PayPal sued for facilitating Traffic Monsoon Ponzi fraud
Known throughout the MLM underbelly for it’s prohibition of Ponzi and pyramid schemes, PayPal nonetheless still pops up as a payment processor for various schemes.
The problem with PayPal’s current fraud detection mechanisms is that, by the time it’s detected, the damage has already been done or PayPal quietly freeze the account.
No information is communicated to victims of the scheme and often the fate of the seized funds remains a mystery.
When PayPal froze Traffic Monsoon’s investor fund account in January, 2016, approximately $61 million of invested funds were frozen.
Despite appearing to freeze the account on suspicion of fraud, PayPal continued to allow affiliate investment transfers into the account for another 30 days.
PayPal purportedly represented to Traffic Monsoon’s owner, Charles Scoville, that the freeze would remain in place until August, 2016.
Scoville promptly reassured Traffic Monsoon affiliates that nothing was amiss and to sit tight and wait it out.
As revealed by the SEC, PayPal prematurely released the funds on July 11th.
Scoville quietly began withdrawing $26.1 million dollars into private bank accounts he controlled. PayPal were fully aware of these transactions and despite earlier suspicions of fraud, had no problems authorizing them.
Two Canadian Traffic Monsoon investors have taken a stand, and through a class-action lawsuit now seek to hold PayPal accountable.
Kingsley Ezeude and Chukwuka Obi describe themselves as ‘victims of a Ponzi/Pyramid scheme operated by Charles David Scoville and Traffic Monsoon‘.
Ezeude invested $2216.43 into Traffic Monsoon, Obi invested $2238.90. All deposits were made through PayPal and just prior to the freeze on affiliate withdrawals.
Even before he launched Traffic Monsoon, Charles Scoville was a well-known figure throughout the MLM underbelly.
Prior to launching Traffic Monsoon in 2014 Scoville operated Ad Hit Profits, a 125% ROI Ponzi scheme. That’s in addition to a number of schemes, all of which used PayPal in part or in full to process affiliate deposits.
According to Ezeude and Obi’s lawsuit, PayPal froze Scoville’s PayPal account for fraud sometime after May, 2011.
Scoville was using the account to operate six fraudulent schemes at the time, none of which survived the freeze.
Ad Hit Profits was launched in May, 2013 and had collapsed by October.
In September 2014, PayPal authorized Scoville to open up a new account for Traffic Monsoon.
Scoville told PayPal that Traffic Monsoon’s business was “Investments – general” and provided PayPal with Traffic Monsoon’s website address.
Over the next sixteen months, PayPal would ultimately process $134 million dollars in stolen Ponzi funds for Scoville.
Ezeude and Obi claim PayPal’s review of Traffic Monsoon should have identified it was
similar to the businesses previously operated by Scoville that PayPal had banned from using its services following allegations of fraud.
Yet despite this, for sixteen months PayPal had no problems with Scoville operating the account.
PayPal also was aware that Traffic Monsoon was operating a Ponzi/pyramid scheme and that Traffic Monsoon was commingling investor money and paying existing investors with new investors’ money, in obvious Ponzi/pyramid scheme fashion.
As deposits into the Traffic Monsoon PayPal account skyrocketed throughout 2015, rather than set off alarm bells, PayPal lavished praise on Scoville’s business model.
PayPal praised Traffic Monsoon on the performance of its account with the low chargebacks – further demonstrating PayPal’s ongoing monitoring of Traffic Monsoon’s account and of the transactions in that account.
In December 2015, PayPal told Scoville that Traffic Monsoon’s account was one of the best performing accounts in its category.
The class-action lawsuit alleges that PayPal knew Traffic Monsoon was a Ponzi scheme but kept quiet because they were profiting off transaction fees. PayPal also allegedly earned interest on the account, even after they froze it.
The initial freeze was for 180 days and was supposed to last until August, 2016.
PayPal explained that the freeze on PayPal Account 7752 expired “unbeknownst to PayPal employees monitoring the account” – a clear demonstration of PayPal’s inadequate control systems and of the fact that crucial information regarding Traffic Monsoon’s fraud was not being shared across PayPal departments that needed to be aware of such information.
This negligence on PayPal’s behalf is alleged to have generated “millions of dollars” for proposed Class Representatives (Traffic Monsoon affiliates).
While PayPal prides itself on, and advertises, its anti-fraud detection systems, its internal controls were lacking at best, and nonexistent at worst, with regards to its oversight of its Traffic Monsoon-related activities.
Further, the internal communications between various PayPal departments and individuals charged with interacting with customers, overseeing customer accounts, and detecting and preventing fraud or misconduct in the PayPal accounts either broke down or were nonexistent.
Seeking to represent over 100,000 Traffic Monsoon affiliates, Ezeude and Obi’s lawsuit seeks damage as a result of PayPal
- aiding and abetting fraud
- aiding and abetting breach of fiduciary duty
- negligence and gross negligence and
- violation of California Corporations Code
At the time of publication PayPal has yet to respond to the lawsuit.
The case docket reveals summons were issued to defendants PayPal Inc. and Paypal Holdings Inc. on May 5th. A Case Management Conference has been scheduled for August 8th.
