Last July the SEC shut down Traffic Monsoon on the basis it was a Ponzi scheme.

Rather than admit he’d stolen millions of dollars through Ponzi fraud and settle, Scoville vowed to defend the case. This saw all manner of nonsensical defenses raised.

With the TRO set to expire, in November a preliminary injunction hearing was held.

It’s been a long five month wait, but Judge Parrish today confirmed Traffic Monsoon was a Ponzi scheme and granted the SEC’s preliminary injunction.

Judge Parrish’s ruling in essence demolishes Traffic Monsoon and Charles Scoville’s pro-Ponzi defense arguments one by one.

I’ve reproduced her decisions with respect to core arguments raised below, with a conclusion following at the end of the article.

The SEC has no jurisdiction over Traffic Monsoon

The first defense Traffic Monsoon raised was that because most of its affiliates lived outside the US, the SEC had no jurisdiction.

The Supreme Court case Morrison v. Nat’l Australia Bank Ltd. was cited by Traffic Monsoon to support its argument.

Upon examination of the outcome of the Morrison case, Judge Parrish observed

the Court determined that “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States.”

Traffic Monsoon had also tried to argue that the Morrison decision overrode the Dodd-Frank Wall Street Reform and Consumer Protection Act (which gives the SEC and court jurisdiction in this case), but this was rejected by the court.

Even if some of the securities transactions at issue in this case are deemed to be foreign transactions, the conduct and effects test has been satisfied in this case.

The conduct and effects test (used in the Morrison case) confirms the court has jurisdiction with respect to the SEC’s legal action against Traffic Monsoon.

Traffic Monsoon sold all of the AdPacks over the internet to both foreign and domestic purchasers.

In all of these transactions, the seller of these securities, a Utah LLC, incurred irrevocable liability in the United States to deliver this security.

Thus, all of the transactions satisfy the domestic transaction test under Morrison and Absolute Activist.

So there goes the “our investors are outside of the US, so the SEC can’t touch us” argument.

Traffic Monsoon’s AdPacks weren’t securities

In its defense, Traffic Monsoon argued it wasn’t a Ponzi scheme, AdPacks weren’t securities and that the SEC wouldn’t be able to prove as much.

Here’s how Judge Parrish saw Traffic Monsoon affiliates depositing $50 for an AdPack on the promise of an advertised $55 ROI.

The central characteristic of a Ponzi scheme is that returns are not based upon any underlying business activity.

Instead, money from new investors is used to pay earlier investors.

Under this definition, Traffic Monsoon operated as a Ponzi scheme.

When a member purchased a $50 AdPack, the member obtained a right to share Traffic Monsoon’s “revenue” up to $55.

The revenue sharing returns that flowed into the member’s account to obtain the 10% return … (was) derived almost exclusively from the sale of AdPacks to later purchasers.

This cycle of returns to early investors fueled by new investments cannot last forever.

As the number of outstanding AdPacks expands exponentially, the new investment money must be divided among an evergrowing number of AdPacks, requiring a commensurate exponential expansion of the amount of new investment money just to maintain the same rate of return.

At some point, the daily payments deposited in AdPack holders’ accounts must begin to decrease until an inevitable as the number of outstanding AdPacks expands exponentially, the new investment money must be divided among an evergrowing number of AdPacks, requiring a commensurate exponential expansion of the amount of new investment money just to maintain the same rate of return.

At some point, the daily payments deposited in AdPack holders’ accounts must begin to decrease until an inevitable tipping point is reached where fewer members rollover their AdPacks and fewer new investors are attracted to the scheme.

Then, a vicious cycle would begin in which a decrease in new investment would lower the rate of return, which would in turn decrease the amount of new investment even more.

This cycle would continue until the system collapsed and the unlucky individuals who had not pulled out their money in time would be left with next to nothing.

Traffic Monsoon didn’t explicitly advertise a $55 ROI, so it wasn’t a Ponzi scheme

Charles Scoville loved to bang on about the fact that the Traffic Monsoon website didn’t promise a $55 ROI.

Here’s why that didn’t matter;

Although promised returns may be a “typical” indicator of a Ponzi scheme, it is not a necessary element of such a scheme.

What is required is the payment of returns to existing investors with new investor money.

What you say doesn’t matter, regulators and courts look at what you’re doing.

Traffic Monsoon had enough money to pay out each AdPack

The other nonsensical claim Scoville loved to repeat ad nauseam was, despite basic mathematics showing otherwise, Traffic Monsoon had enough money to pay each investor their promised ROI.

What made Traffic Monsoon a successful Ponzi scheme was that members would not allow large amounts of money to accumulate in their accounts.

They would continually reinvest this money by purchasing additional AdPacks, leaving Traffic Monsoon with a relatively modest obligation to pay out money contained in the member accounts.

But the fact that Traffic Monsoon might have enough money to pay out the money contained in the member accounts if the AdPack model were allowed to collapse under its own weight does not mean that it does not operate a Ponzi scheme.

Members would still have been deceptively enticed to invest their savings in the scheme by the illusion of profitability Traffic Monsoon cultivated by using new investor money to pay returns to earlier investors.

And those members that would be left holding hundreds or thousands of worthless AdPacks would still have lost their savings.

In short, Traffic Monsoon was able to honor withdrawal requests but there was no way known it had enough money to pay out every AdPack.

Ergo upon the inevitable collapse, the vast majority of Traffic Monsoon affiliates would have lost money.

