TelexFree's court-appointed Trustee, Stephen Darr, filed a critical response to the SEC's amended complaint, effectively shutting down any hope of a business reorganization for the alleged pyramid scheme. The filing, submitted after the original deadline for TelexFree's answer, reveals the Trustee's preliminary findings.
Darr's response, based on his initial investigation, admits TelexFree operated as a Ponzi or pyramid scheme. The company claimed to sell Voice-over Internet Protocol (VoIP) telephone service plans. In reality, it promised investors payments for placing internet ads and recruiting others, a classic multi-level marketing fraud.
The Trustee agrees with the SEC's core allegations. He states the individual defendants' actions involved fraud and deceit. These actions created significant risk of substantial losses for many people, including the debtors themselves.
The response aligns with nearly all the SEC's claims, though Darr avoids explicitly naming individuals in the fraud. Subpoenas for information on these people have gone out to TelexFree-related parties. Their replies will show the full extent of individual involvement in the described "fraud and deceit." In the interim, the Trustee repeatedly notes that the SEC's allegations against the named individual defendants are "believed to be accurate."
TelexFree's top promoters, who have moved to dismiss the SEC's case against them, are specifically addressed. The Trustee believes allegations about Rodrigues's knowledge or reckless conduct are accurate, stating he aided and abetted the Ponzi/pyramid scheme. He also believes the allegations regarding Mr. De La Rosa's knowledge or reckless conduct are accurate, and that he aided and abetted the scheme. Crosby, the Trustee notes, knew or acted recklessly in promoting TelexFree and aided the scheme. The Trustee finds allegations accurate that Sloan knew or was reckless in her promotion of TelexFree, and that her activities aided the fraudulent pyramid scheme.
The most significant detail in Darr's filing concerns TelexFree's future. Any hope of a "business reorganization" is now gone.
In response to the SEC's third claim for relief, Darr wrote: "The Trustee has assumed control over each of those entities' estates (TelexFree Inc. and TelexFree LLC.), they have ceased operation, and the Trustee has no intention of reorganizing or reactivating their businesses." This statement comes before the Trustee has fully reviewed all subpoenaed information.