Risk & Compliance

TelexFree Founder Pleads Guilty to Massive Scam

James Merrill admits to participating in a Ponzi scheme that promised annual returns of 200% or more to "promoters" of TelexFree's internet phone s...
Matthew HellerOctober 25, 2016
TelexFree Founder Pleads Guilty to Massive Scam

The founder and former CEO of TelexFree has pleaded guilty to criminal fraud charges for his role in a multibillion-dollar Ponzi scheme that targeted investors in the internet phone service company.

James Merrill, 55, accepted a plea agreement just weeks before he was set to go to trial on nine counts stemming from the fraud, which resulted in the collapse of TelexFree in 2014. The deal will limit his sentence to no more than 10 years in prison, sparing him from a possible 180 years if he had been found guilty at trial.

Prosecutors have described it as the largest fraud of all time in terms of the number of people affected, with victims in almost every country. At a court hearing on Monday, Assistant U.S. Attorney Andrew Lelling said about half of those who invested in TelexFree, or nearly 1 million people, lost close to $1.8 billion in the scheme.

“Jim accepts responsibility for his role,” Merrill’s lawyer, Robert Goldstein, told the Boston Globe. “He’s sorry — extremely sorry — for the role he played.”

Merrill was indicted with his business partner, Carlos Wanzeler, in July 2014. Wanzeler fled to Brazil and U.S. authorities have been unable to compel his extradition.

TelexFree, which originated in Brazil before moving its operations to Marlborough, Mass., relied on a global network of investors, which it called “promoters,” to distribute voice over internet protocol, or VOIP,  phone-service plans. It promised annual returns of 200% or more for those who recruited members and placed TelexFree advertisements on free ad sites, according to the U.S. Securities and Exchange Commission.

In reality, prosecutors said, TelexFree was a pyramid scheme, deriving only a fraction of its revenue from sales of VOIP service and paying the returns it had promised to its existing promoters only by bringing in money from newly-recruited promoters.

According to the bankruptcy trustee appointed to gather TelexFree’s assets and repay investors, the total amount promised investors exceeds $5 billion. About $10 million in TelexFree funds was transferred into the personal accounts of Merrill and Wanzeler, court papers show.

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