telexfree-logoOne of the primary hurdles in establishing a claims process for TelexFree victims, was obtaining legal certification that TelexFree was a Ponzi scheme.

To that end the TelexFree Trustee filed a motion in October. In it, Stephan Darr requested a Judge rule on whether or not TelexFree operated a Ponzi scheme. This in turn would render them liable to pay out claims, for which the Trustee had attached a proposed “net equity” process.

On November 25th Judge Hoffman ruled on the matter, declaring TelexFree to be a Ponzi scheme.

As per Hoffman’s order;

Each of the debtors (TelexFree) in these jointly administered cases operated a Ponzi and pyramid scheme.

The debtors are jointly and severally liable for the claims of the Participants (affiliate victims).

With criminal proceedings against TelexFree’s owners ongoing and the SEC’s civil proceedings on hold, Hoffman’s declaration is the first legal certification that TelexFree was a Ponzi scheme.

What effects Hoffman’s ruling, if any, will have on the criminal or civil proceedings is unclear. Ponzi bankruptcy proceedings are uncharted territory for me, so unfortunately I’ve got nothing to go on.

Jordan Maglich of Ponzi Tracker, who’s of a much more legal orientated mind than myself, offers this insight:

While the trustee ostensibly sought the Ponzi/pyramid finding as part of his proposed claims procedure, the reality is that the ramifications of such a finding will be much farther reaching.

Indeed, former TelexFree principals Wanzeler and Merrill filed a limited objection opposing “the Trustee’s request that the Court’s findings made pursuant to the Motion ‘shall be applicable throughout these proceedings, for all purposes.'”

In addition to the potential ramifications in the criminal proceeding involving Merrill, the finding will also simplify the process by which Mr. Darr may seek to recover transfers made by TelexFree to insiders and other parties.

Under both state law and the Bankruptcy code, a trustee may seek to recover transfers made during the course of a Ponzi or pyramid scheme that were made with actual fraudulent intent.

Numerous courts around the country have been nearly uniform in holding that a transfer was made in the course of a Ponzi scheme satisfies the requisite fraudulent intent required by statute.

Thus, in gaining a finding thatTelexFree was engaged in a Ponzi scheme, Darr may not only target the nearly-70,000 unique accounts which profited from TelexFree by an average of $20,000, but also those individuals or entities which provided services to TelexFree.

Looking forward, another hearing has been scheduled for January 26th, 2016. This is a non-evidentiary hearing, meaning no further evidence will be presented to the court.

In effect, it’s a procedural hearing, during which I suspect Darr’s proposed net equity claims process will be discussed and ultimately approved.

A second clarification order passed on November 25th states that if approved, Darr’s requested claims process will

cause all prior claims filed by any person against the debtors (TelexFree) or governmental authorities to be disqualified.

This will see the redundant claims filed by TelexFree investors, hoping to circumvent a court-approved claims process, unilaterally dismissed.

Stay tuned…


Footnote: Our thanks to Don@ASDUpdates for providing a copy of Judge Hoffman’s November 25th orders.