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Was TelexFree VoIP A Pyramid Scheme In Disguise?

SIP Trunking Featured Article

April 24, 2014


Was TelexFree VoIP A Pyramid Scheme In Disguise?


By Steve Anderson
Contributing TMCnet Writer

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A combination of claims from the state of Massachusetts and from the Securities and Exchange Commission (SEC (News - Alert)) yield a package that doesn't look good for the company known as TelexFree Inc., as the claims in question suggest that TelexFree, which marketed itself as a provider of voice over Internet protocol (VoIP) service, was in the end nothing more than a pyramid scam that offered huge returns on minimal investment.


To that end, reports note that federal authorities have already frozen the assets of both TelexFree Inc. and TelexFree LLC following charges from the SEC. The company was said to offer a VoIP service that cost $49.90 a month, and targeted mainly Brazilian and Dominican immigrants to the United States with an offer that was almost staggering in content, according to word from the SEC. The company reportedly offered users the opportunity to invest $289 and place one advertisement for the company a day, and in turn get a return of $681 dollars. Those who were willing to invest $1,375 with the company and place five ads per day were promised fully $3,675. Returns weren't contingent on sales of the product, either, though word from the SEC suggests that the program was changed to requiring the product actually be sold before payments could be issued. Further reports suggest that the SEC had been investigating the company for quite a while before actually issuing the charges, and state regulators had been doing likewise, with investigations going back as far as April 2013. This is a move that may have proved costly, as while the investigations were going on, there were still plenty of people sending in money to TelexFree hoping for the returns as promised.

TelexFree's co-owner, James Merrill, reportedly noted that the company paid its representatives on a weekly basis, assuming that the system was followed and the advertising was carried out as directed back on March 1, 2013, but the sheer numbers involved in the affair told something of a different story. Reports emerged suggesting that the company had revenues of $1.3 million from August 2012 to March 2014, but the company had promised over $1.1 billion in payments. This may have, in turn, led TelexFree to file for Chapter 11 bankruptcy in Nevada back on April 14. Recovering the cash for those involved, meanwhile, may prove a tall order, as some reports suggest cash went in several different directions from TelexFree, including to other companies and to banks in Singapore and other places.

This is no doubt a distressing development for those involved, on all sides of the equation, and likely makes some think about the old aphorism of things that sound too good to be true probably being exactly that. Perhaps further worth questioning might have been the idea that anyone could charge $49.90 a month for VoIP service in a time when Skype is asking $13.99 a month for unlimited calls to large portions of the world, and just $2.99 for unlimited calls to the United States and Canada.


It's still a disturbing development, and one that paints the VoIP movement in an unpleasant light. There will always be issues like this in every technology, really, and at the end of the day, it only encourages us all to be more diligent about where investment is made.




Edited by Maurice Nagle

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