Having followed the Zeek Rewards case, it’s my understanding that net-winner and victim claim procedures are pretty straight forward.

Both parties file claims and what’s provable on paper is accepted. The rest of the claims are tossed out and funds are then clawed back from net-winners and returned to victims.

Fearful of being held accountable for more than they believe they invested, TelexFree’s net-winner class has filed an objection against how their claims will be processed.

Frantz Balan, Marco Puzzarini, and Sandro Paulo Freitas, appointed Class Representatives of TelexFree’s net-winners (investors who stole more than they invested), have objected to the TelexFree Trustee’s proposed plan to determine how much each net-winner stole.

Five specific objections have been raised as follows:

  1. net-winners aren’t given a chance to review or object to other net-winners claiming accounts they purportedly owned
  2. omnibus objections covering general defenses should be adjudicated in adversary proceedings, where Class Representatives can respond on behalf of the net-winner class
  3. each net-winner should be given the opportunity to have their claim determined in an individual damages proceeding
  4. net-winner claims are not suited to the electronic claims process and should be adjudicated in adversary proceedings
  5. nothing regarding net-winner owed amounts should be approved until “net-winner experts” have gone over them

A lot of TelexFree scammers operated multiple accounts. These accounts were set up to offload to victims they recruited but also often remained under control of the affiliate who set them up.

This, the net-winner class argues, creates problems with the Trustee’s proposed determination process.

Aggregation is necessary because participants often had multiple user accounts, some “winners” and some “losers” in the TelexFree scheme.

In order to establish whether a participant is a “net-loser” or “net-winner” the Trustee needs to aggregate all User Accounts owned by a participant and assign them to the participant-owner.

If the Trustee accurately assigns a “winner” User Account to a participant but fails to properly assign one of the participant’s “loser” User Accounts, then participant’s net equity claim, as calculated by the Trustee, would be inflated.

Accordingly, effective User Account aggregation is essential to ensure accurate claims calculation.

I don’t see what the problem here is. If someone can prove they owned multiple accounts, then their net-winnings can be accurately calculated.

If a net-winner is claiming ownership of multiple accounts and can’t prove anything (having login access != proof of account ownership), then that’s not the Trustee’s problem.

Taking Ponzi net-winners at their word without evidence opens the door to a flood of unverifiable claims – which will ultimately cost victims of the scheme.

And it’s not like the Trustee is skimping out on identification credentials;

This is a 13-step process that utilized combinations of name, login, email, phone, address, and secondary password information (or portions thereof) to group sub-accounts under a single master account.

After conducting limited testing of the Trustee’s aggregation methods, the Net Winner’s Expert has determined that the Trustee’s approach may not fully aggregate all User Accounts owned by a particular participant.

Sorry, but net-winners shouldn’t get to claim accounts that don’t appear to be in any way tied to them. Especially if that claim is supported by nothing more than “he/she says”.

All the scammers who thought they were rorting the system with their “strategies”? It’s time to pay the piper and return what you stole.

One example the net-winners bring up as proof the Trustee’s criteria isn’t sufficient is “cash transfers”.

That is net-winner scammers accepting cash from their downlines, typically for the purpose of evading authorities by not leaving a paper trail.

The net-winners argue that the Trustee

is burdened with demonstrating how much money changed hands between Participants and between a Participant and TelexFree.

But in Participant-to-Participant transactions, however, the amounts reflected in the SIG system do not at all show the “amount invested” or “paid.” Nor does SIG show the “amounts received” by one Participant from another.

Instead, the SIG data merely shows face amounts of invoices that were paid with what the Trustee’ contends were worthless credits.

To this transaction data, Trustee hitches an assumption that money changed hands in exact correlation with the amount of paid invoices.

This is the essence of the Trustee’s calculations, both to determine the amount of net losses and to determine the amount of each Net Winner’s liability.

Class Defendants’ have retained StoneTurn Group to, among other things, opine on whether the Trustee’s assumption provides a reliable basis for liability.

The Trustee is charged with ascertaining how much a net-winner invested and stole from victims through TelexFree.

Scams they were running on the side, such as “cash for credits” don’t count. Primarily because, by design, they are unverifiable.

This isn’t the Trustee’s problem.

As for StoneTurn Group, they’ll conclude what they are being paid to conclude and the net-winners will file that in court.

In both Zeek Rewards and WCM777 claims were disallowed if they didn’t correlate to financial records. I don’t see TelexFree being any different.

With respect to net-winners objecting to claims by third-parties on their accounts, I’m reading this as net-winners demanding the right to challenge victim’s they sold “credit accounts” to claiming losses.

Obviously the net-winners would prefer to claim those losses against their winnings (reducing clawback liability), but why is this an issue?

