Choose Your Provider Wisely: TelexFree Co-Founders Charged in Scam

It may go without saying, but in instances of fraud it bears repeating: Be careful who you buy your VoIP services from. Trusted providers like Nextiva offer high-quality and reliable services at affordable rates, improving business communications and revenue. Some VoIP deals, however, are too good to be true.

Such is the case for TelexFree LLC and its unlucky users. The organization, which has over 700,000 salespeople worldwide, offers unlimited VoIP services to 70 countries for a $49.99 monthly subscription fee. And it appeared to be thriving, having raised an impressive $300 million in just two years since its launch in 2012. But in April, TelexFree filed for Chapter 11 bankruptcy protection, presumably to restructure the business.

Almost immediately following the company’s filing, both the Securities and Exchange Commission and Massachusetts Secretary of State filed complaints against TelexFree. These complaints were issued based on claims that the company was scamming its users. According to investigators, the organization’s particular brand of pyramid scheme targeted immigrants from Brazil and other countries of Latin America, some of whom invested tens of thousands of dollars into the company. These investors were then charged for accounts that allowed them to earn money by posting daily ads for the company.

“While TelexFree was based on the concept of selling a service, prosecutors alleged that only 0.1 percent of the total revenue of the company came from sales of the product,” wrote JD Journal.

Following the complaints and investigation, TelexFree co-owners James Merrill and Carlos Wanzeler were served criminal charges by federal prosecutors last week. Specifically, each man was charged with wire fraud related to the allegedly $1 billion pyramid scheme. If they are found guilty, Merrill and Wanzeler could face up to 20 years in prison apiece.

“The scope of this alleged fraud is breathtaking,” said Carmen M. Ortiz, U.S. Attorney for Massachusetts. “As alleged, these defendants devised a scheme which reaped hundreds of millions of dollars from hard working people around the globe.”

While Merrill was apprehended by federal agents and appeared in U.S. District Court in Worcester, Wanzeler is currently considered a fugitive, supposedly having fled to his home country of Brazil.

Perhaps the takeaway message here is that, for any company, it is important to not only research the services business VoIP providers offer, but also the providers themselves when choosing a plan. 

Edited by Maurice Nagle