TelexFree’s 2013 profit-loss doesn’t add up
A profit & loss statement recently filed in the US state of Alabama provides some insight into the financials of TelexFree.
Marked as an exhibit of an “application for interexchange authority”, the statement reveals that for the year 2013, TelexFree took in $689 million USD from their affiliates.
Affiliate commissions and other expenses ran up a liability of $652 million, leaving TelexFree with a “net income” of $36 million.
On paper that sounds great… until you consider TelexFree’s business model.
TelexFree’s profit & loss statement doesn’t explicitly clarify how much of the $689 million they took in was AdCentral investment positions. If we are generous though and peg this figure at 50% (and anybody in TelexFree knows I’m being extremely generous here), that means a total of $344 million revenue was raised.
Divide that by $299 and you wind up with a total of 1.1 million AdCentral positions being generated in 2013.
Paying out $20 a week for 52 weeks, this would result in a cumulative liability of $1.14 billion dollars.
Now even if we ignore every commission except AdCentral ROIs, and attribute TelexFree’s entire commission payouts ($622 million) to AdCentral ROIs, that still leaves a deficit liability of $518 million going into 2014. And remember, we’ve totally discounted any other commission payouts.
Why TelexFree abruptly rushed to change the mechanics of the existing AdCentral investment positions affiliates held should be glaringly obvious at this point; and it doesn’t take a genius to realise the probability of TelexFree meeting their AdCentral ROI liabilities for 2014 is next to nil.
Not withstanding all the additional AdCentral positions invested in during 2014, and the fact that the company pays out other commissions (additional liabilities), as is typical of Ponzi schemes, the returns owed to affiliates would have easily topped 1 billion in 2014, with the company taking in substantially lower than this amount as opposed to 2013.
Assuming a high-level of re-investment (which any honest TelexFree affiliate will tell you is part of every affiliate investor’s “strategy”), liabilities takeoff far beyond that of real money being pumped in at the bottom.
Someone over at TelexFree must have crunched the numbers and hit the panic button. And that’s why the last few weeks have been the way they have.
Short of Zeek Rewards in the few weeks prior to their SEC shutdown, I haven’t seen such a poor roll out of compensation plan changes and lack of affiliate communication.
In light of their financials laid out bare for all to see (and calculate the utter impossibility that they’ll be able to meet their AdCentral ROI liabilities in 2014), no doubt TelexFree will be rather unhappy about the information being made public.
In their Alabama filing, the company requested confidentiality from the Public Service Commission and asked that they file the profit & loss statement “under seal” – a request the commission ignored.
As it is TelexFree’s banking services are under strain, with many affiliates reporting that non-US affiliates were unable to withdraw funds held by TelexFree. With TelexFree’s website going down over the last few hours, even those in the US had trouble attempting to withdraw their money.
Some of the confusion seems to stem from TelexFree’s ever-changing withdrawal rules, which apparently now require new affiliate contracts and VOIP packages to be placed under an affiliate. Why old accounts can’t be counted towards withdrawal qualification is unclear, however by requiring new accounts to be used, TelexFree do effectively recoup some of the money they’ve already paid out to affiliates (who are able to spend virtual TelexCredits to fund the required accounts).
Meanwhile over in Brazil judicial decisions continue to go against TelexFree.
I’ve lost count of exactly how many appeals TelexFree have filed in Brazil (it’s well over twenty at this stage), but their latest appeal (the second against their rejected bankruptcy protection application) has also been rejected.
The original appeal was an attempt to cast doubt on the trial that led to a Judge in Espirito Santo denying TelexFree’s bankruptcy protection request back in September of last year. TelexFree filed an appeal against the decision, but it was also denied because TelexFree’s business registration fell short of the two-year required minimum.
In this recently filed second appeal, TelexFree argued that the trial that led to the initial decision was “defective”. Unlike Carlos Costa’s YouTube rants however, if you’re going to argue something in court you need actual evidence to back up your assertions.
And this is where TelexFree failed, with Judge William Couto Gonçalves observing:
(TelexFree) did not show evidence of defects in the trial, but (rather a) dissatisfaction with the decision.
Being unhappy with a decision alone is not grounds for an appeal against a decision to be granted, and so Gonçalves and “other members of council” voted to deny TelexFree’s appeal.
