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URGENT >> BULLETIN >> MOVING: TelexFree Says It Has Filed For Bankruptcy In United States; Uganda’s Central Bank Issues Fraud Warning

URGENT >> BULLETIN >> MOVING: (6th update 2:36 p.m. EDT U.S.A.) TelexFree LLC and “certain of its subsidiaries and affiliates” have filed for bankruptcy in Nevada, the firm said in a statement this morning.

In its statement, the company did not directly identify the other TelexFree firms involved in the filing. A link in the statement, however, identifies the firms as TelexFree LLC, TelexFree Inc. and TelexFree Financial Inc.

A schedule included in the bankruptcy filing suggests that TelexFree owes its 30 largest unsecured creditors nearly $14 million. As much as $36 million may be owed other unsecured creditors, the filing suggests.

TelexFree is seeking to reject contracts that existed with affiliates both before and after the “program” changed its compensation plan on March 9, according to the bankruptcy filing.

Stakeholders and affiliates are called “constituents” in the statement, which attributes a remark to Stuart MacMillan, “interim Chief Executive Officer of TelexFREE.”

TelexFree is under investigation by the Massachusetts Securities Division. Prosecutors in Brazil have described TelexFree as a pyramid scheme.

Separately, the central bank of Uganda has issued a fraud warning on TelexFree and other programs, according to a report in African media. The warning follows a move by the government of Rwanda last month that banned a TelexFree enterprise.

TelexFree’s announcement of the bankruptcy filing occurred just days after the enterprise, citing unspecified “scheduling conflicts,” sought the postponement of a hearing in Alabama to consider its application for “Resale Interexchange Authority.”

TelexFree says it is in the VOIP business and provides other telecommunications services. How the bankruptcy filing would affect various TelexFree phone-service applications in various states was not immediately clear. In regulatory filings, TelexFree LLC said it posted more than $691 million in “total income” last year.

Affiliates of the TelexFree MLM “program” have been complaining about not getting paid.

The filing also takes place against the backdrop of public appeals by TelexFree for affiliates to recruit more customers. A promo earlier this month included the logos of prominent media firms in the United States, planting the seed that the firm’s MLM “program” had the backing of the companies, many of which are affiliates of major television networks in the United States.

A TelexFree arm in Brazil sought bankruptcy protection last year. Carlos Costa, a TelexFree executive in Brazil, curiously waved the flags of Portugal and Madeira while announcing the Brazil filing. Police in Europe later issued warnings that TelexFree was targeting the Madeiran community.

Alvarez & Marsal North America, LLC is serving as restructuring advisor to the Company and Greenberg Traurig, LLP and Gordon Silver are serving as legal advisors to TelexFREE, according to the statement.

Among other things, the bankruptcy filing says TelexFree has generated more than $1 billion in revenue since 2012. The revenue surge “put tremendous pressure on the Company’s financial, operational and management systems,” TelexFree contends.

The filing seeks to reject contracts with TelexFree promoters under both an existing compensation plan implemented March 9 and an “original compensation plan” that existed prior to that date.

“At the time of the roll-out of the Revised Comp Plan, the Company decided to honor certain discretionary payments to Promoters under the Original Comp Plan,” TelexFree said in bankruptcy filings. “These discretionary payments quickly became a substantial drain on the Company’s liquidity. The Company discontinued the Pre-Petition Comp Plans and ceased making discretionary payments under the Original Comp Plan prior to Petition Date.”

TelexFree affiliates have claimed that $289 sent to the firm returned $1,040 in a year and that $1,375 returned $5,200. Some TelexFree groups solicited sums of $15,125, saying such a sum would return $57,200.

From the TelexFree bankruptcy filing, which requests contracts with affiliates to be rejected (italics/bolding added):

Under the Original Comp Plan, Promoters have and are continuing to assert substantial claims against the Debtors. While the Debtors believe that many of those claims are invalid, the Debtors continue to be burdened by the demands made under the Original Comp Plan. In addition, questions were raised as to whether the Original Comp Plan is compliant with law, which jeopardized the Debtors’ business. Although the financial demands are less under the Revised Comp Plan, the Revised Comp Plan does not generate sufficient revenues for the Debtors to continue operating their business.”

