Will TelexFree’s ads hold up against the SEC?
I think we can all agree at this point that TelexFree’s new compensation plan has been hastily put together in direct response to the recently revealed Massachusetts Securities Division investigation.
Nobody seems to really understand it, the information that has leaked out thus far raises more questions than it answers and for reasons known only to themselves, the company has thus far failed to provide affiliates with any official documentation.
Acknowledging the confusion surround their new plan, TelexFree themselves just announced they are going to be holding “corporate training” event to explain the plan. The company expects affiliates to pay $169 each to attend the event, failing which they presumably are expected to remain in the dark about it.
Looking at the bigger picture, it’s not uncommon for a Ponzi scheme to try and re-invent itself once US regulators begin an investigation. The most recent and simultaneously infamous example being that of Zeek Rewards.
In the months leading up to the shutdown of Zeek Rewards, management were touting a merchant shopping network as a way to boost the then non-existent retail activity within the opportunity.
Similarly and in addition to announcing a new compensation plan, TelexFree is now promising to launch some sort of mobile app they’re calling “TelexApp”. What the app does or how it integrates into affiliate purchasing VOIP investment positions is currently unclear, but it’s a clear attempt by the company to shift focus away from the $20 a week ROIs they pay out on each AdCentral investment position.
Using Zeek Rewards as an example and keeping in mind the current SEC investigation into TelexFree, I think something being overlooked is the fact that when push comes to shove, any changes made to a Ponzi scheme after the fact simply don’t matter.
Driving this point home is the fact that in all of the court documents I’ve pored over relating to the Zeek Rewards case, I don’t recall seeing a single mention of their touted merchant shopping network. As far as the regulators are concerned, anything that was promised or planned to take place after the launch of the Ponzi scheme side of the business simply did not matter.
Given this, we can put aside TelexFree’s new compensation plan and app as neither of them are likely to be the focus of the SEC’s investigation. Instead, we’ll focus on what has been the company’s business model over the past two years.
Under the guise of having their affiliates advertise the business, TelexFree accepted $299 deposits from affiliates and in turn guaranteed them a $20 a week ROI for 52 weeks.
A quick Google search reveals that there are 92,400 results for the search term “get paid to post ads telexfree”:
A simpler search for the term “post ads telexfree” returns 707,000 results.
Indeed, it was only up until recently that TelexFree’s own website proclaimed:
The promoter will receive US$20 each week that makes 7 different announcements in websites of free announcements online, from Monday to Sunday.
“TelexFree Ads”, a website which claims to be “the best for TelexFree ads” and has over 155,000 or so TelexFree advertisements published on it, spells out this ad-posting requirement a little clearer:
The Telexfree Ads site was created to make life easier for promoters of Telexfree who need to post daily advertisements for the dissemination of the products and services of the company.
Simply put, no spammy ads – no $20 a week.
Now, given that the SEC have issued subpoenas commanding several individuals connected to TelexFree to appear before them this Wednesday, one might wonder what position US regulators take on having affiliates publish daily ads to collect an otherwise passive ROI.
Zeek Rewards had a similar daily ad-posting requirement to that of TelexFree. In exchange for a 0.8 – 1.5% daily ROI, Zeek Rewards mandated that their affiliates spam the internet daily with an ad promoting the business.
Affiliates were told to merely copy and paste free ads created by ZeekRewards into a free digital classified ad website. Affiliates then submitted the ad’s internet link to ZeekRewards to verify that they had placed the ad.
Courtesy of some documents recently filed in court by the Zeek Rewards Receivership (working in conjunction with the SEC), some insight into precisely how regulators view an ad-posting requirement can be gleaned:
In an unsuccessful effort to avoid the obvious legal infirmity of Affiliates simply buying points in return for the expectation of a share of the profits (like a stock purchase), ZeekRewards told Affiliates that in order to supposedly “earn” their points, they were required to place a short, free digital ad each day on one of the many free classified websites available on the internet.
The ad process was intended to be very simple and was widely advertised as taking only 3-5 minutes each day. For example, Burks routinely told Affiliates: “Placing an ad takes three to five minutes a day and can be done from anywhere there is an Internet connection.”
In reality, the ads were just an attempt to manufacture a cover for what was nothing more than the investment of money by Affiliates with the expectation of receiving daily “profit” distributions.
And there you have it. Make no mistake, should TelexFree officials rock up to the Massachusetts Securities Division this Wednesday and start harping on about how TelexFree isn’t a Ponzi scheme because their affiliates post daily ads, what happens next is a no-brainer.
That of course begs the question as to what exactly are TelexFree going to tell the SEC on Wednesday?
As observed earlier today by Patrick Pretty, despite his presence as a “special guest” being heavily marketed by the company, MLM attorney Gerry Nehra was a no-show at the recent TelexFree event in Spain last weekend.
After being billed as headliners, neither Brazil-based TelexFree executive Carlos Costa nor American MLM lawyer Gerald Nehra appeared on the stage to accept awards.
U.S.-based TelexFree marketing executive Steve Labriola walked onto the stage to accept Nehra’s award.
“This is for Jerry,” he said. “I was asked to come up and receive this for Jerry.”
Labriola did not say who asked him to accept the award on Nehra’s behalf.
Nehra does “most of our corporate law,” Labriola said. “He’s a great man. And he also works long hours, like all of you out there, and I [will] be honored to give this to him.”
Whether or not Nehra was busy working on handling the SEC subpoenas issued to his client is unclear. However if he was, comparisons between TelexFree and Zeek Rewards get eerily full-circle.
In a secret meeting held in 2011, Zeek Rewards mastermind, CEO and owner Paul Burks fielded the following question from one of his assembled top affiliate-investors:
How tight it the relationship with Nehra? What are the couple (Gerry Nehra and Richard Waak) putting in legally?
When we started this in January, we put the program together in a way that I thought was solid, completely solid. And we discovered, early on, that there were some lightning rods in there that had caused other companies to have problems.
That’s when we initially contacted Gerry Nehra. Nehra had done some legal research for me in the past with “Free Store Club” years ago.
Seven of our key players in Zeek Rewards had a relationship with him and wanted to get him involved, cuz he’s, he’s probably the number one MLM lawyer in the world.
Just having him on retainer and having him on our team, it goes a long way from keeping anybody from launching an attack. Because generally when Gerry Nehra is involved, the Feds know that he’s cleaned up the act really well.
A year later in 2012, the SEC shut down Zeek Rewards for being a $600M Ponzi scheme.
Prior to Zeek Rewards, Nehra testified that another advertising-related Ponzi scheme shutdown by the SEC, AdSurfDaily, was “not a Ponzi scheme”. A Judge later ruled that AdSurfDaily was indeed a Ponzi scheme. Its owner, Andy Bowdoin, was later sentenced to 78 months in federal prison.
Back in February of last year Nehra issued BehindMLM with a cease and desist, claiming that
The TelexFREE business model in the USA is NOT an investment, uses NO investment language, and pays ONLY on the sale of its VOIP long distance product.
Whether or not TelexFree will be “third-time lucky” or “three strikes and your out!” for Nehra remains to be seen. Speaking in a “private conversation” with a TelexFree affiliate-investor at the recent Madrid event, co-owner Carlos Wanzeler declared he “has no concern” over the SEC’s TelexFree investigation.