Document Page 1 of 6 UNITED STATES BANKRUPTCY COURT DISTRICT OF MASSACHUSETTS In re: TELEXFREE LLC., et al., 1 Debtors. Chapter 11 Case No. 14-40987 Jointly Administered RESPONSE OF THE PLAINTIFFS INTERIM EXECUTIVE COMMITTEE TO MOTION BY CHAPTER 11 TRUSTEE FOR ENTRY OF ORDER FIXING BAR DATE FOR FILING PROOFS OF CLAIM, APPROVING FORM AND MANNER OF PROVIDING NOTICE, DIRECTING THAT CLAIMS BE FILED ELECTRONICALLY, AND APPROVING CONTENT OF ELECTRONIC PROOFS OF CLAIM Lead Counsel and the Plaintiffs Interim Executive Committee (together, the PIEC appointed by the United States District Court in this District as the representative of the victims of the Debtors Ponzi scheme by orders entered in the multi-district litigation proceedings captioned In re TelexFree Securities Litigation, MDL No. 14-02566 (D. Mass (the MDL Proceeding, hereby respond (this Response to the Motion by Chapter 11 Trustee (the Trustee for Entry of Order Fixing Bar Date for Filing Proofs of Claim, Approving Form and Manner of Providing Notice, Directing That Claims be Filed Electronically, and Approving Content of Electronic Proofs of Claim [Dkt. No. 625] (the Bar Date Motion as follows: RESPONSE 1. The PIEC does not oppose the establishment of a bar date in these Chapter 11 Cases, and so does not oppose the Bar Date Motion. 2. The PIEC s constituency, as determined by the District Court, comprises the plaintiff victims of the Debtors scheme, who are the majority of creditors in these Chapter 11 1 The debtors (the Debtors in these cases (collectively, the Chapter 11 Cases are TelexFree, LLC, TelexFree, Inc., and TelexFree Financial, Inc.
Document Page 2 of 6 Cases. Accordingly, the PIEC is obligated, as a fiduciary, to consider carefully the Trustee s requested relief, especially as such requests may be interpreted to implicate the substantive rights of such creditor clients beyond simply setting a customary deadline for the filing of claims. In that regard, a short statement of context and procedural background is in order. 3. As this Court is aware, the debtors, with the assistance of numerous third parties (including banks, payment processors, and others named as defendants in the MDL Proceeding, formerly operated a Ponzi scheme of nationwide and international scope. Complaints against those third parties alleging, among other things, that they knew of the Debtors fraud, did nothing to stop it or to alert the public, and in fact aided and abetted or actively participated in the fraud, have been consolidated in the MDL Proceeding before the District Court for this District (the Honorable Timothy S. Hillman, presiding. 4. On December 23, 2014, the District Court appointed a Plaintiffs Interim Executive Committee and Bonsignore PLLC as Interim Lead Class Counsel to represent the interests of all the victims of TelexFree s Ponzi scheme who are plaintiffs in the MDL Proceeding, and, specifically, to coordinate and organize Plaintiffs in the conduct of the MDL Proceeding as to all claims. See MDL Case Management Order No. 3, In re TelexFree Securities Litigation, MDL No. 13-2566 (D. Mass. Dec. 23, 2014 ( CMO 3, attached hereto as Exhibit A; see also Martin H. Redish & Julie M. Karaba, One Size Doesn t Fit All: Multidistrict Litigation, Due Process, and the Dangers of Procedural Collectivism, 95 B.U. L. Rev. 109, 117 (2015 ( The steering committee... is expected to represent the interests of all plaintiffs in the MDL, no matter how varied they may be.. The District Court also tasked the PIEC with, among other things, initiating and conducting discovery proceedings, negotiating with defense 2
Document Page 3 of 6 counsel with respect to settlement, and conducting trial and post-trial proceedings. See CMO 3 at 1. 5. Given the substantially overlapping fiduciary obligations to all of those victims (who make up the majority -- but not all -- of the Debtors creditors and their desire and responsibility to maximize the recovery available to those victims, the PIEC has endeavored to work cooperatively with the Trustee to minimize costs, avoid duplicative discovery, and share certain information. Moreover, the PIEC has always believed, and believes now, that a highly coordinated approach to obtain recoveries against those who aided and abetted, participated in and illicitly profited from the scheme would offer the victims of the Debtors scheme the best chance of material redress. The PIEC believes that the Trustee is best positioned, given his access to and familiarity with the Debtors records, to in the first instance outline and implement a framework for the allowance of claims and to determine the scheme s net winners versus its net losers. To the extent that it is determined that a Chapter 11 case is in the best interest of creditors, and is not dismissed, the Trustee would be also best positioned to seek the recovery of all avoidable transfers made by the Debtors. 6. The PIEC, on the other hand, is best positioned to prosecute and realize upon all causes of action belonging to individual plaintiffs themselves. The PIEC is also best positioned to bring causes of action against all aiders and abettors and other non-debtor tortfeasors, given that the Trustee is likely precluded from doing so under theories of in pari delicto and related defenses as against the Trustee as the Debtors successor. Indeed, in duly filed complaints now pending, the PIEC is seeking all such appropriate relief on behalf of victims. 7. As part of the execution of this strategy, and based upon, among other things, information shared with the PIEC by the Trustee, the PIEC has sought and obtained attachments 3