Said MacMillan, in the TelexFree media statement:

“We are taking this major step because we continue to believe in our business, our products and the enthusiasm of our world-class team. We believe that this restructuring plan, which will include significant enhancements to our governance practices and internal controls, will help us to build a stronger and more sustainable financial and operational foundation for the future.”

Apr 14, 2014
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”

Apr 8, 2014
In Face Of International Probes And Legal/PR Disaster In Africa, TelexFree Launches PR Campaign That Only Raises More Questions

From Google News search results.

UPDATED 9:24 A.M. EDT (MARCH 22 U.S.A.) TelexFree, alleged to be a pyramid scheme using a VOIP product as a front to mask an investment program, has been under investigation in Brazil since at least June 2013. There’s also an ongoing securities probe in Massachusetts. The government of Rwanda, meanwhile, has announced it booted a TelexFree enterprise after a joint investigation with the African nation’s central bank sparked money-laundering concerns.

Yes, Rwanda has banned TelexFree, something that might set a new standard of embarrassment for an American MLM company. Though the timing may be coincidental, Rwanda did this after a TelexFree pitchman suggested to troops in Boston on March 9 that TelexFree has so much free cash laying around that the two-year-old business can saddle up a “private jet” for trips to Hispaniola and Haiti, perhaps the poorest nation in the Western Hemisphere.

Just a week earlier, promos for a TelexFree convention in Spain bragged that the firm was holding a “Gala Dinner” in Madrid and providing “direct Limo Service” to its recruiting stars. TelexFree also sponsors a professional soccer club in Brazil.

One can hardly blame Rwanda if it is protecting its dignity while wondering what happened to the cash gathered from Rwandan affiliates. And because Uganda has signaled it may follow Rwanda’s lead, the imagery in African media of out-of-touch, greedy American MLMers may not be at its zenith. From a PR perspective, these things couldn’t be happening at a worse time for MLM. Herbalife, an industry stalwart, is under investigation by the U.S. Federal Trade Commission.

There have been rumors for days that Massachusetts-based TelexFree was hiring a CEO. That appears not to have happened. Or, if it has happened, TelexFree hasn’t expressed it clearly in print.

There is a new hand on board, according to a TelexFree news release issued this morning. But nowhere does the release describe the new hand — former MLM telecom executive Stuart A. MacMillan — as TelexFree’s CEO or even as a TelexFree executive. Instead, MacMillan is described in terms that suggest he’s freelance management talent “[s]peaking on behalf of TelexFREE.”

MacMillan doesn’t even get a mention until the tail end of the sixth paragraph of this morning’s release. Instead, the company booted out of Rwanda and under investigation on at least three continents led with an underwhelming headline that highlighted MLM without calling it MLM. “TelexFREE Chooses Tradition of Direct Selling Phone Service.”

So, TelexFree, which says it is a professional communications company, buried whatever news it had and hasn’t made it clear that MacMillan has a title, let alone real decision-making authority. And even if he does have authority, how much of it extends to the overall TelexFree operation is unclear.

There’s a TelexFree LLC based in Nevada that has been denied registration as a telecommunications company in Washington state. Then there’s TelexFree Inc., which operates from Massachusetts. In Florida, there’s a TelexFree International Inc. that was registered on March 14. Also in Florida there’s a TelexFree Tax Service registered March 14, and a TelexFree Financial Inc. registered Dec. 26. Other companies in Florida also use the name TelexFree. So do at least three companies in California.

In Nevada, at least two companies that appear to have ties to TelexFree have been registered since November. These include Telex Mobile Holdings Inc. and TelexElectric LLLP.

Leading With ‘The Gipper’

The opening line of the news release release fondly harkens back to the “mid-1980s” and the phone-sector deregulation that occurred during “the Reagan Administration.”

It could be worse, we suppose. WCM777, an MLM firm kicked out of Massachusetts and California and under investigation on at least two continents for advertising preposterous returns, tried its hand at channeling both President Reagan (of California) and President Kennedy (of Massachusetts) with rhetorical references to a “City upon a Hill.”

President Reagan finished his second and final term as President in January 1989, more than 25 years ago. He died in 2004. Even his political opponents wept.

Now, TelexFree appears to be suggesting that the deregulation he favored during his years in the White House has put the firm on the success track and inspired it to sell Internet telephony to “Brazilian and Hispanic expatriate communities.”

