ZEEK-BEATER: TelexFree LLC Filings In Alabama Say Firm Posted ‘Total Income’ Of Nearly $700 Million In 2013; Thursday Hearing On Telecom Application In State Delayed At Company’s Request; Firm May Be Filing Cookie-Cutter Applications With Regulators

UPDATED 4:50 P.M. EDT (U.S.A.) The TelexFree LLC branch of the TelexFree enterprise posted more than $691 million in “total income” last year, according to a filing with the Alabama Public Service Commission. (The PP Blog retrieved the filing today and saved it as TelexFreeAlabamaApplication.pdf. See link below.)

TelexFree asked that the document be “FILED UNDER SEAL.” Regardless, the document was published on Alabama’s website. The date-stamp reads March 20, 2014. Among other things, the document asserts that TelexFree LLC, a Nevada entity, was formed with three “initial” managers.

These include Brazil-based manager Carlos Costa (30 percent), Massachusetts-based manager Carlos N. Wanzeler (50 percent) and Massachusetts-based manager James M. Merrill (20 percent), according to the document.

TelexFree, a two-year-old MLM company, says it offers a VOIP telephony service and is expanding into services such as cell phones, apps, credit repair and financial advice.

Other filings in Alabama show that TelexFree requested a hearing scheduled April 10 to consider its application for “Resale Interexchange Authority” to be postponed “for a month” owing to unspecified “scheduling conflicts.” Alabama has reset the hearing for May 13.

A week ago TelexFree promoters jammed themselves into a small office in Massachusetts that is the base of another TelexFree enterprise — TelexFree Inc. The promoters claimed that recent changes to the TelexFree compensation plan eliminated or negated payments to them. Police responded to the office in Marlborough.

In its Alabama filings, TelexFree LLC asserted it incurred expenses last year of “[$]572,240,960.21” in a category dubbed “Agent Commission – paid through system.” It also incurred expenses of “[$]50,424,998.61” in a category dubbed “Agent Commission – paid through bank.” Other line-item expenses are listed in the document, which says the firm’s “net income” last year was more than $36.4 million.

The Alabama filing did not cover TelexFree LLC revenue and expenses year-to-date in 2014. Nor did it cover revenue and expenses for 2012 or revenue and expenses for related TelexFree enterprises. Some affiliates have said they believe TelexFree has gathered $1 billion or more since its inception in early 2012.

How much revenue TelexFree Inc. of Massachusetts has posted is unclear. In early 2013, affiliates said recruits could deposit money into a TelexFree Inc. bank account in the state. Those instructions closely resembled instructions given to members of the $119 million AdSurfDaily Ponzi scheme in 2008.

So-called “AdCentral” packages purchased for sums ranging from $289 to $1,375 might be (or might have been) TelexFree’s key revenue-generator. Affiliates have claimed that $289 sent to TelexFree returned $1,040 in a year and that $1,375 returned $5,200. On an annualized basis, the asserted returns equate to roughly 365 percent, fueling claims that TelexFree is a pyramid scheme, a Ponzi scheme — or both.

Under a scenario based on the assertions of TelexFree affiliates, BehindMLM.com estimates that TelexFree may have AdCentral-related liabilities of more than $4 billion. On March 24, the PP Blog reported that an ad offering 550 AdCentrals for $16,760 appeared online, leading to questions about whether some affiliates had created a black market for the AdCentrals and were trying to sell them in advance of a TelexFree payout suspension.

TelexFree is under investigation by the Massachusetts Securities Division. It’s also under investigation in Brazil, amid pyramid-scheme allegations. Among the concerns is that TelexFree’s VOIP telecommunications product is a front to mask an investment scheme. Certain TelexFree assets are frozen in Brazil.

In 2012, the SEC charged a “program” known as Zeek Rewards with operating a massive, international Ponzi- and pyramid scheme that had gathered more than $600 million in less than two years. TelexFree’s filings in Alabama assert that it gathered more than $691 million last year alone.

Filings by the SEC now suggest Zeek may have gathered $850 million or more. If claims by TelexFree affiliates that their “program” gathered more than $1 billion are true — and if TelexFree later is deemed a fraud scheme — it could surpass Zeek as the largest MLM HYIP Ponzi/pyramid scheme based on U.S. soil and reaching into other countries.

TelexFree has purported to have more than 1 million members in Brazil alone. There may be 50,000 or more TelexFree members in the United States.

The Alabama filing asserts that TelexFree LLC has a “parent company” known as “TelexFree Group Inc.” Where it is based is unclear. A provision of the TelexFree LLC “Operating Agreement” included in the Alabama application purports to permit TelexFree LLC “[t]o lend money upon terms acceptable to the Managers to any person or entity, and to enter into contracts and agreements which are not arms-length if they are consistent with the best interests of the Company.”

Based on filings in both Alabama and Washington state, TelexFree appears to have made loans totaling more than $6.6 million to other TelexFree enterprises. (See March 9, 2014, PP Blog story.)

Read the Alabama filing, parts of which appear to confuse Alabama with the state of South Carolina. (For example, the Alabama Public Service Commission is based in Montgomery, the state capital. TelexFree LLC’s Alabama application, however, appears to direct Alabama residents to contact the “Office of Regulatory Staff” in South Carolina’s capital of Columbia if a billing dispute arises.)

If there is a dispute, TelexFree LLC says, “the Customer may appeal to the Alabama Public Service Commission for its investigation at the following address and/or phone number:

“Office of Regulatory Staff
“Consumer Services Division
“1401 Main Street, Suite 900
Columbia, SC 29201”