Brazilian regulators denied TelexFree's bankruptcy protection application this Monday, thwarting a bid to halt investigations into the company's alleged Ponzi scheme. Separately, prosecutors blocked an $8.6 million fraudulent transfer attempt by BBOM on Tuesday, showing intensified action against financial fraud. These actions set an example for other countries facing similar scheme frauds.

TelexFree filed its bankruptcy protection application in the Brazilian state of Espirito Santo late last week. The filing, submitted on Thursday, appeared to be a desperate move to stall ongoing investigations. Granting bankruptcy protection would have automatically suspended all probes into the scheme for 180 days.

To win its application, TelexFree needed to present a judge with a "recovery plan." This plan could not use "assets and bank accounts blocked by the (Acre) injunction" to settle debts.

TelexFree's proposed plan argued that Ympactus Commercial LTD was a separate company from TelexFree, despite having the same owners. The core of this argument claimed TelexFree could pay off Ympactus' debts, presumably using Ympactus' money. Ympactus itself could not use the funds frozen by the Acre injunction, but TelexFree could.

Ympactus also stated it had "severed ties" with TelexFree. It claimed it would seek a partnership with another VOIP provider if the bankruptcy protection was granted. This new partnership would aim to regain its Brazilian VOIP market share. TelexFree presented this logic in court, labeling the Acre injunction as "teratological, illegal and unconstitutional."

The judge rejected TelexFree's arguments and denied the application. Judge Braz Aristóteles dos Reis, hearing the case, first noted that TelexFree and Ympactus appear as one company in the public eye. Both entities also list James Merril as their owner in official company documents.

Brazilian law requires any company listed as a credit source in a bankruptcy protection application to show active operation for at least two years. Ympactus failed this test, with its tax filings only dating back to 2012.

TelexFree's lawyers tried to argue Ympactus had been in business since 2010. The judge dismissed this claim after reviewing tax filings for September and October 2011. These showed reported revenues of R$63 ($28.63 USD) and R$21 ($9.54 USD) respectively, indicating minimal, if any, active business.