The Massachusetts District Court issued a preliminary injunction against Santiago De La Rosa and Randy Crosby on April 30, following an April 25 hearing. Both men had filed protests against the action.
The Securities and Exchange Commission successfully argued that De La Rosa and Crosby likely engaged directly or indirectly in securities fraud. The court found they were likely to repeat these violations. It also determined they might dissipate or conceal assets that could be subject to disgorgement or civil penalties. The injunction was granted because it served "the public interest."
The April 30 injunction halts the business operations of Crosby and De La Rosa. This includes stopping them from receiving any money through fraud. All their funds and assets, including bank and payment processor accounts, are now frozen. They must deposit all available funds in the US into an SEC-controlled bank account within seven days. They also must repatriate all funds outside the United States, including those obtained from investors or promoters, into the same SEC account. The men are prohibited from opening new bank accounts. They are also restrained from destroying, altering, or transferring any items related to their misconduct, such as books, records, documents, or computer media.
De La Rosa received an additional order to sell three cars: a 2014 BMW X5 XDrive, a 2013 Land Rover Range Rover Sport HSE, and a 2010 BMW X5 XDrive. He must provide a sworn affidavit confirming the car sales, the deposit of US-located funds, and steps taken to repatriate offshore funds.
After filing their declarations, De La Rosa and Crosby may each withdraw $6,000 from the SEC-controlled account. This withdrawal has a May 30 deadline. The specific details of this agreement between the men and the SEC are not public. The preliminary injunction against De La Rosa and Crosby remains in effect until a final judgment in the case. No date for this judgment is currently set.
The SEC also filed an updated motion for a preliminary injunction against other defendants: Steve Labriola, James Merrill, Carlos Wanzeler, Joseph Craft, Sannderly Rodrigues de Vasconcelos, and Faith Sloan. The commission argues the court should convert an April 16 temporary restraining order (TRO) into a preliminary injunction. The SEC claims it has shown Merrill, Labriola, Wanzeler, and Craft, as TelexFree officers and insiders, along with Rodrigues and Sloan, as leading promoters, operated a Ponzi or pyramid scheme.
The SEC's motion notes a "pattern of recent transfers" to the defendants and their agents. It also cites a "failure to comply" with the existing TRO. The SEC alleges all defendants have breached the TRO, which froze their assets. The TelexFree website has been active again since April 25, after a period of inactivity. The SEC suggests TelexFree or the individual defendants may be using investor funds improperly for this purpose.
The TRO required defendants to submit a written accounting within five days of service. None of the defendants have complied. The TRO also required repatriation of investor funds located outside the United States within five days. Wanzeler received over $7.3 million from TelexFree in late December 2013 and wired $3.5 million to the Oversea-China Banking Corporation in Singapore on January 2, 2014. TelexFree LLC sent $10,389,000 to TelexFree Dominicana SRL on April 3, 2014. The SEC states neither defendant has repatriated these funds.
The TRO prohibited soliciting new investors or promoters. Despite this, two defendants have invoked religious authority in their efforts to recruit for TelexFree. In an April 16, 2014 YouTube video, Rodrigues stated, "I am never going to stop this. If I say to my network I will never stop this because it's in my blood, DNA. And who started multi-level was God. If you want to learn, learn. If you want to frown, frown. God made binary, Adam and Eve, and told them to multiply. For me, it is given by God."
Sloan's website, as of March 15, 2014, contained an update about a March 9 compensation plan change. The update included the comment, "NOTE: It is STILL NOT FINAL... But is Getting BETTER as Jesus said." The website also attempted to reassure current promoters that "Legacy promoters will be transitioned to the new plan with specially crafted requirements allowing them the potential to earn even more than the previous plan."
Further details show TelexFree Financial received $4,105,000 from TelexFree Inc. and TelexFree LLC on December 30 and December 31, 2013. Financial statements prepared by Craft indicate TelexFree made a $2,022,329 "loan" to TelexElectric.