TelexFree Trustee inches closer to Chapter 7 liquidation
Yesterday saw a hearing for TelexFree Trustee Stephen Darr’s request for permission to subpoena several companies associated with TelexFree. Darr had also requested permission to conduct depositions with individuals from said companies, with the court granting him permission to proceed.
Five such motions were filed by Darr, with three of them granted as proposed. Alvares and Marsal (financial consultants to TelexFree) objected only to having to share emails between the firm and its legal counsel.
Darr agreed to this on condition that he reserves the right to request the emails, if needed, at a later date. A & M consented on condition they retain the right to appeal any such requests.
At the time of publication, no order has been made public regarding Darr’s request to subpoena TelexFree’s law firm Greenberg Traurig, however news reports suggest permission was granted on all five subpoena requests.
Speaking to the Worcester Telegram about why he had to file the requests, Darr remarked
There are no employees left. There’s no insurance. There never was insurance.
I have no money to start up the business. I just don’t know if there ever was a business. I’m hampered by a lack of records.
Following a raid on TelexFree’s headquarters, HSI and FBI agents seized a host of TelexFree’s onsite electronic equipment and paper records. Likely due to their being used to collect evidence in the eventual showdown between regulators and TelexFree in court, Darr does not currently have access to the seized assets.
What “insurance” Darr is talking about I’m not sure, but it’s a possible reference to repeated claims by Carlos Costa that affiliate investments with TelexFree were somehow insured.
As for Darr not having any money, it is believed that fugitive TelexFree owner Carlos Wanzeler (currently hiding out in Brazil), still retains control over millions of dollars in hidden TelexFree funds.
In clear breach of a preliminary injunction granted last month, Wanzeler has thus far refused to relinquish control of these assets to either the SEC or the TelexFree Trustee.
Whether or not Darr has been in direct contact with Wanzeler is unclear, however in justifying his subpoena requests, Darr noted that ‘TelexFree’s principals are unavailable‘.
In requesting permission to subpoena various companies who were in communication with TelexFree prior to their shutdown, Darr no doubt hopes to gain a clearer picture of the mess he’s been appointed to clean up.
Offering some insight into his long-term plans for TelexFree, Darr went on to reveal that
he has met with the Securities and Exchange Commission and the U.S. attorney’s office.
He notified TelexFree’s landlord that he would end the company’s $6,000-a-month lease of five offices, three conference rooms and cubicle space in Marlboro. Office furniture will be auctioned off, he said.
What the funds raised by the auction will go towards wasn’t specified, but it shadows action taken by the Zeek Rewards Receiver to recover as much funds as possible. Those funds were then used to pay back Zeek Rewards victims.
At the time of publication no decision has been made yet on paying out TelexFree victims, however Darr selling off what TelexFree assets are currently available to him suggests he’s not interested in resurrecting the business.
TelexFree CEO in hiding Stuart MacMillan’s dream of $50 million a month in retail VOIP sales is going to be pretty hard to realize without office space, furniture or equipment.
In my opinion, it’s far more probable that we’re seeing the first steps towards an inevitable Chapter 7 liquidation.
Darr’s subpoena requests were the first steps, as information gleaned will likely reveal a complete lack of legitimate business activity in TelexFree, thus providing the justification Darr will require to convert TelexFree’s current Chapter 11 application.
Bear in mind that’s probably still a ways off though. Once he’s received the information he requests, Darr still has to go through it all and then make a decision on the future of the company.
Meanwhile, stay tuned for reports out of Brazil that Darr sold TelexFree furniture and cancelled the office lease simply in order to upgrade it all.
I hear there’s an unfinished Best Western hotel somewhere in Brazil going pretty cheap…
In related news, long-time Ponzi lawyer Gerry Nehra has had his legal representation file an appearance. Multiple class-action lawsuits in which Nehra and his law firm have been named defendants are pending.
Faith Sloan has also filed a reply to the SEC’s response to her Motion to Dismiss the SEC’s case against her.
Despite a long history of Ponzi and pyramid scheme promotion, Sloan maintains she never
made any material misrepresentations in connection with the sale of a security or that she consciously intended to defraud anyone or acted with a high degree of recklessness in selling a security.
(The SEC) alleges that Ms. Sloan does not deny that it has stated a claim that TelexFree was engaged in an illegal Ponzi or pyramid scheme.
The fact is that Ms. Sloan does not have knowledge of whether TelexFree engaged in such a scheme or not.
In light of the probable complete lack of retail VOIP sales Sloan made as a top TelexFree investor, whether or not the court accepts her argument remains to be seen.
Footnote: Our thanks to Don @ ASDUpdates for providing a copy of Sloan’s response to the SEC.
The furniture sale and cancelling the lease is going to Darr for his expenses, the illegal pyramid victims won’t see a penny of it.
….but the Ponzi victims will
Don’t you both mean “willing victims”?
Unless the lease is paid in advance, cancelling the lease will be a cost to the bankruptcy trustee.
TF was clearly an illegal pyramid. At least some of the participants weren’t aware they were involved in an illegal pyramid, but the high level ones are serial scam artists.
Short term the lease may be a cost, but long term it will save money.
The SEC Complaint identifies them as “investors” and “promoters” of a “classic pyramid scheme.” The State of Massachusetts alleges that “while touted as a paradigm shift in telecommunications and advertising, Telexfree is merely a veiled pyramid and Ponzi scheme targeting the hard working Brazilian-American community.”
Doc-194, “SEC v Telexfree”, will allow Darr to direct the payment processor to retain all the funds located in UK based financial institution, account number xxxx6466, and to allow the payment processor to deduct funds from that account solely for the purpose of reimbursing disputes related to TelexFree. Until September 13 2014.
The first thing bankruptcy administrators will check is of course “Is there enough money here to pay me for my work?”. 🙂
The payment processor should be happy.
Under normal circumstances almost certainly. In bankruptcy?
It’ll be negotiated down, of course.
Regarding “insurance’, I think Darr was talking about business interruption insurance that insures damage/loss of use to business assets (inventory, equipment, etc.).
Its impossible to know what every one of these “willing participants” knew. There were a lot of lies.
Mac MIllan is not included in the list of Examinees.
I suspect so, on the other hand the trustee could seek to reject the lease entirely.
It will be interesting to see the RESULT of the investigation, the REPORT that normally should be published within the first few weeks (a little longer if the case is extremely complicated).
I’m particularly interested in how the Trustee will interpret the internal transaction system and Joe Craft’s role as a CFO, i.e. the internal control system they used to allow those types of “transactions” to be accepted.
So, no arrests, no recovery, inching towards Chapter 7. Sounds like the Justice System just wants this to be over with.
All the scammers will get away with it, some with frozen money and assets but all their first tier downlines walked away with all the money. This TelexFree case has become ridiculous.
This isn’t TV. Things don’t happen that fast. It’s only early stages.
IM(very)HO as a long term observer of these things, it’s progressing nicely.
Due process of law applies to the innocent and to the guilty, and anyway its only been a few weeks an this will take years to resolve so if it seems ridiculous to you now, wait a few years and reassess what ridiculous really looks like,