Traffic Monsoon investor Paypal case stayed
Kingsley Ezeude and Chukwuka Obi respectively invested $2216 and $2238 into the Traffic Monsoon Ponzi scheme.
Back in May the pair sued PayPal, alleging PayPal
as 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.
In response to the lawsuit PayPal filed both a Motion to Dismiss and Motion to Stay.
On November 15th Judge Koh ruled to stay the case, effectively stopping it in its tracks.
The SEC allege Traffic Monsoon is a $237 million dollar Ponzi scheme and shut it down in June last year.
A decision on the appeal has yet to be reached.
Judge Koh’s ruling is based on a “stay of litigation” ordered in the SEC’s parallel proceedings.
The Court hereby orders a stay of all litigation in any court against Traffic Monsoon, LLC or Charles Scoville where
(1) the Securities and Exchange Commission is not a party or privy to a party in the lawsuit and
(2) the lawsuit involves or seeks to recover the assets frozen by this Order.
The parties to any such litigation are enjoined from taking any action in connection with the lawsuit, including, but not limited to, the issuance or employment of process.
All courts presiding over any such litigation are also enjoined from taking or permitting any action in the lawsuit until further order of this Court.
Ezeude and Obi’s PayPal lawsuit both does not involve the SEC and seeks to recover frozen assets (stolen investor funds).
Furthermore with the SEC’s case against Traffic Monsoon not yet resolved, Judge Koh remarked;
Ezeude and Obi allege that PayPal aided and abetted Traffic
Monsoon and Scoville’s fraud by serving as the payment processor for Traffic Monsoon and Scoville’s Ponzi scheme.
If Traffic Monsoon and Scoville are not liable for fraud, then PayPal cannot be liable for aiding and abetting Traffic Monsoon and Scoville’s commission of fraud.
Thus, necessarily Traffic Monsoon and Scoville’s liability should be determined first.
Emails between PayPal and the SEC were also cited, showing the SEC’s intent to object to discovery requests should they be made (as per the Utah Court stay order).
The Court STAYS the proceedings in this case until the Tenth Circuit resolves the interlocutory appeal in the Traffic Monsoon case and the Utah Court’s stay order is lifted.
The case hasn’t been dismissed. However with Ezeude and Obi likely to recover funds through the Receivership in the event Scoville’s appeal fails, I’m not really seeing how the case will proceed.
I suppose PayPal could be held liable for facilitating fraud, however I’d then expect the Receiver to go after them for any profit made. Which would again nullify separate proceedings against PayPal.
I’m not a lawyer though so I guess we’ll have to keep track of this one once a decision on the appeal is reached (expected early next year).
Update 23rd February 2020 – Checked this case docket today and there are no updates since the December 2017 stay.
The Utah case has been reopened so either there’s some judicial lag in reopening this case, or some other legal process trigger that hasn’t been met.
Will check the docket again in another six months.