A class-action lawsuit was filed on May 3rd in Nevada Bankruptcy court, naming TelexFree, its management, top promoters, legal and financial advisers, payment processors, and banks as defendants. Plaintiffs Waldemara Martins and Leandro Valentim, identified as TelexFree investor affiliates from the pre-March 9 AdCentral ROI compensation plan, brought the action. This filing came on the eve of Judge Landis' decision regarding bankruptcy protection for Ponzi schemes.
Martins and Valentim allege the named defendants knew TelexFree operated as a Ponzi scheme yet took no action to stop it. The complaint also raises issues with fraudulent 1099 tax forms. TelexFree mailed these inaccurate forms to investors, possibly to create a false impression of income payments.
The 1099 forms arrived long after the mandated January 31, 2014 deadline, with some appearing after the April 15, 2014 tax filing deadline. TelexFree falsely claimed investors had received income they never actually obtained.
TelexFree's management, including James Merrill, Carlos Wanzeler, Steve Labriola, Joseph Craft, and Carlos Costa, controlled the company's operations and its affiliated entities. These individuals allegedly conspired to perpetrate the TelexFree Pyramid Ponzi Scheme, fully aware of its fraudulent nature. Merrill, Wanzeler, and Labriola specifically faced criticism for appearing in media that promoted TelexFree.
Joseph H. Craft, a certified public accountant and Chief Financial Officer for TelexFree, Inc. and TelexFree, LLC, is held responsible for "the existence of duplicative TelexFree accounting records containing egregious discrepancies." Craft incorporated TelexFree Financial on December 26, 2013. This entity, the lawsuit claims, was fraudulently established to shelter funds that rightfully belonged to the putative class. Craft allegedly oversaw the creation of falsified accounting records, failed to ensure adherence to GAAP accounting methods, and falsely certified TelexFree's business and accounting practices as lawful despite knowing their illegitimate nature. He also concealed facts about the AdCentral ROI.