One of the things that happened during the Reagan administration — and this is not a knock on the President, whom we admired — was that doors opened for phone companies to compete on long-distance pricing. Over time, consumer-pleasing downward pressure on prices and lower margins put some firms at death’s door. One of those firms was Excel Communications, an MLM company that formerly employed MacMillan.

A separate release issued today describes TelexFree as an enterprise that “booked 10,859,669 minutes of VOIP calls” last month. It’s a hollow claim, rather like a husband bragging to a wife on Saturday morning that he’d just trimmed 10.8 million blades of grass in the front yard — while conveniently forgetting to mention that a John Deere did all the heavy work.

What TelexFree conveniently is forgetting is that the issue with it is whether the people who used those 10.8 million minutes it “booked” last month would purchase the VOIP service if it were not attached to an “opportunity” affiliates describe as something that could retire government, corporate and consumer debt if the regulators would just leave it alone.

Moreover, the release does not mention that Sann Rodrigues, previously described as the firm’s top pitchman, was accused by the SEC before TelexFree even came into existence of being a pyramid-huckster who roped Brazilians into an affinity-fraud scheme involving a phone-related product.

“You say you haven’t heard of TelexFREE?” the second release queries. “Then you probably aren’t one of the more than 1 million Portuguese-speaking residents of the Commonwealth of Massachusetts.”

It goes on to say that “[b]efore TelexFREE, Portuguese speakers calling home to Brazil or Portugal were paying high international rates or suffering the frustration of trying to teach elderly parents how to use Skype…after they taught them how to get online.

“In large part due to those frustrations and expenses, Brazilian and Hispanic expatriate communities are embracing the simplicity and economy of TelexFREE.”

Most curious of all in the second release was a TelexFree claim that it “wasn’t until about two years ago that we found a niche community that expressed such overwhelming need for our product.” That’s particularly strange, given that Rodrigues hails from Portuguese-speaking Brazil, as do Portuguese-speaking TelexFree executives Carlos Wanzeler and Carlos Costa.

Rodrigues and Wanzeler, at least, have been pitching phone products to Portuguese-speakers for years. Rival Skype is available in multiple languages, including Portuguese.

Like the first release, the second release doesn’t mention that promoters of TelexFree have claimed that $15,125 sent to the firm fetches back more than $57,000 in a year and that smaller sums of between $289 and $1,375 also virtually triple or quadruple in a year.

The first release, however, at least hints that MacMillan recognizes some in-house problems at TelexFree.

“I see my responsibility as establishing internal governance and an expansion of the products and services,” the release quotes him as saying. “Like so many entrepreneurial companies in the tech space, TelexFREE has been growing so fast, it hasn’t had much time for management. I’ve been brought in to spend that time and to provide that experience, including an end-to-end review of methodologies and controls.” (Emphasis in original.)

Whether MacMillan has the authority to ground the “private jet” to which executives and top reps apparently have access when flying to the Dominican Republic and Haiti was not addressed in the news release. Nor did the release say whether MacMillan planned to eliminate the appearances of limousines in various TelexFree promos or do away with sea-cruise pitchfests.

James Merrill remains TelexFree’s president, according to the second release.

From the second release (italics added):

When asked about the success of the company, President and co-founder Jim Merrill replies, “We have been in VOIP telecommunications for more than a decade; but it wasn’t until about two years ago that we found a niche community that expressed such overwhelming need for our product. Combined with a distribution method that takes our services to them economically, our growth has been exponential.”

It’s as though promising to pay $1,040 on $289, $5,200 on $1,375 and $57,200 on $15,125 — in a year, no less — had nothing to do with it.

Reagan would have thought it madness and advised House Speaker Tip O’Neill that someone was trying to soil that beautiful Massachusetts city upon the hill. And Kennedy would have called TelexFree’s business practices “a wholly unjustifiable and irresponsible defiance of the public interest.”

Mar 21, 2014
Washington State Rejects TelexFree Bid To Register As Telecommunications Firm

The Washington State Utilities and Transportation Commission has rejected a bid by TelexFree LLC to register as a telecommunications company.

TelexFree LLC is not registered as a corporation in Washington state and therefore is ineligible to be registered as a telecommunications firm in the state, the commission said in a finding dated March 13.

How the order will affect TelexFree reps in Washington state was not immediately clear this evening. Also unclear is whether TelexFree LLC will encounter similar problems in other U.S. states. TelexFree LLC is part of an enterprise that already is offering a VOIP product and says it is expanding into cell phones, apps, credit repair and financial advice.

