Giambrone's financial fraud team is pleased to announce that, at a recent hearing on 08 July 2020, Judge Melvin S. Hoffman of US Bankruptcy Court in Boston approved a plan to disburse more than $150 million to about 100,000 people who lost money when TelexFree collapsed in 2014.
The compensation plan, developed by Stephen Darr, the court-appointed trustee in bankruptcy will provide an initial distribution of 39 percent to 43 percent of approved claims.
Mr. Darr, the trustee, confirmed that they had received $145m in an escrow account and a further $11m is expected to be received in the coming days, these funds will be available for immediate distribution to victims, following the approval of the provisional compensation plan by the Court.
Section 1129 of the United States Bankruptcy Code governs confirmation of chapter 11 plans, providing that "the court shall confirm a plan only if all of the following requirements are met." At the confirmation hearing before his honor Judge Hoffman, counsel for the trustees was able to establish, by a preponderance of the evidence, that each of the requirements under Section 1129 was satisfied, therefore the Court had no hesitation in approving the compensation plan and allowing the trustees to proceed with the distribution of the funds in the coming weeks.
Giambrone currently represents 1826 claimants in the TelexFree class action, of which 1500 clients had their claims approved. “After six years of legal wrangling, people who fell prey to the $3 billion TelexFree pyramid scheme will get some of their money back” commented Gabriele Giambrone, the firm's Managing Partner who has personally supervised the action since 2014, “the court's ruling is a milestone in a complicated case with victims in Italy, Europe, Brazil and around the globe”
Most of the money for the pay-outs came from the liquidation of TelexFree assets seized by the Justice Department in 2014. The approval of Darr's plan was delayed by a protracted fight between the Internal Revenue Service (IRS) and the trustees over taxes owed to the U.S. government.
TelexFree initially sold Internet phone-service plans but devolved into what is commonly known as a pyramid or Ponzi scheme. Most of its money came from participants who were persuaded to buy memberships — essentially small investment accounts — with the promise of large returns, ostensibly for posting TelexFree ads on the Internet.
Members received credits to their accounts for the ad postings, which prosecutors said were seen by very few people, and bonuses for recruiting new participants. Early participants were able to cash in their credits, which lured others to put money in. The scheme's existing participants are paid out with the money received from new participants. Ponzi schemes depend on the recruitment of more and more participants to fund the pay-outs and inevitably such schemes are no longer viable. The scheme collapsed in 2014 when TelexFree couldn't bring in enough new money to pay the credits and bonuses.
The company was started in Brazil and operated in Marlborough in 2013 and 2014. It recruited many of its Massachusetts members from the Brazilian and Dominican communities. Nearly one million people lost money as an estimated $3 billion flowed between multiple levels of investors and the company, prosecutors said.
James Merrill, a former cleaning company owner who became president of TelexFree, pleaded guilty to multiple counts of wire fraud in October 2016 and agreed to turn over $140 million in assets. He was sentenced to six years in prison and three years of supervised release.
Merrill's business partner, Carlos Wanzeler, fled to Brazil after charges were filed against him, and the United States has been attempting to extradite him. Prosecutors said at the time that Wanzeler was sending people to the Boston area to pick up some $40 million he had left there. Rocha led authorities to $17.5 million in cash stored in a bed's box spring in Westborough.
Rocha was sentenced to 33 months in prison and one year of supervised release after pleading guilty to one count of conspiring to commit money laundering and one count of money laundering.
Originally published 10 July, 2020
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