Beware of TelexFree – Review Part 3

Motions to dismiss the most recent Fifth Amended Complaint were filed by twelve Defendants in the TelexFree class action.

Six Defendants are now entirely responsible after five motions were fully granted and one was partially granted.

The five defendants who were successful in having the charges against them dropped are:

a group called Sheffield;

N.A. PNC Bank;

Worldwide Payout Systems;

the law firm of Garvey Schubert Barer;

LLP PricewaterhouseCoopers

The Motion to Dismiss of the Estate of Jeffrey A. Babener was partially granted. The court dismissed the tortious aiding and abetting and civil conspiracy accusations brought by the Babener Estate.

The Fifth Amended Complaint’s remaining accusations against the Babener Estate were confirmed.

The following defendants failed to have the case against them dismissed:

Michael Cardenas

N.A. Bank of America;

Vantage Payments, LLC and Dusten Sparman

N.A. TD Bank;

Wells Fargo Bank N.A., Wells Fargo Advisors LLC, and

the ProPay, Inc.

The court explained the following reasons why the aforesaid Defendant’s Motions to Dismiss were rejected:

Along with Mauricio Cardenas, Wells Fargo

An underlying fraud is properly alleged in the Fifth Amended Complaint.

American Bank

The 5CAC does not support the claim that Bank of America knew for sure that TelexFree was running a scam before June 2013.

However, it is implied by the Fifth Amended Complaint that Bank of America knew for sure by the end of 2013 that TelexFree was running a scam.

It is possible that TelexFree’s ability to flee with victim money was significantly facilitated by Bank of America’s support of a $30 million transfer from IPS to TelexFree on March 17, 2014.

Police officials saw Craft leaving TelexFree’s offices the day after the company filed for bankruptcy with $38 million in cashier’s checks from Wells Fargo Bank. Later, they found $20 million in cash in an apartment connected to Wanzeler.

Importantly, it is likely that on March 17, 2014, Bank of America was aware that TelexFree was running a fraudulent pyramid scheme, IPS was handling money for the scam, and a transfer from IPS to a TelexFree account at Wells Fargo Bank would help the scam.

If the factual claims in the 5CAC are true, Bank of America’s facilitation of the $30 million transfer plausibly caused the plaintiffs’ financial losses, which were a direct and predictable outcome.

A TD Bank

According to the 5CAC, TD Bank’s responses to warning signs are circumstantial proof that the company “really understood” TelexFree was a scam.

According to the Fifth Amended Complaint, TD Bank moved money belonging to TelexFree from one account to another to aid TelexFree in hiding the source of its finances.

These claims are adequate at the pleading stage to prove significant assistance given the inference of actual knowledge.

The same claimed circumstances that support the conclusion that TD Bank knew about the underlying fraud yet continued to aid it by assisting TelexFree in concealing and fleeing with money also support the conclusion that TD Bank shared TelexFree’s fraudulent purpose.

Vantage Payments and Dustin Sparman

Vantage knew that TelexFree ran a multilevel marketing scheme that assured returns for passive investments and that TelexFree’s business model could not maintain the profits it offered when Vantage started working with TelexFree.

Vantage nonetheless sought out payment processors for TelexFree and set up TelexFree, LTD as a company in the UK to handle the scheme’s activities in the EU.

The Court previously decided that the plaintiffs had a reasonable prospect of success on their tortious aiding and abetting claim against Vantage and Sparman based on a consideration of the material filed in conjunction with the plaintiff’s application for a preliminary injunction.

The Fifth Amended Complaint further asserts a conspiracy claim against Sparman for “significant assistance” since Sparman is accused of tortious aiding and abetting in the complaint.


From October 2012 through at least January 2014, ProPay processed at least $110 million in payments for TelexFree as part of its payment processing services.

ProPay was also aware of TelexFree’s business strategy and any potential legal troubles in Brazil.

The plaintiffs have properly demonstrated at the pleading stage that their losses are “fairly traceable” to ProPay by arguing that ProPay promoted the illegal scheme, whether before or after their investments.

In related news, the Fifth Amended Complaint in the class action lawsuit resisted many motions to strike, a motion to remand, and a motion to stay the proceedings.

I’ll keep an eye on the court docket for developments.

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