Much importance has been placed on the Ernst & Young report on TelexFree that was due out this month.

Despite the
SEC’s case against TelexFree
,
criminal proceedings
currently taking place against its owners and Trustee
Stephen Darr’s damning evaluation
of the company earlier this month, many Brazilian investors believed the Ernst & Young audit would somehow absolve the company.

Those hopes appear to have been dashed, with preliminary reports of Ernst & Young reports confirming fraudulent activity has been found.
After a series of delays, attributed to the complexity of auditing TelexFree’s business operations, Ernst & Young’s report was due on the 11th of February 2015.

Thus far Judge Borges, currently hearing the case, has only
acknowledged receipt of the audit
.

According to information obtained from the Acre Court, the magistrate of the 2nd Civil Court, Thais Borges, who is responsible for the Telexfree case, acknowledged receipt of the expertise, but stated that she will not provide any information or summary of the content.

“The magistrate will not provide any information to the press. It will not speculate, because in their understanding, speculation can harm the (judicial) process, since (the case) has not yet reached the final stage, that is the conclusion, ” she said through an assistant.

“Those who would like information about what is contained in the report can get it through TelexFree company representatives involved or even the MPE,” concluded the assistant.

Already it would appear those interested in the report have done just that, with several reports written about the contents of Ernst & Young’s audit.

At the forefront of the information released thus far, is the claim that ‘
that there is evidence that the activities of Telexfree have characteristics of a “financial pyramid”
‘.

The term “financial pyramid” is commonly used in Brazil to describe what are otherwise known as Ponzi and pyramid schemes.

For more information we turn to Acre Alert, a blog otherwise known for being quite pro-TelexFree, who have published what they claim are various excerpts from Erst & Young’s audit:

Sale and viability of the product or service

We observed evidence that even in a “financial pyramid” there can be the existence of a product or service, but with low utilization.

The results of our tests (in relation to TelexFree) indicate that in addition to low utilization of minutes (there were) limitations regarding the guaranteed functionality of the product.

Telexfree guarantees providing only 10% (ten percent) of quality service and does not allow the use of the minutes made available for commercial activities.

We also note that (i) the principal advisers did not use the minutes that they had at their disposal; and (ii) the use of minutes of Telexfree Network comprises 0.23% (twenty three percent) of the total available to its users.

Describing what is otherwise known as a “product-based pyramid scheme”, where a product is attac

🤖 Quick Answer

What did the Ernst & Young audit reveal about TelexFree?
The Ernst & Young audit confirmed fraudulent activity within TelexFree's operations. The report, completed after delays attributed to the complexity of auditing the company's business model, was submitted in February 2015. Judge Borges acknowledged receipt of the audit, which provided evidence supporting claims that TelexFree operated as a Ponzi scheme.

Why was the Ernst & Young report considered significant by Brazilian investors?
Many Brazilian investors believed the Ernst & Young audit could potentially exonerate TelexFree despite ongoing SEC litigation and criminal proceedings against company owners. The independent audit's credibility as a major accounting firm made it a pivotal document that investors hoped would restore confidence in the company's legitimacy and operations.

What circumstances delayed the Ernst & Young audit's completion?
Ernst & Young attributed delays in completing the TelexFree audit

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