traffic-monsoon-logoAs expected, a response in opposition to a preliminary injunction against Traffic Monsoon and Charles Scoville is pretty much more of the same.

The Court should deny the SEC’s motion in its entirety for more fundamental reasons: AdPacks are not “securities;” AdPack buyers are not and were not “investors;” and Traffic Monsoon is not a “Ponzi Scheme.”

A new argument not previously raised however, suggests the SEC should abandon Ponzi regulation if the majority of scamming takes place outside of the US.

charles-scovilleScoville’s September 23rd filing describes the court-approved Temporary Restraining Order granted to the SEC as “overreaching”.

As the SEC notes in its Complaint and Motion, “approximately 90%” of Traffic Monsoon’s customers reside outside the United States.

This fact is devastating to the SEC’s case.

Even if the advertising services Traffic Monsoon sold (“AdPacks”) are securities, where the AdPacks are not listed on a U.S. Exchange and do not involve domestic transactions, the U.S. securities laws do not apply.

Thus, the 90% of AdPack purchases by individuals outside the United States are beyond the purview of the SEC.

Seriously, this from the new lawyer who’s supposed to better versed in securities regulation?

Pretty much every major online Ponzi bust over the past few years has had a major international component.

TelexFree was huge in Brazil and the Dominican Republic, WCM777 and USFIA targeted Chinese victims. Zeek Rewards scammed primarily in the US but nonetheless also had a significant international following.

With respect to Ponzi litigation filed by the SEC, where investors are located has never factored into whether US securities laws apply.

If a scam is tied to the US (Scoville is a US citizen, Traffic Monsoon solicited investment from US citizens and used US bank accounts), the SEC are able to shut it down.

Testament to the fact the popular theory that hiding out in another country protects you from US regulators, Scoville also tries to rely on his hiding out in the UK.

Scoville resided outside the United States as well.

That means that both the seller and the purchaser of the AdPacks were outside of the United States when the transactions were completed.

The SEC knew this to be true because an attorney for the SEC had phone conversations with Scoville while he was in the United Kingdom.

What that has to do with Traffic Monsoon committing Ponzi fraud within the US I have no idea.

As opposed to being prohibited from scamming people entirely, Scoville offers up an alternative proposal;

Even if the Court finds that AdPacks are securities, it should enter, at most, an order enjoining “Defendants from soliciting, accepting, or depositing any monies obtained from actual or prospective investors, individuals, customers, companies, and/or entities, who are located within the United States.

How Scoville expects a Judge, who’s aware a granted injunction would prevent the continued scamming of victims, to pass any such order in good conscience is beyond me.

Another proposal Scoville puts forth, in light of a preliminary injunction being granted, is to order a refund US Traffic Monsoon investors.

This proposal would see funds remaining unfrozen and transferred back into Scoville’s bank account.

Basically Scoville seems to think that a preliminary injunction prohibiting from scamming should be localized to the US. I’ve personally never seen a restriction like this put in place in any of the major Ponzi busts I’ve covered.

In his broader defense of Traffic Monsoon not being a Ponzi scheme, Scoville offers up a fatally flawed comparison to Google.

Traffic Monsoon markets its advertising products in a unique way.

However, neither its advertising products nor its promotion is significantly different from technology companies like Google and Facebook, who also charge for advertising.

Like Traffic Monsoon with AdPacks, more than 90% of Google’s overall corporate revenue comes from a single advertising product AdWords.

Google AdWords clicks can cost advertisers as much as $50 for each customer who clicks on an advertisement.

Traffic Monsoon offers clicks at a much more economical rate.

The “unique way” Traffic Monsoon markets its advertising product is precisely why it’s a Ponzi scheme.

For each AdPack purchased, Traffic Monsoon set a rebate-commission limit of $55.

Google doesn’t make such an offering, rendering any comparison between the two irrelevant.

And for the record, Scoville’s description of the $55 ROI Traffic Monsoon paid out is flawed. The word rebate, when used as a noun, is defined as ‘a return of part of the original payment for some service or merchandise; partial refund.

$55 back on a $50 deposit is not a “partial refund”. It’s a return in excess of the sum initially deposited, otherwise known as an investment.

Despite this, Scoville’s attorney goes on to compare Traffic Monsoon’s $55 ROI on a $50 deposit to ‘marketing efforts used for companies like PayPal and credit card companies offering frequent flier miles.

Again, how a $55 ROI on a $50 deposit is similar to anything PayPal or a credit card company offers I have no idea.

In a related filing, Scoville has also asked that the court-appointed Receivership be set aside.

Cited reasons in favor of setting aside the Receivership include:

  • the Receivership Order abrogates many of Scoville’s constitutional rights
  • the court’s order taking all of Scoville’s real property effectively
    eliminates his right to be free from unreasonable searches in his
    house, papers, and effects
  • the order eliminates Scoville’s right to be free of unreasonable
    searches in his papers and effects
  • the order obligates Scoville to provide information to the Receiver in
    violation of his fifth amendment right and
  • the order affects Scoville’s right to due process

Scoville has asked the court to liquidate the Receivership or in the alternative, unfreeze some of his financial assets.

A reply from the SEC is expected sometime next week, with a decision made on the requested stay of the Receivership made before November 1st.

Stay tuned…