A Brazilian court yesterday suspended all operations of TelexFree, a multi-level marketing company, following a civil action from public prosecutors in the state of Acre. The order halted new affiliate registrations, new investments, and payment of returns owed on existing affiliate investments, effective immediately. Judge Thais Borges of the 2nd Civil Court of Rio Branco issued the nationally binding injunction, affecting "the promoters of Telexfree across the country or outside."
News of a criminal investigation against TelexFree broke in February. The company's attempt at US market penetration had already begun stalling. Brazil's Ministry of Finance later declared TelexFree "not sustainable" and labeled it a Ponzi scheme. Court action escalated, leading to an order prohibiting the Ministry of Finance from issuing further statements and requiring the removal of previously published information about the ongoing case.
TelexFree affiliates with significant investments circulated misinformation. They claimed the investigation had been "absolved," citing the order against the Ministry of Finance. This campaign aimed to reassure existing and prospective investors that the company's Brazilian regulatory problems were over.
Public prosecutors in Acre spearheaded the recent court action. Brazil's Globo news outlet reported the Rio Branco court upheld the prosecutor's civil action. The ruling suspended payments and new contracts for TelexFree until a final judgment on the principal action. Violations carry a daily fine of R$500,000.
Nicole Gonzales from Brazil's Consumer Protection body held a press conference immediately after the order was handed down. "Owners of the company are suspected of mounting a financial pyramid," Gonzales stated. "Telexfree in Brazil recruits investors and creates a pyramid scheme under the guise of multilevel marketing."
Gonzales drew a distinction between TelexFree and established multilevel marketing companies like Herbalife, Mary Kay, and Tupperware. "They work with this system," she said. "In the case of Telexfree, the interest is not to sell products but to recruit new people. The focus of Telexfree in Brazil is not the sale of products or services, but membership new people to feed the payment system."
The court's measure prevents new individuals from becoming involved and potentially harmed by the scheme. An additional order blocked the bank accounts of TelexFree's administrative and management staff.
TelexFree responded to the decision by uploading a video to YouTube. The company claimed it had not yet received official notification of the decision. It stated it was taking all measures to overturn the Acre Justice injunction.