A second ruling went against TelexFree late last week, with a Judge in the 2nd Civil Court of Rio Branco granting the State Attorney’s appeal. The appeal was filed in objection to an earlier ruling that held the state of Acre responsible for footing a R$500,000 bill for “expert testimony”.
TelexFree had initially been ordered to front the money, but argued they were unable to due to their assets being frozen. This appeal was granted, however due to Brazilian law deeming Public Prosecutors exempt from paying costs in civil cases, this meant the financial burden fell back to the state.
Last week the State Attorney’s Office successfully argued that the state of Acre was not entered in as an official part in the case, nor were they given a chance to respond or provide any input before the initial appeal was granted.
The decision is currently preliminary, with TelexFree able to appeal the decision if they wish. This would seem unlikely however, as Carlos Costa recently appeared in a YouTube video and said the company was willing to pay the R$500,000 fee.
This is likely due to the fallacy of TelexFree arguing that they were unable to pay R$500,000 due to their assets being frozen, but then having Costa appear in a YouTube video to make a big deal about how quickly TelexFree recently paid a R$70,000,000 tax fine.
The notion that the company can pay one fine but not another, like the mathematics behind their 2013 profit & loss statement, doesn’t add up and would likely fail if presented as an appeal against last Friday’s decision.
Finally I’m also hearing rumblings of a new TelexFree-branded debit card on the horizon that is being touted as an ewallet replacement. Details at this stage are sketchy, but it does raise the question of whether or not there might be problems between TelexFree and their current payment processor, iPayout.
With TelexFree currently under SEC investigation, iPayout are no doubt well aware they are facing the prospect of becoming collateral damage should the agency decide to shut TelexFree down and file charges.
Despite the company taking in $689 million from affiliates and paying out $622 million to earlier investors last year alone, whether the SEC take any action against TelexFree remains to be seen.
Footnote: TelexFree’s 2013 profit & loss statement can be viewed over at Patrick Pretty, who were first to report on the filing (link is in the third paragraph from the bottom).
Maybe if Telexfree got into the illegal NSA spying or drone bombing business, the courts would grant it carte blanche secrecy no questions asked! Something to think about, Telexfree….
Anyway my “old” contracts are almost at their end. Tuesday, had the pleasure of complying with new rules. Quick estimate is it reduces future pay in my case about 50% and delays when that pays comes.
Last February and March, watched people horde old contracts before switch over to new. Few if any seemed to wonder how they would get paid over the next 12 months. People were begging for my credits with cash…what were they thinking?
Can you believe some telexdumbs are celebrating, saying those numbers prove the company is going well and that nothing else matters?
Weren’t there also rumors about plans for a Zeek Rewards credit/debit card before they were shut down? Or is my memory faulty?
Joe your memory sucks!
I am seeing widespread on twitter that the credit card is done and they are actively selling it?
It’s a co-branded reloadable prepaid card, connected to the e-Wallet (can be used to withdraw money from the e-Wallet).
Has anyone heard of an MLM called Financial Destination Inc?
It may have some connections to Telexfree. It certainly has some things in common. Also some connection between FDI and a woman Alexandrina Borin Coneglian who is also connected to Brazilian Help,Inc. which was paid $2,671.76 by Telexfree.
Also, Mr. Joe Craft once worked with FDI.
I actually saw the promotional images myself. I believe you have to be a member to see them (It was shown to me by a cooworker). The site itself looked a lot like the TF website so I guess that was the infamous back-office or promoter area. Sadly he wouldn’t let me take a picture or screenshot of it. I suppose it will make it’s way over here eventually.
I wonder what the pricing on it will be if it actually does exists and isn’t vaporware.
It is no secret at all. In TF’s Facebook page they are already showing the ad and instructing the scamm… I mean, invest… I MEAN, “promoters” to request it through e-Wallet. No information about costs or anything related to it is provided though.
I don’t see how authorities in the world will be able to keep up with the amazing amount of internet Ponzis/Pyramids that are being created now a days.
People looking for a quick buck with no desire and/or brains to distinguish good business from bad business abounds. Buckle up!
