Police in Brazil's Acre state are now investigating TelexFree for money laundering and other economic crimes. This new inquiry targets a company already fighting a court injunction that shut down its operations there.
The Specialized Police in Combating Organized Crime Taskforce (DECCO) opened the investigation. Their action followed a request from the Special Action Group for Combating Organized Crime. This marks the second public criminal probe into TelexFree.
The Brazilian Bureau of Consumer Protection launched the first investigation. That probe uncovered what its investigators described as evidence of crimes. The Bureau's findings then went to the Ministry of Justice and Finance.
The Ministry of Justice and Finance triggered the opening of a separate case by the Bureau of Defrauding. This investigation led to requests for arrest warrants against certain TelexFree members. A judge later rejected these warrants without explanation.
TelexFree says it plans to formally appeal the injunction that has effectively killed its business in Brazil. The company is shifting tactics. It will not defend its actual business model in court, a strategy that failed twice before in Acre.
TelexFree's lawyer, Horst Fuchs, attempted to blur the lines between multilevel marketing and Ponzi schemes in statements to the media. He suggested the government needs to legally define what is and is not allowed if the state wants to condemn MLM activity. The math tells a different story.
TelexFree charges affiliates $299. It promises a weekly guaranteed return of $20. Investors cannot sustain that return indefinitely without a constant influx of new money.
A balance sheet buried in TelexFree's financial paperwork would reveal how much money flowed in and how much the company owes each affiliate. That number does not add up. The company cannot pay out more than it takes in, a fundamental flaw in any Ponzi scheme.
TelexFree's Brazilian affiliates, seemingly blind to the mounting legal troubles, have launched their own defense. They are urging fellow members to write letters to the Acre civil court. These letters declare their "satisfaction with the company" as grounds to reverse the injunction.
Across the border, TelexFree's US operations continue as if nothing has changed. The company recently announced it would hold a "TelexFree Super Weekend." It completely ignores the criminal investigations closing in on the business in Brazil.