TelexFree file lawsuit against Brazilian media
No doubt frustrated at the amount of legal setbacks the company has experienced in Brazil’s courts, TelexFree today announced that they were initiating legal action against the media company Globo.
Globo, who have been diligently reporting on TelexFree’s ongoing legal failures over the past few months through their online news portal “G1”, are the largest media group in Latin America and ranked 17th in the world for global media ownership.
Last Tuesday the topic of TelexFree came up on “Mais Você”, a television show hosted by Ana Maria Braga on the Globo television network.
With the discussion reflecting the obvious Ponzi scheme nature of the business evident to anyone who hasn’t invested money in the company, at one point during the three-minute segment Braga jokingly asked “whether or not TelexFree’s affiliates were bandits”.
Cue internet firestorm from TelexFree and its affiliates.
Following the broadcast TelexFree were quick to condemn Braga’s comments, labelling them “slanderous, libellous and defamatory”.
Before the matter, abusive defamatory and slanderous displayed in the program plus you rede Globo on Tuesday 17 September the Board of TelexFREE announces that it is already taking the appropriate legal measures, demanding the right to aggregate response with the request for moral damages, even on today’s date.
We’re together in defence of our rights.
TelexFREE (translated from Portuguese)
Putting aside the question of how a television broadcast can be libellous, TelexFree’s posting was quick to garner over 1200 supportive comments from its angry affiliate investors.
Published in the same hour as the above message, then came the news that TelexFree had filed a lawsuit against Globo. In their suit, TelexFree seeks unspecified punitive damages and demands a “right of reply” to be aired on the network.
1. (TelexFree’s) main economic activity is the marketing of VoIPs at Multilevel Marketing system, being the most commercialized product is called 99TELEXFREE, which is an adapter that allows users to call landlines or furniture in the national territory or to about 40 countries and is a viable and inexpensive to replace the high cost of fares offered by phone carriers in Brazil long-distance calls (DDD), International (DDI), as well as those made for devices phones.
2. The company uses sales strategy as network marketing or multilevel marketing (MLM).
This strategic concept is based on the distribution of products and services through the appointment of independent distributors, called Promoters, to third parties who resell the products marketed by the Claimant, the Claimant being a national leader in marketing VoIPs.
Possibly explaining the swiftness with which TelexFree filed the suit, these same points have been repeatedly trotted in attempts to lift a business crippling injunction granted in the Brazilian state of Acre in June.
To date TelexFree, using the above arguments, has failed to convince a Judge in Brazil to lift the injunction. Back in June, upon hearing TelexFree’s “we have a VOIP product argument”, Judge Thais Kalil remarked
adding publishers to the network is of more importance than actually trying to sell the VoIP product.
The issue is that the earnings will be exhausted when the main source of revenue of the group (new affiliate registrations) stops.
Many (affiliates) do not even have the opportunity to recover their initial investment (minimum U.S. $ 339) and this is detrimental.
Meanwhile in response to schemes like TelexFree wreaking havoc across the local MLM industry, the Brazilian government has released a booklet that explains ‘the differences between financial pyramid schemes, which are illegal, and multilevel marketing‘.
The Ministry of Justice published the booklet, which they claimed was in response to over 80 complaints received from the general public and over ten lawsuits filed against such schemes by Federal and State Prosecutors.
The booklet, which is available online, shows that the main difference is that in a pyramid scheme the sale of a real product or marketing of products or services is of little importance to its operations.
In a pyramid scheme, the main source of income is the incentive for recruitment of new people into the business, which requires exponentially infinite growth and is not sustainable.
So how does TelexFree stack up?
The document points out some points that can help detect pyramids:
– Requirement to pay initial high values for membership
TelexFree charges affiliates $289 for an “AdCentral” investment position in the company, paying out a guaranteed $20 a week ROI for 52 weeks.
Affiliates are also able to purchase multiple positions, referred to as a Family AdCentrals for $1375, paying out 5 x $20 for 52 weeks.
– The work of “dealer” is not clearly linked to a real effort on real sales of the product. There may even be some activity involved, but it makes little sense for the sale.
Affiliates supposedly purchase TelexFree VOIP contracts each week, which they then sell back to the company for $20. Needless to say it is only the payment of money to TelexFree by an affiliate that qualifies them for payment, rather than the sale of a product to any customer(s).
– The promise of high profits, usually in a short time, with no clarity as to any real effort by the participant with respect to the sale of products.
As above, TelexFree affiliates invest in AdCentral positions with the company paying them $20 a week per AdCentral invested in.
As a standalone retail product TelexFree’s VOIP offering makes little sense when compared to alternative VOIP offerings such as Skype.
Whether or not TelexFree will now also sue Brazil’s Ministry of Justice for pretty much declaring their business model to be a Ponzi scheme, remains to be seen…