SEC Files Securities Charges Against Massachusetts Company Over Pyramid Scam that Primarily Targeted Immigrants

The US Securities and Exchange Commission has filed fraud charges against TelexFree Inc. and TelexFree LLC over an alleged Pyramid scam that targeted immigrants-those from Brazil and the Dominican Republic, in particular. The agency sought and was able to obtain an asset freeze, securing millions of dollars.

Also facing charges are a number of TelexFree officers and promoters and several other entities as relief defendants. The Investors involved are located in Massachusetts and 20 other US states.

According to the SEC, the two entities made it appear as if they were operating a multilevel marketing company that sold phone service using VoIP technology when in fact this was a Pyramid scheme. The defendants sold securities as “memberships” along with the promise of 200% or greater yearly returns to people who promoted TelexFree via ad placements and participated in new member recruitment. $300 million was raised.

The Commission notes that the actual Internet phone services revenue for TelexFree was $1.3 million. Meantime, investors were promised $1.1 billion.

Earlier investors were paid “revenue” that was actually the money from newer investors. Meantime, at least $30 million in investor funds was moved from TelexFree operating accounts to accounts under the control of affiliates of Telexfree or individuals who are now defendants.

Pyramid Scam
In this type of fraud, participants make their money from getting new joiners to sign up. The premise is easy money for doing nothing besides getting others to also put in money.

Fraudsters will work to make their scam appear legitimate, pretending they have real products that they are selling and that this they are running a real multi-level marketing program. These schemes ultimately collapse when the promoter can’t bring in any more money or new investors.

Signs that the MLM program you are thinking of joining is a pyramid scam (From the SEC website):

• There is no actual product or service.
• The promise of high returns within a short time frame.
• Compensation or passive income is offered for doing hardly anything.
• There is no proven revenue from retail sales.
There is a buy-in fee • The commission structure is a complex one • Member recruitment is a primary focus of the business.

Contact our securities lawyers if you suspect that you were the victim of a Pyramid scam, a Ponzi scheme, Affinity fraud, or some other type of securities fraud.

Read the SEC Complaint (PDF)

Pyramid Schemes, SEC

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Ex-Merrill Lynch Adviser, Already Jailed for Massachusetts Securities Fraud, Now Indicted Over Ponzi Scam, Stockbroker Fraud Blog, March 4, 2014

US Supreme Court Hears Oral Argument on the Impact of SLUSA on the Stanford Ponzi Scams, Institutional Investor Securities Fraud, Institutional Investor Securities Blog, October 17, 2013
SEC Stops Former Marine’s Hedge Fund Fraud That Targeted Military Folk, Stockbroker Fraud Blog, August 12, 2013