Brazil's Ministry of Finance declared TelexFree a Ponzi scheme after its own investigation into the multilevel marketing company. This damning conclusion came weeks after the country's Bureau of Consumer Protection completed their probe, identifying "several controversial issues and possible crimes" within the company's operations.
Procon, Brazil's consumer watchdog, began investigating TelexFree in January 2013. The agency finished its work in February, forwarding findings to the State Prosecutors Office, Federal Police, and the Ministry of Finance. The Ministry of Finance then conducted a separate inquiry.
That separate inquiry reached a stark conclusion: TelexFree's business model is "not sustainable." It bears all the hallmarks of a Ponzi scheme, which constitutes a crime against the popular economy in Brazil.
The Ministry's statement, released through the Secretariat for Economic Monitoring, targeted the parent entity, Ympactus Comercial LTDA. Investigators found that while Ympactus may have partnerships with mobile and fixed-line operators for VoIP services, these relationships did not authorize an unsustainable scheme.
The core problem remained straightforward. TelexFree sold VoIP packages while recruiting new members into a structure resembling a pyramid. Investigators identified two key irregularities. First, the company stimulated an informal economy where the most substantial financial gains did not come from product ads. Instead, profit came from the entry of new publishers into the network.
Second, the system could not function without constant recruitment. No new members meant no advertised gains. This defines a pyramid scheme, where profits depend entirely on bringing in fresh recruits rather than selling a legitimate product.
The VoIP service itself served as window dressing. Real money came from getting people to buy into the network and recruit others below them. This matched the AdCentral component of TelexFree, where participants made money primarily through new recruits, not from selling telecommunications services.
Neither the State Prosecutors Office nor Federal Police has announced action based on Procon's findings. The Ministry of Finance's investigation could prove more consequential. Its formal conclusion that TelexFree operates an illegal Ponzi scheme gives prosecutors a powerful foundation for potential charges.
TelexFree operated from Brazil but recruited internationally, drawing victims across multiple countries. The company has since shut down operations in many markets, though it continued in some jurisdictions even after Brazilian authorities began their crackdown. Thousands bought into promises of easy money through internet phone service sales that never materialized into legitimate income.