Traffic Monsoon is a Ponzi scheme, preliminary injunction granted
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.
Strangely enough, Judge Parrish’s ruling referece sworn Ponzi investor affidavits or Sunil Patel’s “revolution day” video.
Turns out a Ponzi scheme is decided legally solely on the merits of the scheme’s business model. Who knew?
And shout out to Anjali for the heads up on this one. I did check the docket this morning but there was nothing there!
Who can name a single Ponzi scheme that has come back from a preliminary injunction?
It sure is going to be worth attending the civil trial to hear Charles explain how he moved over $21 Million dollars into his personal bank account, as well as trying to move more, after PayPal released the TM frozen funds, and the SEC TRO action two weeks later.
Somehow I don’t think the jury is going to buy his explanation he trotted out when this was discovered. But then that’s just me.
Next up is the SEC responding to the Motion to Dismiss (they have 28 days to respond), and then the judge will rule on this motion. Then we get to the civil trial where all the fun and games will begin.
I do hope his attorneys let him testify, but if they are smart they won’t let him. He keeps making the SEC’s case for them every time he gives an update.
i think what nunes and others are saying is that judge jill parish has marked her order under SECTION 1292(b) CERTIFICATION:
this means this order of preliminary injunction can be immediately appealed to the second circuit court for clarification.
the problem is that the supreme court decision in ‘morrisson vs national australia bank’ and the ‘dodd frank’ reforms came within a week or so of each other [in 2010], and the question about which supersedes which, is still undecided by courts.
morisson restricts the SEC’s jurisdiction over extraterritorial securities transactions based on ‘where’ the transactions occurred, while dodd frank allows more of an international reach to the SEC using a ‘conduct and effects’ test.
however, in her order judge jill parish has provided explanations for TM falling under the SEC jurisdiction under either morrison or dodd frank.
with respect to morrison she explains:
judge parrish also explains that TM squarely falls under the jurisdiction of the SEC under the dodd frank reforms, as is obvious from the plain language of it’s section 929P(b) which says:
the other reason judge parish has allowed a certification of interlocutory appeal, is because the TM adcredit ponzi is ‘new’ type of ponzi [in the second circuit at least] and hence was an ‘issue of first impression in this circuit’.
judge jill parrish is a relatively new federal judge, seated since august 17, 2015. i think she’s being extra careful in allowing interlocutory appeal, since there is court wide confusion over morrison/dodd frank. IMO, she has covered the explanation about TM being a ponzi very decisively, and this issue at least, shouldn’t really require approval of the appeals court.
guess scoville will apply for interlocutory appeal within 10 days?
he says he’s filed a motion to dismiss, but i dont think the case can be dismissed without the appeals court opinion first, about the questions of law raised.
Judge Parish statements in her ruling certainly will cause the Motion to Dismiss to be denied.
This ruling will have serious consequences for donations to the attorney fund. I doubt if he will have the required funds to appeal and have enough money for his civil trial defense.
Of course I expect him to appeal if he has the money. Just throwing good money after bad. And he will lose the appeal.
If his attorneys are any good they will not appeal and move to the civil trial because this is where it is all going to end up in the end. They know it and Charles knows it.
The motion to dismiss was basically a rehash of Scoville’s defense against the preliminary injunction.
Seriously, it was so similar I didn’t even bother covering it. It’ll be denied of course.
The appeal, if filed, is going to be a waste of money. You can’t run a Ponzi scheme from the US and get off because you primarily targeted offshore investors.
No court in the US will sign off on that.
SCAMville has a phone call with his attorney’s in the am.
Bets on how much extra $ they claim the call cost?
Over/under is $2500.
Looks to me like the judge did quite a bit of studying on exactly how things really operated.
Playing out just as many of us figured it would.
My favourite quote?
And boy oh boy, were there PLENTY of those.
Everyone wave to Scovillain, he has to board the prison bus soon to go and meet his new friends in Sing-Sing
Recent post from Charles in a skype room. Oh Charles… Your just not will to Wake Up and Grow Up!!
What i’m still not getting is how this Ponzi is so different from say AHP or MyPayingAds?
You pay for something at an over-inflated price compared to the actual cost of the service and you are paid back from anyone who joins after you until you receive your initial investment plus the $5 ROI.
How is that different to the model “Pay old with new until implosion leaving the majority holding worthless ad packs”?
Good point. I thought AHP was shut down and I thought MPA, because it is based outside of the U.S.A. is not subject to the same proceedings that TM is going through.
Point being to open up revshares (ones that have no outside revenue to sustain) outside the U.S.???
yes. but you cant offer the revshare to US citizens either, because that too will bring you under SEC regulation.
point being – avoid the US altogether as regulators there are more proactive.
MAPs a rev share who’s promoter mike deese is a US citizen, does not do any business in the US.
