TelexFREE case reveals vulnerability of immigrants
Worcester immigration attorney Randy Feldman says U.S. employers believe immigrants will generally work harder than American citizens.
News that online marketing firm TelexFREE of Marlborough has allegedly been making money off investments by Brazilian immigrants in a massive scheme was eye-opening for many, but people close to the community aren't surprised.
Natalicia Tracy, executive director of the Brazilian Immigrant Center, a Brookline-based organization that provides outreach to 4,000 Brazilians in Massachusetts and Connecticut, saw the losses that hit many TelexFREE investors coming months in advance.
Tracy said she contacted Atty. Gen. Martha Coakley's office early this year because she was concerned to see so many of her members investing in what she suspected was a pyramid scheme. Tracy said she also warned members not to invest in TelexFREE, but not everyone listened.
TelexFREE's operations relied on active participation from investors, who promoted the company's Internet-based phone service through a pay-for-advertising system. Initially, investors were guaranteed high returns for investing in the system, even if they sold nothing. But when things began to unravel, TelexFREE began to require investors to meet sales quotas before it issued payments. However, the U.S. Securities and Exchange Commission, in accusing TelexFREE of operating a pyramid scheme, alleges that the $1.3 million in sales the company generated from August 2012 through March 2014 represent "barely one percent of the more than $1.1 million needed to cover its promised payments to promoters."
Tracy admitted that many early investors made a lot of money. But, with about 40 percent of the Brazilian community she works with having money tied up in the company, which has since filed for Chapter 11 bankruptcy protection, Tracy said the gains of few were hardly worth it.
The reason TelexFREE was initially successful is it knew its target, Tracy said. Brazilian people, many of whom are in the country illegally, work many long hours and will jump at an opportunity to better their situation, according to Tracy. She said Brazilians are often trusting people and word-of-mouth goes a long way.
TelexFREE officials could not be reached for comment for this report. But in an April 18 statement, in which it denied any wrongdoing after Massachusetts Secretary of State William Galvin accused it of operating a pyramid and Ponzi scheme, the company said: “We remain confident in the company's long-term business prospects and the value of the services we provide to customers.” The statement added that the state and federal actions taken against it “impede our ability to continue to serve our customers, restructure our operations, and thereby emerge as a stronger and more competitive company.”
The TelexFREE case is an outlier. Brazilian immigrants are more frequently victimized by predatory business practices in less high-profile ways, according to local immigration attorneys. Kevin Leeper, a Framingham-based lawyer who regularly represents Brazilian people in wage law violation cases and other labor disputes, said the immigrants are easy targets. Most want to work at least 60 hours a week to accumulate wealth that's not within reach in their native country.
Small businesses, like landscaping companies and some restaurants, tend to employ people living here illegally because they can pay them under the table without attracting much notice. And they like the immigrant work ethic, according to Randy Feldman, a Worcester immigration attorney.
“(My clients) have never seen opportunity like this and they want to take advantage of every second of it,” Feldman said, adding that employers believe immigrants will, on average, work harder than American citizens.
Often, employers treat undocumented employees fairly, according to Leeper. Other times, the relationship sours. He frequently deals with clients who aren't paid for time worked when they're laid off, or don't receive proper overtime pay.
“That's why we have these labor laws to protect the worker, so if you're not operating under that system, it's easy to take advantage of them,” Leeper said.
The problem for such businesses is that labor laws apply, regardless of employees' immigration status. Leeper often finds himself informing employers that their workers are entitled to the same rights as American citizens under federal labor laws. Still, problems persist because employees are often reluctant to report such situations to authorities. In Massachusetts, those include the attorney general's office and the Executive Office of Labor and Workforce Development (EOLWD).
Heather Rowe, director of labor standards at EOLWD, said it's common for business employing illegal immigrants to erroneously classify them as independent contractors to avoid reporting their wages, purchasing workers compensation insurance, or registering with the Department of Unemployment Assistance.
Rowe, who said such cases are common in the construction industry, noted that a 50-employee construction firm pays an average of $60,000 a year in unemployment taxes.
“It's often times a conscious choice on the part of the business owner to … be able to save money and undercut their competitor considerably,” Rowe said.
Businesses caught conducting these practices, or otherwise violating labor laws, are often subject to fines, and some are even ordered to temporarily cease operations. Rowe said it's important to curtail them because of the impacts on overall earnings in Massachusetts and on state revenue.
The case for immigration reform
According to Leeper, the Framingham attorney, the problem is systemic, and it's tied to the lack of federal immigration reform. That's because Brazilian people, and other immigrants, must rely on the underground economy to make money. They can't work for better-paying large employers because they require work visas. And there's no path to citizenship for most illegal immigrants.
Leeper and Feldman have been telling clients for several years that a comprehensive reform bill, including a path to citizenship, is within sight. While it's been a topic of discussion in Washington in recent years, Congress has declined to act.
“I think that's the primary driving force behind it,” Leeper said. n
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