Naive or calculated cunning? The witness testimony of Charles Scoville.
Witness testimony of Charles Scoville was taken by the SEC on May 17th at their Utah office.
Scoville was not represented by legal counsel. He was given the option to adjourn his testimony if he wished to obtain counsel but did not act on it.
Scoville’s wife Samera Hussain was present, although not permitted to testify as she was officially not a witness.
Prior to the May 17th meeting, Scoville (right) had met with the SEC on April 25th.
Scoville was questioned at this meeting and the SEC recorded it as part of their investigation.
Despite knowing the SEC was investigating Traffic Monsoon for over three months before they shut it down, Scoville never disclosed the investigation to Traffic Monsoon affiliates.
Scoville’s testimony comes in at 190 pages and covers a wide-range of topics pertaining to how he designed, set up and operated Traffic Monsoon.
Below you’ll find points of interest in Scoville’s testimony, which I’ve placed under appropriate headers. Bold represents questions from the SEC, Scoville’s answers have been left unformatted.
Charles Scoville believes in pseudo-compliance (or at least represents that he does)
For those not familiar with the term, pseudo-compliance refers to pointless changes to an income opportunity that don’t actually change the nature of the scheme.
For example, let’s say I was running a simple $1 in, $2 out Ponzi scheme. My investors invest $1 and I pay them $2, paid out of subsequently invested funds.
In an attempt to challenge the notion that I was conducting financial fraud, I bundle an apple with each $1 investment. I also tell my affiliates not to refer to their investments as investments.
I tell them they are purchasing apples and that anyone who mentions the word investment will lose their money.
This is a classic case of pseudo-compliance. Despite the implemented changes, I’m still running a Ponzi scheme.
As silly as this sounds, pseudo-compliance is rife within MLM underbelly and HYIP circles.
Charles Scoville is evidently in desperate need of legal representation and/or intent on setting himself up as a Ponzi martyr.
The following answers Scoville gave to questions by SEC investigators are nothing short of naively remarkable;
So advertisers are —
— people who have purchased advertising service.
Okay. And how about revenue?
Revenue would be generated — the sale of a service.
Okay. And do you use the term “profit sharing” or “revenue sharing” for — I know you speak about each member has an imaginary bucket that fills up from — I would say revenue that is shared with him.
Would that be a term you use?
On the Ad Plans page, I remember it does say there’s a profit margin that’s generated with this advertising sales. So yes, the profits —
We share the profits, yeah.
Knowingly or not, Charles Scoville just confirmed to the SEC that Traffic Monsoon is a Ponzi scheme.
I get the feeling this might have triggered in his mind. When describing AdHitProfits, launched by Scoville prior to Traffic Monsoon, he’s adamant that the SEC play along.
When you were mentioning that the revenue dried up, what was — where was the revenue coming from for AdHitProfits?
Through advertising sales. So people essentially decided not to use my services.
There were still many people who were, but the bulk of the customers, they were walking away to use different services.
Did the revenue include money people had paid in to buy the services, then?
So the money that we were sharing were people buying services, right.
Do you have a sense of the total amount of money that members put into AdHitProfits?
I would have to look it up. I don’t know.
I’m wondering why —
And just to reword it is people don’t put money in, because that would denote that it’s an investment.
And people have the clear description on the website that it is a purchase of service, just like you don’t put money into Smith’s store when you buy groceries or buy a gallon of milk.
You’re not putting money into your gallon of milk, but you are buying a gallon of milk and receiving the milk.
And that’s what AdHitProfits is as well, is people aren’t putting money in, because it’s not a deposit.
It’s nothing like that. It’s a purchase of service.
Okay. It’s the money they put in to buy whatever service it offers?
Right. But they’re not putting money in —
Oh. I keep saying —
Anyone who’s familiar with Ponzi schemes and regulation in the US should easily be able to recognize Scoville setting himself up.
And whether he was aware of it or not, the SEC continually got Scoville to dig a deeper hole.
So you have a section here on the first page — is Traffic Monsoon a HYIP, H-Y-I-P —
— on the pyramid scheme or illegal. And you say,
“Traffic Monsoon offers quite a lot of advertising services of the highest possible quality and delivers them quickly.
When people buy these services, their revenues are held by the company.”
So does that include the $50 people spend to buy the advertising ad pack?
It includes every service; and just like what it says at the top there,
“This is not an investment site…in any way, shape, or form.”
