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In re Telexfree Securities Litigation

United States District Court, D. Massachusetts

February 5, 2019

In re TELEXFREE SECURITIES LITIGATION

          MEMORANDUM AND ORDER ON DEFENDANT WELLS FARGO, N.A.'S MOTIONS TO DISMISS (Document No. 171)

          TIMOTHY S. HILLMAN, DISTRICT JUDGE.

         Introduction

         Wells Fargo, N.A. (“Wells Fargo”) a defendant in the TelexFree multi-district securities litigation, move to dismiss all counts against them in the Second Consolidated Amended Complaint (“SCAC”) pursuant to Fed.R.Civ.P. 12(b)(6). TelexFree, Inc. (“TelexFree”) was a pyramid scheme that operated from February 2012 to April 2014, and involved approximately two million participants worldwide, nearly a million of whom suffered a net financial loss. Several plaintiffs filed actions in federal district courts across the United States seeking to recover their losses against dozens of defendants, ranging from financial service providers, including banks (such as Wells Fargo), payment processing companies, and the principals of the fraudulent scheme employed by or otherwise involved with TelexFree. As the actions involved common questions of fact, the Judicial Panel on Multi-district Litigation joined the actions into a multidistrict litigation, ordered transfer of all actions to the District of Massachusetts for coordinated or consolidated pretrial proceedings.

         Background

         Wells Fargo is identified in the SCAC as a bank that maintained accounts for TelexFree and “provided banking services, maintained accounts, and received and executed transfers of funds from or for the benefit of TelexFree” (SCAC ¶84). The only other specific reference to Wells Fargo in the SCAC is ¶713 which alleges “Wells Fargo also maintained accounts on behalf of TelexFree and processed transactions amounting to tens of millions of dollars for TelexFree.” The Plaintiff seeks recovery against Wells Fargo for aiding and abetting in violation of Mass. Gen. L. ch. 93 §§ 12 and 69 and ch. 93A §§ 2(a) and 11 (Count III), unjust enrichment (Count IV), and tortious aiding and abetting (Count X).

         The SCAC also makes general allegations against all bank defendants. As general averments, Plaintiffs allege that the defendant banks received significant funds from TelexFree and other defendants to provide banking services, maintain accounts, and receive and execute transfers for the benefit of TelexFree. (¶ 711). They further allege that the defendant banks profited from these relationships and that despite a federal regulatory duty to be watchful for the existence of “red flags” surrounding TelexFree, they allowed the pyramid scheme to utilize their services including:

• Processing and opening depository accounts;
• Receiving payments made by promoters of TelexFree to become members of the program;
• Maintaining depository accounts containing funds paid by promoters to TelexFree;
• Making payments to certain promoters as part of TelexFree's investment;
• Transferring funds paid by promoters of TelexFree among TelexFree entities, defendant founders' personal accounts, foreign companies, and shell companies; and
• Allowing TelexFree to use the banks' name in their promotional materials thereby lending TelexFree the use of their reputation and credibility.

         Discussion

         To withstand a Rule 12(b)(6) motion to dismiss, a complaint must allege a claim that plausibly entitles the plaintiff to relief. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Plausibility does not require probability but “it asks for more than a sheer possibility the defendant has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Twombly, 550 U.S. at 556). “If the factual allegations in the complaint are too meager, vague, or conclusory to remove the possibility of relief from the realm of mere conjecture, the complaint is open to dismissal.” Rodriguez-Reyes v. Molina-Rodriguez, 711 F.3d 49, 53 (1st Cir. 2013) (quoting SEC v. Tambone, 597 F.3d 436, 442 (1st Cir. 2010) (en banc)). “[A] conclusory allegation … does not supply facts adequate to show illegality [whereas] [a]n allegation … ...


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