March 23, 2017

Marlborough president gets six years in prison over $3B scheme

The former president of TelexFree was sentenced to six years in prison and three years of supervised release Wednesday on charges that he ran an international $3 billion pyramid scheme out of the company.

TelexFree, of Marlborough, marketed itself as an internet telecom company, similar to Skype, but actually ran as a pyramid scheme, prosecutors said. All money TelexFree paid didn't come from sales of its product but from new participants paying the company to be promoters for TelexFree.

In all, nearly 1.9 million victims in 240 countries were scammed out of more than $3 billion.

About 20,000 people in Worcester alone signed up for TelexFree, and thousands more in Boston, Framingham, Chelsea and other Massachusetts communities.

TelexFree's president, James Merrill, a 55-year-old of Ashland, pleaded guilty last fall to wire fraud and wire fraud conspiracy charges. He agreed to forfeit about $140 million and other assets.

"For the hundreds of thousands of investors, here and around the world, who were taken in by the lies promoted by Mr. Merrill and TelexFree, today's sentence provides a measure of justice," acting U.S. Attorney William D. Weinreb said in a statement Wednesday. "Mr. Merrill's greed damaged the livelihoods of thousands of people who were simply struggling to make ends meet."

The company ran a complex arrangement in which people paid to sign up for TelexFree, after which they would be paid to post classified ads each day on the internet. These participants paid either $339 or $1,425 to sign up, and were paid $20 per week or $100 per week, according to the U.S. Attorney's Office.

Participants were given substantial financial incentives to recruit others to join.

The company received 98 percent of its revenue from people buying into the scheme, and only the remaining 2 percent from its voice-over-internet-protocol, or VOIP, telephone service. More than 12 million VOIP plans were sold, but hardly any actually used the service.

Merrill, who was sentenced in U.S. District Court in Worcester, was the company's president from February 2012 to April 2014, a period in which the company grew rapidly. Merrill was warned several times starting in 2013 that he was running a pyramid scheme, but he never alerted the public, even as more people continued to sign up, according to prosecutors.

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