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…