It’s not what we’re doing.
Can you explain that?
Can I explain that it’s not an investment?
Well, the reasons why you say it’s not an investment site.
The reason I said that is because people were asking whether this was an HYIP, which is a high-yield investment plan type of a site.
And I wanted to make sure that people recognized that we’re a traffic exchange.
We’re not one of those types of deals. And I don’t want anyone to ever treat it like one of those types of deals.
We do sell advertising. We allow people to surf in our traffic exchange, earn free advertising credits.
But if people have purchased an ad pack, then we want to be able to share the revenue with them as they qualify.
So it’s a reward for active surfing. So it’s not an investment.
Scoville fails to address the ROI nature of the scheme, instead again falling back on pseudo-compliance.
The profit sharing is a reward?
Right. It’s just a reward saying, you know what, you’ve surfed — you know, like with EasyHits4U, for example, if you’ve surfed a number of ads, then you get 25 cents or you might get this extra credit pack or whatever.
I just figured it seemed to be a good idea, since these people are actually surfing, to actually give them a portion of the sales revenues that are generated for the ads that they are surfing.
Scoville obviously hoped that by referring to the ROI paid out as a “reward”, Traffic Monsoon wouldn’t be seen as an investment opportunity.
So the advertiser, I guess, member puts in $50, right?
Well, you’re saying “put in.”
But makes a purchase of $50 to receive an ad pack, yes.
So I’ve clicked my ten times now, and I’m going to share today in company profits until what you call my bucket gets to $55 eventually?
So you qualify to receive the share of the site revenue, right. And then your sharing position does have a maximum — it doesn’t just last forever.
But yeah, it’s got a maximum of $55 that you would ever be able to receive towards that position.
Did you determine that it would be 55?
Yes, I did.
And what did you — how did you come up with that?
I didn’t want it to be too much more than what someone had spent, but I did want to make it — I don’t know.
I just felt that I didn’t want it to be too much, either, because that would cause revenues to run out faster.
So I just thought, you know, 55 seems to be decent.
The trap there was acknowledging that the $55 paid out was sourced from affiliate revenue paid in. Scoville however appears to be utterly oblivious.
I’m just wondering if anyone through the history of Traffic Monsoon has not been able to earn the $55 return even if they’ve been qualified, unless they are within the time where it hasn’t had a chance to earn the 55.
What I would probably say, then, is that it’s not a return.
I’m sorry. I don’t mean to say “return.”
It’s all right. And the only reason why I stopped there for that is sometimes I hear members use those words, and I always stop them and say, I want you guys to realize this is not an investment; this is not a return.
You’re not getting your money back. You have purchased a service and have received that service, and now you’re clicking to qualify to share in the revenue.
So I always — whenever I hear that, it’s, like, programmed now. It’s just a habit.
— you say — I wonder why you put this in:
You agree to recognize Traffic Monsoon as a true advertising company which shares its revenues, and not as an investment.
I just wanted to make sure that it was clear that when people are getting started with Traffic Monsoon, that if they do choose to purchase an advertising service with us, or with me, I guess with the company, that they’re not investing.
I want them to recognize that is what they are getting involved with. And so it’s been there since the very beginning of the company.
It sounded like you also wanted to make sure they don’t represent to others —
That it’s that as well, right.
After all that and taking into consideration the SEC’s filed complaint against Scoville and Traffic Monsoon, the folly of pseudo-compliance should be painfully obvious.
AdHitProfits was investigated by the Utah Securities Division
AdHitProfits was a Ponzi scheme Scoville launched that preceded Traffic Monsoon.
Through AdHitProfits, affiliates invested $45 on the promise of a 125% ROI.
In speaking about AdHitProfit’s “problems”, Scoville reveals the scheme came under regulatory investigation.
The problem that we bumped into … is after about three months customers kind of walked away.
So it (AdHitProfits) also did the revenue sharing or profit sharing. And when the revenue sharing slowed down for people, there was less revenue to share.
People were screaming scam and fraud and things like that. And the Utah state securities division actually investigated, and they went through the entire thing and found, okay, yeah, he’s not offering any kind of security here with this.
So they passed it over to the consumer protection department, and they looked through to see if maybe I had been misrepresenting what I was offering, and they closed their file as well.
Considering US regulators do not share the outcome of investigations with even those being investigated, unless an enforcement action is brought forward, it seems Scoville is making broad assumptions about investigations into AdHitProfits.
