Back when they were busy lying to the Supreme Court of India, Speak Asia planted the idea that if it was allowed to refund investors who hadn’t yet received a >100% ROI, that the authorities would permit the company to “restart operations”.

To this day there are Speak Asia investors who truly believe this is still going to happen.

With Ponzi schemes unable to pay out >100% of the money invested with them, the math plays out by paying those who haven’t withdrawn 100% yet from funds trapped in the system.

Funds trapped in the system primarily refers to money re-invested on the expectation of an even greater ROI down the track.

From a technical standpoint the Ponzi scheme counts these investors as having been paid more than what they put in, despite the reality that the actual money they invested is still locked up with the company.

So, the company pays nothing to these investors, uses the funds they initially invested and continue to re-invest to pay out those who haven’t re-invested yet, and then hopes the authorities will give them a free pass (“hey we paid out everyone!”).

The whole scheme hinges on the company being permitted to suck new investors in to make up for the deficit created by paying real money out, and also to some degree that those who were paid out will reinvest, re-trapping the money back into the system (with it ultimately getting paid out to earlier investors as intended).

Sooner or later of course the sustainability problems of a Ponzi scheme will still kick in and trigger a collapse. Of course nobody talks about that though, with the company only selling the idea that those who didn’t withdraw 100% of what they put in will get paid.

Speak Asia were the first company I’d heard of floating this idea, although it kind of fell apart when the Supreme Court decided the company was wasting its time.

Now, perhaps aware of the fact that Speak Asia’s deception won the company about twelve months of delays as things played out in court, TelexFree have begun to float a similar-sounding idea.

Whereas Speak Asia themselves offered to pay affiliate investors who hadn’t been made whole yet (with monopoly money or otherwise), TelexFree have adopted a slightly different approach.

Appearing in a YouTube video yesterday, owner Carlos Costa told affiliates that TelexFree

will ask the court if another company can take over the debts owed to affiliates.

Costa also made clear that the return would only involve the amounts invested – ie the promised 52 week ROIs are out of the question – and would benefit only those affiliates who had failed to recover what they put into the business.

“I want to explain to you which affiliates are entitled to such subrogation or even a possible return.

Those who have not gotten their investments back, (…) the people who came in through the Telexfree Ympactus [ company name ] in Brazil, invested their money in our VoIP accounts and did not return money,” Costa said.

Costa didn’t name the company who would pay out TelexFree’s affiliates, but with no other revenue streams beyond affiliate investments, the idea is obviously to pay affiliates in Brazil using money invested into TelexFree from elsewhere in the world.

For the sake of simplicity I’m just going to call the nameless company “Carlos Costa Enterprises”.

One of the key points to take away from TelexFree’s proposal (which is expected to be submitted in court next week), is that it plays into the conditions Acre’s Public Prosecutor’s submitted in the recent failed mediation meeting.

Acre’s PPs proposed TelexFree officially shutdown in Brazil and pay out (presumably via a Receivership) as much money owed to affiliates as possible.

TelexFree rejected the proposal because they didn’t want to shut down.

Now, similar to what Speak Asia did, the company will float the idea that they are able to pay off affiliates who haven’t received their initial investment back, but on the condition that by doing so they be permitted to restart operations.

I mean hey, we paid everyone who “lost” money right, why can’t we go back to suckering in new investors?

This is where the danger lies as it’s easy to present this concept in court and focus on people getting their money back – which can be twisted to appear to be meeting the proposal criteria set down by Acre’s Prosecutors.

As I detailed at the start of this article however, the concept is fundamentally flawed. All it does is create a cashflow deficit, which the company then hopes to recover via re-investment of funds paid out and new investment once they’re “re-open”.

In addition to the flawed math behind the proposal, there’s also the issue of paying people out while a company is under criminal investigation for being a Ponzi scheme (“financial pyramid”).

Due to its business model TelexFree is quite obviously a Ponzi scheme but the matter still needs to go to court. If a court grants the company permission to pay out participants, and then is later legally deemed a Ponzi scheme – the question of responsibility comes into play.

In the case of Speak Asia, the Supreme Court deemed it improper to let any money flow through Speak Asia while it was under criminal investigation.

Common-sense prevailed, however this took roughly a year to get to the bottom of. In the meantime the company was whipping up their affiliates into a mouth-frothing frenzy, promising them their ROIs if only the evil authorities would let them pay.

So effective was this strategy that there are still many who believe it is going to happen at some future date.

One would hope Acre’s Public Prosecutors (or the Judge hearing the proposal) learn something from the Speak Asia debacle and nip TelexFree’s proposal in the bud, otherwise we might again be looking at a year or so of delays.

Speak Asia managed to have criminal investigations into them suspended while the confusion they created was sorted out. As a result of this, the case has been dragging on for two and a half years (and is still going).

Stay tuned…