Some frash news
A multibillion-dollar scam in the VoIP sector with a million victims around the world neared a conclusion this week when James Merrill, the former president of TelexFree, pleaded guilty following a deal with the government that will see him serve up to 10 years in prison.
Merrill ran the daily operations of TelexFree before it was revealed to be a Ponzi scheme disguised as a VoIP service.
Merrill pleaded guilty to one count of wire fraud conspiracy and eight counts of wire fraud. He is scheduled for sentencing next February.
TelexFree operated as a Ponzi scheme, drawing its revenues from new participants who signed up as ‘promoters’ of the company. Customers paid a fee to become promoters, and then were paid a weekly sum to post classifieds.
However, these latter revenue streams were simply drawn from new money earned from new participants. Payments were positioned as ‘buying back’ unused VoIP packages; participants could make a return of over 200% on their investment without really selling anything. They were also encouraged to recruit other people to the scheme.
On paper, TelexFree claimed to have over 12.4 million VoIP plans, but in reality there were very few customers using it as a VoIP service. Prosecutors estimated that only about 2% of its earnings came from legitimate VoIP revenues. The scheme collapsed in April 2014 owing more than $5 billion, although the company had only $120 million in the bank. Nearly a million people lost money in the scheme, with the total bill estimated at over $1.7 billion.
Victims of the scheme were resident all over the world, but mainly in the U.S., Latin America, China and Portugal.
While his business partner remains at large in Brazil, Merrill himself also agreed to forfeit $140 million in personal assets as part of his plea bargain, including luxury properties, vehicles and boats.