DoJ to gain control of TelexFree, Chapter 7 incoming?
The first TelexFree bankruptcy hearing in Massachusetts went down yesterday, and the end-result was swift and conclusive.
Any objections TelexFree might have had to the proceedings were swept away:
A Massachusetts bankruptcy judge on Tuesday signaled he will move quickly to appoint a Chapter 11 trustee to take control of TelexFree LLC.
Judge Melvin Hoffman of the U.S. Bankruptcy Court in Worcester, Mass., said that once additional paperwork is on file, he would approve the appointment of the trustee, an independent outsider who will replace the company’s current management.
And with that, Stuart MacMillan’s short stint as TelexFree’s CEO in hiding is all but over. Ditto Labriola (the rest of TelexFree management had already been dismissed or terminated from their positions by MacMillan).
I have no idea how badly MacMillan might have needed the $180,000 TelexFree dangled infront of him to accept the position, but now at the cost of his entire professional career, it hardly seems worth it.
Meanwhile TelexFree’s initial reaction to the ruling is somewhat puzzling:
A lawyer for TelexFree said at the hearing that the company wouldn’t object to the trustee’s appointment.
“We agree that it makes sense to put in place a Chapter 11 trustee,” said Joseph Davis, a lawyer for TelexFree. “I understand why control of the company should not remain in the hands of management that preceded the bankruptcy.”
What a backflip.
On April 30th, TelexFree filed an objection against the appointment of a Chapter 11 Trustee, arguing that
- the evidence submitted by the DoJ contains “inadmissible hearsay and blatantly false allegations”
- none of the current management (CEO in hiding Stuart MacMillan etc) had anything to do with the Ponzi scheme TelexFree ran from 2012 to 2014
- all the Ponzi fraud TelexFree carried out is irrelevant because “it is not offered today” and was “terminated (bankruptcy) pre-petition”
Not surprisingly, it seems all those arguments have turned out to be baloney. And If I’m reading between the lines, in stating that he “understands why” a Chapter 11 Trustee should be appointed, Joseph Davis is all but conceding TelexFree is a fraudulent Ponzi scheme.
Especially considering the DOJ argued in their initial motion that facts providing a mandate for the appointment of a Chapter 11 Trustee included
- allegations of securities fraud committed in the course of operating a billion dollar Ponzi scheme resulting in recent civil enforcement actions by the Securities and Exchange Commission (the “SEC”) and the Secretary of the Commonwealth of Massachusetts, Securities Division (the “MSD”);
- allegations regarding very recent diversions of millions of dollars in cash for the personal benefit of the Debtors’ principals and officers.
I mean really, now that the illusion of a “get out of jail” bankruptcy proceeding has been shattered, is it any wonder TelexFree’s own lawyer agrees with the above?
Carlos Wanzeler, owner of TelexFree and now a fugitive in hiding, remains as deceitful as ever:
Paul Kelly, an attorney representing Mr. Wanzeler, has said his client maintains his innocence.
Right, cuz that’s what innocent people do. They flee in the dead of night and then hide behind unfavorable extradition policy. If Carlos Wanzeler had even a shred of legitimacy to his name, he’d be in the US presenting evidence that cleared his name and that of TelexFree’s.
Instead he’s hiding out in Carlos Costa’s rectum, while his wife and partner in crime take the fall.
Looking forward, I’m thinking we might see the conversion of TelexFree’s Chapter 11 bankruptcy application into a Chapter 7.
Chapter 7 of the Title 11 of the United States Code (Bankruptcy Code) governs the process of liquidation under the bankruptcy laws of the United States.
Liquidation would seem the logical step forward now, considering there’s no real legitimate business to recover (less than 0.1% of TelexFree’s total revenue was from retail VOIP sales).
The priority now, in addition to nailing Carlos Wanzeler, James Merrill and top TelexFree promoters and insiders, would be to consolidate what funds are recoverable and look to pay out net-losers in the scheme.
Or in other words, pretty much the exact reason US Trustees are appointed for:
In the United States, a Trustee in Bankruptcy is a person who is appointed by the United States Department of Justice or by the creditors involved in a bankruptcy case.
In a Chapter 7 Bankruptcy (“Liquidation”) the trustee gathers the debtor’s non-exempt property, managing the funds from the sale of those assets, and then paying expenses and distributing the balance to the owed creditors.
For TelexFree affiliates who lost money in the scam and are wondering what to do now, here’s the most recent advice, handed out at yesterday’s hearing:
Some of the victims showed up in bankruptcy court Tuesday, hopeful for some shred of information about the fate of their money. U.S. Bankruptcy Judge Melvin S. Hoffman told them to file a claim as a creditor through the bankruptcy court.
“There is still no clear sense you will be able to recover anything at the end of the day,” he said. “You are going to have to file a claim and wait.”
Those that are still doubtful are welcome to sit on their hands and do nothing, but really, the writing should be all but on the wall at this point. It’s over.
It was certainly an interesting concept to try to negate Ponzi liabilities through the bankruptcy court, but one that was quite obviously never going to work. Points for trying though, as it was entertaining to watch it all unfold.
The appointment of a DOJ Trustee hasn’t taken place yet, but is expected to be ordered in the next few days (certainly be week’s end). Following that, I don’t think it’ll be too long before we see a Chapter 7 conversion motion, which will no doubt be granted.
Then once the liquidation begins, we can finally put this bankruptcy nonsense to rest and TelexFree’s case can proceed like any other Ponzi case.