It is critical for the Net Winners to have an opportunity to review other participant claims so that they may refute any false claim of ownership over User Accounts that Net Winners claim as their own.

If the Trustee has assigned ownership of an account to an affiliate, that means ownership is supported by forensic records.

A net-winner coming along and disputing ownership of accounts they might have set up but don’t own, serves no interest other than that of the net-winner (which dismisses victim losses they are responsible for at the same time).

Not withstanding these claims obviously aren’t going to be backed by evidence, otherwise ownership would have been attributed to the net-winner to begin with.

Why should the Trustee (and ultimately victims) bear the cost of going through bogus net-winner disputes on a case by case basis?

Which brings us to the net-winner’s next argument;

To the extent that the Trustee believes that claimants are also Net Winners, the Trustee’s Omnibus Objection should provide notice to Class Counsel and allow those claims to be adjudicated in the Net Winner Adversary proceeding on a class-wide basis.

No it shouldn’t. Because all this invites is every single net-winner scammer to try their luck by claiming accounts.

There are thousand of TelexFree net-winners and sorting out account claims not backed by evidence on a case by case basis in court is impractical, both legally and financially.

Net-winner scammers hoping to reduce the amount they have to pay back is not sufficient justification for the requested burden on TelexFree victims.

This is not just a theoretical concern. Class Defendants are aware that one or more alleged Net Winners have filed proofs of claim.

There may be a variety of reasons why this happened, ranging from disputes as to ownership of User Accounts, to disputes as to actual sums of cash transferred (as opposed to relying on the Trustee’s assumptions concerning cash transfers), all the way down to simple confusion or mistake.

Again, not the Trustee’s problem. Not supported on paper? You don’t get to dispute how much you stole and/or what accounts were yours.

And argument that claims individually litigating each net-winners disputes is compliant with “judicial economy and efficiency” is hogwash.

There are no doubt thousands of TelexFree net-winners with “complicated” sob stories of how they set up their individual scam networks.

None of it of course supported by independent financial data or TelexFree’s own records.

How this is anyone’s problem other than the net-winner is beyond me. They stole what they stole and that’s the amount they have on their head when they enter settlement negotiations.

Net-winner claims I wasn’t aware of in the case are also detailed in the objection.

The first is the argument that TelexFree Ponzi earnings are wages, and therefore

the Adversary Proceeding is an effort by the Trustee to clawback commissions and non-discretionary bonuses earned by the Net Winners, violating various state and federal laws.

Lol! Good luck with that one guys.

The second claim filed by the Net Winner class alleges that TelexFree misclassified the Net Winners as independent contractors when they should have been classified as employees.

The third claim filed by the Net Winner class alleges that TelexFree owed the Net Winners credits, which were wrongfully taken from the Net Winners when their accounts were closed.

Not too sure what the credit claim is about (sounds like “waah, we were promised more money but weren’t paid!”), but the employee claim is just as hilarious as the wages claim.

Again, TelexFree is a legally certified Ponzi scheme, with one of the operators currently serving a prison sentence.

Asserting anything to the contrary would appear to be a colossal waste of resources and time.

These class-wide claims were not contemplated by the Trustee’s online claim portal, nor do they fit within the claims allowance process proposed.

Why would they? They appear to be utter nonsense and the Trustee has no obligation to entertain net-winner claims that have not been accepted by the court.

Class Defendants have concerns about agreeing to a claims allowance procedure before the expert opinions are fully developed.

At this point, the Trustee’s data has not yet been tested by any outside party.

Accordingly, this Court should not deem any claim to be “allowed” until the Net Winner Defendants have had an opportunity to review the Trustee’s claims data, and comment further on the Trustee’s method of aggregation and assumptions concerning cash transfers.

To be honest going over the TelexFree net-winners objections gave me a headache.

Perhaps it was from reading most of the same arguments raised by Zeek Rewards net-winners.

At the end of the day Ponzi scammers can only come up with so many arguments, albeit worded differently from scam to scam.

Zeek Rewards’ net-winners had their experts, and in the end it didn’t make a lick of difference. The net-winners owed what they owed and the court ultimately ruled against them.

WCM777 was a much smaller scam but you had the same issue with net-winners trying to pose as victims through bogus claims.

I get each Ponzi case is different and net-winners in one scam have the right to exhaust all available options to try to get out of paying back what they stole, but boy is it depressing to see essentially the same arguments raised again.

I suppose from here the Trustee will file a response pulling apart the net-winner’s objections, after which the court will issue a ruling.

Stay tuned… (groan).


Update 28th November 2017 – The TelexFree Trustee filed his response to the net-winner class objection on November 27th.