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Judge halts class-action cases until TelexFREE criminal case proceeds

On Behalf of | Mar 12, 2016 | TelexFree

A federal judge this week approved the government’s request to halt evidence gathering in a bundle of class action cases against TelexFREE, court records show.

The order ties up a key loose end in the sprawling legal battle involving the company, and paves the way for the criminal case against TelexFREE’s co-owners to proceed without any potential contamination from the other civil cases.

U.S. authorities claim the Marlborough-based telecommunications company was a front for a massive worldwide pyramid scheme. A government-appointed bankruptcy trustee overseeing the business through Chapter 11 proceedings has estimated TelexFREE raised $1.8 bill in around two years, and ensnared close to 1.9 million participants.

The company’s co-founders, James Merrill of Ashland and Carlos Wanzeler of Northborough, have been charged with wire fraud and conspiracy to commit wire fraud for their role in the alleged scheme. To prevent any interference with the case during the ongoing evidence buildup, the justice department has asked other courts to halt discovery in the simultaneous complaints against the company, including the Securities and Exchange Commission’s case.

This past December, the department also sought a stay of discovery in the multiple class action lawsuits brought against TelexFREE since the company collapsed last April. The plaintiffs in those cases, represented by an interim lead counsel and interim executive committee, technically opposed, telling the court in January they wanted to still have access to materials that were being produced in the bankruptcy case.

On Thursday, however, interim lead counsel Robert Bonsignore said he was ultimately OK with U.S. District Court Judge Timothy S. Hillman’s decision to allow the government’s request.

“I think it’s a compromise on the part of everyone trying to help the victims,” he said. “The only alternative would be to have everyone fight, and that would waste resources, cost victims money, and defy common sense.”

With the discovery cessation in place, the sides in the class action cases won’t be able to officially compile evidence until the criminal proceedings against Merrill and Wanzeler finish, which could take more than a year. But Hillman’s order does allow for a check-in date six months from now, at which point the court could allow for a modification of the stay order “for good cause shown.”

In the meantime, Bonsignore said he and the executive committee would continue to informally gather evidence for their cases. He also plans to file a consolidated version of the various class action suits before the end of the month, per a court order filed this week by Hillman.

Bonsignore said he is still “biting at the bit” to move those cases forward, but acknowledged TelexFREE “is not your average, run of the mill case.”

“It could be the biggest pyramid scheme in U.S. history,” he said. “So you’ve got to adapt and improvise.”

The next court date in the criminal case against Merrill is an interim status conference set for April 13 in Worcester. Wanzeler remains a fugitive, believed by the government to be in Brazil.

Scott O’Connell can be reached at 508-626-4449 or [email protected] Follow him on Twitter: @ScottOConnellMW