charged by SEC

The SEC has filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S. The charges were filed under seal, in connection with the Commission's request for an immediate asset freeze. That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets. After the SEC staff implemented the asset freeze, at the SEC's request the court lifted the seal today, permitting public announcement of the SEC's charges.

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on "voice over Internet" (VoIP) technology but actually are operating an elaborate pyramid scheme. In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds.

According to the SEC's complaint, the defendants sold securities in the form of TelexFree "memberships" that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites. The SEC complaint alleges that TelexFree's VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters. As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work...Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.

According to the SEC's complaint, the defendants have continued enrolling new investors but recently changed TelexFree's method of compensating promoters, requiring them to actually sell the VoIP product to qualify for payments that TelexFree had previously promised to pay them. The complaint also alleges that since December 2013, TelexFree has transferred $30 million or more of investor funds from TelexFree operating accounts to accounts controlled by TelexFree affiliates or the individual defendants.

In addition to the TelexFree firms, the complaint charges TelexFree co-owner James Merrill, of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler, of Northborough, Mass., TelexFree CFO Joseph H. Craft, of Boonville, Ind., and TelexFree's international sales director, Steve Labriola, of Northbridge, Mass. The SEC also charged four individuals who were promoters of TelexFree's program: Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa, of Lynn, Mass., Randy N. Crosby, of Alpharetta, Ga., and Faith R. Sloan of Chicago. The SEC's complaint alleges that TelexFree, Inc., TelexFree, LLC, Merrill, Wanzeler, Craft, Labriola, Rodrigues de Vasconcelos, De La Rosa, Crosby, and Sloan violated the registration and antifraud provisions of U.S. securities laws and the SEC's antifraud rule. The SEC also charged three entities related to TelexFree as relief defendants based on their receipt of investor funds.

SEC Halts Pyramid Scheme Targeting Dominican and Brazilian Immigrants

SECLaw.com's Articles and Commentary Regarding Ponzi Schemes

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ZeekRewards Promoters Charged in North Carolina Ponzi Scheme

Pyramid schemes are a type of investment scam often pitched as a legitimate business opportunity in the form of multi-level marketing programs. According to the SEC's complaint filed in federal court in Charlotte, N.C.,  ZeekRewards  was such a scam, and its promoters raised more than $850 million from approximately one million investors worldwide.

The Securities and Exchange Commission today announced charges against a woman and her stepson for their involvement in a North Carolina-based Ponzi and pyramid scheme that the agency shut down last year. Unfortunately, the SEC does not recover investor losses, and investors need to contact an attorney to pursue their own remedies, either by filing individual suits, or by a class action. 

The SEC alleges that Dawn Wright-Olivares and Daniel Olivares, who each now live in Arkansas, provided operational support, marketing, and computer expertise to sustain ZeekRewards.com, which offered and sold securities in the form of "premium subscriptions" and "VIP bids" for penny auctions.  While the website conveyed the impression that the significant payouts to investors meant the company was extremely profitable, the payouts actually bore no relation to the company's net profits.  Approximately 98 percent of total revenues for ZeekRewards – and correspondingly the share of purported net profits paid to investors – were comprised of funds received from new investors rather than legitimate retail sales.

Wright-Olivares and Olivares have agreed to settle the SEC's charges.  In a parallel action, the U.S. Attorney's Office for the Western District of North Carolina today announced criminal charges against the pair.

"Wright-Olivares was a marketing and operational mastermind behind the scheme and Olivares was the chief architect of the computer databases they used," said Stephen Cohen, an associate director in the SEC's Division of Enforcement.  "After they learned ZeekRewards was under investigation by law enforcement, they accepted substantial sums of money from the scheme while keeping investors in the dark about its imminent collapse."


The SEC alleges that Wright-Olivares served as the chief operating officer for much of the existence of ZeekRewards.  She helped develop the program and its key features, marketed it to investors, and managed some of its operations.  She also helped design and implement features that concealed the fraud.  Olivares managed the electronic operations that tracked all investments and managed payouts to investors.  Together, Wright-Olivares and Olivares helped perpetuate the illusion of a successful retail business.

The SEC's complaint charges Wright-Olivares with violating the registration and antifraud provisions of Sections 5 and 17 of the Securities Act, and Section 10 of the Exchange Act and Rule 10b-5.  The complaint charges Olivares with violating Section 17 of the Securities Act and Section 10 of the Exchange Act and Rule 10b-5.  To settle the SEC's charges, Wright-Olivares agreed to pay at least $8,184,064.94 and Olivares agreed to pay at least $3,272,934.58 – amounts that represent the entirety of their ill-gotten gains plus prejudgment interest.  Payments will be made as part of the parallel criminal proceeding in which additional financial penalties could be imposed in a restitution order.

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Ponzi Scheme Fugitives Captured

According to an AP news story out this morning, US Marshals in Arizona put an end to an Illinois couple's life on the lam, a dozen years after they fled punishment for running a Ponzi scheme that targeted friends, the elderly, and even family members, authorities said.

The two were arrested by deputy marshals Saturday afternoon in Tonopah, a desert community 50 miles west of Phoenix. Officials believe they hid in Arizona for the past couple years. "The 12-year run from justice of the Hallahans, also known as the 'Mini Madoffs,' has come to an end," U.S. Marshal for Arizona David Gonzales said in a statement. "Their investment scams involving family, friends, and the elderly, ruined many lives.

The couple pleaded guilty in Illinois federal court to bank and mail fraud conspiracy charges and money laundering. They didn't show up for their sentencing and began life on the run. The government alleges that while living in Peoria, Ill., the couple promised their victims significant returns on investments,  but they were actually running a Ponzi scheme, repaying earlier investors with proceeds from new ones.

