3 May 2014

The TelexFree Bankruptcy Hearing - a summary of the results of proceedings


TelexFREE, accused of operating a $1.1 billion pyramid and Ponzi scheme, had its lawyers slug it out with government lawyers in a pivotal hearing yesterday, Friday May 2nd, 2014 in a Nevada bankruptcy courtroom. The major issue at stake was the three-week old bankruptcy case filed by TelexFREE.

Telexfree Bankrupty Hearing in a Nevada courtroom

TelexFREE LLC, which had on April 13, 2014 declared bankruptcy with two related entities and sought protection under the US Chapter 11 Bankruptcy Code, is seeking to continue bankruptcy court proceeding to strengthen its voice-over-internet-protocol (VoIP) business incapacitated by crippling payment obligations it currently owes its business marketers (aka "promoters").

The Securities and Exchange Commission, SEC, and other agencies dispute this description, instead alleging that the bankruptcy proceeding is a sham and that, in reality, TelexFree was a massive fraudulent scheme that may have raised over $1 billion from victims based on the guise of a nearly non-existent VoIP business.

Summary Of The May 2nd TelexFREE Bankruptcy Case

Yesterday 2nd of May 2014, over 10 motions were brought forward by both TelexFREE and the SEC in the Nevada Courtroom Bankruptcy case presided over by Honorable August B. Landis.

Among the motions, which the hearing was to decide on, were the SEC’s request to move bankruptcy proceedings to Massachusetts, the Department of Justice's (DoJ’s) request that a Chapter 11 Trustee be appointed, TelexFree’s objections to the Temporary Restraining Order (TRO) against it, the final First Day Orders, and "whether the interests of creditors and the various debtors are better served by the suspension of all (bankruptcy) proceedings in these jointly administered cases."

In all, there were fourteen motions to be heard.

Hearing for the motions started at 12:30pm EST. Unfortunately, however, all the motions could not be heard. In the end, however, no specific ruling was made by the presiding judge Landis who will most probably be going to work on his orders over the weekend with an intention to rule in open court on Monday next week, as the next hearing has been scheduled for Monday, 5th April 2014.

The following interim orders** were, however, issued:

1). Docket #0158 (Date of filing: 02 May 2014):
Interim order (a) authorizing debtors to pay (i) all prepetition employee obligations, (ii) the independent contractors’ fees and (iii) the contracting agencies’ fees; and (b) directing the disbursing bank to honor related transfers.

2). Docket #0159 (Date of filing: 02 May 2014):
Interim order (i) authorizing the debtors to pay prepetition income, franchise and similar taxes and regulatory fees in the ordinary course of business, and (ii) authorizing banks and financial institutions to honor and process checks and transfers related thereto.

3). Docket #0161 (Date of filing: 02 May 2014):
Hearing Scheduled/Rescheduled. Hearing scheduled 5/28/2014 at 11:00 AM at ABL-Courtroom 1, Foley Federal Bldg. (Related document(s)148 Motion for Approval of Procedures filed by Debtor TELEXFREE, LLC, Jnt Admin Debtor TELEXFREE, INC., Jnt Admin Debtor TELEXFREE FINANCIAL, INC) (ccc) (Entered: 05/02/2014).

For a detailed list of all TelexFREE-related court documents and filings, please see KCC TelexFREE Court Documents.

Editor's note:
I'm not a lawyer but having gone through the docket filings linked to above, and bearing in mind that it is still very premature to conclude anything, it does seem to me that TelexFREE appear to be winning its case in the current Bankruptcy case.

On the other hand, however, even if it is true that TelexFREE is winning its Bankruptcy case, this win will neither prove nor disprove the case of alleged fraud brought against the company by US state and federal agencies. That will also be slugged out in court.

It remains to be seen how all these will play out on Monday that hearings have been postponed to. Come what may, however, we are waiting and watching to see the end of this matter.

Fresh Civil and Criminal Charges Against TelexFREE

It is important to note, however, that news of the US Attorney’s Office filing a set of fresh civil and criminal forfeiture action against TelexFREE came to light during the hearings yesterday.

The news, however, was not taken into consideration during the hearings as TelexFREE's lawyers argued that the forfeitures had no impact on the bankruptcy hearings of the day. In addition, the presiding Judge Landis insisted that he would "not consider papers in connection with rulings on pending matters" in the bankruptcy court, and also that he was not "inclined to take (the forfeiture) papers into evidence."

What this means is that there would definitely be a series of fresh civil and criminal legal action against TelexFREE from the US Attorney’s Office, in addition to the already launched civil action by the SEC and Massachusetts’ Securities Division.

Boy! Talk about troubles coming in droves, and as William Shakespeare noted in Hamlet, "When sorrows come, they come not single spies. But in battalions!"

Live Updates - As Presented By PonziTracker

Ponzitracker provided a live coverage of yesterday's hearing on the motions brought forth in the TelexFree Bankruptcy case at the Nevada Courtroom.

For a detailed and step-by-step coverage of yesterday's court session, you can visit Ponzitracker's page at Live-Blogging The TelexFree Bankruptcy Hearing.

RECOMMENDED READ: TelexFREE Sets Up New Office In Canada

Other Important Upcoming Dates

May 7th (Massachusetts) – Hearing in the SEC case to decide on whether a preliminary injunction will be granted against TelexFree, Carlos Wanzeler, Jim Merrill, Joe Craft, Faith Sloan and Sann Rodrigues.

May 22nd (Nevada) – First meeting of TelexFree creditors. A meeting of TelexFREE creditors pursuant to section 341 of the Bankruptcy Code (the "341 Meeting") will be held on May 22, 2014 at 3:00 p.m.

May 28th (Nevada) – Hearing to decide on TelexFree’s motion for employment of their lawyers.

** -- Interim orders are directives or instructions, generally passed by a court during the pendency of a litigation, to ensure and maintain the Status quo. The rationale for such orders are best explained by the legal Latin maxim "Actus curiae neminem gravabit" which translated into English means "an act of the court shall prejudice no one".

Therefore to ensure that none of the interests of the parties to the litigation are harmed, the court may pass an interim order; and they will be in force until other orders or final orders are passed.

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