63,000 TelexFree investors ripped off 831,000 victims
Last we heard the DOJ had filed a request for an extension to oppose fee applications filed by Murphy and King and Mesirow Financial Consulting.
Both firms have been assisting Stephen Darr with his duties as court-appointed Trustee in the TelexFree bankruptcy case.
What became of the DOJ’s objections is unclear, including whether or not they were filed at all.
Both fee applications have since been approved, with Judge Hoffman signing off on the requests following a hearing held yesterday.
Far more interesting meanwhile were comments made by Darr at the hearing.
Darr revealed insight into the flow of money between TelexFree investors, and what those who lost money in the scheme can expect going forward.
Raw numbers wise,
902,000 unique email accounts were registered with TelexFree, and participants linked to about 831,000 of those accounts lost money. The average loss was about $1,928.
Participants linked to about 68,000 email accounts made money, producing an average gain of about $20,385.
More than $1 billion of that came from payments that participants at the bottom of the pyramid made to those who ended up higher in the pyramid.
Given those figures, clawback litigation being filed at some point seems pretty much a given. But holy crap the logistics behind any litigation, I don’t envy whoever has to put that together.
Looking at international clawback litigation filed in Zeek Rewards (an $850 million Ponzi scheme), the Receiver set a cutoff of $50,000 in winnings.
How much of the 68,000 TelexFree accounts made more than $50,000 is unclear, but it’s still probably going to be a sizeable amount.
International treaties may govern Mr. Darr’s ability to recover funds from foreign participants.
Mr. Darr said he also may seek to recover state and federal taxes that TelexFree, which was never profitable, paid in 2013.
The Zeek Rewards Receiver sued anyone in the US who made over $1000 (over 9000 investors), so something similar is probably going to be filed against TelexFree US investors at some point.
Since he was appointed a year ago, Mr. Darr has recovered about $16 million in TelexFree assets. Federal authorities have seized additional cash and properties, including a Ferrari automobile, worth more than $100 million.
All that money should ultimately come to Mr. Darr to distribute to victims.
“In this case, the SEC has chosen not to appoint a receiver, and they’re looking to me to fulfill that role,” he said.
Unfortunately at this point the SEC’s own litigation against TelexFree and its insiders has come to a standstill, pending the outcome of the DOJ’s criminal case.
Any criminal trial may still be a year away, said Mr. Darr.
He said he now has enough information to schedule a creditors meeting in the next two months.
Evidently though there’s still wiggle room within the bankruptcy litigation to get things rolling, which is good news for TelexFree victims.
It is expected that a creditor meeting will now be scheduled.
As the Worcester, Massachusetts Telegram explain;
A standard feature of most bankruptcies, creditors meetings allow those owed money to ask debtors questions.
Most meetings last a few minutes and involve just a few people, but the TelexFree meeting could attract many people.