Funny, I was just coming here to start a TelexFree Fallout topic. When Zeek rewards went down in August of 2012 it was believed to be the largest fraud of it's kind with a reported 850 million dollar take. Sadly it appears it was only to hold that title less than two years. The SEC Complaint
alleges that TelexFree took in over a Billion (with about 1.3 million in real product sales). The details are pretty much what you'd expect from a scheme like this, with a few interesting twists. One being that TelexFree has already been shut down in it's native Brazil since June of last year
, Peru banned it
last December as did Rwanda last month
. So the US was a little late to the table here. But the thing that blows me away is Telex trying to save themselves in the US by filing for bankruptcy
On Saturday April 13th three TelexFree subsidiaries filed for Chapter 11 protection
in Nevada. In January the Massachusetts Securities Division started asking uncomfortable questions, TelexFree's primary rent an office in the US is in Marlborough Mass. February found them hiring MLM consultants and legal representation and a plan was made to change the compensation plan. Comp plan 2.0 was rolled out in March and was greeted by an uproar
by the affiliates with the police being called to clear the crowd from the rent an office. Worse still for Telex, word that the affiliates my actually need to sell products to earn a commission sent sales of "AdCentrals" plummeting. This triggered the hatching of April's bankruptcy scheme.
Word of the bankruptcy filing forced the Massachusetts Securities division and the SEC into action, Monday the 15th the office was raided
. Joesph Craft, TelexFree's CFO (or interim CFO, or "just a consultant" depending on when he was asked) was caught trying to walk 38 million in cashiers checks
out of the office. I think it's important to note that Joe Craft, until the multimillion dollar gym bag incident was a widely respected MLM consultant and is not the only "respected MLM industry" figure who lent and perhaps spent their reputations to this fraud. From here, a flurry of court documents follow. For the Nevada bankruptcy case Kurtzman Carson Consultants are making those documents available
. Don Ryan's ASD Updates blog
is doing the same for the SEC/Massachusetts files
A beautiful example of the cognitive dissonance and outright dishonesty of TelexFree's leadership is how they announced the bankruptcy filing to the affiliates verses what those filings actually ask for. Marketing Director Steve Labriola told the affiliates that the bankruptcy was "the most awesome thing,"
where I can only assume Steve was using some heretofore unknown definition of "awesome." What they were asking the court to do is to eliminate any obligations they had to repay
12. By this motion, the Debtors respectfully request entry of an order, substantially in the form attached hereto, authorizing and approving the Debtors' rejection of all previous agreements between the Debtors and the Promoters under both the Original Comp Plan and the Revised Comp Plan.
You know, because relieved of all their ponzi obligations TelexFree could reorganize and go on to what they really wanted to do ever since they found out they were being investigated, running something other than an illegal scheme.
But that isn't the height of their chutzpah, that would have to be the Motion for an Order Determining that: (I) Portions of the Temporary Restraining Order Entered at the Request of the Securities and Exchange Commission Violate the Automatic Stay of 11 U.S.C. § 362(a); (II) Portions of the Temporary Restraining Order are Void; and (III) the Debtors are Entitled to Use their Assets in the Ordinary Course of their Business
. I am not even going to attempt characterizing the argument made there other than to say I've never seen "neener neener we filed first now go away" being offered as a defense to a securities complaint. Are Chapter 11 protections viable in this situation? Well, one very high priced law firm is arguing they are.
Oh, I would be remiss if I ended this post without mentioning Faith Sloan. She has been one of the most proficient and prolific ponzi pimps in the country for years now and she's finally getting the recognition she so richly deserves