Secretary of State alleges billion-dollar Ponzi scheme by Marlborough company
Secretary of State William Galvin has filed a civil complaint against Marlborough marketing firm TelexFREE, alleging the company is “merely a veiled pyramid and Ponzi scheme” targeting hard-working Brazilian Americans in violation of state law.
According to the complaint, TelexFREE has raised $90 million in Massachusetts, and nearly $1 billion worldwide, through an “elaborate internet-marketing machine.” The allegations prompted federal agents to raid the company's Marlborough headquarters on Tuesday, the Boston Globe reported. Agents were acting on a search warrant, the U.S. Department of Justice told The Globe.
The complaint goes on to detail the way the system works, with people making an initial investment of either $289 or $1,375 in order to receive online advertising kits that allow them to make returns by posting pre-written advertisements to websites through an automated system.
But the 200-percent returns guaranteed to investors by TelexFREE are a mathematical impossibility, Galvin pointed out in his complaint. According to TelexFREE, 88 percent of investments made by Massachusetts participants were for the larger sum of $1,375.
“Even assuming that only 50 percent of all participant investments were for $1,375, TelexFREE would still owe ($2.39 billion) — a number that far exceeds TelexFREE’s reported total revenues over the same period,” the complaint read.
Earlier this week, the company filed for Chapter 11 bankruptcy protection in Nevada in an effort to revise its compensation plan for sales associates and restructure its debt. According to court filings, TelexFREE has liabilities between $100 million and $500 million, but assets of just $50 million to $100 million.
"As a result of the filing of the Chapter 11 cases, TelexFREE anticipates that it will have the time to build a solid foundation based on a compensation plan that rewards sales associates and promoters for customer acquisition," Stuart MacMillan, interim CEO, said in a statement.
Galvin is requesting a judge to order TelexFREE to cease all activities that violate state law and compensate investors for any losses incurred. Galvin is also fines against the company.
No one answered the phone at the number listed for TelexFREE’s Marlborough office on Wednesday afternoon, and the voicemail box was full.
According to the company website, TelexFREE was founded 14 years ago, and is a multinational corporation with operations in 40 countries. The company headquarters is located at 225 Cedar Hill St. in Marlborough.
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