Eighteen TelexFree “victims” have won the right to “challenge the accuracy of TelexFree’s records”.

It’s a bit of an odd decision, seeing as the “victims” have had plenty of time to prove their claims.

The eighteen TelexFree investors (Appellant Participants) who have challenged TelexFree records are:

  1. Abdeltif Bellagat
  2. Abdelkhalak Toqi
  3. Rachid Moukhtari
  4. Joseph Nasr
  5. Ruben Nieves
  6. Merilio Rojas
  7. Hazem Wehbe
  8. Theresa St. Peter
  9. Peter Said Rahhaoui
  10. Marcio Costa
  11. Saif Muhsen
  12. Panagiotis Iatrou
  13. Manal Hamadi
  14. Hubert Lubin
  15. Carlos DeAlvarenga
  16. Rahima Boughalem
  17. Earley Barbosa and
  18. George Berube

Given the circumstances, these appear to be net-winners trying to game the system.

Many participants held multiple user accounts, each reflecting different transactions.

Some, like Appellant-Participant Panagiotis Iatrou, recalled having as many as thirty different user accounts.

User accounts varied in the amount and quality of personal information supplied.

Logic would suggest legitimate victims don’t hold thirty accounts in a Ponzi scheme. Scammers do.

In any event, the affiliates have challenged an algorithm put together by Timothy Martin of Huron Consulting Group.

The algorithm utilized the self-reported personal information associated with each user account to link user accounts to participants.

Martin’s algorithm has been challenged by TelexFree net-winners in the past. At a hearing held earlier this year, Judge Hoffman found the output of Martin’s algorithm was, as District Judge Woodlock puts it, “potentially unreliable”.

This is due to a number of technical shortcomings, which are attributed to Martin

never (haveing) dealt with the issue of “multiple user accounts and the need to link those accounts” in his experience as an accountant.

Specific shortcomings highlighted in District Judge’s order include:

  • it isn’t possible to group accounts “too dissimilar” in name;
  • the algorithm didn’t take into account false or misspelled names;
  • the data fed into Martin’s algorithm, sourced from TelexFree, was of “poor quality”;

In summary Martin assumed the data provided by scammers would be accurate. He wasn’t aware of the tricks scammers get up to in MLM Ponzi schemes.

To be fair, TelexFree bears some of the responsibility here too.

TelexFree structured its business practices to ensure that there would be little evidence of participant transactions.

Despite the observed technical shortcomings, Martin’s algorithm was approved for use in claim determination.

Where the eighteen affiliates challenging the findings failed, is in being able to claim they owned accounts and funds attached to them.

In many cases the supporting documentation was limited to a “TelexFree Participant Questionnaire.”

Some participants provided explanations for the lack of documentation, for example, that they paid cash and were not provided with a receipt or were locked out of the TelexFree database.

Others provided third-party affidavits supporting their proofs of claim, copies of an agreement with TelexFree, or otherwise unexplained handwritten notes.

Still others stated in their questionnaires that documentation may exist, but they did not provide it. A few participants were able to document their claims with bank statements and checks.

I’m simplifying things a bit but basically the court ruled: no proof, no claim.

When proof was provided, it typically resulted in the affiliate being classified as a net-winner.

Many of these claims, Mr. Martin concluded, provided insufficient documentation to support their claims that they made payments to TelexFree.

Some Appellant-Participants provided documentation of their payments, Appellant-Participant Carlos Dealvarenga for example, but Mr. Martin identified additional accounts attributable to them with positive balances that outweighed any documented payments to TelexFree. Mr. Martin concluded that the participants were “net winners” and ineligible to bring claims.

This resulted in a request for time to provide additional records.

In the end none were provided. Instead the affiliates provided template affidavits.

In April 2020, Appellant Participants provided additional supporting documentation for their claims.

These documents included boilerplate affidavits in which participants asserted that they were “net losers,” filled in their claim amount, and detailed to varying degrees their transactions with TelexFree.

Just trust us bro.

In an affidavit in support of the Trustee denying claims by the eighteen affiliates, Martin stated the disputed

transactions or accounts were modified by participants without sufficient documentation.

The bankruptcy court signed off on the claim denials in August 2020.

The denied claims prompted the affiliates to file an appeal, requesting

a full trial on the merits to address material factual disputes surrounding proof of payment and recordkeeping by TelexFree.

The Trustee maintains

an evidentiary hearing is not required because the participants failed to provide the required supporting documentation for their claims.

In granting the request for a hearing, District Judge Woodlock stated

Even if the TelexFree database did contain full and accurate transaction history for each of the Appellant Participants’ user accounts, Mr. Martin’s algorithm may not have aggregated all of those accounts and linked them to the correct Appellant-Participant.

I do not find the Trustee’s evidence substantial enough to overcome the prima facie validity of the Appellant-Participants’ claims when that evidence has not been fully evaluated in an evidentiary hearing.

(The Appellant Participants) must have the chance to test the reliability of the Trustee’s aggregation process, particularly given the concerns recently expressed by Judge Hoffman.

I don’t have a timeframe for how long this is going to take to play out.

What I can see happening is no matter how long it takes, the evidentiary hearing is going to eventually going to find itself having to address the “just trust us bro” issue.

Granting “just trust us bro” claims opens the door for “Hi guys, I invested eleventy billion dollars across eleventy billion accounts. No proof. Money please?” nonsense.

My take is at the end of the day if you participate in a Ponzi scheme you’re not entitled to recovery.

If you can’t clear the bar of account ownership and providing financial records, that’s on you.

It’s by no means a perfect system and admittedly some net-losers will be caught out. But I can’t see any other way around the “just trust us bro” impasse.

I’ll keep an eye out for updates on proceedings.