If I had to guess, the Utah Securities Division concluded AdHitProfits was a Ponzi scheme, realized the SEC were conducting a broader investigation into Scoville and forwarded their findings on.
Scoville lied to the SEC about the PayPal fund release
This is a hot topic of contention among Traffic Monsoon affiliates. Many consider it to be solid evidence of Scoville’s intent to defraud.
Scoville had always represented that Traffic Monsoon’s PayPal funds would be unfrozen in August.
In reality the funds were released on July 11th.
When asked by the SEC what his plans were for the unfrozen funds back in May, here’s what Scoville told them.
What is your current plan for the money once PayPal releases it?
Well, the current plan is first we need to see how PayPal’s going to release it, because I’ve added my business account to the PayPal account now, so I’m going to want them to send it to my business account, and then from that I can send it to Allied Wallet.
I can send it to Payza. I can send it — still working on the SolidTrustPay thing.
So we’ll see what we can do as far as getting people paid with the money that’s actually being released.
So when you say send it to your account, you have another Traffic Monsoon account at PayPal, or just your own name? Or what is that?
So what I mean is there’s — the funds right now are inside of the PayPal account already. And what we want to do is move those funds to a position where we can pay the people.
To do that, I would have to first send it from PayPal to the Traffic Monsoon bank account that’s at Chase, and then from Chase then I could send that to Allied Wallet, because what Allied Wallet has are these cards that I can pay people with.
So that’s the goal, but there’s definitely people that don’t want those cards. They would prefer getting paid through Payza or SolidTrustPay.
I know when we talked a few weeks ago you said that your plan was to move the PayPal money to TM bank, but it sounds like that’s probably a little bit from now.
We’ll have to see. I mean, it’s all waiting for PayPal to release the funds, and that’s in August.
So definitely there’s been a lot of thought, but it’s also kind of tentative because that’s in August and it’s about three months away still.
PayPal unfroze Traffic Monsoon’s account on July 11th. He told nobody and withdrew $25.6 million to Traffic Monsoon’s JPMorgan Chase account. $21 million of that was then immediately transferred into Scoville’s personal account at the same bank.
After the SEC shutdown Traffic Monsoon and this was exposed, Scoville claimed in a Facebook post:
Fake checks were circulating around using the bank account and routing numbers made available online for customers purchasing services, so I moved the funds out of the business account until I could get to the USA, go into a chase branch, and send those funds to payza.
Then, I was going to surprise members with an early release.
Scoville had purportedly wired $45,000 to $50,000 to a man named Sayeed in the UK, who was going to organize the shifting of funds to an unknown location.
I’ve wired some money to Sayeed to cover some of the fees and expenses. I think it was something like $45,000 or $50,000, something like that.
And it’s not in process now, or is it in process?
It’s been a while since I’ve spoken with Sayeed about it, but he did say that it’s just pending the PayPal release.
Would that be a bank in the UK, or —
You know, the location of the bank, I don’t really know where.
I mean, it would be chartered some way, wouldn’t it?
I’d have to get the specifics on that. But from what I understood, it would be our own bank and that we would have our own banking license.
And that’s what I filled out was an application for the bank license to be in my name, so I’d be the owner of this bank. But I don’t know the status of everything on that yet.
Scoville relied on the assistance of foreign nationals
Charles Scoville is a US citizen. In addition to Traffic Monsoon’s US operations, he was also active in Dubai and the UK.
Traffic Monsoon’s UK address belonged to a “buddy” of Scoville’s, a man named Aamir Raja (right, with Scoville).
Raja is a Traffic Monsoon affiliate and has appeared with Scoville in at least one company update video.
Scoville claims he pays Raja £6000 GBP a month for a UK address ($7952 USD).
When PayPal froze Traffic Monsoon’s account, Scoville sought advice from an attorney in the UK named Amar Alyas.
Alyas (right, with Scoville) was/is a Traffic Monsoon affiliate.
Scoville also currently has resident visa in Dubai through an unamed sponsor.
Scoville made at least $500,000 through Traffic Monsoon
The exact amount Scoville made in Traffic Monsoon is unclear, but we do know he withdrew at least $500,000.
You’ve only taken out half a million to date; is that right —
— from Traffic Monsoon?
And it was to buy a flat in the UK, and that was it.