Document Page 4 of 6 of the assets of at least one of those Top Promoters who profited the most from the TelexFree scheme. The PIEC has identified and researched other Top Promoters, with the express intention of seeking similar remedies against them, and has provided the results of their research to the Trustee. The PIEC has asked for and has held weekly calls with the Trustee and his counsel for the purpose of effectively pooling the two fiduciaries knowledge and resources to best position the PIEC to do so. The PIEC has also shared with the Trustee its hope and desire to have all recoveries of both the PIEC and the Trustee be distributed through the Chapter 11 process, so that the Trustee and the PIEC can jointly distribute all of their collective recoveries to victims with a minimum of duplication, delay and expense. 8. Unfortunately, the cooperative relationship between the Trustee and the PIEC has lately suffered a setback. As another step in the process of preventing wrongdoers from escaping repayment, the PIEC recently sought the District Court s leave to amend the controlling Complaint in the MDL Proceeding to include an Unjust Enrichment cause of action against a class of Defendants. See Plaintiffs Motion to Amend Complaint and File Third Consolidated Amended Complaint, In re TelexFree Securities Litigation, MDL No. 13-2566 (D. Mass. Sept. 23, 2015 [MDL Dkt. No. 252]. 2 Those Defendants are identified as Net Winner participants in the scheme who also took cash payments from other Participants (i.e., from non-debtor third parties. On the same day he filed the Bar Date Motion, the Trustee also filed papers before both this Court and the District Court seeking orders enjoining the victims of the Debtors criminal enterprise (acting by their duly-appointed representative, the PIEC from continuing to prosecute their Unjust Enrichment causes of action. See Trustee s Motion to Intervene, In re TelexFree 2 Plaintiffs also simultaneously filed a separate complaint including the Unjust Enrichment cause of action in the District of Arizona. See Complaint, Dos Santos v. TelexElextric et al., Case No. 15-01906 (D. Ariz. Sept. 23, 2015. 4
Document Page 5 of 6 Securities Litigation, MDL No. 13-2566 (D. Mass. Oct. 7, 2015 [Dkt. No. 266] (seeking leave to intervene in the MDL Proceeding for the purposes of seeking a stay of the PIEC s Unjust Enrichment claim; Verified Complaint, Darr v. Dos Santos (In re TelexFree LLC, Adv. Pro. No. 15-04005 (Bankr. D. Mass Oct. 7, 2015. It is an understatement to say these filings are, at best, disappointing, and threaten to bring comfort to wrongdoers and those who benefitted from the scheme, at the expense of victims holding valid and valuable direct (non-estate claims against those parties, all at considerable expense to all concerned. 9. With these concerns in mind, and in large part due to the relief now sought by the Trustee in related pleadings, and cross-references made in the Trustee s bar date papers to other pleadings and matters that range far beyond bar dates and estate property, the PIEC reserves all rights of its constituent clients, the victims here, to object to any part of any order proposed by the Trustee on his Bar Date Motion that extends to such other matters, and otherwise fully reserves all rights in connection with all such matters. Dated: October 13, 2015 Boston, Massachusetts BROWN RUDNICK LLP By: /s/ William R. Baldiga William R. Baldiga, Esq. (BBO #542125 Kiersten A. Taylor, Esq. (BBO #681906 One Financial Center Boston, MA 02111 Telephone: (617 856-8200 Facsimile: (617 856-8201 On behalf of Plaintiffs Interim Executive Committee 5
Document Page 6 of 6 CERTIFICATE OF SERVICE The undersigned certifies that on October 13, 2015, the foregoing document was filed electronically, and therefore was sent by email to those receiving CM/ECF notices from the Court s electronic filing system. I further certify that I have caused to be sent by facsimile a copy to the following parties on this 13th day of October, 2015. Charles R. Bennett, Jr., Esq. Murphy & King, Professional Corporation One Beacon Street Boston, MA 02108 Richard King, Asst. United States Trustee Office of the United States Trustee 446 Main Street 14th Floor Worcester, MA 01608 /s/ Carol S. Ennis Carol S. Ennis, Paralegal 62199396 6
