Traffic Monsoon Ponzi appeal denied
Following an almost two year wait, earlier today a decision on Charles Scoville’s Traffic Monsoon Ponzi appeal was published.
In a decision that positively nobody could have predicted, the Tenth Circuit appeals court has denied the Traffic Monsoon appeal.
Way back in March a District Court ruling saw Traffic Monsoon certified as an illegal Ponzi scheme.
Charles Scoville, owner and operator of the scam, filed an appeal the following month.
Key rehashed arguments Scoville raised in his appeal were addressed by three circuit judges as follows.
Traffic Monsoon mostly scammed investors outside of the US, so the SEC has no jurisdiction
Charles Scoville argued that because Traffic Monsoon solicited approximately 90% of investment from outside of the US, that the SEC had no jurisdiction.
The court rejected this argument on the basis of a ‘conduct-and-effects test added to the federal securities laws by the 2010 Dodd-Frank Act‘.
When applied, the test outcome is that while ‘adpacks were especially popular in poorer countries, including Bangladesh, Venezuela, and Morocco‘,
Traffic Monsoon undertook significant conduct in the United States to make those sales to persons abroad.
Congress has clearly indicated, through the 2010 Dodd-Frank Act amendments to the securities laws, that the antifraud provisions apply when either significant steps are taken in the United States to further a violation of those antifraud provisions or conduct outside the United States has a foreseeable substantial effect within the United States.
Because Scoville engaged in conduct within the United States that has been shown likely to have violated the securities laws, we conclude the antifraud provisions reach Traffic Monsoon’s sale of Adpacks outside the United States.
Traffic Monsoon’s AdPacks aren’t securities
The court rejected this argument and concluded that
Traffic Monsoon’s Adpacks (bundled internet advertising services that allowed a purchaser to share in some of Traffic Monsoon’s revenue) qualified as investment contracts, which are securities regulated under the 1933 and 1934 securities acts.
This is in line with an SEC directive from mid 2016, which confirmed you can’t legitimize a Ponzi scheme by adding adpacks to it.
Traffic Monsoon wasn’t a Ponzi scheme
Based on evidence submitted by the SEC, the court concluded that
The SEC presented sufficient evidence that Defendants were likely operating a fraudulent scheme—a Ponzi scheme—and likely doing so with the required scienter.
It (is) likely that the SEC will be able to prove that Defendants were operating a fraudulent scheme—a Ponzi scheme—selling Adpacks and that scheme violated the antifraud statutes invoked in this litigation.
Strike three, you’re out.
With the appeals court upholding the District Court’s preliminary injunction hearing, the Traffic Monsoon Ponzi case will resume where it left off.
For victims of the scheme the most important development will be the Receiver now proceeding toward establishing a claims process.
Note that there is no timeframe for this so don’t ask (any comments asking about when claims forms can be submitted will be marked as spam).
With respect to Scoville, he can continue to fight the case but with two courts now issuing comprehensive rulings against him, doing so would seem rather pointless.
Not withstanding Scoville’s conviction for attempted child sexual abuse.
Following a guilty plea last November, Scoville was sentenced a few weeks ago.
Tara Talks reported Scoville received a three-year prison sentence but I’ve yet to see anything official.
Scoville had filed a pre-emptive second appeal, which was stayed pending the outcome of his first appeal.
It’s a given that the second appeal will also fail but we’ll keep you updated.
With respect to the SEC’s case, the only update on the docket is a denial of Scoville’s motion for attorney fees.
Last July Scoville had petition the court to order the Receiver to pay his legal fees out of recovered Traffic Monsoon victim funds.
Almost six months later, the opinion on the interlocutory appeal has not yet been issued.
Due to this unanticipated delay, the court determines that Scoville’s motion for attorney fees has become stale. The court, therefore, DENIES the motion WITHOUT PREJUDICE.
After the Tenth Circuit issues its opinion, the parties may attempt to negotiate a settlement involving the disbursement of receivership funds that is acceptable to this court.
The above ruling was made on January 23rd, 2019.
Given the outcome of Scoville’s appeal, I’d very surprised if he gets a cent out of the Receivership.
Stay tuned for updates…