Telexfree
Telexfree was a purported multi-level marketing company (MLM), later found to be a massive Ponzi scheme. Based in Marlborough, Massachusetts, it claimed to offer Voice over Internet Protocol (VoIP) services.
Business Model: Telexfree recruited individuals to become promoters who would post online advertisements daily on behalf of the company. Promoters were promised returns on their initial investment and further commissions for recruiting new members. The primary revenue stream for Telexfree was not the sale of its VoIP services, but rather the fees collected from new recruits.
Operation and Collapse: Telexfree operated between 2012 and 2014. It rapidly expanded, particularly within the Brazilian and Dominican communities. However, investigations revealed that the company's income was largely derived from recruitment fees, not legitimate VoIP sales. This reliance on new recruits to pay existing investors is the hallmark of a Ponzi scheme.
Legal Action and Aftermath: In April 2014, U.S. authorities raided Telexfree's headquarters and froze its assets. The company subsequently filed for bankruptcy. Numerous executives were arrested and charged with fraud. The collapse of Telexfree resulted in billions of dollars in losses for investors worldwide. Lawsuits and legal proceedings related to the case are still ongoing in some jurisdictions. The case became a significant example of the dangers of MLM schemes and the importance of due diligence before investing in such ventures.
Key Concepts:
- Multi-Level Marketing (MLM): A marketing strategy where the sales force is compensated not only for sales they personally generate, but also for the sales of the other salespeople that they recruit.
- Ponzi Scheme: A fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation.
See Also:
- Pyramid Scheme
- Fraud
- Securities and Exchange Commission (SEC)