May 10, 2014 -- The owners of TelexFree were criminally charged in federal court Friday with conspiracy to commit wire fraud. James Merrill was arrested Friday afternoon in Worcester, MA. An arrest warrant was also issued for Carlos Wanzeler, who is believed to have fled to Brazil and is now considered a fugitive.

The US Securities and Exchange Commission and Massachusetts Secretary of State are investigating TelexFree. The company's assets have been frozen by the SEC, which filed a civil suit against it in April, accusing it of operating a pyramid scheme. Authorities say that TelexFree recruited "promoters" to buy into the company for about $300 to $1,400, then post ads for its Voice Over IP product online. Promoters were compensated not with money generated by the ads, but from the buy-ins of those subsequently recruited.

An undercover Homeland Security investigator who was recruited by TelexFree in October was told that by a company representative that it wasn't necessary to sell products to earn money and that with a $1425 investment the agent could earn $100 a week without selling any product, by posting ads online and recruiting others.

In court records, authorities said that a review of TelexFree's bank accounts revealed that out of thousands of deposits, only 19 were related to sales of the company's VOIP service.