TelexFree business reorganization dead in the water
Reminded only yesterday that TelexFree’s answer to the SEC’s amended complaint was now overdue, Trustee Stephen Darr was quick to file a reply – within which are revelations that shed light on the future of TelexFree.
Darr’s response, filed on behalf of TelexFree which Darr has been put in charge of, is based on the Trustee’s “preliminary investigation”.
The opening paragraphs of Darr’s response speak for themselves:
On information and belief, the Trustee admits that the various individual debtors cited in paragraph 1 appear to have been engaged in a multi-level marketing enterprise, which, while purporting to be in the business of selling telephone service plans using Voice-over Internet Protocol (“VoIP”) technology, they were in fact engaged in a Ponzi or pyramid scheme which, in part, involved promising to pay investors for placing ads on the Internet and recruiting other investors to do same.
The Trustee admits that the individual Defendants’ conduct involved fraud, deceit and resulted in significant risk of substantial losses to persons, including the Debtors.
The rest of the response essentially agrees with practically everything the SEC allege, however the Trustee doesn’t go so far as to call out individuals named in the case.
Subpoenas for information on these individuals have been issued to TelexFree related parties, the results of which will no doubt reveal the extent of their individual involvement in the “fraud and deceit” he mentions.
In the meantime, the Trustee repeatedly states that the SEC’s allegations against the named individual defendants are “believed to be accurate”.
TelexFree’s top Ponzi pimps, who have collectively filed Motions to Dismiss the SEC’s case against them, are specifically called out:
Trustee believes that the allegations with respect to Rodrigues’s knowledge and/or reckless conduct are accurate and that he aided and abetted the Ponzi/pyramid scheme.
The Trustee believes the allegations regarding Mr. De La Rosa’s knowledge or reckless conduct are accurate and that he aided and abetted the Ponzi/pyramid scheme.
The Trustee believes that Crosby knew or acted recklessly with respect to promoting TelexFree and that he aided and abetted the Ponzi/pyramid scheme.
The Trustee believes that the allegations that Sloan knew or was reckless with respect to her promoting of TelexFree and that her promotional activities aided and abetted the fraudulent and deceptive pyramid scheme are accurate.
But perhaps most important of all, is the absolute dashing of any hopes TelexFree will go through a “business reorganization”.
In his response to the SEC’s third claim for relief, Darr writes:
The Trustee has assumed control over each of those entities’ estates (TelexFree Inc. and TelexFree LLC.), they have ceased operation, and the Trustee has no intention of reorganizing or reactivating their businesses.
And bear in mind, this is likely before the Trustee has had a chance to go over any subpoenaed information he recently was granted approval to request. A first round of subpoena requests to be served on individuals and businesses TelexFree had close ties to was granted mid-June, and a second just last week.
The revelation that the Trustee has no intention to resurrect TelexFree’s fraudulent business model will come as a blow to Brazilian affiliates, who have orchestrated a calculated campaign of misinformation since the shutdown in April.
Fearful of retribution from those they convinced to invest under them, Brazilian affiliates have been pumping out pro-TelexFree videos and blog posts, which hinge on promises of a business restart and paying back of everyone’s money.
And while the second promise might come to fruition at a later date, Darr’s response to the SEC case brings with a finality to any notion that it will result from TelexFree restarting their business.
Meanwhile the face of TelexFree’s Brazilian fraud activities, Carlos Costa, recently reacted angrily to revelations that actual facts might be used by Brazilian regulators in their case against him.
Fearful that actual facts might be introduced into a case he’s otherwise been carefully crafting a fictitious narrative for on YouTube for the better part of a year, Costa voiced his objections in a new video released a few days ago.
Costa (right) didn’t deny the accuracy or seriousness of the charges weighed against TelexFree by the SEC, but instead claimed that translations of the evidence the Acre Public Prosecutor’s Office was relying on were
made by a Peruvian and not by a Brazilian with proficiency in English-Portuguese.
Unfamiliar with the intricacies of Portuguese, I’m unable to comment on any evident differences between Portuguese spoken in Peru and that which is spoken in Brazil.
I do note however that Brazilian TelexFree scammers didn’t appear to experience any linguistic difficulties when pitching the TelexFree to their Peruvian neighbours.
Speaking indirectly to the Acre PPs Office, Costa pleaded
There are serious mistakes. Do not do it (use SEC evidence).
This will only reset the (legal) process back to the beginning, we have the right of reply and (it) will only take even longer (to resolve).
Ignoring the mountains of evidence presented by the SEC and agreed upon by the Trustee above, Costa instead urges the Acre PP to
resolve the case quickly sweep his crimes under the carpet:
Putting us against the case against Telexfree (in) the USA, just now in the final stretch (of the case) and only to accuse (us) without any proof.
We want (the case to resolve) quickly and, by the way, the prosecutor does not want (this).
External facts should not be judged in Brazil or by Brazilian law nor U.S. law, because (they are) only accusation(s). Do not do it.
Evidently Costa was confident fighting Brazilian regulators (who suffered jurisdictional issues investigating TelexFree in the US prior to the regulatory investigation there) with YouTube videos full of bullshit.
Fighting the SEC’s evidence with the same bullshit YouTube videos? Not so much.
Despite having had over a year to prove otherwise and the TelexFree Trustee in the US now conceding that TelexFree is a Ponzi pyramid scheme hybrid, Costa closes out his video by insisting
We will prove that (TelexFree) is not a pyramid.
In an evident attempt to escape further investigation and potential criminal prosecution, Costa recently announced he is running for Congress. If elected, it’s unclear what that will mean for the Brazilian case against him.
Back in the US, the SEC has filed a response to Sann Rodrigues’s Motion to Dismiss and an interesting Motion has popped up from the SEC.
Filed on the 16th of July, the SEC are asking the court to modify a consent order passed on May 9th. This is around the time a criminal complaint was filed against TelexFree owners Carlos Wanzeler (currently hiding out with Carlos Costa in Brazil) and James Merrill.
In their request, the SEC ask the court
to allow Stephen B. Darr, as Chapter 11 Trustee of TelexFree (the “Trustee”), to maintain bank accounts at RaboBank, NA in the name of the Debtors, as well as permit the Trustee to pursue claims and recover all property of the respective Debtors apart from those assets seized or restrained now or in the future by the United States Attorney for the District of Massachusetts or its agents.
I’m not too sure on the significance of the RaboBank account, but “recover all property of the respective Debtors” sounds like the Trustee might be gearing up to sue TelexFree investors, insiders and businesses who were paid by TelexFree.
I’m not sure of the scope of “property” belonging to TelexFree, but the mention of “assets seized or restrained” suggests it included sums of money.
I recall in the Zeek Rewards case that the Receivership successfully seized uncashed checks that had been sent into Zeek Rewards, on the basis that once sent, they became assets of the Zeek Rewards Receivership.
The SEC’s motion has been assented to by the TelexFree Trustee, signalling ongoing co-operation between the two parties. Throw in the Trustee remarks about TelexFree being a Ponzi scheme and there being no plans to resurrect the business, and closer and closer we get to a Chapter 7 liquidation.
Stay tuned for YouTube videos out of Brazil claiming the CIA has replaced Stephen Darr, who was otherwise extremely sympathetic to the plight of Ponzi scammers, with a cloned cyborg built by the Peruvian government.
Footnote: Our thanks to Don @ ASDUpdates for providing a copy of the SEC’s response to Sann Rodrigues’ Motion, and Trustee Stephen Darr’s response to their amended complaint.