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By Beth Healy and Maria Sacchetti | Globe Staff April 26, 2014.
The Marlborough phone-service company that regulators allege ran a global Ponzi scheme delivered a parting shot to many of its investors — sending out tax forms claiming to have paid them money they say they never received.
Alcina Araujo of Peabody is among many who fear they have lost everything they invested in the company, called TelexFree Inc. Araujo said she put $15,000 into TelexFree last October, and watched as her accounts quickly swelled.But a week ago, she received a federal 1099 tax form from TelexFree that said the company had paid her $35,072 in compensation last year. Not only has Araujo received none of that money, she said, but the sum on the tax form seems to include the $15,000 she put into the company from her own pocket.
“I’m not going to pay that,” said Araujo, who has already paid her taxes this year. “I don’t have any money.’’
The Securities and Exchange Commission last week froze the assets of TelexFree and eight key people involved in the company. The SEC charged that the company lured people from 21 states into TelexFree’s long-distance calling service, with promises of fast profits for promoting the business to friends and family.
US residents may have poured as much as $300 million into the alleged scheme, regulators said. That figure includes $90 million from Massachusetts, where Brazilian and Dominican communities were primarily targeted.
In a statement, TelexFree spokeswoman Alyssa Cass said the tax forms indicate people were compensated for work, rather than for investment returns.
“TelexFree believes that the characterization of these amounts as investments is incorrect,” she said. “The company is required to provide 1099s and believes that the 1099s were prepared in accordance with the applicable tax laws.”
The company declined to say why the forms were late, or whether the sums reflected on them were accurate.
The form that Araujo and others received was a 1099-Misc, a type of tax form companies send to independent contractors and free-lancers to report “non-employee compensation.’’ Since TelexFree also filed the information with the Internal Revenue Service and state tax officials, Araujo and others could be held responsible for taxes on money they say they never received — part of which may have been their own original investments.
Robert Bonsignore, a Belmont, N.H., lawyer who represents three TelexFree victims, said the tax forms only compound the suffering of the alleged victims.
“They made so much money on so many hard-working people,’’ Bonsignore said of the company. “My blood is boiling.’’
It is unclear how many people were sent tax forms. But at a gathering of about 50 alleged victims at the Missionary Assembly of God Church in Chelsea last Saturday, at least a half dozen said they had received the documents. Some said they knew of family members and friends who got them as well.
In addition to questions about the accuracy of the tax forms, TelexFree sent the documents late, months past the legal deadline of Jan. 31. Many people reported receiving two or three of the forms in April, instead of one, which is typical.
For example, Araujo said she received her first TelexFree tax form April 9, reporting income of $680. A second form, for $35,072, arrived April 18, just days after agents from the FBI and the Department of Homeland Security raided TelexFree’s Marlborough office. Now her state tax refund has been delayed, Araujo said.
IRS spokeswoman Peggy Riley declined to comment on whether the agency is investigating TelexFree. She said there are significant penalties on companies that file 1099s late, and more penalties if the forms are inaccurate or fraudulent.
Secretary of State William F. Galvin, whose office filed civil fraud charges against TelexFree on April 15, said participants should dispute the tax forms if they are inaccurate.
“If they never got the money, the statement is wrong,’’ Galvin said. “This is the principals’ effort to figure a way out of this, or to cover up their activities.’’
TelexFree is not registered with state or federal regulators to sell investment products. Regulators say that is why the company characterized payments to participants as compensation, rather than investment returns. The tax forms are likely part of the strategy, to build an argument that the company was not an unlicensed investment firm, according to Galvin.
The company created an appearance of work for its participants, by requiring them to go online every day and click a few boxes on a computer screen or a phone app, regulators say. The participants were told they were approving online ads, purportedly to be placed on consumer websites to help promote TelexFree’s services.
Participants said that activity took just a few minutes a day. In exchange, they got a payout of $100 per week on each $1,375 account they opened with the company. Many then rolled the weekly payouts back into their accounts.
Of dozens of victims interviewed, none had ever seen evidence that their TelexFree ads actually appeared on any website. The SEC said there was no revenue associated with the ads on the company’s books.
TelexFree’s late tax forms were going in the mail as financial pressure on the company appeared to be mounting. Last month, the company slashed its so-called compensation structure for participants who agreed to help promote its Internet phone service.
Company executives then held a conference at the Boston Marriott in Copley Place to explain the changes to concerned participants, charging each $170 for admission to the meeting. According to people who attended the event, company principals James Merrill, Carlos Wanzeler, and Steven Labriola spoke to reassure them the business was in good standing.
But it had already become more difficult to withdraw money from the firm, alleged victims say. TelexFree had added new requirements to get money out, and the company’s website stopped working. By April 14, TelexFree had filed for federal bankruptcy protection in Nevada, where it registers one of its corporate entities but has no operations. The next day, during the raid in Marlborough, one executive tried to leave the scene with a bag stuffed with $38 million in checks.
TelexFree had been under a cloud since last June, when a Brazilian judge called the company’s operation a pyramid scheme and shut it down in that country. Yet the US arm of the company continued to attract vast sums of money, with promoters reeling in new investors as recently as February and March, according to alleged victims from around the world.
Some TelexFree participants say they ended up with profits by periodically cashing out their TelexFree payments. Many others were less fortunate.
Itamar San Giorgio, 40, a cleaner from Brazil who lives in Somerville, invested $3,500 a year ago, at the urging of friends. He clicked his ads and received significant payouts since then: “One minute every single day,” he said. “Easy.”
San Giorgio is still out $900. But the co-worker he recruited to join, Jorge Lima, is even worse off. The 57-year-old cleaner from Woburn said he invested more than $2,000 a month ago, but then government officials shut it down.
In addition to inquiries by the SEC and Galvin, TelexFree is under investigation by the FBI and Homeland Security. None of the principals or promoters named in the SEC’s civil charges has been criminally charged. They have not returned calls seeking comment.
A hearing in the bankruptcy case is scheduled for May 2. The SEC has asked to move the case to Massachusetts.
More coverage: 4/24: SEC urges Nevada judge to move TelexFree case to Mass. | 4/19: Embattled TelexFree rose from humble beginnings | 4/17: TelexFree Mass. office raided in Internet fraud probe
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