My thought is that a few things have to take place. Those that run these scams need to be prosecuted to the highest extent of the law to put the fear into people. We can’t have these career serial Ponzie promoters creating one scam after another.
The whole referral system in the MLM business model needs to be eliminated all together or the reward needs to be very minimal. I just met a woman that makes an honest 5,000 a month selling a legitimate product on line. The company she works with does major advertising in magazines on line, etc…of the product and so this helps her with sales.
I’m not a pro government regulation cheerleader but unfortunatly people run amok and take advantage of others and so big brother has to step in and make the rules because people aren’t playing nice in the sand box.
@Dorothy… I am afraid trying to protect the world does make you a big government cheerleader.
I for one abhor MLM and anything related to it, on the other hand I also believe in survival of the fittest. So if greed and stupidity leads people to fall for scams which are obvious, let them perish. Useless wastes of space.
Just my 0.02
Not as simple as that, pal. Look for some information about what happened in Albania due to this “oh, let those who want to be screwed by scammers be” way of thinking.
You may think you won’t be impacted by those stupid people but, remember, if those scams cause some sort of economical crisis, EVERYBODY will feel the pain.
@Diego…. I am a FIRM believer in Caveat Emptor as well as the Quidquid Agis Prudenter Agas. There will always be the masses of the ignorant, this has been so since men climbed down from the trees. Government intervention is the larger of most evils, including MLM scams.
I’d like to think we didn’t need laws to tell people that they shouldn’t txt on the phone while driving. You would think commmon sense would kick in but there are still a lot of moron’s out there swerving all over the highway risking my life because they need to say “lol”.
Slap a 200 fine on those that continue to do it and more people may think twice.
I don’t want to take away the oportunity for people to work for legitimate MLM’s but there is an obviouse need to have some laws on the books. Diego is right, the devistation that can be caused can be crippling.
There will always be the masses of the ignorant, this has been so since men climbed down from the trees. Government intervention is the larger of most evils, including MLM scams.
I can’t agree with you more but we can’t be lawless either.
I beleive in the right to bare arms but I also beleive
in background checks. We can argue the validity of background checks.
I want the government to have laws against food manufaturers shitting in my food.
Tax laws are a great example of government running amok.
And there are certain groups that I think need some protection, children, elderly.
And perhaps those that aren’t as savvy as you.
You need to go test your beliefs in a failed state.
Just wanted to regist that I couldn’t agree with you more!
The world would be a way better place if more people thought like you!
We could think that globalization would make human beings more aware of the importance of each other but it turns out it just made us more greedy!
I found an article in Portuguese talking about the Telecard, The picture in the article is the same that was shown to me:
I knew the name FDI rang a bell. Back in 2009, this guy William Andreotti in New Hampshire had some form of brick and mortar business, but chose to get into a telecom MLM. I looked into it at the time, and it was mostly smoke, mirrors, and total BS. I even drove by their telecom headquarters, and found it was just a PC sales storefront. There is still a thread over on Scam.com about it:
It would appear right now they’re hawking Youngevity as well as one of those “save on prescription” offerings, and who knows what else; their web pages load so slowly, you think your browser is hosed, but even when it did, I’ll be damned if I could make heads or tails of what they’re truly about.
Wonder if Faith Sloan is going to jail on this scam?
We could think that globalization would make human beings more aware of the importance of each other but it turns out it just made us more greedy!
Your comment brought back the memory of when I opened up the internet for the very first time. I was so excited and also overwhelmed with the idea of being able to talk with someone across the world from me. How utterly amazing. Unfortunatly you are right.
When I saw that Telexfree went into Haiiti of course I immediately looked the country up since in my ignorance, other than knowing it’s a poor country, I needed to know more.
When I did some research and saw the pictures and the faces of the people and read about the the state of the country it made me sick to my stoumach that these men and woman from the United States would go down there to take money from them. I harped on that here for few days. : )
I’ve had it all and I’v lost everything, several times over…. but on my worse day here in my world it’s better than the people I read about in Haitti. I’m so ashamed of these men who come from the same country as I.
I do have great hope that the efforts of Oz, PPBLog and all the info shared here helps. So in that way I supose us being connected is a good thing. : )
I can’t help feeling there’s a connection/history with these guys and Telexfree gang.
