It’s well-established by now that if you’re dumping money into an MLM company and collecting a passive return, it’s constitutes a securities offering.

Securities are strictly regulated across the world and for good reason.

It’s one thing to say you’re doing something and provide social media proof. Registering your securities offering (legally required) and providing documented proof to authorities is another.

Naturally, MLM Ponzi schemes come up with all sorts of reasons as to why they haven’t registered their securities offering.

Today, courtesy of Cloud Token, Ronaly Aai and Faith Sloan, we examine one of the most blatantly misleading excuses for securities fraud I’ve ever seen.

For those unfamiliar with the company, Cloud Token sees affiliates invest in CTO points.

CTO points are not publicly tradeable and hold no value outside of Cloud Token itself.

Over time Cloud Token increases the internal value of CTO points, allowing affiliates to cash out.

When an affiliate puts in a withdrawal request, Cloud Token pays them at the current CTO rate with subsequently invested funds.

Although he’s officially credited as Cloud Token’s CTO, Ronald Aai appears to be running the company.

With concerns of potential regulatory action mounting, yesterday Aai enlisted the help of Faith Sloan to address securities fraud.

Aai primarily communicates to Cloud Token affiliates over Facebook.

In a post published yesterday, Aai described Cloud Token’s investment scheme as follows:

It’s not an ICO/STO, it’s purely an reward that is given in digital form which enables owners of the reward token to exchange for mainstream cryptocurrencies.

The project itself is doing all the trading which in-return passes on the rewards to the members who participated in the project.

At the conclusion of the post Ai thanked Sloan for helping him edit it.

Sloan herself went on a rant a few hours later;

CloudToken is here to stay and it is for everyone!

It ain’t no stinkin ponzi because they don’t pay Peter with Paul’s money.

Anyone who says so is dumb as a box of rocks.

Peter and Paul owns their crypto.

It ain’t an unregistered security because we aren’t investing.

We’re putting our crypto in the JARVIS wallet, we are not investors, but the company is investing since they are an investment company registered with the Australian SEC.

We’re participating in this wonderful CT ecosystem where we receive CTO rewards just as you get frequent flyer rewards with American Airlines.

I know, I know… anyone who is familiar with securities law wants to jump right in. But let’s break this down step by step.

First off while Cloud Token has registered itself with the Australian Investment and Securities Commission;

  1. that’s an extremely low bar (pay a fee, provide some details); and
  2. it only pertains to the solicitation of investment in Australia.

As I write this Australia isn’t a significant source of traffic to Cloud Token’s website. Meaning investment activity there is little to none.

Alexa currently pegs the US as the largest source of traffic to Cloud Token’s website (20%).

In order to ascertain whether Cloud Token’s income opportunity constitutes a security, the existence of an investment contract must be established.

With respect to MLM companies, this is done via the Howey Test.

As per the Howey Test, an investment contract is defined as

a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party.

The Howey Test has been around since 1946. It’s been cited in countless cases by the SEC to establish the existence of an investment contract.

To wit the Howey Test is non-negotiable and there are no exceptions.

By their separate own admissions, both Ronald Aai and Faith Sloan openly acknowledge Cloud Token is offering an investment contract.

Ronald Aai;

The project itself is doing all the trading which in-return passes on the rewards to the members who participated in the project.

Faith Sloan;

We’re putting our crypto in the JARVIS wallet, we are not investors, but the company is investing.

And here’s Cloud Token themselves (taken from official marketing material);

Cloud Token Wallet offers its users the option of deploying algorithms and AI systems to trade cryptos and potentially earn a passive income.

JARVIS arbitrage bot delivers attractive monthly returns of 6%-12%, which are paid daily to Cloud Token Wallet users.

(HAL) delivers attractive monthly returns of 18%-30%, which are paid daily to Cloud Token Wallet users.

Just so you’re crystal clear:

  1. a contract, transaction or scheme whereby a person invests his money in a common enterprise (Cloud Token affiliates dumping money into the company through the app)
  2. and is led to expect profits solely from the efforts of the promoter or a third party (Cloud Token represents it does AI trading, the returns of which are used to pay affiliates who cash out their Cloud Token points)

Cloud Token is providing affiliates with an investment contract. Which in turn makes it a securities offering.

In order to operate legally, Cloud Token needs to register itself with financial regulators in every jurisdiction it solicits investment in.

Namely the US and Malaysia.

Faith Sloan resides in the US and as evidenced by traffic to Cloud Token’s website, the US is currently Cloud Token’s largest source of investment.

Ronald Aai recently fled to Malaysia after he was booted out of Singapore.

In addition to securities fraud via an unregistered securities offering, Cloud Token also fails to provide investors with details of its supposed Jarvis and Hal AI trading bots.

This lends itself to wire fraud, which is where the Ponzi aspect of the business kicks in.

Paying Peter with Paul’s money as Sloan put it.

Even if Cloud Token was registered with the SEC and Bank of Malaysia, they’d need to provide investors with full disclosure regarding their Jarvis and Hal trading bots.

This includes who created the bot, their expertise, who owns the bot and verifiable trading results.

The results would need to be audited by a third-party, such that returns paid to Cloud Token affiliates can be correlate with trading revenue generated by the Jarvis and Hal bots.

Cloud Token provides none of this on there website. Nor has anything been filed with ASIC.

Just a quick note on that point, ASIC are a somewhat of a joke when it comes to securities regulation. Don’t expect them to chase after Cloud Token for required filings any time soon.

There is one and only one reason an MLM company offering securities fails to register itself with financial regulators:

It isn’t doing what it represents it is.

In this case, using revenue generated by an AI trading bot to pay affiliates a return through an internal points (token) system.

The only verifiable source of revenue entering Cloud Token is new investment.

Cloud Token may have set aside a token amount of funds to feed a bot. Likely just enough to create videos to defraud investors with on social media.

Any revenue generated through token trading however is certainly nowhere near enough to provide returns calculated using the ever-increasing internal CTO point value.

If every single Cloud Token affiliate opted to withdraw every single CTO in their app wallet, in true Ponzi fashion the scheme would collapse.

What makes Ronald Aai taking securities advice from Sloan particularly egregious, is that not even a week ago Sloan was slapped with a $778,455 securities fraud judgment.

Although she might play the role of a confident “queen” on social media, when caught by authorities Sloan’s MO sees her play dumb and roll over.

With Sloan now “advising” Ronald Aai on how to mislead existing and potential investors with respect to securities law, any legal defense on their part will be a hard case to make.

The self-incriminating evidence is out there on social media for anyone to document.

The only thing left is for the SEC, DOJ or Bank of Malaysia to collect it and make a move.

Alternatively, Cloud Token collapses whenever recruitment runs dry and Ronald Aai, Faith Sloan and their co-conspirators make off like bandits.

Everyone else loses out and we record yet another “sorry for your collective losses” entry in the MLM crypto niche.