In Re: Telexfree Securities Litigation

United 	States 	District Court
District 	of Massachusetts
In 	re: 	Telexfree 	Securities
Litigation
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MDL Action No.
4:14-md-2566-NMG
MEMORANDUM 	& ORDER
GORTON, 	J.
Before 	the 	Court 	is 	the 	Motion 	of 	defendants 	Vantage
Payments , 	LLC , 	and 	Dustin 	Spar man 	(collectively , 	" defendants " )
for 	Attorneys ' 	Fees 	and 	Costs 	(Docket 	No . 	2296) . 	Defendants
seek 	attorneys ' 	fees 	from 	plaintiff 	Rita 	Dos 	Santos 	(" plaintiff "
or 	" Dos 	Santos " ) 	as 	well 	as 	from 	her 	past 	and 	present 	counsel .
Because 	the 	Court 	finds 	that 	defendants 	have 	not 	shown 	the
prerequisite 	misconduct 	on 	the 	part 	of 	plaintiff , 	the 	motion
will 	be 	denied .
I . 	Background
Plaintiff ' s 	claims 	against 	the 	Sparman 	defendants 	are 	part
of 	the 	TelexFree 	Securities 	multi - district 	litigation 	(" the
TelexFree 	MDL " ) . 	That 	MDL 	arises 	from 	a 	hybrid 	Ponzi - pyramid
scheme 	operated 	by 	TelexFree , 	LLC , 	TelexFree , 	Inc . 	and 	TelexFree
Financial , 	Inc . 	(collectively , 	" TelexFree " ) . 	The 	Court
explained 	plaintiff ' s 	involvement 	in 	the 	TelexFree 	MDL 	in 	its
Order 	dated 	October 	30 , 	2025 :
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Dos 	Santos 	originally 	brought 	her 	claims 	i n
the 	District 	of 	Arizona 	(" the 	Arizona
Action " ) . 	See 	Dos 	Santos 	v . 	Telexelectric
LLLP , 	No . 	4 : 15 - md - 13614 - NMG . 	When 	her 	case
was 	transferred 	into 	the 	TelexFree 	MDL , 	Dos
Santos 	became , 	and 	remained , 	a 	lead 	plaintiff
in 	every 	consolidated 	complaint 	filed 	in 	the
MDL . 	In 	July , 	2023 , 	Dos 	Santos 	moved
voluntarily 	to 	dismiss 	herself 	as 	a 	named
plaintiff 	in 	the 	consolidated 	class 	action
complaint , 	after 	which 	plaintiff 	Anthony
Cellucci 	became 	the 	lead 	plaintiff 	of 	the
putative 	class . [l 	Despite 	Dos 	Santos 	being
d i smissed 	as 	a 	named 	plaintiff 	in 	the 	class
action , 	the 	Ari z ona 	Action 	remain[ed] 	pending
Dos 	Santos ' 	individual 	claims 	allege [d] 	that
defendants 	aided 	and 	abetted 	the 	TelexFree
Ponzi 	scheme 	by 	facilitating 	credit 	card
t ransactions 	that 	sustained 	the 	scheme 	and
caused 	injury 	when 	the 	scheme 	collapsed . 	She
[brought] 	statutory claims 	under M. G. L . 	c . 	93 ,
§§12 	and 	69 , 	c . 	93A , 	§§2 	and 	11 , 	and 	c . 	110a ,
§410b , 	as 	well 	as 	common - law claims 	for 	unjust
enr i chment , 	civil 	conspiracy 	professional
neg l igenc e , 	neg li gent 	misrepresentation ,
fraud 	and 	tortious 	aiding 	and 	abetting .
Docket 	No . 	2292 .
The 	Sparman 	defendants 	moved 	for 	summary 	judgment 	with
respect 	to 	Dos 	Santos ' 	claims 	in 	June , 	2025 , 	and 	Dos 	Santos
filed 	no 	opposition . 	The 	Court 	allowed 	the 	motion 	in 	October ,
2025 .
II . 	Motion 	for 	Attorneys' 	Fees
A. Legal 	Standard
Defendants 	bring 	this 	motion 	under 	Fed . R. Civ . P 	54 (d) , 	which
outlines 	the 	procedure 	by 	wh i ch 	parties 	may 	request 	costs 	and
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attorneys ' 	fees 	incurred 	in 	connection 	with 	their 	cases . 	Rule
54(d) (1) 	creates 	a 	presumption 	of 	awarding 	costs 	in 	favor 	of 	the
prevailing 	party , 	and 	Rule 	54(d) (2) 	requires 	that 	a 	claim 	for
attorneys ' 	fees 	be 	made 	by motion. 	Under 	the 	"American 	Rule ,"
attorneys ' 	fees 	are 	not 	recoverable 	unless 	authorized 	by 	statute
or 	contract , 	but 	courts 	possess 	inherent 	equitable 	power 	to
award 	fees 	against 	a 	party 	that 	has 	acted 	in 	bad 	faith ,
vexatiously , 	wantonly 	or 	for 	oppressive 	reasons . 	Mullane 	v .
