Stephen Darr Appointed as TelexFree Trustee

Stephen Darr Appointed as TelexFree Trustee

 An independent trustee has been appointed to manage the business operations of TelexFree Financial, LLC; TelexFree, LLC; and TelexFree, Inc. (collectively, "TelexFree"), the consortium of entities currently accused by state and federal regulators of operating a massive pyramid/Ponzi scheme that raised hundreds of millions of dollars from victims.  Stephen B. Darr's appointment as Chapter 11 Trustee was made public in a filing by the Assistant U.S. Trustee in a Massachusetts bankruptcy where the TelexFree bankruptcy is currently pending.  In connection with his appointment, Darr's bond was set at $1 million.

Darr is a principal of Mesirow Financial Consulting, LLC, an independent financial services firm that provides a wide array of corporate services, including restructuring, management, and consulting. Darr currently works out of Mesirow's Boston office, where he serves as the Senior Managing Director. Darr has significant experience in providing financial advisory services to complex restructuring matters, including past engagements with well-known failed companies RefCo and WorldCom.

Darr will have his work cut out for him as he assumes the duties of a Chapter 11 Trustee set forth in 11 U.S.C. 1106.  Pursuant to Section 1106, the Chapter 11 Trustee must, as soon as practicable,

(A) file a statement of any investigation conducted under paragraph (3) of this subsection, including any fact ascertained pertaining to fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the debtor, or to a cause of action available to the estate; and

(B) transmit a copy or a summary of any such statement to any creditors’ committee or equity security holders’ committee, to any indenture trustee, and to such other entity as the court designates.

Additionally, the Trustee must also, as soon as practicable, either (1) file a Plan of Reorganization pursuant to Chapter 11; (2) indicate which a Plan of Reorganization will not be filed; or (3) recommend conversion of the case to a case under other chapters of the Bankruptcy Code, including Chapter 7 which provides for liquidation.

Darr's first steps under Section 1106 will be closely watched.  TelexFree is currently embroiled in multiple civil suits brought by state and federal regulators on  accusations that the company's business model was nothing more than a pyramid and/or Ponzi scheme. Further, the Securities and Exchange Commission and the U.S. Trustee in Nevada (where TelexFree originally filed for bankruptcy) have characterized the company's decision to file for bankruptcy as ill-fated and undertaken solely to subvert regulators.  Indeed, before a Nevada Bankruptcy court granted the Commission's request to transfer venue to Massachusetts, TelexFree's lawyers had consistently sought to show that the company had shed its wrongful ways and was seeking to emerge as a legitimate and profitable company.  

As suggested back in an April article, an independent examination of TelexFree could ultimately result in the decision to convert the case to a Chapter 7 bankruptcy and liquidate the company.  Such a decision would spell the end of the company's hopes to emerge from bankruptcy as a legitimate company.

Previous Ponzitracker coverage of TelexFree is here.

A copy of the Certificate of Appointment is below:

 For more news and analysis of Ponzi schemes, visit Ponzitracker, a blog by Jordan Maglich, an attorney at Wiand Guerra King P.L.

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