TelexFree Bankruptcy Class Action | Frequently Asked Questions

Frequently Asked Questions

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This is a growing list of answers to questions you may have regarding the TelexFree lawsuit Darr v. Argueta et al., No. 16–04006 and Darr v. Alecci et al., No. 16–04007.

The answers here assume that you have received one or more prior emails from Milligan Rona Duran & King LLC about the lawsuit. These emails are available here.

Is TelexFree in Bankruptcy?

Yes. TelexFree filed for bankruptcy on April 13, 2014.

Who is the Trustee?

A Trustee manages a bankrupt and defunct company. A Trustee is approved by the Bankruptcy Court.

On June 6, 2014 the Bankruptcy Court appointed Stephen Darr as the Trustee to manage the estate of TelexFree. The Trustee’s responsibilities include trying to recover money into the Estate of TelexFree. The Trustee will use the money he collects to pay the people who lost money by participating in TelexFree’s VOIP business. These people are known as “Net Losers.”

The Trustee is represented by the law firm Murphy & King, P.C. The Trustee also hired Kurtzman Carson Consultants LLC to help administer the TelexFree Estate.

What Does the Trustee Do?

The Trustee is currently collecting TelexFree assets and attempting to use those assets to pay people and companies to whom TelexFree owes money. One of the sources from which the Trustee is seeking recovery is the Net Winners.

Who are Milligan Rona Duran & King LLC?

We are a law firm in Boston. The Bankruptcy Court for the District of Massachusetts has appointed us to represent the class of defendant “net winners” in the following TelexFree lawsuits: Darr v. Argueta et al., No. 16–04006 and Darr v. Alecci et al., No. 16–04007.

More information about our law firm is available on the Milligan Rona Duran & King LLC website.

Why am I receiving communications from the Bankruptcy Court?

You are receiving communications from the Bankruptcy Court because you have been identified as a participant in TelexFree. You should carefully review communications that you receive from the Trustee and Bankruptcy Court. The Trustee considers you to be a net winner in TelexFree. This means that the Trustee is trying to recover money from you. The Trustee may be suing you in Bankruptcy court even if your name is not on a complaint.

Why am I receiving emails from Milligan Rona Duran & King LLC?

You are receiving email from us because the Trustee is suing you. The Trustee is trying to recover money from you.

If you live inside the United States then the Trustee is suing you in Darr v. Argueta et al., No. 16–04006. If you live outside the United States then the Trustee is suing you in Darr v. Alecci et al., No. 16–04007.

Your name does not need to appear in the court papers for the Trustee to be suing you in these cases.

The Bankruptcy Court appointed Milligan Rona Duran & King to represent the net-winner class on certain legal issues.

Where can I get more information about this case?

There are two good resources for additional information about the case:

Am I a net winner?

If any of the following apply to you, the Trustee has identified you as a net winner and will seek to recover money from you:

You are named as a defendant in the lawsuit Darr v. Argueta et al., Adversary Proceeding Number 16–04006.
You are named as a defendant in the lawsuit Darr v. Alecci et al., Adversary Proceeding Number 16–04007.
You control one or more of the over 86,000 email addresses that are receiving email from Milligan Rona Duran & King LLC.
The Trustee believes you collected more money than you paid to TelexFree (including profit payments, commissions, bonuses, payments for credits, and other payments received).
The Trustee believes you collected more money than you paid to TelexFree in the 90 days before the TelexFree bankruptcy was filed (including profit payments, commissions, bonuses, payments for credits, and other payments received).

If any one of these five situations applies to you, you are a net winner, according to the Trustee.

It is important to understand that you may be a net winner according to the Trustee even though you believe either: (a) that you paid more money than you received; and/or (b) that you are owed more money than you received. If you are a net winner, you are a defendant in the lawsuit, even if the lawsuit does not name you specifically.

If you are a net winner, the Trustee is trying to recover money from you in these lawsuits.

How does the Trustee determine who is a net winner?

Shortly after his appointment, the Trustee was given access to TelexFree’s “back office” servers and digital accounting system. The Trustee used this information to determine which promoters were net winners and which were net losers.

The Trustee uses a “net equity” method to determine whether a promoter of TelexFree lost money or made money in the scheme. In brief, the net-equity method provides that if a participant paid more money to TelexFree and other participants than that person received from TelexFree and other participants, then that person is a net loser. Net losers may be entitled to some sort of recovery from the Estate of TelexFree through the Bankruptcy process.

Conversely, if you received more money from TelexFree and other participants than you paid to TelexFree and other participants, then you are a net winner according to the Trustee.

This calculation disregards the time you may have spent placing advertisements online and any business expenses you may have incurred.

To clarify, take this example: Let’s say John was an active promoter. He had 20 accounts with TelexFree and recruited dozens of other participants. He worked 50 hours per week as a promoter. In total, he paid US$20,000 to TelexFree, and amassed US$120,000 in credits. For these credits, he received US$50,000–as payments or redemptions from TelexFree or those he recruited. He incurred $5,000 in other out-of-pocket expenses.

