The Securities and Exchange Commission filed an amended complaint against TelexFree on May 27th, upgrading its case from a pyramid scheme allegation to a full-blown Ponzi scheme. This new filing directly challenged the company's core defense, systematically dismantling the claim that sustained the operation for years.
TelexFree executives, led by founder Carlos Costa, insisted their business sold real products. They claimed voice-over-internet-protocol (VOIP) subscriptions distinguished them from typical pyramid schemes. Monthly fees, they argued, sustained the company, making new recruits unnecessary.
The SEC's amended complaint annihilated this argument with a single fact: TelexFree generated only $1.3 million in retail VOIP sales over two years. This amount represented 0.1% of the funds required to pay affiliates.
To put that figure in perspective, TelexFree collected hundreds of millions from affiliates while accumulating $1 billion in liabilities. Costa's own logic suggested monthly subscription fees should cover everything. They covered almost nothing.
When Brazilian authorities halted TelexFree operations in their country, the company's leadership went to YouTube. Merril said enforcement actions happen to network marketing companies often. Wanzeler claimed TelexFree was "different from any other network marketing." Labriola echoed that these incidents occur repeatedly in the industry.
Gerald Nehra, TelexFree's attorney, appeared in another video, hammering the same point. He stated, "The special ingredient is that you have a real product." Costa himself recorded a defense, saying, "Never was, never will be an illegal pyramid scheme," based on the supposed VOIP service revenue.
The SEC's filing references these exact videos and statements. By introducing the financial data alongside Costa's own words, regulators established an undeniable contrast. Costa either misled affiliates about his company's revenue sources or showed catastrophic incompetence regarding his business finances. Neither option provides a defense.
The amended complaint strengthens the government's position substantially. What began as a pyramid scheme case now includes Ponzi scheme allegations. The original complaint landed on April 17th. This new version, filed just over a month later, shows the SEC uncovered enough additional evidence to fundamentally change the character of their case.
Thousands of TelexFree affiliates lost money believing they built a business around a real product. These new figures confirm what many already suspected. They were not selling VOIP services. They were feeding a system that paid early investors with new investor money. The company's retail VOIP sales amounted to just 0.1% of its required affiliate payouts.