“THE COMMISSION REJECTS the application and petition of Telexfree, LLC, in its entirety,” the order reads in part.

TelexFree LLC’s rejected filing was submitted Feb. 13 by Joseph Isaacs, a “consultant” from Palm Harbor, Fla., according to the state. A “Telexfree LLC Balance Sheet” is listed on the state’s website as part of the submission. The balance-sheet document “properties” lists “JoeCraft” as the author.

As the PP Blog reported on March 9, the balance sheet claims TelexFree LLC has provided millions of dollars in loans to other TelexFree enterprises.

One loan, according to the document, was for more than $3.8 million and went to an entity known as Telexfree Financial Inc. Another loan of more than $2.022 million went to an entity known as TelexElectric LLLP.

In addition, the Washington state document lists a loan of more than $500,000 to an entity known as TelexMobile. Another loan of more than $291,800 went to an entity described as Ympactus. A TelexFree-related entity known as Ympactus Comercial Ltd. is based in Brazil.

TelexFree executive Carlos Costa is associated with Ympactus. Costa said yesterday that TelexFree had been assessed a tax penalty in Brazil of about $30 million.

The government of Rwanda has announced that a TelexFree enterprise has been banned in the African nation after a joint probe with Rwanda’s central bank. Rwanda said it was concerned that the enterprise posed a money-laundering risk. TelexFree, which operates in Massachusetts as TelexFree Inc., is under investigation in its home state. Brazilian prosecutors have called TelexFree a pyramid scheme.

The order in Washington state leaves open the door for TelexFree LLC, which is based in Nevada, to reapply for telecommunications registration if it gets properly registered as a corporation in Washington.

TelexFree LLC appears to have 14 days from March 14 to challenge the order. March 14 was the date the order was posted on the state’s website.

Mar 18, 2014
REPORT: TelexFree Subjected To $30 Million (U.S.) Tax Penalty In Brazil

During this video, TelexFree executive Carlos Costa reportedly talked about a $30 million tax penalty. Costa also showed off the award provided him in Spain earlier this month. Costa appears not to have accepted the award in person, according to a video of the March 1 and 2 event in Madrid. (See related story at bottom of this post.)

UPDATED 9:46 P.M. EDT (U.S.A.) The video below of TelexFree executive Carlos Costa is in Portuguese. In this particular circumstance, the Google facility to translate captions from Portuguese to English didn’t do much to aid our comprehension. Perhaps one of our readers skilled in both Portuguese and English could provide a summary below of Costa’s remarks. It would be appreciated.

Jornal.US News Service has a story here (in Portuguese) that references the video. The Portuguese translation by Google of the article says TelexFree has been subjected to a penalty by a Brazilian tax authority of “70 million reais.” That’s about $30 million (U.S.).

We are treating this information as nonfinal, which means we may update/amend this PP Blog post as the circumstance becomes more clear and more information becomes available.

If the penalty sum is accurate, it’s hard to see how this is good news for TelexFree reps, particularly amid Ponzi/pyramid concerns elsewhere about TelexFree. That’s because Ponzi/pyramid schemes already are under financial stress before taxation even is taken into consideration.

Beyond that, TelexFree has been tinkering with its compensation plan. Given the tax circumstance, questions now can be raised not only about whether TelexFree is engaging in the sale of unregistered securities in many countries, but also whether the compensation tinkering is designed somehow to minimize cash outflow by making it harder for members to qualify to get paid.

News of the tax penalty comes only days after TelexFree charged affiliates $164 to attend a function in Boston. At the Boston event, a man selling a TelexFree-related credit-repair program talked about being on a “private jet” with others in TelexFree and flying from the Dominican Republic to Haiti.

See related story.

Separately, BehindMLM.com is reporting that TelexFree has been banned in Rwanda.

Mar 17, 2014
Did TelexFree Affiliates Fund Millions Of Dollars In Loans To Various TelexFree-Connected Enterprises?

Part of the TelexFree LLC “Balance Sheet” as it appears on the website of the Washington state Utilities and Transportation Commission.

A document published on the website of the Washington State Utilities and Transportation Commission claims that TelexFree LLC has provided millions of dollars in loans to other TelexFree enterprises, including a Nevada entity known as TelexElectric LLLP.

