1. Members pay a fee to join TelexFree and agree to promote its Internet telephone service and recruit new members.
2. They’re promised payments for selling the phone service or getting ads for it placed on websites, and bonuses when they recruit additional promoters.
3. Promoters targeted Brazilian and Dominican immigrants, who in turn got additional paying members by spreading the word about TelexFree through their communities.
4. The telephone service did not generate much income. So TelexFree relied on promoters recruiting ever more members to raise money.
SOURCE: US Securities and Exchange Commission