We hate reporting new fraud stories. It seems no more than a few days elapse before another Ponzi scheme comes to light. While none have reached the level of Bernie Madoff’s tragic Ponzi scheme, several have joined the billion dollar club. The newest entry is TelexFree, a voice over internet protocol telecommunications company based in Marlborough, Massachusetts. According to complaints filed this month, the company is a massive Ponzi scheme.
Within a few days this week, TelexFree filed for bankruptcy protection in Nevada, the SEC charged the company and its principals with running a $1.1 billion Ponzi scheme, the State of Massachusetts Securities Division filed an administrative complaint against the company and heavily armed FBI, Homeland Security agents and sheriff deputies raided the company’s corporate offices. Not a good week for the company and an even worse week for investors.
If the allegations are true, TelexFree has accrued over $1 billion dollars while only generating $1.3 million in sales. That means for every dollar invested, just once cent in sales revenues.
Where did the money go? In true Ponzi scheme fashion, newer money was used to simply pay off old investors.
The SEC claims that investors were promised an annualized rate of return of between 200 and 250%. Obviously, such rates of return are not sustainable.
In addition to using new investor money to pay off old investors seeking to cash out, the government says that the company diverted $30 million to itself and its officers. At the time of the police raid, a Bristol County deputy sheriff states he caught TelexFree’s CFO trying to sneak $38 million in checks out the door.
We are not sure how TelexFree investments were being marketed. While we know that many people invested directly, we suspect that a few stockbrokers or other professionals may have tried to cash in on the action as well and that can be good news for investors.
While trying to make every victim whole is a daunting challenge, stockbrokers who sell these investments can be held responsible for failure to conduct due diligence on these investments. (We suspect that even the most basic investigation should have concluded that a 250% annualized rate of return was not legitimate or sustainable.)
The claims against TelexFree are only allegations at this point. Like all defendants, the company is entitled to its day in court.
It appears that most investments in the company were quite small but we know there are some larger ones too. If you lost $100,000 or more and purchased your investment through a stockbroker or other financial profession, please give us a call. Most securities cases can be handled on a contingent basis meaning no fee unless we recover your money. For more information, contact the author Brian Mahany at or by telephone at (414) 704-6731 (direct).
Mahany & ertl – America’s Fraud Lawyers