The loan sum was more than $2.022 million, according to the document. The business purpose of TelexElectric was not immediately clear. Also unclear is why the document was published on Washington state’s government website and whether members of the TelexFree MLM “program” knew they were funding intracompany loans.

TelexElectric was formed in Nevada on Dec. 2, 2013, according to Nevada records. TelexFree LLC also is a Nevada business. Both firms list TelexFree Inc. executives James Merrill and Carlos Wanzeler as partners or managers. TelexFree Inc., headed by Merrill and Wanzeler, is based in Massachusetts. Brazilian TelexFree executive Carlos Costa, who is or was associated with TelexFree LLC, is listed in Nevada as a “historical” TelexElectric general partner.

From Google search results.

The Washington state document is dubbed “Telexfree LLC Balance Sheet As of December 31, 2013.” The document claims that, in addition to the $2 million-plus loan to TelexElectric, a loan of more than $3.8 million was provided to an entity known as Telexfree Financial Inc.

Telexfree Financial appears to be a Florida entity under the control of Merrill and Wanzeler. The firm, which was formed on Dec. 26, 2013, lists an address in Coconut Creek, Broward County, according to Florida records.

Meanwhile, the Washington state document lists a loan of more than $500,000 to an entity known as TelexMobile. Where TelexMobile is based could not immediately be determined.

In addition to the loans to TelexElectric, Telexfree Financial Inc. and TelexMobile, there is a loan listed of more than $291,800 to an entity described as Ympactus. A TelexFree-related entity known as Ympactus Comercial Ltd. is based in Brazil.

Listed as an additional asset by TelexFree LLC is a “Propay Reserve” account said to contain more than $4.4 million.

According to the Washington state document, TelexFree LLC has or had accounts at ProPay, TD Bank (three accounts), Citizens Bank, Fidelity Bank, Fidelity Bank Sweep and Middlesex Savings. Most of the accounts were said to have modest balances, but the Middlesex Savings account was said to contain more than $5.4 million.

An entity described as “e-Wallet” was said to have a much larger balance: more than $31.6 million.

TelexFree LLC, according to the document, listed “other assets” totaling more than $27.4 million. These included more than $18 million at Fidelity Investment, nearly $7.3 million at Waddell and Reed, an asset-management firm, and $2 million in a savings account at Middlesex Savings.

The document appears to be dated Feb. 20, 2014.

TelexFree also is using the name “TelexFree International.” Where that entity is based is unclear.

TelexFree is the subject of a securities investigation in Massachusetts. Investigators in Brazil have called TelexFree a pyramid scheme.

Some promoters have claimed that the TelexFree “program” triples or quadruples money in a year. There also have been claims that TelexFree was building 500 hotels in Brazil in the run-up to this year’s World Cup and the 2016 Summer Olympics.

The bottom lines of TelexFree Inc. and the other TelexFree-related entities are not addressed in the TelexFree LLC document. TelexFree LLC is said to have more than $76.1 million in “total liabilities and equity.”

Mar 9, 2014
Were Costa, Nehra No-Shows At TelexFree Confab In Spain? Plus — TelexFree In Haiti

TelexFree affiliates have a role in easing suffering in Haiti, Steve Labriola suggested in Spain. Source: Video on ConventionTelexFree.com.

UPDATED 12:23 P.M. ET (MARCH 4, U.S.A.) A 10-hour video of the TelexFree confab in Spain Saturday and Sunday has emerged, apparently a recording of a once-live feed.

After being billed as headliners, neither Brazil-based TelexFree executive Carlos Costa nor American MLM lawyer Gerald Nehra appeared on the stage to accept awards.

U.S.-based TelexFree marketing executive Steve Labriola walked onto the stage to accept Nehra’s award.

“This is for Jerry,” he said. “I was asked to come up and receive this for Jerry.”

Labriola did not say who asked him to accept the award on Nehra’s behalf.

Nehra does “most of our corporate law,” Labriola said. “He’s a great man. And he also works long hours, like all of you out there, and I [will] be honored to give this to him.”

Whether Nehra was in Spain was not immediately clear. He’d been billed by a website styled ConventionTelexFree.com as a “Special Guest” at the Madrid event.

Labriola then accepted an award for himself.

“Somebody said to me once — ‘Network marketing: it’s a get-rich-quick scheme,’” Labriola recalled in accepting the award. “But let me tell you, if you talk to any of the leaders or anybody that is working their business, there is no get-rich-quick. There is long hours.”

