NetSpend 2015 Annual Report Download - page 75

purported class action complaints generally allege that the various merchant processor defendants, including
ProPay, aided and abetted the improper activities of Telexfree. Telexfree filed for bankruptcy protection in
Nevada. The bankruptcy proceeding 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, and (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 (together, the
“Actions”). On October 21, 2014, the Judicial Panel on Multidistrict Litigation transferred and consolidated the
Actions before the United States District Court for the District of Massachusetts (the “Consolidated Action”).
Following the Judicial Panel on Multidistrict Litigation’s October 21, 2014 order, four additional cases arising
from the alleged TelexFree scheme were transferred to the United States District Court for the District of
Massachusetts for coordinated or consolidated proceedings, including (i) Paulo Eduardo Ferrari et al. v. Telexfree,
Inc. et al. (Case No. 14-04080); (ii) Magalhaes v. TelexFree, Inc., et al., No. 14-cv-12437 (D. Mass.); (iii) Griffith v.
Merrill et al., No. 14-CV-12058 (D. Mass.); Abelgadir v. Telexelectric, LLP, No. 14-09857 (S.D.N.Y.) In addition, on
September 23, 2015, a putative class action relating to TelexFree was filed in the United States District Court for
the District of Arizona, styled Rita Dos Santos, Putative Class Representatives and those Similarly Situated v.
TelexElectric, LLLP et al., 2: 15-cv-01906-NVW (the “Arizona Action”). The Arizona Action makes claims similar to
those alleged in the consolidated action pending before the United States District Court for the District of
Massachusetts. On September 29, 2015, a group of certain defendants to the Consolidated Action, including
ProPay, filed a “tag along” notice with the Judicial Panel on Multidistrict Litigation, asking that the Arizona Action
be transferred to the District of Massachusetts where it can be consolidated or coordinated with the
Consolidated Action. On October 20, 2015, the Judicial Panel on Multidistrict Litigation transferred the Arizona
Action to the District of Massachusetts.
The United States District Court for the District of Massachusetts appointed lead plaintiffs’ counsel on behalf of
the putative class of plaintiffs in the Consolidated Action. On March 31, 2015, the plaintiffs filed a First
Consolidated Amended Complaint (the “Consolidated Complaint”). The Consolidated Complaint purports to
bring claims on behalf of all persons who purchased certain TelexFree “memberships” and suffered a “net loss”
between January 1, 2012 and April 16, 2014. The Consolidated Complaint supersedes the complaints filed prior
to consolidation of the Actions, and alleges that ProPay aided and abetted tortious acts committed by TelexFree,
and that ProPay was unjustly enriched in the course of providing payment processing services to TelexFree. On
April 30, 2015, the plaintiffs filed a Second Consolidated Amended Complaint (the “Second Amended
Complaint”), which amends and supersedes the Consolidated Complaint. Like the Consolidated Complaint, the
Second Amended Complaint generally alleges that ProPay aided and abetted tortious acts committed by
TelexFree, and that ProPay was unjustly enriched in the course of providing payment processing services to
TelexFree.
Several defendants, including ProPay, moved to dismiss the Second Amended Complaint on June 2, 2015.
Briefing on those motions closed on October 16, 2015. The court held a hearing on the motions to dismiss on
November 2, 2015. At present, pursuant to a court order, all discovery in the action is stayed pending the
resolution of parallel criminal proceedings against certain former principals of TelexFree, Inc.
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) the bankruptcy Trustee of the
Chapter 11 entities of Telexfree, Inc., Telexfree, LLC and Telexfree Financial, Inc. Pursuant to the seizure warrant
served by the United States Attorney’s Office for the District of Massachusetts, ProPay delivered all funds
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