So uh TelexFree has filed for bankruptcy in the US.
I have to head out now but I’ll have a report up tonight.
TelexFREE US Bankruptcy
It’s amazing how Carlos Costa always manages to put a possitive spin on bad news.
It’s like you had an accident and needed a well chair for rest of your life. But then CC comes along and says: Dont worry the good news you dont have to work anymore. God will take care of you. Ok?
Starts with Chapter 11
SEC opposes reorganization
Conversion to Chapter 7
…and the nickels and dimes of the masses are converted into the many dollars needed to pay the Telexfree attorneys.
•Facebook (FB) is close to receiving approval from Ireland’s central bank to become an “e-money” institution that would enable users to store money on the social network and use it to pay and exchange money with other members, the FT reports.
•The move would help Facebook boost its presence in emerging markets, as it would provide remittance services in which migrant workers send money home to their families.
•Facebook has also discussed possible partnerships with TransferWise, Moni Technologies and Azimo, startups that enable online money transfer services.
What an interesting precedent this would set if it worked.
Starts with Chapter 11.
Report bankruptcy fraud. justice.gov/ust/eo/fraud/index.htm
Shutdown by a court. Receivership.
Back home now. Article on the bankruptcy should be up in a few hours (have to go through the court documents).
This is the end… So.. I am watching the self-implosion of the pyramid???? This is sad… was a long way watching it!!! What about now.
EVERYONE that say the brazilian justice was corrupt, now will understand.. lol
This is the end
This is the end
My only friend, the end
Of our elaborate plans, the end
Of everything that stands, the end
No safety or surprise, the end
I’ll never look into your eyes again
Can you picture what will be
So limitless and free
Desperately in need of some stranger’s hand
In a desperate land ?
A good point:
The american justice work on weekend? When the bankruptcy start? Was in the first hour of monday?
Second: Why they fill this document in Nevada (Las Vegas) and not in Massachussets, where is the company place?
Third: Carlos costa did the film 4:59 in this morning (brazilian time)! He have this video ready or he didn’t sleep today doing it? Or he know that this will happens a long time ago and already recorded the video?
Haven’t seen the post as of yet, but Telexfree has filed for bankruptcy…
so sad I just check my virtual office and is true all what you said !!!…..
what do you recommend us to do? or that means there is nothing to do and have resignation we have lost our money!!!
If this was a voluntary filing then the timing determined by Telex’s attorneys. Probably they filed the initial paperwork electronically on Friday.
At least one of the four or five Telexfree entities is a Nevada LLC and their customers/creditors are in every State. The various companies will be jointly administered. Where to file was Telex’s choice.
Of course he did. Greenburg Traurig law firm is representing Telexfree. They are a big firm with offices all over the world. It takes time, money and documentation before Greenburg would have filed the bankruptcy paperwork. They have already found and designated an interim manager. This has been in preparation for weeks if not longer.
Yeah right. I realize you are Mister “its cut and dried” Law and Order but the reality is that Greenberg Traurig is going expend a whole lot of their client’s money refuting that point of view, the company is now under an interim manager and once a Trustee is appointed the likelihood that he will resign or be replaced in favor of a receiver is just about nil.
Who do you think would be alleging bankruptcy fraud anyway? Your Grandmother?
In the message currently on display in the TF backoffice, Stuart Macmillian essentially admits he was brought on board by Merril and Wanzeler to orchestrate their exit strategy.
All the BS affiliates have been put through the past weeks was part of the masterplan.
I don’t know McMillan’s qualifications but there are numerous big bankruptcy consulting firms that can be hired to provide this type of crisis management.
Anyone see this? On page 34, item 142 it say
142 – Bank records also indicate that on December 30, 2013 TelexFREE wired approximately $1.7 milion USD to Botafogo de Futbol e Regatas, a professional soccer club based in Rio de Janeiro, Brazil.
So, the botafogo win only 1.7 milion. Carlos Costa win close to 2 time more!!! Is this 1.7 a lot of money or not?
Given that Botafogo weren’t paying their players, I’m guessing not so much to them.
Lol, sory, wrong page to post it 😛
very details and value $$$$, “the house fell”:
Thanks for the heads up J.D.!