The claim was at odds with various claims online that TelexFree produces “passive” income. Labriola hinted that the firm was attempting to address inappropriate marketing. Whether he’ll clash horns with American MLMer Faith Sloan, with whom he’s been pictured, wasn’t immediately known.

Among Sloan’s claims in 2013 was that TelexFree produced “100% Passive Income.”

TelexFree says it’s in the VOIP business and is expanding into cell phones.

Labriola and other TelexFree “leaders” recently ventured to Haiti, Labriola said, suggesting it could be a warm market for TelexFree, which purportedly is changing people’s lives.

“We drove through some areas that could see . . .” he said, his voice trailing off.

“There’s places in this world that need help,” Labriola continued. “It’s up to all of you to keep working your business. Keep your products and services out there. Make sure that you’re helping people where they need help. And every person that you reach out and touch and help save their life and help move them forward will help your life get a little bit better.”

Haiti is perhaps the poorest country in the Western Hemisphere. Its neighbor — the Dominican Republic — may be emerging as a TelexFree stronghold.

“Don’t worry about the Bloggers online and the things that they’re saying, because we will keep doing the right things in moving forward,” Labriola said.

The PP Blog reported Friday — on the eve of the TelexFree confab in Spain — that the firm was under investigation in the United States. It’s also under investigation in Africa and South America. Brazilian investigators say TelexFree is a pyramid scheme.

Carlos Wanzeler, another TelexFree executive at the Madrid event, appears to have accepted awards on behalf of himself and fellow TelexFree executive Carlos Costa, perhaps the firm’s most well-known executive.

Whether Costa was in Spain was not immediately clear. Like Nehra, he’d been billed as a star attraction.

Among the other TelexFree honorees was Sann Rodrigues, a former defendant in a pyramid-scheme and affinity-fraud case filed by the SEC in 2006. Rodrigues was accused of targeting the Brazilian community in an affinity-fraud scheme that involved telephone cards.

TelexFree President James Merrill also appeared at the confab and received an award.

“Carlos Wanzeler was up here talking about Carlos Costa . . . two of the greatest leaders that I’ve met in my life,” Merrill said. “They’re very strong. They’re courageous, and they’re fighting for you. And I want you all to know that they didn’t join my team, I joined their team. OK. They’re great leaders.”

Merrill predicted that the excellent lawyering and marketing-consulting TelexFree has received will make TelexFree one of the great MLM companies of all time. Helping drive growth, he said, would be the former president of Excel Communications.

Excel, according to its Wikipedia entry, once used an MLM compensation structure, but suffered when margins on long-distance phone service dropped precipitously. A bankruptcy filing followed.

From the Wikipedia entry (italics added):

Excel sought to be released from its contracts with its independent representatives. This allowed it to continue to receive revenue from its large base of installed customers without paying eternal commissions to the franchisees. Excel continued to operate but ceased to be a multi-level marketing company. Although the change created much cash enabling it to pay creditors, it was seen as shortsighted by the franchisee association because it removed the primary source of sales and customer loyalty.

Mar 3, 2014
Scrutiny Of TelexFree Intensifies; 2 European Police Agencies Issue Warnings And Say Madeiran Community At Risk

Carlos Costa.

Updated 9:45 a.m. (Feb. 27, 2014, U.S.A.) Police who serve Portuguese-speaking residents in two British Crown dependencies — the States of Jersey and Guernsey — have issued warnings on the TelexFree scheme. News of the warnings was published on BehindMLM.com.

Brazil-based TelexFree executive Carlos Costa waved the flags of Portugal and Madeira in a curious TelexFree cheerleading promo last year about a bankruptcy filing. Jersey Police specifically referenced the Madeiran community in the agency’s warning. So did Guernsey.

After the bankruptcy claim involving a TelexFree arm in Brazil known as Ympactus Comercial Ltd., TelexFree became a sponsor of the Botafogo football club in Rio de Janeiro — apparently through one of its U.S. arms.

From a statement by Jersey Police (italics added):

The States of Jersey Police have been made aware of a potential fraud which is targeting Jersey’s Madeiran community.

Guernsey Police have issued a similar appeal.

The scheme is under a company name of TELEXFREE and would require initial investments with the promise of big returns.

