TelexFree Ponzi scheme profits, commission claims disallowed

By Mark Reccek

Bethlehem, Pa., Jan. 26 – A federal court ruled on Tuesday that TelexFree LLC’s participant claims based on accumulated credits from fictitious profits or commissions in user accounts resulting from a Ponzi and pyramid scheme are disallowed and will be determined on a net equity basis, according to an order filed with the U.S. Bankruptcy Court for the District of Massachusetts.

As previously reported, 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.”

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.

According to Darr, the 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.

Darr 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.

Also, substantially all of the debtors’ assets and records were seized by federal authorities.

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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