Case 14-40987 Doc 635-1 Filed 10/13/15 Entered 10/13/15 13:45:41 Desc Exhibit A Page 1 of 5
Case 4:14-md-02566-TSH Document 79 Filed 12/23/14 Page 1 of 4 Case 14-40987 Doc 635-1 Filed 10/13/15 Entered 10/13/15 13:45:41 Desc Exhibit A Page 2 of 5 UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS IN RE: TELEXFREE SECURITIES LITIGATION This Document Relates To: MDL No. 4:14-md-2566-TSH All Cases MDL Case Management Order No. 3 December 23, 2014 Hillman, D.J. 1. Plaintiffs Unopposed Motion For Appointment Of Interim Lead Class Counsel And Steering Committee (Docket No. 20 is allowed as provided in this Order. The court appoints the law firm of Bonsignore, PLLC as Interim Lead Class Counsel. 2. The Court designates Ronald Dardeno of the Law Office of Frank L. Dardeno, LLP, William Baldiga of Brown Rudnick, D. Michael Noonan of Shaheen and Gordon, R. Alexander Saveri of Saveri & Saveri, and William L Coulthard of Kemp, Jones and Coulthard, LLP as members of Plaintiffs Interim Executive Committee. 3. Plaintiffs Interim Lead Class Counsel, after appropriate consultation and with the advice and consent of the Executive Committee, shall be responsible for coordinating and organizing Plaintiffs in the conduct of this litigation as to all claims and, in particular, shall have the following responsibilities:
Case 4:14-md-02566-TSH Document 79 Filed 12/23/14 Page 2 of 4 Case 14-40987 Doc 635-1 Filed 10/13/15 Entered 10/13/15 13:45:41 Desc Exhibit A Page 3 of 5 a. To brief and argue motions and file opposing briefs in proceedings initiated by other parties; b. To initiate and conduct discovery proceedings; c. To act as spokesperson at pretrial conferences; d. To negotiate with defense counsel with respect to settlement and other matters; e. To call meetings of Plaintiffs counsel when appropriate; f. To make all work assignments to Plaintiffs counsel to facilitate the orderly and efficient prosecution of this litigation and to avoid duplicative or unproductive effort; g. To assure that all Plaintiffs counsel are kept informed of the progress of this litigation as necessary; h. To conduct trial and post-trial proceedings; i. To consult with and employ experts; j. To coordinate the filing of any joint fee petition by Plaintiffs counsel; k. To perform such other duties and undertake such other responsibilities as it deems necessary or desirable; and l. To coordinate and communicate with Defendants counsel with respect to matters addressed in this paragraph. 3. The Executive Committee shall be consulted in an appropriate and efficient manner by Interim Lead Class Counsel on substantive issues to assist in the responsible and efficient prosecution of the litigation. Interim Lead Class Counsel 2
Case 4:14-md-02566-TSH Document 79 Filed 12/23/14 Page 3 of 4 Case 14-40987 Doc 635-1 Filed 10/13/15 Entered 10/13/15 13:45:41 Desc Exhibit A Page 4 of 5 shall seek the advice and consent of the Executive Committee in connection with major decisions regarding the prosecution and/or settlement of the litigation. 4. Interim Lead Class Counsel and the Executive Committee shall together select working groups or committees to further the efficient prosecution of the litigation as is deemed necessary based on their collective judgment and consideration. 5. All counsel representing Plaintiffs shall maintain accurate and contemporaneous records of their time spent in this litigation and shall submit monthly time and expense reports to the Executive Committee no later than the 20 days after the end of each month. The failure to maintain such records and submit timely reports may result in such time or expenses being disallowed for purposes of any fee petition. The Executive Committee shall provide on a monthly basis to Interim Lead Class Counsel an aggregate report of all time spent by Plaintiffs counsel. 6. Interim Lead Class Counsel, after consultation and with the advice and consent of the Executive Committee, shall assess the amounts necessary for common litigation costs necessary for the efficient and effective prosecution of the litigation and shall collect and maintain assessments from members of the Executive Committee. The failure to timely pay assessments may result in removal from membership on the Executive Committee. 7. No communications between Interim Lead Class Counsel, members of the Executive Committee, and other counsel representing plaintiffs in any cases consolidated or coordinated with this litigation, shall act as a waiver of any privilege or protection to which they are otherwise entitled. 3
Case 4:14-md-02566-TSH Document 79 Filed 12/23/14 Page 4 of 4 Case 14-40987 Doc 635-1 Filed 10/13/15 Entered 10/13/15 13:45:41 Desc Exhibit A Page 5 of 5 8. The organizational structure of Plaintiffs counsel established by this Order shall bind Plaintiffs counsel in the individual cases consolidated under the Master Docket Number, at present and hereafter. /s/ Timothy S. Hillman Timothy S. Hillman United States District Judge 4