The scheme originated from Brazil and is currently being investigated by the Brazilian authorities as it is believed to be fraudulent.

Jersey Police know that islanders have been approached to “invest” in the scheme, but as yet have not had any contact from victims of the scam.

If anyone in Jersey has invested money into a TELEXFREE scheme they should contact the Joint Financial Crimes Unit on Tel: 01534 612250 (during office hours) or Police headquarters on 01534 612612 (at other times).

Guernsey Police also referenced its Madeiran community in the agency’s Feb. 19 warning posted on Facebook (italics added):

Guernsey Police have been made aware of a potential fraud which was intended to specifically target Guernsey’s Madeiran community.

The scheme was under a company name of Telexfree and would require initial investments with the promise of big returns.

The scheme originated from Brazil and is currently being investigated by the Brazilian authorities as it is fraudulent.

If anyone in Guernsey has invested money into a Telexfree scheme they should contact Sgt Snowdon in the Financial Intelligence Service on 01481 755812.

TelexFree, which might represent a form of affinity fraud and is under investigation in Brazil amid pyramid-scheme allegations, appears first to have targeted Portuguese-speaking populations in Brazil and Europe. TelexFree is based in the Boston region, which has a considerable population of Brazilians.

Sann Rodrigues, a purported TelexFree millionaire, is one of the “program’s” top hucksters. He was successfully sued by the SEC in a 2006 case that alleged he presided over a pyramid scheme and engaged in affinity fraud.

At the time, Rodrigues, also known as Sanderley R. De Vasconcelos, advised the court that he was unable to pay a considerable portion of the sanctions against him.

TelexFree says Rodrigues is among the headliners at a rah-rah session in Spain March 1 and 2. As things stand, that event now will take place against the backdrop of the warnings in Jersey and Guernsey and the possibility of increased scrutiny in Portugal and the United States.

Some U.S. promoters have claimed that $15,125 sent to the firm triples or quadruples in a year. TelexFree says it is in the VOIP business and claims it is expanding into cellphones and credit repair. Why a purported communications business would get into credit repair is unclear.

Some members of the AdSurfDaily Ponzi scheme broken up by the U.S. Secret Service in 2008 were in purported credit-repair and debt-elimination businesses.

See March 3, 2009, PP Blog story on a bizarre “twenty-one dollars in silver coinage” claim that appeared in the context of ASD.

Feb 26, 2014
UPDATE: Promoters May Be Lobbying TelexFree To Keep Ponzi Scheme Intact

Some TelexFree members may be unhappy if the “program” changes its compensation plan. Source: Screen shot of Blog at Blogspot.com.

Updated 8:36 a.m. ET (Feb. 26, U.S.A.) Some TelexFree promoters may be lobbying the company and Brazil-based executive Carlos Costa to keep its original Ponzi scheme intact, according to a Blog post (in Portuguese) observed by the PP Blog this morning.

BehindMLM.com reported on Feb. 19 that TelexFree may be in the process of changing its compensation plan. Details remain murky. It is common for fraud schemes that either know they are under scrutiny or sense they soon will be to change rules or make cosmetic tweaks to keep money coming in.

After-the-fact changes, however, cannot unring bells of HYIP fraud that already have been rung. And the changes sometimes introduce new disguises designed to sustain a Ponzi deception.

TelexFree, alleged in Brazil to be a pyramid scheme, has been under investigation in that country since at least June 2013. In the AdSurfDaily and Zeek Rewards Ponzi/pyramid cases in the United States, prosecutors said that both firms made cosmetic tweaks in bids to stay under the radar.

Here is a Google translation from Portuguese to English of the Blog post that may signal that some TelexFree reps want the firm to cling to a Ponzi business model (italics added):

Campaign advisers on social networks asking an unchanged Marketing Plan International Telexfree.

And you, what do you think? Want to try the new plan Telexfree or would you change anything, because this plan is already excellent?

Share if you do not want changes in Telexfree.

Affiliates of online Ponzi schemes often claim their “program” is legal and excellent because it pays. But all successful Ponzi schemes pay. Bernard Madoff’s epic scheme “paid” — until it didn’t. And the Ponzi scheme of George Theodule aimed at Haitian immigrants also “paid” — until it didn’t.

Theodule, 52, was sentenced yesterday to 150 months in federal prison.

