SEC Charges TelexFree For Being Billion Dollar Ponzi Scheme

Stuart A. MacMillan, Interim CEO, TelexFREE


Secretary of State William F. Galvin on Tuesday charged a Marlborough marketer of online phone service with running a billion-dollar pyramid scheme, primarily targeting Brazilian immigrants.

TelexFREE Inc. has offered fraudulent and unregistered securities in Massachusetts by running a multi-level marketing scheme, Galvin’s office alleged in its complaint, a copy of which was reviewed by the Globe, attracting as much as $90 million in the Massachusetts alone.

“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,’’ the complaint said. It was not yet known how much money Massachusetts people have lost in the scheme.

Meanwhile, the company filed for federal bankruptcy protection Monday in Nevada, according to a note on its website. Galvin’s office had been investigating TelexFREE’s alleged scheme for several months, and with Tuesday’s action aimed to protect some assets for victims – an effort that could be thwarted by the bankruptcy filing.

“They clearly are responding to the fact that an investigation was underway,’’ Galvin said in an interview.

“Now the thing is to act promptly and get whatever we can for these people.’’

A phone call to the company went unanswered, and the voicemail was full. “We anticipate that our global operations will continue to provide our customers with the high-quality products and services they have come to expect,” said Stuart MacMillan, interim chief executive officer of TelexFree, in a press release announcing the bankruptcy filings.

According to Galvin’s office, the company employs eight people in its Marlborough headquarters.

TelexFREE was ordered to shut down last summer in Brazil, after a judge ruled it a “financial pyramid” scheme, according to news reports.

Galvin’s complaint says the company has raised over $1 billion worldwide, “often from honest earnings and savings accounts of Brazilian-Americans and other minorities.’’

The scheme works by constantly bringing in new money, the state alleged. For instance, participants are recruited to invest either $289 or $1,375, and receive a number of advertising kits in return. By posting ads on web sites to promote the product, the participants are promised returns of 200 percent to 250 percent.

To drum up interest, TelexFREE would hold “extravanganzas” with large crowds and presentations promising cash and luxury items. In one such presentation, the state alleged, TelexFREE touted its “Passive Income Scheme” as the opportunity of a lifetime.

Galvin’s office is looking to require TelexFREE to cease and desist from its sales activities, and to provide an accounting of all the money it received as a result of its alleged wrongdoing. The regulators, in the state’s Securities Division, also are seeking to force the company to compensate investors for their losses, to disgorge any profits improperly earned, and to pay a fine.

Source: Boston Globe

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