TelexFree Reaching Out to Investors, Creditors

TelexFree LLC has come under siege in recent weeks by federal prosecutors and securities regulators, which have alleged the company is behind a $1 billion-plus pyramid scheme.  Now, the beleaguered company faces the daunting challenge of notifying hundreds of thousands investors worldwide about its pending bankruptcy.

Based in Marlborough, Mass., TelexFree used multilevel marketing to assist in the distribution of voice over Internet protocol (known as VOIP) telephone service plans for unlimited international calling to approximately 70 countries. Investors were promised annual returns of 200% or more for recruiting new members and placing TelexFree advertisements on free ad sites. According to court papers, TelexFree had about 700,000 such investors around the world.

Since the company filed for bankruptcy protection in April, the Securities and Exchange Commission filed civil fraud charges against the company, its owners and several of its most senior promoters, which the company disputes. Its two co-owners also face criminal charges. And the bankruptcy judge overseeing TelexFree’s Chapter 11 case is expected to turn over control of the company to an outsider, called a trustee.

Now, those investors—approximately 75% of whom are located outside the U.S.—are left wondering whether they’ll recover their money. First, though, the company has to track all of them down.

In many cases, the company has nothing more than an email address with which to contact potential investors, collectively owed more than $1 billion.

The U.S. Bankruptcy Court in Worcester, Mass., where TelexFree’s bankruptcy is pending, has a dedicated page on its website to assist creditors in filing claims. Proof of claim forms, or court documents that assert a creditor’s right to receive a distribution from a bankrupt company, can be filed directly with Kurtzman Carson Consultants.

“I am convinced to the core that the right thing to do was to place [TelexFree] into bankruptcy,” Joseph Davis, a lawyer for TelexFree, said at a bankruptcy-court hearing Tuesday. “I think the bankruptcy courts are in a unique position to sift through the complex claims process. It’s going to take a while, but ultimately I think this is the best venue worldwide.”

The Federal Bureau of Investigation has also created a webpage and survey seeking “customer assistance” for investors and promoters who believes they have been defrauded. The FBI says the survey is meant to aid the ongoing criminal investigation and to identify victims of the alleged fraud.  The FBI survey isn’t a substitute for a proof of claim in TelexFree’s bankruptcy.

Write to Tom Corrigan at [email protected]. Follow him on Twitter at @TomCorrigan_.