Traffic Monsoon’s offshore bank accounts are empty
In addition to a US bank account with Chase, Traffic Monsoon has an account with NBD bank in Dubai.
Scoville is the sole signatory on the account and claims it’s empty.
The purpose of opening that bank account was people in that region of the world were reporting that making purchases through different payment processors were really difficult.
And they also reported that sometimes trying to send a wire transfer to the United States to make a purchase of service, it wasn’t going through.
So they had requested to have a bank opened in that region of the world to make it easier for them to make purchases.
I decided not to because some people had warned me that since it’s in Dubai, the bank might have — like my sponsor might have the ability to gain access to those funds.
And since someone gave me that warning, I just said, okay, I’m not going to put anything in there.
Particulars of the two databases Scoville sent the SEC
As part of the SEC’s investigation into Traffic Monsoon, Scoville had his programmer in Russia, “Alex Klilsh” (surname spelt incorrectly), send the regulator two databases.
The large one is every account balance in or out, any kind of increase or decrease on an account balance since the start. So it’s not every purchase.
But the purchase — I sent you a separate database table of pay-ins that shows the purchases.
As I understand it, the SEC have a record of every dollar invested in Traffic Monsoon and how much each affiliate was paid.
Scoville personally made $2.25 from each Ad Pack investment
Out of every $50 invested by Traffic Monsoon affiliates, Scoville skimmed $2.25 off the top.
When Traffic Monsoon first launched in 2014, he initially skimmed $7.50.
Scoville lied about the source of the revenue Traffic Monsoon paid out
Through Traffic Monsoon, Scoville represented that revenue generated in the last 24 hours was paid out to affiliates.
In reality, a percentage of funds on days where new investment volume was high was set aside. This “reserve” was then used bump up ROI revenue on days when new investment volume was low.
So there’s still some up and down, but the reserve helps to smooth it out a little bit?
Right. Because what I recognize, one of the things with AdHitProfits is when there’s dramatic ups or downs, it causes people to have a fear that the company is dying or dead or something.
So there’s that extra buffer built in to help, you know, for the weekend or for any other day that there might be a sale drop; then we can just say, you know what, we’ve got some extra revenues from this other day; we’ll just share it out here.
So that’s basically how it works.
Do the members or advertisers know that you do that?
Have you thought about telling them?
I don’t want to, because what that would do is cause more people to copy my business model.
Scoville didn’t care he was misrepresenting funds actually deposited into Traffic Monsoon
If true, Scoville’s answer to the question of account balances (monopoly money) being counted as “real money” by Traffic Monsoon is somewhat alarming.
In your January 12th video, webcast, you say that you’ve received half a billion dollars in purchases from members to date.
And does that include purchases made with account balances, then?
Right. That’s correct. So it’s been that amount of sales generated since the beginning.
So have you disclosed to members that this is not — well, this is not all new cash flowing into Traffic Monsoon, that some of it is use of account balances?
Or do you feel it doesn’t — it’s a distinction without a difference?
I never really looked at it that way. I always just looked at it as since it is real money being actively used to make a purchase, then it’s a sale that’s backed up by real money. So it’s real.
It’s a real sale. That’s the way I look at it, anyway.
The problem with this is of course that funds in Traffic Monsoon backoffices, what may have actually been initially deposited, had long-since been paid out to other affiliates.
Despite this, affiliates continued to reinvest their backoffice balances, creating larger and larger ROI liabilities for Traffic Monsoon, despite the funds not actually existing.
But apparently Scoville ‘never looked at it that way‘.
I have to say, if Scoville had represented himself truthfully in his dealings with the SEC, he’s in for a shock.
Ignorance isn’t a defense in court, and the pennies drop it’s going to be painful.
The counter to this is Scoville’s setting up offshore. That betrays the “happy-go-lucky guy with good intentions” persona Scoville has presented.
Scoville has no ties to the UK or Dubai and has family (a son) in the US. Yet he’s remained overseas since the SEC shutdown on July 27th.
Whether Scoville returns to the US will play a large role in legitimizing what he claimed in his May witness testimony.
He’s still up for Ponzi fraud and Traffic Monsoon is over, but Scoville’s return to the US would add some weight to the notion he didn’t know he was committing securities fraud.
Otherwise it’s all baloney and Scoville knew what we was doing all along – which would include intentionally lying to the SEC while under oath.
We’ve yet to see how this all ultimately plays out.