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In Re: Telexfree Securities Litigation 14-MD-02566-Fourth Consolidated Amended Complaint

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In Re: Telexfree Securities Litigation 14-MD-02566-Fourth Consolidated Amended Complaint Case 4:14-md-02566-TSH Document 503 Filed 06/06/17 Page 1 of 231 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS IN RE: TELEXFREE SECURITIES LITIGATION This Document Relates To: MDL No. 4:14-md-2566-TSH All Cases CELIO DA SILVA, RITA DOS SANTOS, PUTATIVE CLASS REPRESENTATIVES AND CLASS ACTION THOSE SIMILARLY SITUATED, Plaintiffs, v. FOURTH CONSOLIDATED AMENDED COMPLAINT TELEXELECTRIC, LLLP; et al., Defendants. DEMAND FOR TRIAL BY JURY Case 4:14-md-02566-TSH Document 503 Filed 06/06/17 Page 2 of 231 TABLE OF CONTENTS TABLE OF CONTENTS .............................................................................................................. i I. JURISDICTION AND VENUE .......................................................................................... 11 II. THE PARTIES ..................................................................................................................... 11 A. PLAINTIFFS ....................................................................................................................... 11 B. DEFENDANTS ................................................................................................................... 13 1. TELEXFREE DEFENDANTS .............................................................................. 13 a. Third-Party TelexFree Bankrupt Entities ...................................................... 13 b. Electric and Mobile ........................................................................................... 14 2. OTHER OPERATIONAL DEFENDANTS ......................................................... 14 a. Founders and Principals, Executive Office, Top Level Promoters and Associated Individuals ...................................................................................... 14 b. Licensed Professionals including Attorneys and Other Professional Services Providers ....................................................................... 17 c. The Accountant Defendants ............................................................................. 20 3. FINANCIAL SERVICES PROVIDERS .............................................................. 21 a. The Bank Defendants ....................................................................................... 21 b. Payment Processing Service Companies ......................................................... 23 4. INVESTMENT SERVICES PROVIDERS .......................................................... 25 III. FACTS AND ALLEGATIONS ........................................................................................... 25 A. Chronological Overview ..................................................................................................... 25 B. TelexFree’s History, Formation and its Brazilian Links ................................................ 35 C. Ympactus, TelexFree’s Brazilian-Based Operations ....................................................... 36 D. The Bankrupt TelexFree Companies ................................................................................ 39 E. TelexFree, Inc. ..................................................................................................................... 39 F. TelexFree, LLC ................................................................................................................... 40 i Case 4:14-md-02566-TSH Document 503 Filed 06/06/17 Page 3 of 231 G. TelexFree Financial, Inc. .................................................................................................... 41 H. Relationship of the Bankrupt TelexFree Companies ...................................................... 42 I. Defendants Electric and Mobile ........................................................................................ 42 J. TelexFree’s Founders and Principals, Executive Officers and Top Level Promoters .......................................................................................................... 44 K. TelexFree’s Unlawful, Unfair and Deceptive Pyramid Scheme ..................................... 51 L. Gallery of Rogues Assembled ............................................................................................ 67 1. The Seasoned Scam Artists .............................................................................. 67 2. The Professional Legitimizers’ Roles .............................................................. 71 M. TelexFree’s Fraudulent and Deceptive Use of Best Western Hotel ............................... 76 N. Investigation of, and Injunctions against, TelexFree’s Brazilian Operations in Brazil ............................................................................................................ 77 O. TelexFree’s Continued United States’ Operations .......................................................... 80 P. Collapse of TelexFree’s United States Operations ........................................................... 80 Q. TelexFree’s Belated Efforts to Legitimize Its Scheme ..................................................... 81 R. Events Since TelexFree’s Bankruptcy Filing ................................................................... 83 S. TelexFree’s Principals, Founders and Executive Office Controlled TelexFree, Knowingly Perpetrated the Unlawful, Unfair, and Deceptive Pyramid Scheme and Made False Representations about TelexFree ...................................................................................... 85 T. TelexFree’s Top Level Promoters Played an Integral, Essential and Primary Role and also Aided and Abetted the Pyramid Scheme ........................... 92 U. TelexFree’s Attorneys Played an Integral Role in and Aided and Abetted the Unlawful, Unfair, and Deceptive Pyramid Scheme .................. 93 V. TelexFree’s Accountants and Professional Services Providers Played an Integral Role in and Aided and Abetted the Unlawful, Unfair, and Deceptive Pyramid Scheme .... 109 W. The Financial Services Providers Were Required to Comply With Various Statutory and Regulatory Investigation and Monitoring Obligations .......... 117 X. TelexFree’s Suspicious, Tortious and Unlawful Operation Displayed Red Flags Detectable by the Defendant Financial Service Providers .......................... 134 Y. The Bank Defendants ....................................................................................................... 141 1. Defendant Bank of America ................................................................................. 145 ii Case 4:14-md-02566-TSH Document 503 Filed 06/06/17 Page 4 of 231 2. Defendant TD Bank .............................................................................................. 150 3. Fidelity Bank ......................................................................................................... 156 4. Synovus .................................................................................................................. 161 5. PNC Bank .............................................................................................................. 163 Z. Defendant Payment Processing Service Companies ...................................................... 164 1. Propay ................................................................................................................... 167 2. GPG ........................................................................................................................ 169 3. Base Commerce ..................................................................................................... 172 4. Vantage Payments ................................................................................................. 178 5. Allied Wallet .......................................................................................................... 183 6. IPS ........................................................................................................................ 185 7. Bank Card Consultants ........................................................................................ 188 AA. Investment Services Providers ....................................................................................... 190 1. Mauricio Cardenas ............................................................................................... 190 2. Wells Fargo Advisors ............................................................................................ 192 IV. CLASS ACTION ALLEGATIONS .................................................................................. 198 V. FRAUDULENT CONCEALMENT ................................................................................. 201 VI. CLAIMS FOR RELIEF ..................................................................................................... 202 FIRST CLAIM FOR RELIEF VIOLATIONS OF MASSACHUSETTS GENERAL LAWS, CHAPTER 93, SECTIONS 12 and 69 (Against All Operational Defendants) ....................................... 202 SECOND CLAIM FOR RELIEF VIOLATIONS OF MASSACHUSETTS GENERAL LAWS, CHAPTER 93A, SECTIONS 2 AND 11 (Against All Operational Defendants) ....................................... 203 THIRD CLAIM FOR RELIEF AIDING AND ABETTING VIOLATIONS OF MASSACHUSETTS GENERAL LAWS, CHAPTER 93, SECTIONS 12 and 69, AND MASSACHUSETTS GENERAL LAWS, CHAPTER 93A, SECTIONS 2(a) or 11 (Against TelexFree And All Defendants) ......................................................................... 204 FOURTH CLAIM FOR RELIEF UNJUST ENRICHMENT (Against All Defendants) ...................................................... 210 FIFTH CLAIM FOR RELIEF
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