TelexFree: Matrix model will prove we’re not Ponzi
Last week, shortly after a judge denied his application for anticipatory bail, Carlos Costa (one of the three owners of TelexFree) put out a twelve-minute YouTube video outlining a proposed matrix based business model.
The idea behind the new model was that TelexFree will petition the courts in Brazil to permit them to adopt the model for 90 days. Costa argues that because the new model does not require TelexFree to charge membership fees, this would prove that TelexFree is not a Ponzi scheme.
The problem?
Charging affiliates membership fees or not has nothing to do with TelexFree being a Ponzi scheme.
In his YouTube video, Carlos Costa (above, presenting an insurance contract that was later proven to not exist) presents what appears to be a 5×5 matrix, that pays out 2% of $49.90 TelexFree charge affiliates to invest.
Whereas previously the company paid out a flat $20 weekly ROI per $299 investment made, Costa proposes they instead pay out 2% on each $49.90 position.
Bundled with each position would of course be TelexFree’s VOIP product, which would make TelexFree a familiar “product-based” pyramid scheme. This occurs when a pyramid scheme attaches a product to affiliate’s deposits into a scheme, in a vain effort to mask the recruitment driven nature of the business.
Under the current TelexFree model, the company takes money from affiliates and pays it out to those already in the scheme.
Under the proposed Costa matrix model, the company would continue to take money from affiliates but instead distribute the money based on how big of a downline an affiliate had and how many positions said downline had purchased.
The more affiliates recruited and the more positions purchased, the larger the total commission paid out (2% on each position) to an affiliate would be.
Costa asserts that
the intention is to prove that Telexfree can keep only the sales of packages of telephone calls via the Internet (VoIP).
Is the proposed model a Ponzi scheme? Not really, but instead it substitutes an affiliate-funded investment model for that of your classic matrix based pyramid scheme.
We already know the company has no retail revenue, hence the whole “the company will buy back your contract each week for $20” charade they had going to explain why they paid back affiliates with new affiliate money.
The problem with the matrix model is that they’ll still be taking in new money from affiliates and paying it out as such.
As bizarre a “we are not a Ponzi scheme” defense at this might sound, Costa and TelexFree filed a proposal in Acre late last week, requesting the court to grant them permission to use the above matrix model for 90 days.
This proposal will rebut the charge that Acre prosecutors have made against us. They say that our business remains only with the entry of new promoters, with the recruitment of new promoters.
Whether deliberately ignored by Costa or a failure on his part to understand what a Ponzi scheme is, he seems to mistakenly believe that new affiliates are required to prove the existence of a Ponzi scheme.
This if of course false, as it is new investments that are required. Whether these new investments come from newly recruited affiliates or existing affiliates is irrelevant.
And the real kicker here? The proposed model isn’t even new – it’s already there in TelexFree’s existing business model.
This is the same business model that was judges in Acre and resulted in an injunction against the company to immediately cease business operations, and subsequently ten appeal denials against said injunction.
In addition to announcing the petition and proposed matrix model, Costa also declared in his YouTube video that
the company has no irregularities.
“I challenge anyone. Our business has sustainability, yes, and we can prove this to all individually if needed.
Our business is fully sustainable. Do not get carried away. We will prove to them that our business is highly sustainable”.
How a business model that takes $299 from affiliates and pays out a guaranteed $20 a week ROI for 52 weeks is sustainable without new investment is beyond me.
Maybe Carlos Costa has invented his own personal brand of mathematics that is yet to be presented in court…
But isn’t that an unspoken admission that TelexFree, before the shutdown, was indeed a Ponzi scheme?
Amusingly Costa addressed that in his YouTube video, stating:
If they don’t need it, why are they petitioning the courts for it? Dude wants his cake and to eat it too!
Pyramid / ponzi ?
Ponzi / pyramid ?
Who the h*** cares ?
It’s a bloody fraud.
Well now that his anticipatory bail application has been rejected, maybe Costa figures running pyramid schemes carries a lighter sentence over Ponzis in Brazil?
(no idea if this is the case, just trying to make sense of his gameplay)
Ponzi is normally a financial fraud, promotional pyramid is a commercial fraud. The difference is typically 3:1 or higher (ratio for years in prison for the organizer, max sentence).
Pyramids are mathematical frauds. The average participant will only be able to recruit appr. 1 new participant, yet they are misled to believe they can recruit a nearly unlimited number of new people into the system.
So, he’s basically trying to shift the focus from the $299 up front fee they charge and pay commissions out of, to the matrix part of the plan which was already in place to begin with.
The guy’s a genius.
Something tells me he will claim the matrix plan he’s proposing is different than the one currently in play.
I am in Telexfree in Brazil, and I wonder what would happen if Telexfree is considered a pyramid here, if Telexfree in USA will have any problems with that decision or it will continue normally your operations.
I’m thinking in joining the Telexfree USA since the police there is not investigating and I believe in USA laws over Brazil laws.
Their model is illegal in USA too. But it takes a while to bust criminal enterprises like Telexfree. Feds usually take a year or two to complete investigation. So you may get a free year, but Telexfree USA will be over and done in 2014 for sure.
It is probably unsafe to assume that no U.S. investigation of TelexFree is under way. The Zeek Rewards probe, for example, appears to have begun months before there was any public disclosure.
The Legisi probe, for another example, appears to have begun at least a year before there was any public disclosure. U.S. law enforcement generally does not tip its hand when a “program” gets on the radar. One of the reasons is that vast sums of HYIP money can be moved in the blink of an eye, further distancing victims from a restitution remedy.
