Wells Fargo Tries To Escape TelexFree Ponzi Scheme MDL

Wells Fargo Advisors LLC has asked a Massachusetts federal court to release it from multidistrict litigation by investors looking to recoup losses they sustained from 2012 to 2014 through the multibillion-dollar TelexFree pyramid scheme, arguing the investors never spelled out Wells Fargo’s alleged involvement.

While the investors stretch to allege Wells Fargo helped TelexFree by hosting accounts where ill-gotten money was kept in an attempt to shield it from seizure, according to Monday’s filed motion, they never go so far as to outright say Wells Fargo helped TelexFree to defraud investors via the pyramid scheme.

“In attempting to allege knowledge, the complaint relies on conclusory repetition, repeatedly asserting with no factual basis that WFA knew TelexFree was a fraudulent enterprise,” Wells Fargo attorneys said in their motion to dismiss investors’ allegations of aiding and abetting fraud, aiding and abetting violations of Massachusetts general law, and unjust enrichment. 

In September, scam corporations TelexFree Inc. and TelexFree LLC admitted to securities fraud in one of the world’s largest-ever pyramid schemes. More than 1 million people are believed to have been defrauded of more than $3 billion, according to authorities, with half of those victims being in Brazil.
TelexFree charged people to become promoters of a bare-bones Voice over Internet Protocol service in which they were promised commissions for online advertisements. It sold fake securities to those and other people and used part of the protocol service’s membership fees to cover returns on investments or commissions, court filings show.

The company ended up owing $6 billion to participants while having only $120 million in pocket, driving it into bankruptcy, according to court documents.

At least 50 investors sued TelexFree executives, company attorneys and banks such as Wells Fargo to recover their losses. Those cases have proceeded to multidistrict litigation in Massachusetts. Some banks and employees have had claims against them dismissed, but most investor suit allegations remain open and active.

The U.S. Securities and Exchange Commission also filed civil claims against TelexFree after it filed for Chapter 11 protection, alleging company officers preyed on Dominican and Brazilian immigrants with company money.

Earlier this month, a federal judge released Wells Fargo Bank from the case on similar grounds as those being pursued in the instant motion by Wells Fargo, finding that investors failed to state a claim as to how the banks actively participated in the fraud.

Representatives of the parties did not respond to requests for comment Tuesday.

Wells Fargo Advisors LLC is represented by Robert W. Fuller and Adam K. Doerr of Robinson Bradshaw & Hinson PA, and Paul S. Samson of Riemer & Braunstein LLP.

The investors are represented by Robert J. Bonsignore of Bonsignore LLC, and D. Michael Noonan of Shaheen & Gordon PA.

In re: TelexFree Securities Litigation, Dos Santos v. TelexElectric LLP et al., case number 4:14-md-02566, in the U.S. District Court for the District of Massachusetts.

–Additional reporting by Reenat Sinay. Editing by Jay Jackson Jr.
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