SEC: Scoville’s arguments are “without merit” & “legally meaningless”
In addition to the periodic pro-Ponzi rants Scoville has been publishing on Facebook, a few weeks ago Scoville filed an opposition to the SEC’s requested preliminary injunction.
The SEC have filed their reply, claiming Scoville’s arguments are “without merit” and “legally meaningless”.
In his opposition, Scoville claimed that because 90% of Traffic Monsoon investors were outside the US, that US securities law don’t apply.
To support this assertion, Scoville cited the lawsuit Morrison v. National Australia Bank.
Unfortunately for Scoville, the securities law the “Morrison fix” applies to a specific section of the securities act, which
reinstated the conduct-and-effects test that had been the governing law for 40 years prior to Morrison.
Whether his failure to raise, reference, or discuss the governing law on this issue was intentional or unintentional, the effect is the same.
Scoville’s argument that the anti-fraud provisions of the federal securities laws do not apply to his fraudulent conduct relating to Traffic Monsoon investors who reside outside of the United States is without merit.
Moreover, even if Morrison did apply in this case, the Traffic Monsoon Ponzi scheme would still be subject to the federal securities laws. Traffic Monsoon was a Utah registered business being run out of Murray, Utah.
Its Utah address was included on its website. Scoville was a U.S. citizen who resided (by his own admission) in Utah, irrespective of time he may have spent in the United Kingdom.
Traffic Monsoon was operated exclusively through computer servers housed entirely in North Carolina, which facilitated all of the transactions conducted by Traffic Monsoon investors, wherever situated.
Because the transactions were effected with a U.S. Company, through U.S.-based servers, they were “domestic securities transactions” under Morrison, regardless of where the investors resided at the time of the transaction.
Scoville also claimed the $50 AdPack was not a security. The SEC argue that it is, as per the Howey test;
It involved (1) an investment of money, (2) in a common enterprise, (3) with a profit derived from the efforts of others.
Neither Scoville’s attempt to embed $11 worth of imaginary “advertising services” within the $50 investment, nor his requirement that investors click on other banner ads for 4 minutes per day irrespective of the number of AdPacks purchased, changed the nature of what he was selling – the opportunity to receive a return.
Scoville’s comparison of AdPacks to breakfast cereal or Happy Meals, while perhaps clever, is nevertheless legally meaningless.
Because investors were investing money into Traffic Monsoon with the expectation of earning a return, Scoville was selling securities.
This is perhaps best exemplified by analysis of why Traffic Monsoon affiliates are up in arms about their Ponzi being shut down.
Nobody is upset about the loss of advertising, everyone just wants their money back (with the particularly greedy scammers expecting their ROI too).
The advertising services that Scoville bundled in the $50 AdPack were available for approximately $11 if purchased separately.
Therefore, the lion’s share of the purchase price of the AdPack, approximately $39, was attributable exclusively to the profit sharing position.
There was nothing else in the AdPack product that the investor received from the purchase of the AdPack separate from the aforementioned services and the profit-sharing position.
In other words, even giving credit for the $11 purchase of advertising services (which were largely imaginary as Traffic Monsoon had only “delivered” approximately 10% of the promised services), Traffic Monsoon investors still paid $39 for an investment contract that provided them with a $5 return after 55 days.
Because the returns were financed exclusively through the sale of additional securities (i.e. AdPacks), (Scoville’s) operation constituted an unlawful Ponzi scheme.
One point Scoville likes to bring up is a supposed communication from the Utah Securities Division giving his previous Ponzi scheme, Ad Hit Profits, the all-clear.
Here’s the SEC’s direct response to that:
Whether the State of Utah opined (or remained silent) as to a previous business undertaking, not related to Traffic Monsoon, is irrelevant.
In raising it as a defense, Scoville is asking this Court to speculate as to how the unrelated business was operated, what products it sold, how those products were structured, what facts were considered by the Division, whether it was looking at the product itself or some other aspect of the business, and what conclusions it reached and conveyed to Scoville.
Any discussion of a business entirely independent of Traffic Monsoon, and what the Division’s investigation did or did not conclude, is irrelevant to these proceedings and unhelpful to the analysis being conducted by the Court in reference to Traffic Monsoon.
The Traffic Monsoon preliminary injunction hearing is scheduled to take place on November 1st.