TelexFree trustee investigation finds company Ponzi, pyramid scheme

By Caroline Salls

Pittsburgh, Oct. 8 – TelexFree, LLC’s Chapter 11 trustee asked the U.S. Bankruptcy Court for the District of Massachusetts to rule that the TelexFree debtors operated a Ponzi and pyramid scheme, according to a motion filed Wednesday.

Trustee Stephen B. Darr said the debtors operated a multi-level marketing company engaged in the sale of voice over internet service, but that those operations “actually were a massive Ponzi/pyramid scheme that ensnared as many as a million or more participants from multiple countries.”

Specifically, Darr said participants opened about 11 million user accounts and purchased membership plans and/or services with a transaction value of $3.07 billion during the roughly two years of the debtors’ operation of their scheme.

The trustee said TelexFree affiliate Ympactus Comercial Ltda. reportedly operated a similar scheme in Brazil that was seized and shut down by Brazilian authorities in June 2013. Shortly after the TelexFree debtors’ Chapter 11 filings in April 2014, the Securities and Exchange Commission and the Massachusetts Securities Division filed a lawsuit against the debtors and others alleging that they were engaged in the fraudulent sale of securities in violation of numerous securities laws.

At the same time, substantially all of the debtors’ assets and records were seized by the federal authorities. As a result of his investigation, the trustee said he has concluded that the TelexFree debtors were engaged in the alleged scheme.

Darr said any participant claim based on accumulated credits arising from fictitious profits or commissions in their user accounts as of the bankruptcy filing date should be disallowed and determined on a “net equity” basis.

TelexFree, a private, Marlborough, Mass.-based telecommunications and multi-level marketing company, filed bankruptcy April 14, 2014. The Chapter 11 case number in the Massachusetts court is 14-40987.

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