Patrick Pretty was first to spot Scoville’s representation to PayPal that Traffic Monsoon was an investment opportunity. A copy of Ezeude and Obi’s lawsuit is linked by Ethan Vanderbuilt at the end of his own article covering the story.
Update August 10th 2017 – PayPal requested additional time to respond to the lawsuit, which was granted on June 29th.
The Initial Case Management Conference has been continued to September 13th.
Update September 14th 2017 – On September 7th PayPal filed a Motion to Dismiss and Motion for Stay (of) Proceedings.
A Case Management Conference has been scheduled for December 6th, hopefully around which we’ll get orders on PayPal’s two pending motions.
Update 8th December 2017 – Pending the outcome of Scoville’s appeal in the SEC case, Ezeude and Obi’s lawsuit against PayPal has been stayed.
it wont be a bad thing if paypal is made to pay damages for helping scoville along in TM.
paypal is a trusted brand, people tend to believe that paypal has it’s scam antennae on alert mode, and wont do business with ponzi schemes.
maybe paypal’s internal warning protocols have become blunt with time?
sometimes complacency can be cured with a swift kick in the ass.
Paypal won’t be found guilty of the alleged offences.
Paypal is protected under Suspicious Activity Report (SAR)legislation and Patriot Act, which require it (Paypal) to inform both appropriate Federal law enforcement agencies and Financial Crimes Enforcement Network (FinCEN)of the Department of the Treasury.
It is also prevented from informing either Scoville or the public of its’ suspicions / filing of SARS by the Bank Secrecy Act.
Close study of all of the evidence filed in the Scoville / Traffic Monsoon matter gives clear evidence of the involvement and co operation of Paypal both before and after the filing of the SEC complaint.
Add to the fact that the “victims” want to make PayPal responsible for their lack of due diligence and to act as their investment advisor. Neither of these are the role of PayPal.
This notion that they had no clue about Scoville’s past is a joke. All it took was to Google his name. All they had to do was listen to all of us warning that TM was illegal. They did zero due diligence and it is going to bite them in the butt.
Chances of Paypal being made to pay damages if negligible, and do these guys even have any standing? I thought TM is still being controlled by a receivership?
If they are morose enough to put money into these schemes, they should be taking the hit. Financially and on any level. I don’t understand why greed and stupidity should be coddled; I guess it goes hand-in-hand with the dumbing of society.
It is, which is why they’re going after Paypal.
It’s not unusual for this (suing) to happen after one of these things is prosecuted
In the AdSurf Daily case, it was the Bank of America who was sued / blamed and as far back as 12 Daily Pro, it was the payment processor Stormpay which copped the flak.
Nobody is being “coddled”.
Filing a lawsuit at their expense is their right, which has nothing at all to do with it’s chances of succeeding.
Now we are talking, PayPal actions against some honest business members need to be investigated!
Dav7 could you expand on that a little bit please. Honest business members selling what?
You don’t think this is a revenge thing for the sum of $5 million?
It doesn’t matter what Paypal has done elsewhere.
Forget the conspiracy theories and populist anti Paypal rhetoric.
In THIS case Scoville attempted to run a multi million dollar fraud from within the USA using Chase bank and Paypal, both of which filed Suspicious Activity Reports as they are required to do by law and both co operated with investigating agencies, including FinCEN and the SEC.
@KCHANG… Filing suit is their prerogative, clearly. The coddling refers to this undercurrent of sympathy for, well idiots. No other way to say it. Driven by greed, and emboldened by the spirit of the Nanny State which permeates everything these days.
Personal responsibility coupled with doing one’s diligence and accepting the results is waning. And amazingly this poison emanates from the Anglo-Saxon realm, to the rest of this world. Amusing to watch.
viribusunitis is one of the modern tribe of victim blamers who think that people who get burgled should have had better home security.
i will have to say that even though charles scoville was so mad at me he was about to explode that i made him pay me back every penny i invested with paypal.
many others could have gotten their money back the same way i did but even the people i knew and told what to do would not listen to me because they trusted this thief. only one person followed my instructions and only that one person got a full refund.
if you have a good sponsor you should listen to them. i did not gain my trust as a good sponsor from letting people lose money in my referring them in a business.
i earn enough honestly that i can guarantee my referrals a refund from my own profits if they lose money in anything i put them in. that is the way everyone should be and maybe people would not just be grabbing links and telling people whatever the site instructs them to tell.
there are a lot of people telling lies to get sign ups and they don’t even know they are doing it. but if they lose a little money i guarantee they will be more careful of what they promise people on a scammers behalf. and that’s all i got to say about that.
@anjali let them be sued and more!
they knew Traffic Monsoon had a fraud system yet continued to allow people to use the system via paypal!
when i called up my bank regarding this frozen money and refund, i then realised the fraud system in Traffic Moonson.
when you use your revenue to buy ad pack back, you are basically shooting yourself in the foot! if you had not buy the $55 earning with another adpack, you could still get your money back.
SUE the pricks!
@viribusunitis, you are very right. We have lost much of our cluefullness as a society. Nanny state. ugh.
Article updated with news of Initial Case Management Conference delayed till September.
Article updated with news of PayPal’s Motion to Dismiss and Stay (of) Proceedings.
Next Case Management Conference has been scheduled for Dec 6th.