TelexFree took in $689 million USD from affiliates in 2013, according to a profit and loss statement filed in Alabama. The document, an exhibit in an "application for interexchange authority," offers insight into the company's financial operations.
The statement listed affiliate commissions and other expenses at $652 million. This left TelexFree with a reported "net income" of $36 million for the year.
But this simple accounting does not align with TelexFree's business model. The profit and loss statement does not specify how much of the $689 million revenue came from AdCentral investment positions.
Assuming 50% of the revenue, a generous estimate, came from AdCentral investments, that equals $344 million. Dividing this by the $299 cost per position suggests 1.1 million AdCentral positions were generated in 2013.
Each position promised $20 per week for 52 weeks. This would create a cumulative liability of $1.14 billion dollars for TelexFree.
Even if all $622 million in commission payouts were attributed solely to AdCentral ROIs, ignoring every other commission type, a deficit of $518 million would remain going into 2014. This calculation excludes any other commission payouts TelexFree made.
The reason TelexFree abruptly changed its existing AdCentral investment positions becomes clear at this point. The company faced a near-impossible task meeting its AdCentral ROI liabilities for 2014.
Additional AdCentral positions invested in during 2014 would have increased these liabilities further. The company also paid out other commissions, adding to its financial burdens. Returns owed to affiliates would have easily topped $1 billion in 2014. The company took in substantially less money during that year compared to 2013.
High levels of re-investment, a common strategy among affiliate investors, pushed liabilities far beyond the real money entering the system. Someone at TelexFree likely crunched these numbers and hit a panic button. This explains the company's actions in the weeks leading up to the filing.
The compensation plan changes and lack of affiliate communication were poorly handled. Only Zeek Rewards, in the weeks before its SEC shutdown, had a similarly poor rollout.
TelexFree was undoubtedly unhappy about the public release of this information. The financials laid bare the impossibility of meeting AdCentral ROI liabilities in 2014.
In its Alabama filing, TelexFree requested confidentiality from the Public Service Commission, asking to file the profit and loss statement "under seal." The commission ignored this request.