Experts raise the red flag over pyramid scheme being probed in Brazil

Friday February 28 2014

A man browses the TelexFREE website. Rwanda government is investigating the multi-level Internet marketing service on suspicions that it could be a Ponzi scheme. Photo/Cyril Ndegeya

A man browses the TelexFREE website. Rwanda government is investigating the multi-level Internet marketing service on suspicions that it could be a Ponzi scheme. Photo/Cyril Ndegeya  

By Edmund Kagire Rwanda Today

The government is investigating the operations of a business that has attracted many Rwandans with its quick cashback philosophy, typical of pyramid schemes also known as Ponzi schemes.

TelexFREE, an Internet-based service, requires new members to pay more than $1,570 (Rwf1,067,600) and post three advertisement links to start earning $100 (Rwf68,045.26) weekly. By recruiting new members, one stands to earn bonuses, it claims.

TelexFREE has been banned in Brazil and is under investigation in the US and other countries around the world on suspicions that it could be a Ponzi scheme.

Emmanuel Bayingana, the official in charge of Competition at the Ministry of Trade and Industry, confirmed that TelexFREE was being investigated.

“We are doing an assessment of the operations of TelexFREE,” Mr Bayingana said. “The investigations will determine the way forward. The assessment will be concluded next week.”

He noted that the ministry, Rwanda Development Board (RDB) and the central bank will come up with a position, especially if the business is found to be risk-prone.

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The government has been strict on pyramid schemes and multi-level marketing businesses with a number of them, including Questnet, banned from operating in Rwanda.

At the TelexFREE offices in the Kigali suburb of Remera near the taxi park in a new complex that also houses Bank of Kigali, a few office staff members lurk around trying to win more clients.
“It’s a profitable business. You can join and make $100 a week. I make the same every week by just posting three links,” one of the staff members only identified as Hakim said in an attempt to convince the writer to join the scheme.

TelexFREE is a multi-level Internet marketing scheme which uses VoIP technology to share advertisements online. Fred Ndoli, one of the members and an active recruiter, maintains that the business is genuine.

Recoup investment

“People are making money,” Mr Ndoli said. “I earn $100 a week after investing in it. I post links from a computer or using my phone. It takes only five minutes.”

Mr Ndoli said he only joined two months ago but was confident he would recoup his investment and make even more money soon. He insisted that those crying foul failed to fulfil their part of the agreement.

“I think they failed to post links,” he said. “You make money by posting links. If you don’t post links, you don’t make money.”

Three people who lost their savings in the scheme told Rwanda Today they were told that they failed to “post links” to recover their money.

One of them, who joined recently, said he was informed that once one fails to post links they forfeit their investment.

“It’s a risky business. It means that you have to have Internet everyday, wherever you are, because if you fail to post you lose your money,” the member said on condition of anonymity.

Efforts to reach the country director of TelexFREE, Fred Nyakana, were futile as calls and messages to his phone went unanswered. When we visited the offices, Mr Nyakana was said to be in a meeting.

Many members say they are making money but experts in such multi-level marketing businesses contend that those who join first make money while those who join later “only pay those who recruited them.”

According to Ted Nuyten, an international home-business marketing expert, such schemes usually collapse after more people join. When the business starts becoming passive and stagnated, the founders pull out, leaving hundreds, if not thousands, of complainants behind.

In a review Mr Nuyten did for TelexFREE, he does not recommend people to join the scheme basing on some facts around the said business. He says the fact that it was banned in Brazil qualifies it as a Ponzi scheme.

“In fact, in Brazil, TelexFree has been shut down since June of 2013, its assets frozen, they have been ordered not to recruit any new people in the country and they not to pay any commissions and bonuses,” Mr Nuyten noted.

“They have lost a number of appeals to have the injunction against them lifted, not to mention that they have been fined for not meeting the various requirements in Brazil to operate as a VoIP company.”

He added that TelexFREE was under criminal investigation in Brazil after it diverted its earnings, amounting $88 million (Rwf61 billion), to secret accounts to avoid legal action and that in the United States regulatory bodies were closely watching the Brazil situation.

“Anyone involved with TelexFREE is either new to the industry and/or knows nothing about regulatory compliance as it relates to a network marketing company and opportunity,” he said. “TelexFREE is a very high-risk investment opportunity.”

Mr Nuyten also pointed out that the fact that somebody was making money did not make the scheme legal or legitimate.