“George Louis Theodule defrauded his victims out of millions of their hard-earned dollars,” said U.S. Attorney Wifredo A. Ferrer of the Southern District of Florida.

“[Theodule] did so by taking advantage of people who trusted him because of their cultural affinity,” Ferrer said. “Such tactics are intolerable, especially given that some of his victims lost their entire life savings. This sentence should send a strong message to those who prey on the trust of others: you will get caught and justice will be served.”

Also on the Blog reporting potential dissatisfaction with TelexFree changes was a post on something called CicloFAST, possibly an emerging “opportunity” of some sort. The CicloFAST website prominently displays a photo of a MasterCard.

Like TelexFree, CicloFast styles the last four letters of its name in uppercase — i.e. FREE and FAST. It was not immediately clear if the firms had a business relationship.

Some U.S.-based promoters of TelexFree claim that $15,125 sent to the company effectively will triple or quadruple in a year. Among the firm’s key pitchman is Sann Rodrigues, a former SEC defendant in a pyramid-scheme and affinity-fraud case.

Rodrigues, a purported TelexFree millionaire, has been billed by the firm as a headliner at a planned TelexFree convention March 1 and 2 in Spain.

Any change in the TelexFree compensation plan could lead to questions about why Rodrigues was permitted to make large sums of money under a plan that now needs to be changed and whether less-successful affiliates now will be hamstrung even tighter.

Some TelexFree promoters have demonized the Brazilian prosecutors who brought the pyramid case in the state of Acre. It is common for HYIP scams to pander to the rank-and-file and to marry the processes of demonization and envy.

Feb 25, 2014
Will Portugal Be Next Country To Open TelexFree Probe?

In 2013, Carlos Costa displayed the flag of Madeira while announcing TelexFree was seeking bankruptcy protection.

Citing reports in Brazilian media, BehindMLM.com is reporting that authorities in Portugal are monitoring TelexFree developments and beginning to collect documents. The development may signal that yet-another probe into TelexFree’s business practices is in the offing, potentially the first in Europe.

From BehindMLM.com (italics added):

According to the local media there are currently 41,000 TelexFree affiliate investors in Madeira, an autonomous region in Portugal. This figure represents 16% of the island’s total population.

In September 2013, the PP Blog reported that TelexFree executive Carlos Costa appeared in a video that showed him waving the flags of Madeira and Portugal. Precisely why he chose to wave the flags is unclear. The context of the video was a decision by TelexFree to seek bankruptcy protection in Brazil.

TelexFree, which operates through Ympactus Comercial Ltd. in Brazil, has been under fire in that country since at least June 2013, amid allegations is is conducting a massive pyramid scheme. There may be hundreds of thousands of TelexFree affiliates worldwide. TelexFree has U.S. arms in Massachusetts and Nevada.

TelexFree’s early operations appear to have been centered in Brazil. Some U.S. affiliates have claimed a payment of $15,125 to the firm returns $57,200 in a year and that members get paid for posting ads for TelexFree online.

Jan 21, 2014
REPORT: Flap Over TelexFree Soccer Club Deal Deepens; Botafogo’s Main Sponsor Reportedly Does Not Want Its Name Associated With Alleged Pyramid Scheme

TelexFree executive Carlos Costa is keen on Botafogo. Source: YouTube video.

MLM’s HYIP wing appears to have triggered another PR disaster for the trade: Guaraviton, a longtime sponsor of the Botafogo soccer club in Rio de Janeiro, may be none too pleased with the club’s deal that brought on TelexFree as a No. 2 sponsor.

TelexFree is under investigation in Brazil, amid allegations it is a pyramid scheme. There have been reports about death threats against a prosecutor and a judge.

Guaraviton, a beverage-maker, is Botafogo’s main sponsor. The club’s deal with TelexFree was a “negative surprise” to Guaraviton, according to a story on Abril.com. Grupo Abril is a major media outlet in Brazil.

Read the story in Portuguese at veja.abril.com.br.

View the Google translation in English.

Ponzi schemer Allen Stanford’s sponsorships caused embarrassment in the worlds of cricket and golf.

Prior to the collapse of the AdSurfDaily Ponzi scheme in 2008, members claimed ASD would have a car in auto racing’s Indy 500. (See PP Blog report from Feb. 22, 2009: Stanford/Bowdoin: ‘A Tapestry Of Believable Lies’

Jan 11, 2014