A Nevada bankruptcy judge plans to deliver a ruling this afternoon as to the fate of a fledgling bankruptcy filed by a consortium of companies known as TelexFree that stand accused of operating a massive Ponzi and pyramid scheme by state and federal regulators. U.S. Bankruptcy Judge August B. Landis plans to issue an oral ruling at 10:30 A.M.PST/1:30 P.M. EST on several motions brought by the Securities and Exchange Commission and United States Trustee, according to the case docket. Perhaps tellingly, while the docket contains a "minute entry" for each of the fourteen motions heard at last week's hearing, only a handful of those entries - including the Commission's Motion to Transfer Venue and the U.S. Trustee's Motion for Appointment of Chapter 11 Trustee - indicate that an oral ruling is scheduled for today. Ponzitracker will be covering the hearing at 1:30 PST.
The Court presided over an eight-hour hearing last Friday in the first substantive hearing since TelexFree's late night bankruptcy filing on April 13, 2014. The hearing began with a "late development" that revealed that the U.S. Attorney's Office had filed and unsealed twenty-six criminal forfeiture actions related to TelexFree bank accounts and property. The Court later took testimony from several TelexFree executives, including acting CEO Stuart MacMillan and current Chief Restructuring Officer William Runge. After hearing argument on several of the motions, the Court announced it intended to issue a ruling early this week. A detailed recap of that hearing is here, and an audio recording of the hearing is here.
The main issue to be decided today is whether TelexFree's bankruptcy moves forward at all, let alone in Nevada. The Commission has asked the Court to abstain from hearing the proceedings - essentially asking the Court to indefinitely suspend the bankruptcy. In the alternative, the Commission seeks to transfer the case to a Massachusetts bankruptcy court to better coordinate the case with pending state and federal actions pending against TelexFree in Massachusetts. If both of those motions are denied, which does not appear likely, then the bankruptcy will remain in Nevada.
The next issue would be the U.S. Trustee's Motion for Appointment of Chapter 11 Trustee, which seeks the appointment of an independent trustee to oversee TelexFree's operations rather than allowing oversight to remain with TelexFree's current management. The U.S. Trustee alleged that "compelling evidence of fraud...[and] criminal conduct" warranted this outcome. TelexFree also opposes this motion, seeking to avoid interference with its operations by a third-party. If the Court grants that motion, the newly-appointed trustee would conduct an investigation of TelexFree's operations and file a report with the court with recommendations - including the possibility of converting the bankruptcy from a reorganization to a liquidation.
Join Ponzitracker at 10:30 A.M. PST/1:30 P.M. EST for live coverage of the hearing.