More than 14,000 Massachusetts residents have received about $2.9 million from the first distribution from a fund set up by the state’s Securities Division’s settlement with a Fitchburg, Massachusetts bank that held bank accounts for TelexFREE, an illegal pyramid scheme that targeted the Brazilian community in the state, Secretary of the Commonwealth William Galvin announced Friday. Each investor will receive $205.52.
In April 2014, the Massachusetts Securities Division charged TelexFREE with running a $1.1 billion Ponzi investment scheme. In July 2014, TelexFREE principals James Merrill and Carlos Wanzeler were indicted on federal charges of wire fraud and conspiracy.
“While this money does not make the TelexFREE victims whole,” Galvin said in a statement, “the distribution does provide the first real monetary relief received by Massachusetts victims of this international pyramid scheme. I am very pleased that my office was able to get some money back for these victims.”
The Massachusetts Securities Division entered into a consent order with Fidelity Cooperative Bank of Fitchburg in September 2014, which is not related to Fidelity Investments.
The division alleged that the bank failed to detect in a reasonable time period suspicious activity in the TelexFREE accounts. The bank’s president John Merrill is the brother of James Merrill, one of two TelexFREE principals.
The division stated at the time of the settlement that the bank cooperated with the Securities division’s investigation. The SEC said that the scheme also targeted Dominicans.
As previously reported by ThinkAdvisor, regulators say those running the pyramid operation claimed the business was an alternative to landline phone services that used a Voice over Internet Protocol (VoIP) telephone service. They asked investors for either $289 or $1,375 as an initial investment (along with a $50 administrative fee) for a sales kit.
Investors who put in $289 were told that they could make an annual profit of at least $681. Those investing $1,375 could earn $3,675.
Under the terms of the consent order, the bank established a Massachusetts Victim Relief Fund and retained Grant Thornton LLP as independent claims administrator. The amount of the fund was set at $3.5 million.
This first group of claimants was assembled by Grant Thornton based on information provided to the administrator by the Securities Division. These Massachusetts victims were derived from records subpoenaed by the division from TelexFREE, as well as victims who contacted the division.
A second group eligible for distribution will be those claimants who submitted claims to the division but for whom additional information is needed to validate their claim. A third group are those claimants who file a valid claim to the independent claims administrator after July 3, the date the distribution plan was submitted, according to the Securities Division.
Under terms of the distribution, investors who receive the checks have 90 days to cash or deposit them.