Because he received more money than he paid into TelexFree (US$50,000 - US$20,000 = US$30,000), John is a net winner according to the Trustee. He is a net winner even though he received less money (US$50,000) than he earned in credits ($120,000). Under this example, the Trustee will seek to recover US$30,000 from John, even though John worked 50 hours per week as a promoter and incurred $5,000 in other out-of-pocket expenses, and even though John did not receive payment for all of the credits he earned.

The group of net winners became the defendants in this case and are the group whom Milligan Rona Duran & King LLC represent on a limited basis (as discussed below).

Who does Milligan Rona Duran & King LLC represent?

The Bankruptcy Court has appointed Milligan Rona Duran & King LLC, in a limited capacity, to defend members of the net-winner class from the Trustee’s claims. We do not represent the Trustee. We do not represent you individually, even though we are fighting on your behalf on many issues.

The scope of our representation is limited to

litigating issues that are common to all members of the class;
ensuring that the procedures used for determining liability on the Trustee’s claims are as fair and accurate as possible; and
otherwise acting in the best interests of the class of alleged net winners.

To read more about which issues are common to all members of the class, please review Document No. 194 filed in this matter, available on our website or on the Trustee’s Website.

Our representation will not address individual liability issues or defenses. In the event that the Trustee successfully establishes liability on one or more of his claims against the class of net winners, the Trustee intends to use an individualized process to determine the amount of net winnings of each member of the net winner class. Each member of the net winner class will have an opportunity to address his or her individual liability in this separate damages process. Although we do not represent you individually, we continue to evaluate potential class-wide resolutions to this matter, as they may be in the class’s best interest. It is not necessary for you to communicate with us about determining the amount of your net winnings. You will have the opportunity to address those issues in the damages process ordered by the Court.

If I am a defendant in the Class, what should I be doing?

You should carefully read all correspondence from the Bankruptcy Court, the Trustee, and Milligan Rona Duran & King. You should take this matter seriously; there is serious potential for liability. You should make sure to preserve all of the documents, records, and information (including electronic files) related to TelexFree, your user-accounts, your hours worked on TelexFree, and the amounts you paid into or received from TelexFree so those documents and that information can be used in the later process to determine the amount of your individual net winnings, if any. You may also need this information to defend against the Trustee’s claims.

Hasn’t the Trustee already settled this case?

No.

Since 2014, the Trustee has filed 20 lawsuits (“adversary proceedings”) in which he has sued individuals or businesses to recover money or assets that he will use to pay TelexFree’s debts. You may have received a notice that the Trustee has settled one or more of these other cases or has agreed to settle one or more cases and sought the Bankruptcy Court’s approval of the settlement agreements.

These notices do not mean that the Trustee has settled your case. The case in which you are a defendant may still be ongoing. Specifically, if the Trustee has alleged that you are a net winner in the case No. 16–04006 or No. 16-04007, then you are still a defendant in this lawsuit.

You may have also received communications from the Trustee about settling certain claims. These settlements are part of the claims process discussed below, and are not a final settlement of this lawsuit.

What work is Milligan Rona Duran & King LLC currently doing for the defense class?

While the work we our doing is constantly changing, one of the major tasks we are undertaking is to determine a fair and reliable way, if possible, to determine who is a net winner and who is a net loser. The Trustee has hired an accounting expert who has aggregated accounts belonging to each participant. Based on the Trustee’s accounting expert’s work so far, it is estimated that there are as many as 80,000 net winners.

We hired an expert accounting firm to review the Trustee’s expert’s work. Our expert is in the process of reviewing the massive amounts of data reviewed by the Trustee’s expert. This process is ongoing.

Once we have received our expert’s analysis, we may have certain requests that we will file with the Court regarding how the case should proceed. We also may file a motion for summary judgment on behalf of the class asking the Court to partially or fully dismiss the Trustee’s claims. We are also attempting to negotiate a class-wide settlement proposal that class members can choose to accept.

What is the Bankruptcy Court’s Claims Process?

In a bankruptcy, someone who believes that the bankrupt company owes him or her money may file a claim with the bankruptcy court in the time provided by the court. In this matter, the Trustee established an online claim registry. During the designated period, TelexFree participants collectively filed 131,332 claims.

We believe that the Trustee is processing those claims in batches of 200–500. The Trustee has settled some of these claims and is litigating others. As of November 30, 2018, the Trustee has filed 72 motions to disallow certain claims and 7 motions to allow certain claims. Please note, the motions to allow claims include claims where the Trustee only wishes to provide a partial allowance of the claim.

You have likely received notice of these motions, filed on November 26, 2018, and available on the Trustee’s website.

We are not taking any action on any participant’s behalf individually. If your claim has been disallowed and you wish to dispute this, you should seek legal counsel or otherwise respond to the Trustee’s motion.

Our firm is not involved in this Claims Process and cannot provide any more information or any advice regarding the Claims Process.