The Department of Homeland Security raided TelexFree's offices on April 16, 2014, hours after the company's website went offline. This action followed widespread misinformation circulating among affiliates, who claimed the company would restart operations the next day.

Misinformation spread rapidly among TelexFree affiliates, particularly Portuguese speakers, claiming the company would restart operations on April 17. Social media posts, such as one by Santiago D Apostle, asserted "the motion for Chapter 11 bankruptcy is approved... and the company is given the chance to reorganize and restructure inspite of the SECs complaint filed against TelexFREE."

This claim misrepresented a court order from Judge August B. Landis. The order merely granted TelexFree "shortened time" for a hearing on its "first day motions and applications" in its bankruptcy case. This hearing was set for April 17 at 1:30 PM.

But the Massachusetts Securities Division had already signaled its intent to challenge TelexFree's bankruptcy filing. Its complaint, filed April 15, detailed the company's "Chapter 11 bankruptcy shenanigans." The complaint noted TelexFree's changes to its passive income scheme on March 9, 2014, making withdrawals more difficult. The company also switched its compensation plan from dollars to "TelexFree 'credits'," which the division described as "nothing more than IOUs." TelexFree had filed for Chapter 11 protection in Nevada on April 14, 2014.

Secretary of State William Galvin voiced concerns that the bankruptcy filing could limit efforts to protect investor assets. "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." Galvin's office aimed to prevent TelexFree from using bankruptcy protections meant for legitimate businesses.

Further scrutiny of the bankruptcy application revealed that TelexFree had listed "relatives, wives and friends of Telexfree" management among its top 30 creditors. Jozelia Sangali, listed as the top creditor, was owed $1.3 million USD. Sangali is also the wife of TelexFree owner Carlos Costa. The company's bankruptcy filing appeared to be a tactic to avoid its liabilities.