Some legitimate advertising sales negated Traffic Monsoon’s wider Ponzi fraud

One of the oldest MLM underbelly tropes is that one component of a compensation cancels out the other. That is so long as you’re doing something legitimate, whatever fraud you might otherwise be committing is legal.

The deception at the heart of the Traffic Monsoon Ponzi scheme is that it concealed the fact that almost all of the returns from the AdPacks were derived from subsequent AdPack purchases.

Over 98% of the returns came from subsequent investments.

By calling the returns “revenue sharing,” and falsely claiming that the sale of AdPacks did not constitute a Ponzi scheme, Traffic Monsoon suggested
that the returns were generated by business revenue rather than by other investments in AdPacks.

Indeed, the website asserted that “[n]ew sales of advertising service generate new earnings” and that “[i]t’s from the sale of all our services that we share revenues,” misleading the members as to the source of the AdPack returns.

Citing legal precedent, Judge Parrish reaffirmed that “legitimate operations” do not ‘preclude a finding that (a) company operate(s) a Ponzi scheme‘.

The less than 2% of revenue Traffic Monsoon collected from the sale of website visits was clearly insufficient to fund the AdPacks’ aggressive returns.

Traffic Monsoon affiliates bought advertising

Kind of a side issue and immaterial to Traffic Monsoon running a Ponzi scheme, nonetheless this was raised as a defense.

Traffic Monsoon argues that its sale of an AdPack does not constitute “an investment of money in a common enterprise,” but rather the purchase of services.

The fact that members received some services for their AdPack purchases, however, does not mean that the AdPack was not an investment.

The same services available through the AdPack could be purchased à la carte for just $10.95.

The only explanation for why members would pay an additional $39.05 for the same services was that they wanted to invest their money to obtain the generous returns obtained by early investors.

The evidence clearly points to the fact that Traffic Monsoon’s explosive growth was driven by members purchasing and repurchasing AdPacks in order to obtain the incredible returns on their investment, not by intense demand for Traffic Monsoon’s services.

The economic reality of the AdPack purchases is that they were investments.

Viewing ads to qualify for a ROI negated Traffic Monsoon’s Ponzi flow of money

This argument is self-explanatory: Affiliates had to do something for the ROI so the ROI was not passive (required to prove a Ponzi via the Howey test).

Traffic Monsoon contends that the profits from the AdPacks did not “come
solely from the efforts of others” because its members were required to invest a little over four minutes every day to visit 50 websites for five seconds each.

It asserts that this requirement to qualify for revenue sharing constituted efforts on the part of the members to reap the profits from the AdPacks.

This argument is unavailing.  In this case, the efforts of the members in visiting websites for about four minutes a day was not a significant contribution to the success or failure of the AdPack scheme.

Over 98% of Traffic Monsoon’s revenue sharing came from the sale of AdPacks.

The success of AdPack sales had nothing to do with the members’ efforts and depended solely on Mr. Scoville’s acumen in promoting them.

As we’ve seen reaffirmed time and time again in Ponzi regulation, what you have investors do doesn’t have anything to do with the flow of money. It’s meaningless pseudo-compliance.

Charles Scoville didn’t know Traffic Monsoon was a Ponzi scheme

One of the core defenses raised by Scoville, with respect to his knowledge of Traffic Monsoon being a Ponzi scheme, is an email he received from the Utah Division of Securities regarding Ad Hit Profits.

Ad Hit Profits was a Ponzi scheme Scoville ran prior to launching Traffic Monsoon.

The Utah Division of Securities investigated Ad Hit Profits and in an email sent to Scoville, stated

the matter has been closed because “a security was not involved.”

Traffic Monsoon cites this email as persuasive evidence that Mr. Scoville lacked scienter because he did not know that the AdPacks were securities.

This is another nonsense argument, because the SEC isn’t ‘required to prove that Mr. Scoville knew that the AdPacks meet the definition of a security‘.

The Receivership deprives Scoville of funds to defend himself

In an effort to have the Traffic Monsoon Receivership dissolved, Scoville argued

the receivership order violates his right to due process because it deprives him of funds to mount a legal defense to the SEC’s claims.

The court rejected this argument because you can’t use victim funds to hire legal counsel to defend criminal charges.

Based on this, Judge Parrish reasoned

if a criminal defendant may not use illgotten gains to fund a defense, a civil defendant certainly may not.

Because the court concludes that the SEC has demonstrated a strong likelihood that it will prove that Mr. Scoville operated an illegal Ponzi scheme, it denies his due process objection to the receivership order.

Traffic Monsoons Motion to Set Aside the Receivership was subsequently denied.


Judge Parrish concluded that Traffic Monsoon was offering a “false ROI” and that, if permitting to continue to operate, Charles Scoville ‘will likely violate the prohibitions against’ engaging in fraud.

All of Traffic Monsoon’s arguments as to why it will win this case are without

Reviewing the evidence, the court concludes the SEC has made a clear showing that it will likely prevail on the merits.

The court concludes that, absent a preliminary injunction, the SEC has made a clear showing that Mr. Scoville will continue to violate securities laws by perpetuating a Ponzi scheme.

The court therefore grants the SEC’s request for a preliminary injunction.

And that’s that.

Traffic Monsoon and Charles Scoville do of course have the option of filing an appeal but really, what’s the point?

A Ponzi is a Ponzi is a Ponzi.


Update 15th April 2017 – On April 14th Charles Scoville and Traffic Monsoon filed an interlocutory appeal against the decisions to grant a preliminary injunction and not dissolve the Receivership.


Update 25th January 2019 – On January 24th the Tenth Circuit appeals court denied Charles Scoville’s Traffic Monsoon appeal.