Ponzi Tracker Reports: SEC Seeks To Move TelexFree Bankruptcy To Massachusetts

Citing a “coordinated effort to avoid the Massachusetts courts,” the Securities and Exchange Commission filed a motion in a Nevada bankruptcy court seeking to transfer venue of the TelexFree bankruptcy to a Massachusetts bankruptcy court.  In its Motion for Change of Venue (the “Motion”), the Commission alleged that the overwhelming facts and circumstances warranted the transfer of the pending bankruptcy filed by three TelexFree entities from Nevada to Massachusetts.

According to the Commission, TelexFree, Inc., TelexFree, LLC, and TelexFree Financial, Inc. (collectively, “TelexFree”) “hastily filed their Chapter 11 petitions the evening of Sunday, April 13, 2014.”  Despite the fact that only TelexFree, LLC was a Nevada limited liability company and maintained a “rent-a-space office” in Las Vegas, the bankruptcy petitions claimed that venue was proper in Nevada.  The bankruptcies appeared extremely coordinated, with a flurry of motions accompanying the petitions – including a motion for court approval to “reject” hundreds of millions of dollars in obligations to “promoters” under old and current compensation plans.  Approximately 36 hours after the filing of the bankruptcy petitions, both the Massachusetts Securities Division (“MSD”) and the Commission filed civil complaints against TelexFree in Massachusetts.

In its Motion, the Commission stressed the overwhelming evidence it alleged supported a finding of venue for the bankruptcies in Massachusetts rather than Nevada.  This included the fact that:

  • All of Debtors’ physical assets are located in Massachusetts (or in Florida);
  • Most of TelexFree’s bank accounts are located in Massachusettts;
  • The 50% owners and only directors of TelexFree reside in Massachusetts;
  • One-third of the 30 largest creditors listed by TelexFree reside in Massachusetts, while none reside in Nevada; and
  • Both the MSD’s administrative complaint and the Commission’s emergency enforcement action are pending in Massachusetts courts.

The federal statute governing venue in a bankruptcy case specifies that venue is proper in the district in which “the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the 180 one hundred and eighty days…” prior to commencement of the bankruptcy proceeding.  28 U.S.C. 1408.  Further, Nevada caselaw provides a six-factor test to determine whether a case should be transferred for the convenience of the parties:

  • proximity of creditors of every kind to the court;
  • proximity of the debtor;
  • proximity of witnesses necessary to the administration of the estate;
  • location of the assets;
  • economic administration of the estate; and
  • necessity for ancillary administration if liquidation should result.

In re B.L. of Miami, Inc., 294 B.R. 325, 329 (Bankr. D. Nev. 2003).   Reviewing these factors, the Motion indicated that, while preliminary data shows that only 205 victims may be located in Nevada, more than 2,500 victims were located in Massachusetts.  Additionally, both TelexFree’s principal place of business and its owners are located in Massachusetts.  These owners are also primary witnesses in the case.  Interestingly, the Commission also alludes to the possibility under current law that entry of any orders in fraudulent transfer actions against any of the individual defendants or other non-claimants will have to be coordinated with the Nevada district court – whereas the Commission’s civil enforcement action is currently pending in the District of Massachusetts and thus the Court there will already be familiar with the facts and circumstances of the case.  Finally, the Commission also indicates that the current Chapter 11 status of the case is in doubt, hinting that “liquidation of the estate may become necessary”.  In that event, the Commission argues that liquidation in Massachusetts would complement the establishment of a distribution fund that would likely be under the auspices of the Massachusetts District Court.  As the Commission argued, the factors heavily weighed towards a transfer of venue to Massachusetts bankruptcy court.

Previous Ponzitracker coverage of TelexFree is here.

A copy of the Motion is below:

Transfer Motion



Troy Dooly is recognized internationally as an influencer in the areas of personal branding, leadership development, marketing campaigns, organizational expansion, and corporate launch strategies. Dooly is a speaker, results coach, and radio host. He is a founding member, show host (Beachside CEO) and News Director of the Home Business Radio Network. He is a founding member, and currently serves on the Board of the Association of Network Marketing Professionals