NetSpend 2014 Annual Report Download - page 70

CONTINGENCIES:
Legal Proceedings — General
The Company is subject to various legal proceedings and claims and is also subject to information requests,
inquiries and investigations arising out of the ordinary conduct of its business. The Company establishes reserves
for litigation and similar matters when those matters present loss contingencies that TSYS determines to be both
probable and reasonably estimable in accordance with GAAP. In the opinion of management, based on current
knowledge and in part upon the advice of legal counsel, all matters not specifically discussed below are believed
to be adequately covered by insurance, or, if not covered, the possibility of losses from such matters are believed
to be remote or such matters are of such kind or involve such amounts that would not have a material adverse
effect on the financial position, results of operations or cash flows of the Company if disposed of unfavorably.
Telexfree Matter
ProPay, Inc. (“ProPay”), a subsidiary of the Company, has been named as one of a number of defendants
(including other merchant processors) in several purported class action lawsuits relating to the activities of
Telexfree, Inc. and its affiliates and principals. Telexfree is a former merchant customer of ProPay. With regard to
Telexfree, each purported class action lawsuit generally alleges that Telexfree engaged in an improper multi-tier
marketing scheme involving voice-over Internet protocol telephone services. The plaintiffs in each of the
purported class action complaints generally allege that the various merchant processor defendants, including
ProPay, knowingly furthered the improper activities of Telexfree with knowledge that Telexfree did not have
legitimate business operations. Telexfree filed for bankruptcy protection in Nevada. The bankruptcy was
subsequently transferred to the Massachusetts Bankruptcy Court.
Specifically, ProPay has been named as one of a number of defendants (including other merchant processors) in
each of the following purported class action complaints relating to Telexfree: (i) Waldermara Martin, et al. v.
TelexFree, Inc., et al. (Case No. BK-S-14-12524-ABL) filed on May 3, 2014 in the United States Bankruptcy Court
District of Nevada, (ii) Anthony Cellucci, et al. v. TelexFree, Inc., et. al. (Case No. 4:14-BK-40987) filed on May 15,
2014 in the United States Bankruptcy Court District of Massachusetts, (iii) Maduako C. Ferguson Sr., et al. v.
Telexelectric, LLLP, et. al (Case No. 5:14-CV-00316-D) filed on June 5, 2014 in the United States District Court of
North Carolina, (iv) Todd Cook v. TelexElectric LLLP et al. (Case No. 2:14-CV-00134), filed on June 24, 2014 in
the United States District Court for the Northern District of Georgia, (v) Felicia Guevara v. James M. Merrill et al.,
CA No. 1:14-cv-22405-DPG), filed on June 27, 2014 in the United State District Court for the Southern District of
Florida, (vi) Reverend Jeremiah Githere, et al. v. TelexElectric LLLP et al. (Case No. 1:14-CV-12825-GAO), filed on
June 30, 2014 in the United States District Court for the District of Massachusetts , and (vii) Paulo Eduardo Ferrari
et al. v. Telexfree, Inc. et al. (Case No. 14-04080), filed on August 20, 2014 in the United States Bankruptcy Court
for the District of Massachusetts (together, the “Actions”). On October 21, 2014, all of the above-referenced
lawsuits, with the exception of the Ferrari case, were transferred to the United States District Court for the District
of Massachusetts by the Judicial Panel on Multidistrict Litigation. ProPay has not yet been served with the Ferrari
complaint. The United States District Court for the District of Massachusetts has entered an order appointing lead
counsel for the plaintiffs, but has not yet formally consolidated the Actions, and ProPay has not yet been required
to respond to any of the complaints.
In December 2014, ProPay was also named as a defendant in another putative class action relating to TelexFree
filed in the United States District Court for the Southern District of New York, , Abdelgadir v. TelexFree, Inc., et
al., Case No. 14-CV-9857. The Abdelgadir complaint makes allegations that are substantially the same as those
contained in the other putative class actions described above. ProPay has not been served with the Abdelgadir
complaint.
ProPay has also received various subpoenas, a seizure warrant and other inquiries requesting information
regarding Telexfree from (i) the Commonwealth of Massachusetts, Securities Division, (ii) United States Securities
and Exchange Commission, (iii) US Immigration and Customs Enforcement, and (iv) a “Notice of Potential Claim
and Demand to Preserve Evidence” from the bankruptcy Trustee of the Chapter 11 entities of Telexfree, Inc.,
Telexfree, LLC and Telexfree Financial, Inc. ProPay has produced documents to the above-named governmental
entities and to the TelexFree bankruptcy Trustee pursuant to their requests. To date, none have taken any further
action with respect to ProPay. Pursuant to the seizure warrant served by the United States Attorney’s Office for
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