SEC reaffirms adcredit opportunities are illegal Ponzi schemes
Proponents of adcredit “revenue sharing” would have you believe that the act of attaching advertising credits to a fraudulent investment scheme somehow legitimizes it.
The core take-away from the SEC’s shutdown of Traffic Monsoon yesterday is that this is complete nonsense.
For those unfamiliar with the adcredit business model, a business opportunity will typically have affiliates invest in adpacks or a similarly named vehicle.
Attached to these adpacks are adcredits, which an affiliate can use to display advertising, typically to other affiliates of the scheme.
The purchase of an adpack by an affiliate generates revenue for the company, which is used to pay a ROI on each adpack purchase.
This ROI may be guaranteed, but more often than not is either provided as a percentage ROI or fixed dollar amount.
The fact of the matter is, regardless of whether advertising is attached to adcredits, the use of newly invested funds to pay off existing investors makes every adcredit opportunity a Ponzi scheme.
A memorandum filed by the SEC in the Traffic Monsoon case yesterday spells this out in no uncertain terms:
Although Traffic Monsoon purports to sell several products, its main product, and the one that accounts for over 99% of its revenue, is the Banner AdPack (“AdPack”).
Each AdPack costs $50, which price includes both certain exchange credits and website clicks as well as the opportunity to share in Traffic Monsoon’s profits.
The investor who purchases the AdPack purportedly earns those profits in small increments over time until he has earned $55, amounting to a return of 10% on the purchaser’s initial $50 investment
The revenue that makes up nearly the entirety of the investor’s return comes almost exclusively from new investors’ purchases of new AdPacks.
Traffic Monsoon has virtually no revenue from any other source.
Because all investor returns are funded through new investor contributions, the company operates as a classic Ponzi scheme.
And with respect to US law, in their own words this is how the SEC views adcredit schemes:
Because of their profit-sharing component and the manner in which they operate, AdPacks constitute securities and, consequently, individuals who purchase AdPacks are investors.
Adcredit adpacks of any kind that provide a ROI, guaranteed or not, constitute a securities offering. If a company is not registered with the SEC the offering is unregistered. Unregistered securities offerings are a violation of the Securities and Exchange Act and are illegal.
The assertion that advertising being purchased makes financial fraud permissible is a lie. If anyone tries to convince you to join an income opportunity with this line they are trying to scam you.
Regardless of whether ROIs are guaranteed or not or whether advertising is provided, if newly invested funds are being used to pay off existing investors the opportunity in question constitutes a Ponzi scheme.