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In re Telexfree Securities Litigation

United States District Court, D. Massachusetts

June 25, 2019





         Wells Fargo Advisors, LLC (“WFA”), a defendant in the TelexFree multi-district securities litigation, moves to dismiss all counts against them in the Fourth Consolidated Amended Complaint (“FCAC”) 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. The 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, payment processing companies, investment services providers such as WFA, and the principals of the fraudulent scheme. As the actions involved common questions of fact, the Judicial Panel on Multi-district Litigation joined the actions into a multidistrict litigation and ordered transfer of all actions to the District of Massachusetts for coordinated or consolidated pretrial proceedings.


         The Plaintiffs allege that Mauricio Cardenas, (also a Defendant) was a financial advisor and an employee of WFA who was responsible for hiding and/or laundering illicit funds for TelexFree principal Carlos Wanzeler. Cardenas was primarily responsible for handling Wanzeler's WFA investment accounts, knowing full well that he was running an illegal pyramid scheme.

         WFA discharged Cardenas in April 2014 as a direct result of his involvement with TelexFree and Wanzeler, and it is alleged that WFA, through their Regulatory Account Monitoring Department, knew that Cardenas was laundering money for Wanzeler. It is alleged that WFA oversaw Cardenas investment activities and maintained a detailed account of profits made on behalf of his client. (FCAC ¶ 1136). When WFA terminated Cardenas in 2014 it filed the following disclosure with the “Financial Industry Regulatory Authority” (“FINRA”).

“The firm determined that it would not do business with certain business entities due to potential AML risks. Thereafter, FA (Financial Advisor Cardenas) opened two brokerage accounts for individuals directly related to the entities. The FA stated that he did not know the relationship existed. Management determined that representative demonstrated a lack of judgment in recognizing and managing the potential AML risks.”

         The Plaintiffs further allege that WFA was aware of the TelexFree pyramid scheme and determined not to do business with TelexFree due to the AML risks. However, Cardenas continued to establish brokerage accounts with WFA for the purposes of secreting funds from TelexFrees' illegal operation.


         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 … much like a naked assertion … gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and plausibility of entitlement to relief.” Twombly, 550 U.S. at 557.

         Rule 9(b) imposes a heightened pleading standard for claims based on fraud. When an aiding and abetting claim sounds in fraud, it must be plead with particularity as set forth in Rule 9(b). In re State Street Cases, 2013 WL 5508151 at *16 (D. Mass. Aug. 21, 2013).

         Third Claim for Relief: Aiding and Abetting General Laws Chapter 93§12 and 69 and Chapter 93A §2 and 11.

         With respect to the issue of whether a Cause of Action exists for aiding and abetting M.G.L. C.93 § 12 and 69, and M.G.L. C. 93A § 2 and 11, there are a limited number of cases in this district where courts have discussed whether aiding and abetting a violation of these statutes states a claim for relief. See Green v. Parts Distribution Xpress, Inc., 2011 WL 5928580 at *4 (D. Mass. Nov. 29, 2011) (“[A] non-party to an employment relationship can be held liable under chapter 93 A for aiding and abetting the wrongdoing of a party to an employment relationship . . .”); Professional Services Grp., Inc. v. Town of Rockland, 515 F.Supp. 2Nd 179, 192 (2007) (“Aiding and abetting a breach of fiduciary duty may provide the basis for a Chapter 93A violation”). But see Reynolds v. City Exp., Inc., 2014 WL 1758301 (Mass. App. Div. Jan. 8, 2014) (declining to extend the holding in Green). The court in Green did not devote much attention to the theory of an aiding and abetting claim under C. 93A but spoke at length of a statutory aiding and abetting claim under M.G.L. C. 149. Similarly, the Reynolds court was not deciding whether a party could aid and abet a C. 93A claim, but whether a party could aid and abet statutory violations of M.G.L. C 149 and 151B pertaining to labor and discrimination respectively. That court held one could not aid and abet C. 149 and 151B violations because the legislature “could have specifically provided for aiding and abetting liability in G.L.C. 149 § 148B and chose not to.” Reynolds Supra at *8.

         Chapter 93A, which is based upon the Federal Trade Commission Act (15 U.S.C. 45(a)(1)), also does not recognize a separate aiding and abetting cause of action. “A defendant acting with knowledge of deception who either directly participates in that deception or has the authority to control the deceptive practice of another, but allows the deception to proceed, engages, through its own actions, in a deceptive act or practice that causes harm to consumers.” FTC v. LeadClick Media, LLC, 838 F.3d. 158, 170 (2d. Cir. ...

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