telexfree-logoAs Jordan Maglich’s cell phone battery began to die, we wound up BehindMLM’s eight-hour coverage of the May 2nd bankruptcy proceedings.

Absolute kudos to PonziTracker and Maglich, who wound up being the primary source of information coming out of the courtroom after repeated warnings against streaming the session shut down any alternatives.

I know I was mentally exhausted by the end of it, and I was only syndicating Maglich’s updates with commentary and additional information I was tracking. I can only imagine how he felt having to maintain concentration over a phone call with only a few short breaks in between!

Anyway, logistics aside, here’s where we’re at currently.

The hearing itself was somewhat revealing. Straight off the bat we had fresh regulatory developments, as news broke that civil and criminal forfeiture action had been filed against TelexFree by the US Attorney’s Office.

From Wikipedia,

Asset forfeiture is a form of confiscation of assets by the state, pursuant to law. It typically applies to the alleged proceeds or instrumentalities of crime.

There are two types of forfeiture cases, criminal and civil. Approximately half of all forfeiture cases practiced today are civil, although many of those are filed in parallel to a related criminal case. In civil forfeiture cases, the US Government sues the item of property, not the person; the owner is effectively a third-party claimant.

The burden is on the Government to establish that the property is subject to forfeiture by a “preponderance of the evidence.” If it is successful, the owner may yet prevail by establishing an “innocent owner” defense.

In civil cases, the owner need not be judged guilty of any crime; it is possible for the Government to prevail by proving that someone other than the owner used the property to commit a crime. In contrast, criminal forfeiture is usually carried out in a sentence following a conviction and is a punitive act against the offender.

TelexFree, arguing that the forfeitures had no impact on the bankruptcy hearings of the day, managed to reduce the impact of the developments. This mostly due to the fact that the US Attorney’s Office were not present as a party at the proceedings.

As such, Judge Landis stipulated that he would ‘not consider papers in connection with rulings on pending matters‘ in the bankruptcy court, and he wasn’t ‘inclined to take (the forfeiture) papers into evidence‘.

Landis did however order a short recess, during which he went over the forfeiture documents so as to be “mindful” of them going forward.

The forfeiture documents were filed under seal, so as such I have no indication as to the specifics therein. However the take-away from the development is that there’s likely civil and criminal legal action looming on the horizon from the US Attorney’s Office, which will be in addition to the already launched civil action by the SEC and Massachusetts’ Securities Division.

To give you some idea of the weight behind the forfeiture documents (as per the DoJ’s website),

Charged with ensuring “that the laws be faithfully executed,” the 93 United States Attorneys work to enforce federal laws throughout the country.

The President appoints a United States Attorney to each of the 94 federal districts (Guam and the Northern Mariana Islands are separate districts but share a United States Attorney).

The United States Attorney is the chief federal law enforcement officer in their district and is also involved in civil litigation where the United States is a party.

What comes next from the US Attorney’s Office will definitely be something to keep an eye on going forward.

Getting back to the Nevada hearing though, after Landis reviewed the documents the first hearing regarding the SEC’s venue-change motion proceeded.

Whether coached or not, there were very obvious ploys by William Runge and Stuart Macmillan to feign ignorance and cluelessness about TelexFree’s AdCentral Ponzi scheme activities.

Runge (financial advisor) claimed he had no idea about fraudulent transfers taking place, didn’t know who TelexFree’s VOIP competitors were or whether or not the service itself was competitive in the marketplace. Interestingly, the figure of $5 billion dollars was floated as the total sum of TelexFree’s AdCentral ROI liabilities. But of course Runge couldn’t remember who initially provided him with that figure.

Runge also revealed that Joe Craft had been working with TelexFree for two years, erasing any doubt he was just brought in at the last-minute or had no idea about the fraudulent AdCentral investment scheme.

Stuart Macmillan revealed that he had based his $50 million a month in VOIP revenue estimate on being “optimistic” about the VOIP product, because a

network marketing exec working with MacMillan said he was excited about product. MacMillan optimistic because this exec is optimistic.

Macmillan also claimed to have never looked at the TelexFree affiliate contract prior to the company being raided, couldn’t understand the correlation between affiliates posting spam-ads to qualify for their daily ROI and revenue generation, didn’t ask questions about why payment processors “frequently” refused to do business with TelexFree, and also had “no explanation” as to why TelexFree’s affiliate activity (new money coming in) dropped by 90% when they terminated the passive investment scheme, or why there was a “drastic increase in payment requests” from existing affiliates.

Macmillan was pleased however to inform the court that he “loves network marketing”.

The hearing ended for the day with Maglich’s phone running out of battery, but as I understand it and as per Landis’ opening statements, Landis is going to work on his orders over the weekend with an intention to rule in open court on Monday. This could be Tuesday seeing as the statements were made towards the start of today’s session.

Whether or not Landis will rule on subsequent hearings that were not heard today (there were fourteen hearings scheduled), but there’s a possibility due to much of the evidence in these hearings being the same or similar to what was heard today regarding the venue-change motion. Alot of the core issues in the regulatory filings share the commonality of putting a stop to TelexFree’s abuse of the bankruptcy court to negate their Ponzi scheme liabilities.

Looking forward to next week, we’ve got Landis’ first order expected early in the week, with the Massachusetts hearing for the granting of a preliminary injunction on Thursday the 7th. The forfeiture warrants might result in additional legal action being taken by the US Attorney’s Office, failing which we still might learn more about them if the SEC decide to introduce them as evidence at the preliminary injunction hearing.

TelexFree certainly didn’t seem interested in trying to address the documents today, but I doubt they’ll be given the same luxury on the 7th down in Massachusetts (if the SEC introduce them).

In the meantime a number of interim orders were issued and filed late on the 1st and early on the 2nd, all of which were granted only until the hearing on the 2nd of May. I’ve seen TelexFree affiliates running around using the interim orders to proclaim premature victory in the bankruptcy case, which is rather disturbing.

Pending future hearings on the matters not heard today, those interim orders have otherwise expired. And in anycase, TelexFree have had their assets seized twice-over now (by the SEC and US Attorney’s Office), so they aren’t paying anyone anything.

They have challenge the TRO in the bankruptcy proceedings, but that matter was not heard (and until it is, I imagine unlikely to be ruled on).

Again, I can’t stress my thanks enough to PonziTracker for covering the hearing today. Without Maglich’s coverage, sadly the only updates out there till next week would be garbage like this (published before today’s hearing was even over):


Maglich’s coverage today set him back a few hundred dollars, so please consider donating even the most token of amounts to help cover costs (Paypal donate button is at the bottom of the article).

In other TelexFree news today, there were reports of TelexFree related arrests in the Dominican Republic and the filing of a class-action lawsuit by a group of TelexFree affiliates, one of whom had invested $209,000 into the company.

Filed by attorney Evans J. Carter in Middlesex Superior Court last week, the suit is for Massachusetts residents only. So far he has six clients, although he said he expects more could join.

“(Our clients) want us to have a judgment to go to Brazil or wherever else we have to” to reclaim their investments, he said.

Carter said he was first contacted about a potential lawsuit by a Brazilian tax preparers organization in Milford. He has also heard from several lawyers for other TelexFREE victims who could join the action.

More on those developments as additional information comes to hand.