Chambers , 	333 	F . 3d 	322 , 	337-38 	(1st 	Cir . 	2003) . 	A court 	may
award 	such 	fees 	only 	insofar 	as 	they 	were 	incurred 	as 	a 	result
of 	the 	misconduct . 	Goodyear 	Tire 	& Rubber 	Co . 	v . 	Haeger , 	581
U. S . 	101 , 	103-04 	(2017) .
Defendants 	also 	cite 	the 	Private 	Securities 	Litigation
Reform Act 	(PSLRA) 	as 	a 	basis 	for 	awarding 	fees 	pursuant 	to
Fed . R. Civ . P . 	ll(b) 	The 	PSLRA 	requires 	that , 	at 	the 	conclusion
of 	an 	action 	brought 	under 	one 	of 	its 	provisions , 	the 	court
conduct 	an 	independent 	review 	under 	Rule 	ll(b) . 	15 	u . s . c . 	§
78u - 4 (c) (1) . 	Rule 	ll(b) 	provides 	that , 	in 	presenting 	a 	pleading
or 	other 	paper 	to 	the 	court , 	an 	attorney 	certifies 	that 	1) 	it 	is
not 	being 	presented 	for 	any 	improper 	purpose , 	2) 	the 	claims 	are
warranted 	by 	a 	nonfrivolous 	legal 	argument 	and 	3) 	the 	factual
contentions 	have 	evidentiary 	support . 	A motion 	for 	sanctions
under 	Rule 	11 	must 	be 	served 	upon 	the 	offending 	party 	at 	least
21 	days 	prior 	to 	its 	filing 	in 	court . 	Fed . R. Ci v . P 	11 ( c) ( 2) .
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B . Application
i. 	Costs
As 	the 	prevailing 	parties , 	defendants 	are 	entitled 	to
reasonable 	costs 	associated 	with 	defending 	this 	action .
Fed . R. Ci v . P . 	5 4 ( d) (1) . 	Defendants 	are 	directed 	therefore 	to
submit 	to 	the 	Court 	a 	bill 	of 	costs 	pursuant 	to 	28 	U. S . C . 	§1920 .
Plaintiff may 	then 	file 	a 	Motion 	to 	Review 	Costs 	Taxed 	within 	10
days 	of 	that 	submission . 	Caruso 	v . 	Delta 	Air 	Lines , 	Inc ., 	616
F . 	Supp . 	3d 	132 , 	135 	n . 1 	(D . 	Mass . 	2022) . 	The 	motion , 	with
respect 	to 	costs , 	is 	therefore 	held 	in 	abeyance .
i. 	Attorneys' 	Fees
Defendants 	claim 	that 	plaintiffs 	should 	pay 	their
attorneys ' 	fees 	in 	this 	case 	based 	upon 	purported 	Rule 	11
violations . 	As 	an 	initial 	matter , 	defendants 	assert 	that ,
because 	this 	motion 	is 	filed 	pursuant 	to 	Fed . R . Civ . P 	53(d) (2)
and 	the 	PSLRA , 	they 	were 	not 	required 	to 	follow 	the 	service
requirements 	of 	Rule 	11 . 	The 	Court 	is 	skeptical 	of 	that
proposition 	but , 	nevertheless , 	will 	consider 	the 	arguments 	as
presented .
At 	its 	core , 	defendants ' 	motion 	contends 	that 	an 	award 	of
attorneys ' 	fees 	is 	appropriate 	because 	plaintiff ' s 	counsel 	(both
past 	and 	present) 	submitted 	pleadings 	and 	proffered 	arguments
which 	they 	knew 	to 	be 	false . 	Namely , 	defendants 	argue 	that 	(1)
plaintiff ' s 	PSLRA 	certification 	(Docket 	No . 	48) 	and 	associated
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briefing 	was 	submitted 	for 	the 	improper 	purpose 	of 	securing
Attorney 	Bonsignore ' s 	status 	as 	lead 	counsel 	and 	(2) 	any
evidence 	supporting 	Dos 	Santos ' 	claims 	is 	so 	obviously 	absent
from 	the 	record 	that 	her 	attorneys 	must 	have 	known 	that 	her
claims 	were 	frivolous .
The 	record 	is 	not , 	however , 	as 	deficient 	as 	defendants
suggest . 	First , 	defendants 	point 	to 	the 	Court ' s 	entry 	of
summary 	judgment 	against 	plaintiff 	(Docket 	No . 	2292) 	as 	support
for 	the 	argument 	that 	her 	claims 	were 	baseless 	from 	the 	outset .