The Marshal Service said the couple netted millions of dollars from victims. As is typical of these cases, where the authorities often overstate the use of the proceeds, the government claims that the couple maintained a lavish lifestyle, buying yachts, luxury vehicles, designer clothes and jewelry.
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SEC Halts Father-Son Ponzi Scheme in Utah Involving Purported Real Estate Investments

The SEC charged a father and son in Utah with securities fraud for selling purported investments in their real estate business that in reality was just a $220 million Ponzi scheme.

It is alleged that the father and son operated from a base in Fountain Green, Utah. They offered investors the opportunity to invest in LLCs to share ownership of large apartment complexes in eight states. The investors were solicited by word of mouth and through religious affiliation. The duo presented plans to buy apartment complexes, renovate and revamp, and then sell for a high profit. The investors were told they would share in the profit from the sales and also from rental income. The truth of the matter was that the investors money was really being depositing into large bank accounts, which were used for company and personal expenses, and to pay other investors. Since the complaint has been filed, the SEC obtained an emergency court order freezing the father and son's assets and companies. The scheme began in 2008 and involved 225 investors and more than $220 million.

SEC Halts Father-Son Ponzi Scheme in Utah Involving Purported Real Estate Investments

SEC Charges Perpetrator of Washington-Area Ponzi Scheme

The SEC charged a Bethesda, Md. man, several family members and friends with conducting a multi-million dollar Ponzi scheme targeting investors in the Washington D.C. metropolitan area. The SEC alleges that middle-class residents were lured by false pretenses and powerpoint presentations to invest in promissory notes. Many were encouraged to refinance their homes and utilize their personal savings and retirement funds to come up with more to invest. They were promised returns as high as 20 percent per year and told their investments were protected. Instead, the companies issuing the notes were engaged in high-risk, speculative options trading and suffered massive losses. Money from new investors was used to pay the returns to earlier investors and also for personal expenses.

The SEC alleges that the Ponzi scheme defrauded more than $27 million from approximately 130 investors over a five year period. The scheme ultimately collapsed in the fall of 2010. The Bethesda man and five others have been charged.

SEC Charges Perpetrator of Washington-Area Ponzi Scheme

SEC Halts Scam Touting Access to Pre-IPO Shares of Facebook and Groupon

The SEC filed an emergency enforcement action to stop a fraudulent scheme targeting investors seeking coveted stock in Internet and technology companies like Facebook and Groupon in advance of a public offering.

Several individuals utilized a newly-minted hedge fund (The Praetorian Global Fund) to claim to own shares worth tens of millions of dollars in companies such as Facebook and Groupon. The companies targeted were expected to soon hold an initial public offering. Taking advantage of investor interest in pre-IPO shares that are virtually impossible for company outsiders to obtain, the individuals solicited funds and gave investors a false sense of comfort that their money was protected by telling them that an escrow service was receiving their funds.

Yet in reality the individuals never owned the promised pre-IPO shares in these companies. The escrow service only served to transfer investor funds to personal accounts controlled by two of the involved individuals. The funds were then used for lavish personal expenses (private jets, cars, art) and to pay off other individuals involved.

The U.S. Attorney’s Office for the Southern District of New York, which conducted a parallel investigation of the matter, filed criminal charges against the lead individual, a Florida resident. The Florida resident has been the subject of prior SEC enforcement action and several state criminal actions.

SEC Halts Scam Touting Access to Pre-IPO Shares of Facebook and Groupon

SEC Charges Feeders to Ponzi Scheme

The SEC charged two Minnesota-based hedge fund managers and their firm for facilitating a multi-billion dollar Ponzi scheme operated by a Minnesota businessman.

The SEC alleges that three parties (two individuals and a business) invested more than $600 million in hedge fund assets with the Minnesota businessman while collecting more than $42 million in fees. The Commission alleges that the three falsely assured investors and potential investors that the flow of their money would be safeguarded by the operation of collateral accounts when in reality the process did not exist as explained. When the Minnesota businessman was unable to make payments on investments held by the funds they managed, the three parties helped to conceal this by entering into secret note extensions with the Minnesota businessman. 

This is the fourth enforcement action that the SEC has brought against hedge fund managers that collectively fed billions of dollars into the Ponzi Scheme.

SEC Charges Feeders to Ponzi Scheme

SEC Files Action to Halt Green-Product Ponzi Scheme

The SEC’s complaint, filed in U.S. District Court for the Southern District of New York, alleges that a convicted felon and others defrauded investors in PermaPave Companies, a group of firms based on Long Island, N.Y.

About 140 individuals, many working in the construction or landscaping business, invested in the scheme between 2006 and 2010, the SEC alleged. Investors were told that PermaPave Companies had a tremendous backlog of orders for pavers imported from Australia, which could be sold in the U.S. at a substantial mark-up, yielding monthly returns to investors of 7.8% to 33%. In reality, the complaint states that there was little demand for the product, and the cost of the pavers far exceeded the revenue from sales.

The defendant and two other accomplices used new investments to make payments to earlier investors and then siphoned off much of the rest, buying luxury cars, gambling trips to Las Vegas, and jewelry. In addition, the complaint alleges that the defendant used investors’ money to make court-ordered restitution payments to victims of a previous scheme to which he pleaded guilty to conducting in 2000.

The three men were arrested earlier today and criminal charges have been filed.

SEC Files Emergency Action to Halt Green-Product Themed Ponzi Scheme