Motion To Vacate

1
UNITED STATES BANKRUPTCY COURT

DISTRICT OF MASSACHUSETTS
CENTRAL DIVISION

In re:

TELEXFREE, LLC,
TELEXFREE, INC.
TELEXFREE FINANCIAL, INC.

Debtors.

Chapter 11 Cases

14-40987-MSH
14-40988-MSH
14-40989-MSH

J ointly Administered

MOTION BY CHAPTER 11 TRUSTEE TO VACATE
DOCKET ENTRIES RESPECTING THE ESTABLISHMENT OF DEADLINES FOR
THE FILING OF PREPETITION CLAIMS

Stephen B. Darr, the duly appointed Chapter 11 trustee (the "Trustee") of the bankruptcy
estates (the Estates) of TelexFree, LLC, TelexFree, Inc., and TelexFree Financial, Inc.
(collectively, the Debtors), respectfully moves for an order vacating two entries placed on the
docket [entries 2 and 81] (the Docket Entries) prior to the transfer of the cases to the United
States Bankruptcy Court for the District of Massachusetts respecting the establishment of
deadlines for the filing of prepetition claims. The Debtors have not filed schedules and
statements or a matrix of claimants. Upon information and belief, potential claimants in the case
may exceed 1,000,000. Given the unique facts and circumstances of these cases, the
establishment of a bar date for the filing of claims is premature. The Trustee intends, after
addressing the Debtors deficiencies and determining an appropriate protocol for noticing
parties-in-interest to separately move to establish a bar date for the filing of prepetition claims. In
further support of this motion, the Trustee states as follows:
Case 14-40987 Doc 298 Filed 07/02/14 Entered 07/02/14 14:38:19 Desc Main
Document Page 1 of 5
1L)w.'"!V
1440987140702000000000001
Docket #0298 Date Filed: 7/2/2014
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FACTUAL BACKGROUND
1. On April 13, 2014 (the Petition Date), each of the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") with the United States Bankruptcy Court for the District of Nevada (the Nevada
Bankruptcy Court).
2. The Debtors stated that they operated a telecommunications business that used
multi-level marketing to assist in the distribution of voice over internet protocol telephone
services. Individuals, referred to by the Debtors as promoters, were allegedly promised
substantial returns for placing TelexFree advertisements and for recruiting additional individuals.
The principals of the Debtors as of the Petition Date were Carlos Wanzeler and J ames Merrill.
Upon information and belief, Mr. Wanzeler is no longer in the United States. Mr. Merrill was
taken into federal custody and, upon information and belief, has been released.
3. Shortly following the Petition Date, on April 15, 2014, the Securities and
Exchange Commission (the Commission) initiated a suit against the Debtors, their principals,
and others, captioned as Securities and Exchange Commission v. TelexFree, Inc., et al, Civ.
Action No. 14-11858 (the SEC Action) alleging that the Debtors operated a pyramid scheme in
violation of the Securities Act of 1933 and the Exchange Act of 1934. Upon information and
belief, in connection with the SEC Action, the Commission seized substantial sums from the
Debtors and their principals and substantially all of the Debtors books and records.
4. On May 6, 2014, the motion of the Commission to transfer venue of the Debtors
cases to this Court was allowed and the cases were transferred to the District of Massachusetts on
May 9, 2014. On May 30, 2014, this Court approved the motion by the Office of the United
States Trustee to appoint a Chapter 11 trustee, and the Trustee was appointed on J une 6, 2014.
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5. The Debtors have not filed schedules or statements and do not appear to have
filed a complete matrix of creditors. Moreover, due to the circumstances set forth herein, the
Trustee has not been able to obtain or review the bulk of the Debtors books and records. Upon
information and belief, (i) the number of parties who may assert claims against the Debtors may
exceed 1,000,000; (ii) many of the alleged claimants reside outside the United States; and (iii)
the Debtors records may not contain physical addresses for many claimants, but only electronic
contact information.
6. On the Petition Date, the Nevada Bankruptcy Court issued a notice [docket no. 2]
which includes a notice of the Debtors meeting of creditors to be held on May 15, 2014 and a
notice of deadline for creditors to file prepetition claims 90 days thereafter and for governmental
units to file claims 180 days thereafter (the First Notice). Based upon the circumstances set
forth in paragraph 5, it is unclear which parties received the First Notice.
7. On April 24, 2014, the Nevada Bankruptcy Court issued a second notice [docket
no. 81] which includes a notice of the Debtors meeting of creditors to be held on May 22, 2014
and a notice of deadline for creditors to file prepetition claims 90 days thereafter and for
governmental units to file claims 180 days thereafter (the Second Notice). Pursuant to the
Second Notice, parties were directed to file claims with Kurtzman Carson Consultants LLC, the
Debtors claims and noticing agent [see docket no. 231] (KCC), not the Nevada Bankruptcy
Court. KCC filed a certificate of service indicating that the Second Notice was served on certain
creditors, promoters, and parties-in-interest [docket no. 142]. The list of parties who received the
Second Notice is incomplete.
8. The meeting of creditors did not occur since the cases were transferred to the
District of Massachusetts prior to the scheduled meeting dates.
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9. Neither the Debtors nor the Trustee have moved for the establishment of a
separate or extended bar date pursuant to Fed.R.Bank.P. 3003.
REQUEST TO VACATE
10. The Trustee requests that the Court vacate the Docket Entries from the docket in
this matter in order to avoid confusion among potential claimants of the Estates and to allow the
Trustee to administer claims and distributions in an orderly manner in the exercise of his duties.
11. Claims administration is likely to be a significant undertaking, as the Trustee
seeks to determine the meritorious claims among the Estates many potential claimants and
effectuate distributions to those with allowed claims. The Trustee is presently accepting
proposals respecting retention of a claims and noticing agent. As referenced above, once the
Trustee has determined the pool of potential claimants, the Trustee intends to develop a protocol
for the filing and administration of claims consistent with the circumstances of the cases. Such
protocol will include a new bar date, procedures for the noticing of the bar date and requirements
for submission of claims. The Docket Entries do not address the Trustees concerns and,
moreover, the Trustee cannot ensure that all potential claimants and interested parties received
adequate notice and information with respect to the filing of claims as directed by the Docket
Entries.
12. Given the due process considerations with respect to the adequacy of notice of the
Docket Entries, and the claims filing and administrative issues to be addressed by the Trustee,
good cause exists to vacate the Docket Entries.
WHEREFORE, the Trustee respectfully requests that this Court enter an Order,
(a) vacating the Docket Entries [docket nos. 2 and 81] from the docket in this matter; and
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(b) granting such other and further relieve as is necessary and property under the
circumstances.

STEPHEN B. DARR,
CHAPTER 11 TRUSTEE,

By his proposed counsel,

/s/ Andrew G. Lizotte
Harold B. Murphy (BBO #326610)
Andrew G. Lizotte (BBO #559609)
Christopher M. Condon (BBO #652430)
Murphy & King, Professional Corporation
One Beacon Street
Boston, Massachusetts 02108
(617) 423-0400
hmurphy@murphyking.com
alizotte@murphyking.com
Dated: J uly 2, 2014
671990

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UNITED STATES BANKRUPTCY COURT

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