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Massachusetts regulator says phone-service firm runs pyramid scheme

BOSTON, April 15 (Reuters) - Massachusetts' top securities regulator on Tuesday charged a company that marketed online telephone services with running a $1 billion pyramid scheme that targeted minorities, including Brazilian-Americans.

William Galvin, Massachusetts' secretary of state, said that TelexFREE Inc offered fraudulent and unregistered securities in the state while making false promises to potential participants that they could get rich quickly.

"Pyramid schemes are nothing new, nor are schemes that target a specific group, but modern communications gives them instant world-wide scope," Galvin said in a statement.

Participants in the scheme could pay TelexFREE $289 for one advertising kit or $1,375 for five kits. In return for posting daily prewritten advertisements to predetermined websites, the company promised yearly returns as high as 250 percent, Galvin said.

He said the company raised over $1 billion worldwide.

Pyramid schemes pay participants more to recruit new members into the scheme than for selling the product.

The company used "extravaganzas complete with a rock concert atmosphere and wild cheering" to recruit new participants and its presentations often included "pictures of cash and luxury property," Galvin said in his complaint against the company.

The company filed for bankruptcy protection in Nevada on Monday. Its website is under construction, and the company could not be reached by telephone.

"Through the offer or sale of unregistered securities, TelexFREE has caused and continues to cause great harm to unsophisticated minority populations enticed by the false pretense of getting rich quick," the complaint said.

(Reporting by Svea Herbst-Bayliss; Editing by Ken Wills)