Telexfree president pleads guilty to $3B pyramid scheme
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The president of Telexfree, Inc., a pyramid scheme that was disguised as a Marlborough internet telecom company, pleaded guilty in U.S. District Court in Worcester Monday and forfeited $140 million, according to the Office of United States Attorney Carmen M. Ortiz.
James Merrill, 55, of Ashland, pleaded guilty to one count of wire fraud conspiracy and eight counts of wire fraud. U.S. District Court Judge Timothy S. Hillman scheduled sentencing for Feb. 2.
The guilty plea stems from a pyramid scheme that resulted in $3 billion taken from investors in more than 240 countries, according to Special Agent in Charge Matthew Etre of Homeland Security Investigations Boston.
The scheme involved a voice-over-internet-protocol service similar to Skype where customers paid $1,425 or $339 to sign up for TelexFree and then would be paid $100 or $20 per week for posting classified ads every week on the internet, according to Ortiz. This was a pyramid scheme where all of the money TelexFree paid out came not from sales of its product, but from new participants continuously paying TelexFree to sign up as promoters for the company. Overall, the nearly 2 million who participated in TelexFree made 96 percent of the organization's compensation, not from selling the company’s VOIP service, but from ad-posting and recruiting others to join, according to Ortiz.
There were more than 1 million people worldwide who signed up for this service, including 20,000 people in Worcester. In December 2013, Merrill wired himself and two co-conspirators a total of $10 million from TelexFree accounts. On April 14, 2014, Telexfree filed for bankruptcy, at which point it owed approximately $5 billion to its participants, while having only about $120 million on hand (about 2 percent of what it owed), according to Ortiz. At that point, approximately 965,225 participants lost money in the scheme, with total losses of about $1,755,927,755.
According to the terms of the plea agreement, Merrill will be sentenced to no more than 10 years in prison. Merrill also agreed to forfeit approximately $140 million, numerous real estate properties, luxury vehicles and boats.
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