TelexFree owner Carlos Costa suggested this week that another company could take over debts owed to affiliates, a move reminiscent of Speak Asia's failed attempt to restart operations in India. Costa spoke in a YouTube video, outlining a plan for affiliates who have not recovered their initial investments.
Speak Asia, facing fraud allegations in India, had floated a similar idea: refunding investors who had not yet received a 100% return on investment. The company argued this would allow authorities to permit a "restart of operations." Many Speak Asia investors still believe this will happen.
Ponzi schemes often propose such "exit payments" by using funds already trapped within the system. These are typically monies re-invested by participants expecting a larger future return. The scheme counts these re-invested funds as having been paid out, even though the actual cash remains with the company. The company then pays out those who have not re-invested, hoping authorities will grant a "free pass."
The core of this strategy relies on the company being allowed to recruit new investors to cover deficits. It also depends on paid-out participants re-investing their money, trapping it back in the system. Ultimately, this only delays the inevitable collapse of any Ponzi scheme.
Speak Asia's proposal ultimately failed when the Supreme Court of India ruled the company was wasting its time. But the tactic bought Speak Asia about twelve months of delays in court proceedings.
TelexFree's proposal, expected to be submitted to court next week, aligns with conditions Acre's Public Prosecutor's office previously set during a failed mediation meeting. Prosecutors had suggested TelexFree officially shut down in Brazil and pay out as much money as possible to affiliates, likely through a receivership. TelexFree rejected that proposal because it did not want to cease operations.
Costa stated that any return would only cover the initial investment, not the promised 52-week returns. He specifically mentioned "people who came in through the Telexfree Ympactus in Brazil, invested their money in our VoIP accounts and did not return money." Costa did not name the company that would make these payments. Without other revenue streams beyond affiliate investments, the money would likely come from TelexFree investments made in other parts of the world.
This approach creates a cashflow deficit. The company then hopes to recover this through re-investment of paid-out funds and new investment once "re-opened." The proposal also raises questions about paying participants while a company faces criminal investigation for operating a Ponzi scheme.
The Supreme Court in the Speak Asia case deemed it improper to allow any money to flow through the company while it was under criminal investigation. This common-sense ruling took roughly a year to establish. During that time, Speak Asia rallied affiliates with promises of returns if only authorities would allow payments. This strategy was so effective that many still hold out hope for future payouts.
Acre's Public Prosecutors or the presiding judge should review the Speak Asia precedent to avoid similar delays. Speak Asia managed to suspend criminal investigations while its self-created confusion was sorted out. That case has now dragged on for two and a half years.