There is a U.S. case that speaks generally to some of the same issues present in TelexFree. Multiple U.S. agencies treated the case as a pyramid scheme largely aimed at a specific population: Cambodian émigrés.
You can read about the case and find the complaint here:
SEC vs. WMDS, Inc., One Universe Online, Inc., Seng Tan, James Bunchan and Christian Rochon
http://www.sec.gov/litigation/litreleases/lr19464.htm
The United States has a good number of options when it comes to investigating/prosecuting Ponzi and pyramid schemes — and the case against WMDS does not necessarily mean that any theoretical case against TelexFree would be brought in the same manner.
But the WMDS case was brought in Massachusetts, a state in which TelexFree has a footprint. Meanwhile, TelexFree affiliates are talking about guaranteed income for recruits. That also was an element in the WMDS case.
A third commonality between TelexFree and WMDS is that TelexFree affiliates have been told they can purchase an income by sending money to TelexFree.
A fourth area of commonality is the target audience: WDMS largely targeted Cambodian-Americans; TelexFree may be targeting Brazilians and Brazilian-Americans.
PPBlog
I wonder who is being more prejudiced here, there were many people selling objects, cars, asking bank for money, and now all the money is blocked. And many people NEED that money to survive.
It’s not my case, but I feel sorry for those people, I don’t know if you guys know, but brazilian justice is known for being VERY slow.
So, even if Telexfree is convicted (a prosecutor said that maybe in end of 2014 we will have the final decision), it will still take a lot of time until people get their money back.
I feel sorry for them being fooled by scammers into throwing their money into a scam.
I do NOT feel sorry if they want to throw the remainder of their money into some OTHER scheme in hopes of making it back.
There is a saying: “Fool me once, shame on you. Fool me twice, shame on me.”
There is also another saying: “Insanity is doing the same thing but expecting a different outcome.”
Any one who throws money into a Ponzi scheme’s brother after their money is held up by a Ponzi scheme under investigation is probably insane, by that definition.
So can the Telexfree USA members withdraw their money?
Yes, it seems that the Telexfree in USA has no link with the Brazilian one. In Usa, it’s the Telexfree LLC while in Brazil it’s the Ympactus Comercial.
The Ympactus Comercial in Brazil is blocked by the brazilian justice. But Telexfree LLC is operating normally in all other countries. So, you can post the ads, resell the voip products, withdraw your money normally if you don’t live in Brazil.
The case isn’t about TelexFree’s activities in the U.S., it’s about TelexFree’s activities in Brazil.
“TelexFree” is the group of owners / entities that has organized the illegal Ponzi/pyramid hybrid in Brazil under the name “TelexFree”. The case is about the ACTIVITIES rather than the COMPANIES.
TelexFree USA and TelexFree Brazil were literally the same “organizational structure” when the injunction was issued 18.06.2013, e.g. sharing the same owners, the same website, the same database, the same products, the same compensation plan, and so on and so forth.
A shutdown will primarily be about shutting down the illegal activities in Brazil and potential extensions to other countries. It can be ordered by the Court in Acre, and executed through a local court in the U.S.
It has already been ordered by the Court in Acre, but TelexFree has ONE appeal left (to STJ, the Superior Court) before the order will be final. The case will first need to find its own path through the court system in Brazil before they can involve courts in other countries.
Different house, same owners, same business model: pretend to sell communications, but in reality, you pay in and hope to get money out while doing almost nothing.
Sure there are links. You just pretend not to see them.
Links:
* Carlos Costa
* James Merrill
* Carlos Wanzeler
* same website
* same commercial name
* same products
* same database
* same compensation plan
The links are actually there, and they are not very difficult to find either.
The network marketing part of it was blocked (recruitment, money IN and OUT), currently only for Brazilians. You COULD log into your back office for several weeks, so neither the company nor the website were shut down.
People or entities in other countries are outside the Court’s personal and geographical jurisdiction, so an order can’t be executed either. An order will need assistance from a court with those types of jurisdiction to be executed.
Note that it was the network marketing part that was blocked for Brazilian citizens. Joining it from Brazil in another country will still be illegal. All types of transactions will also be illegal, other than VOIP subscriptions as a customer.
Not really. He claimed, in that video, the Matrix was only one among several ways the company had legal incomes. So it wouldn’t be anything new, just their core business stripped from everything else, like those ridiculous spams the investors had to spread on free adds websites.
Of course, any of the income sources listed by him, including this matrix, are illegal or inexistent.
A bit like SpeakAsia in India, claiming an eCommerce plan (turning all our survey takers into spenders) that was never implemented. Allegedly they actually imported a containerful of cheap Chinese TV and claimed this is step #1. They also wanted to import iPhone knockoffs to India, then instead of paying the members cash, they’ll give them credit, which, if they add a bit more cash, they get some of these knockoff goods, and they call this eCommerce. 🙂
If you are on the upper tiers of a Ponzi scheme, then you will get rich. If however, you are on the last few tiers then you will be devastated.
I think that most people with an IQ of at least 100 understand that being part of a Ponzi scheme in the beginning is very profitable and that is irresistible to many people. This is a gamble, however, because you don’t know the financial details of the company.
Its really quite simple though: once the cash flow from the new members is less than the current payout for existing members then the owners of the company will dump all of the assets into their personal accounts (the company is a LLC) and leave little or nothing in the company.
Then the suing lawyers will frenzy on the remains of the company assets.
Cheers