This is after it emerged that the online company had filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code, in an effort to address certain operational challenges. According info currently circulating around the web, the petitions were filed in the U.S. Bankruptcy Court for the District of Nevada. In a case titled Re: Telexfree, LLC, Case No. 14-12524, it’s stated that; “On April 13, 2014, each of the Debtors listed below filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code.
The cases (collectively, the ‘Bankruptcy Cases’) are pending Joint Administration under Case No. 14-12524. The debtors are; TelexFree, LLC 14-12524, TelexFree, Inc. 14-12525 and TelexFree Financial, Inc. 14-12526, all subsidiaries of TelexFree.”
The petition further states that; “Pursuant to the Bankruptcy Code (specifically including, but not limited to, 11 U.S.C. § 362), a debtor is afforded certain protection against its creditors; the Bankruptcy Code prohibits creditors from taking certain actions related to debts that may have been owing prior to the commencement of the Bankruptcy Cases. If you believe that you might be a creditor of the Debtor(s) based upon debts arising prior to April 13, 2014, and you are considering taking action based upon your status as acreditor, you may wish to seek legal advice.”
“We anticipate that our global operations will continue to provide our customers with the high-quality products and services they have come to expect,” Stuart MacMillan, interim Chief Executive Officer of TelexFREE, said in a press release.
“We are taking this major step because we continue to believe in our business, our products and the enthusiasm of our world-class team. We believe that this restructuring plan, which will include significant enhancements to our governance practices and internal controls, will help us to build a stronger and more sustainable financial and operational foundation for the future.”
In its announcement, TelexFree said it has cash on hand on hand to support an ongoing company reorganization and to maintain services to its customers. It filed the petitions for relief in U.S. Bankruptcy Court for the District of Nevada.
“TelexFREE intends to use the Chapter 11 process to optimize its selling platform, address its liabilities and position itself to emerge as a stronger and more competitive company,” the press release said.
Implications of Telexfree Bankruptcy
According to financial experts, the maths behind Telexfree’s 2013 profit and loss statement is not adding up. One expert revealed that; “Using conservative figures, I estimated that by the close of 2014
Telexfree would be liable for around $1.14Bn. With the company taking in $689 million in 2013 (what would probably be their biggest year investment wise), it was obvious that the company was going to collapse.”
He adds; “Even if we ignore every commission and attribute Telexfree’s entire commission payouts ($622 million), that still leaves a deficit liability of $518 million going into 2014. And remember, we’ve totally discounted any other commission payouts.”
It has since emerged that problems for Telexfree investors began a few days ago when their payouts were delayed.
“Typically paid on every Friday, affiliates are still left wondering where their money is,” one financial expert wrote in the Washington Post.
And with Ugandans investing billions into the scheme, this is what experts termed as financial nightmare.
“Don’t be shocked when you hear people committing suicide because so many have invested so much money. Some individuals I know quit their well paying jobs to concentrate on Telexfree. If indeed it’s winding up, then this is a financial nightmare,” Gilbert Etochu, a financial analyst, said.
It is believed that all creditors according to this new development are likely to lose the billions they have invested.
Uganda Authorities Speak Out
National Information Technology Authority (NITA Uganda) together with Police have for sometime warned Ugandans about the dangers of the online trading.
Speaking to the Red Pepper recently, Leonah Mbonimpa, the Public Relations Officer (PRO) of NITA Uganda said the public should be cautious. She added that unless the owner of that kind of business is registered according to the laws of Uganda, there must be question marks.
“Under the cyber laws, if the online business is registered in Uganda, they would be required to disclose information for instance names, physical addresses, licenses they operate under, telephone contacts, law applicable and other details that are there to enable the person who wants to transact to understand who they are dealing with.”
Mbonimpa concluded that it is recommended that some verification must be made before investing the funds.
Meanwhile, former Kampala Metropolitan Police spokesperson Ibin Ssenkumbi in an article we published recently said that Police was aware of the online trading but they have never received any complaints regarding any scam or fraud.
TelexFree,is a marketing system that uses advertising as a vehicle to market unique products around the globe, it has been banned in several countries including Brazil and neighbouring Rwanda for operating a Ponzi scheme. Investigators in Brazil regarded it as one of the largest financial frauds in the South American country’s history.
Similar companies in Uganda reaping big include; Q-Net, Easy Money, Adfastinc., Viral Angels among others.