A ruling 	of 	summary 	judgment 	does 	not , 	however , 	automatically
render 	the 	losing 	claims 	so 	frivolous 	as 	to 	entitle 	the
prevailing 	party 	to 	attorneys ' 	fees . 	See 	Nelson 	v . 	Univ . 	of
Maine 	Sys ., 	944 	F . 	Supp . 	44 , 	51 	(D. 	Me . 	1996) . 	Here , 	the 	Court
entered 	summary 	judgment 	against 	plaintiff 	based 	largely 	upon
her 	failure 	to 	oppose 	the 	motion 	and 	without 	the 	benefit 	of 	an
adversarial 	presentation . 	Judgment 	in 	that 	context 	does 	not
establish 	that 	any 	opposition 	to 	the 	motion 	is 	frivolous 	ab
initio .
Defendants ' 	contention 	that 	plaintiff ' s 	PSLRA 	certification
was 	filed 	for 	an 	improper 	purpose 	is 	similarly 	suspect . 	In 	that
cert i fication , 	Dos 	Santos 	claims 	that 	she 	invested 	$350 , 000 	in
the 	TelexFree 	scheme 	and 	ultimately 	became 	a 	" net 	loser ."
Defendants 	assert 	that 	an 	internal 	TelexFree 	recordkeeping
system 	does 	not 	support 	that 	allegation . 	As 	plaintiff 	argues ,
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however , 	not 	all 	transactions 	within 	the 	TelexFree 	scheme 	were
logged 	in 	the 	same 	way , 	and 	some 	of 	plaintiff ' s 	deposits 	may
have 	been 	recorded 	elsewhere . 	The 	record 	is 	i n sufficient 	to
establish 	that 	the 	certification 	and 	associated 	briefings 	were
filed 	in 	violation 	of 	Rule 	11 . 	The 	motion , 	with 	respect 	to
attorneys ' 	fees , 	will 	therefore 	be 	denied .
III . 	Material 	Misrepresentations 	in 	Plaintiff's 	Pleadings
While 	the 	Court 	declines 	to 	award 	attorneys ' 	fees 	to
defendants 	based 	upon 	the 	theories 	presented 	herein , 	it 	is
nevertheless 	disconcerted 	by 	plaintiff ' s 	pleadings 	associated
with 	this 	motion. 	It 	appears 	that 	most 	of 	the 	citations
proffered 	by 	plaintiff 	are 	erroneous . 	Those 	errors 	include : 	1)
misquoting 	cases 	that 	otherwise 	relate 	to 	plaintiff ' s 	position
(e . g ., 	citations 	to 	Jensen 	v . 	Phillips 	Screw 	Co ., 	546 	F . 3d 	59
(1st 	Cir . 	2008) 	and 	CQ 	Int ' l 	Co . 	v . 	Rochem 	I nt ' l , 	Inc ., 	659 	F . 3d
53 	(1st 	Cir . 	2011)) , 	2) 	misquoting 	cases 	that 	exist 	but 	are
inapposite 	to 	the 	issues 	at 	hand 	(e . g ., 	citations 	to 	Rivera 	v .
Centro 	Medico 	de 	Turabo , 	575 	F . 3d 	10 	(1st 	Cir . 	2009) 	and
Gagliardi 	v. 	Sullivan , 	513 	F . 3d 	301 	(1st 	Cir . 	2008)) 	and 	3)
citations 	to 	cases 	that 	do 	not 	exist 	at 	all 	(e . g ., 	a 	citation 	to
Raymond 	v . 	~ 	. 	207 	F . 3d 	1020 	(9th 	Cir . 	2000)) . 	This 	is 	only 	a
small 	sample 	of 	such 	errors 	presented 	in 	plaintiff ' s 	pleadings .
Furthermore , 	this 	is 	not 	the 	first 	time 	that 	Attorney
Passaternpo 	has 	misrepresented 	the 	law 	to 	this 	Court , 	and 	such
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"
misrepresentations 	bear 	the 	clear 	hallmark 	of 	artificial
intelligence 	hallucinations . 1 	Wadsworth 	v . 	Walmart 	Inc ., 	348
F . R. D. 	489 , 	493 	(D . 	Wyo . 	2025) 	(" A hallucination 	occurs 	when 	an
AI 	database 	generates 	fake 	sources 	of 	information ." ) .
Plaintiff ' s 	counsel 	should 	be 	prepared 	to 	address 	these
misrepresentations 	at 	the 	status 	conference 	scheduled 	for
February 	19 , 	2026 , 	and 	to 	show 	cause 	why 	the 	Court 	should 	not
impose 	sanct ions 	and/or 	refer 	the 	matter 	to 	the 	Massachusetts
Board 	of 	Bar 	Overseers .
ORDER
For 	the 	forgoing 	reasons, 	the 	Motion 	for 	Attorneys ' 	Fees
and 	Costs 	(Docket 	No . 	2296) 	is , 	with 	respect 	to 	costs , 	held 	in
abeyance , 	but 	with 	respect 	to 	attorneys ' 	fees , 	DENIED.
So 	ordered.
Nathaniel 	M. 	Gorton
Senior 	United 	States 	District 	Judge
Dated : 	February /:] , 	2026
1 See Docket Nos. 	2305 and 2306 , 	in which plaintiff was 	suspected of
supplying , 	and later attempting to correct , 	nonexistent caselaw in its
pleadings .
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