James Merrill, co-owner of TelexFree, was arrested Friday morning on conspiracy to commit wire fraud charges. His business partner, Carlos Wanzeler, became a fugitive, wanted on identical charges. The arrests follow forfeiture notices issued during the Nevada bankruptcy trial.

Wanzeler's current location is unknown, though authorities believe he fled to Brazil shortly before the arrest warrants were issued. TelexFree management consistently claimed full cooperation with all regulatory investigations. Wanzeler's flight contradicts these earlier statements.

Wire fraud is a federal crime in the United States, established in 1872. It targets any scheme designed to intentionally deprive another of property or honest services through mail or wire communication. TelexFree, a $1 billion dollar Ponzi scheme, owed an estimated $5 billion in promised returns to its investors, fitting the definition of a fraudulent scheme.

The US Attorneys Office complaint against Wanzeler and Merrill includes an affidavit from Homeland Security Special Agent John Soares. Soares' affidavit outlines TelexFree's fraudulent business model. It states that TelexFree derived only about 1% of its hundreds of millions in revenue from legitimate VOIP services over two years.

New investor money generated the vast majority of TelexFree's revenue. The company paid promised returns to existing promoters solely by recruiting new participants into the scheme.

The affidavit details TelexFree's financial collapse, its bankruptcy proceedings to avoid Ponzi liabilities, and Joe Craft's attempt to abscond with remaining TelexFree funds. It also references the Brazilian regulatory investigation, where authorities have frozen $350 million of TelexFree funds via court order.

Further details emerged regarding money laundering entities established by Joseph Craft for Wanzeler and Merrill. Wanzeler testified that TelexFree Financial was created to pay employees because of "so many problems with the banks." This refers to US banks repeatedly closing TelexFree accounts in 2012 and 2013. Banks cited concerns about illegal activities, forcing Merrill and Wanzeler to transfer funds between numerous accounts over a two-year period.