Let’s not confuse people.
Ponzis cause harm no matter where you live. Certain countries are more active prosecuting them. What’s important is the result for the particpant is the same.
I fear some people might misinterpret that the US just has too much red tape and rules, but the model is sound. Wrong.
The POINT must be to teach people not to join them because they are criminal in nature. They are a crime because Ponzis a.k.a revshares ultimately harm people.
Let me state more of the obvious for some Traffic Monsoon members:
The attorney working for the SEC is working to RETURN as much of your money as possible. Think of TM money as your old money already gone, but hopefully you could get back maybe as much as 75%.
You do not need to pay “new” money for the services of the SEC attorney to help get back your original money. Remember, without their intervention, you might have lost it all!!
The attorney working for Charles requires “new” money. They are asking members to donate to pay his bill. Money donated to Charles’ attorney is NEW MONEY OUT OF YOUR POCKET today to defend Charles. This new money is gone, a gift, and is not recoverable.
If you are feeling charitable and can afford to give away money, go ahead. I wouldn’t want to inferere with their fund raising efforts – even if it appears to be a lost cause.
Are you pointing out that ONE of the many promoters in MPA is Mike Deese a U.S. Citizern and he does not do any business in the U.S.??? Not following.
There are close to 310,000 MPA Registrants and I bet half of those are U.S. Registrations by U.S. citizens. Furthermore, there are many “promoters” from the U.S.. So hopefullly you can clear up your statment there…. Thanks…good stuff.
You’re confusing My Advertising Pays (MAP) with My Paying Ads (MPA).
Dear remaining hopeful TM members,
Is Traffic Monsoon an investment? The SEC and judge say yes, but in Charles’ latest message, he is adamant (still) that it is not.
Who to believe?
Would you believe yourself?
Ask yourself if you joined TM to make money.
Now you know who to believe. And he’s been lying to you all along. Still is. Does he think you are that stupid?
‘my advertising pays’ a.k.a MAPs was initially registered as an LLC in the USA. later the registration was shifted to anguilla, a tax/scam haven in the british west indies.
MAPs also shut down the accounts of all it’s US affiliates and promised their money back [most of which was not paid].
these ^^ steps were taken to avoid regulatory action in the US, which is swifter compared to other countries. for instance MAPs has been running out of the UK for several years, failing and being rebooted, but inspite of even media reports labeling it a ponzi, no action has been taken by UK regulators till date.
according to conversations on FB, it seems scoville had also been advised to shift TM’s registration out of the US, but he never got around to doing it. if scoville lived in the US, registered his business elsewhere, promoted it only outside the US, i imagine it would be difficult for the SEC to net him due to jurisdictional complexities.
ponzi’s are being smart and avoiding the US [MAPs, onecoin] because the rest of the world is a big enough market for them. other countries need to step up ponzi regulatory actions too.
OH. sorry for the confusion. I was NOT discussing MAP…. MPA is what I was discussing which you can see above.
Not a peep out the Traffic Monsoon Ponzi pimps, Ari Maccabi, Lloyd Dotson (aka I.M. Bigg), Frank Calabro Jr, Dave Barker, Sharon James, Immy Islam, etc. yet.
Ernie Ganz should be getting nervous about running Traffic Hurricane (Traffic Monsoon clone) right about now.
Why would Ernie be nervoux…maybe very happy as it looks like TM is toast. Traffic Hurricane is not located in the U.S.. and that DOES MATTER..
As per US law, no it doesn’t.
Ganz is living in the US and soliciting investment from US residents. That’s enough to nail him to the wall.
Ernie registered TH+ in the Philippines thinking he was out of the “evil clutches” of the US Authorities. The only thing that is registered for TH+ is its name. The Certificate issued to TH+ specifically says, and I quote:
“Certificate No. 04174040 This Certificate is not a license to engage in ANY KIND OF BUSINESS and valid only at the scope indicated herein. TRN 7544379”
And as already pointed out he is soliciting US residents and lives in the US.
Not only is TH+ an exact clone of TM, Ernie, according to a poster who was on the call, bought the TM database from Charles disguised as a donation to Charles’ legal defense fund. This was after the SEC froze all the assets of TM, which the database was one of the assets frozen.
If this is true, then Ernie is in deep doo-doo and Charles is in even deeper doo-doo as they violated the asset freeze. The person who made this claim said they would testify to this in court.
Many have speculated that Ernie had received the TM database. Ernie said that anyone joining TH+ a portion of the “earnings” from TH+ would be donated to Charles’ legal defense fund, and then reneged on that promise. No honor among thieves.
From the first paragraph of the preliminary injunction issued by Judge Parrish on March 25:
“IT IS HEREBY ORDERED:
Defendants are hereby prohibited from soliciting, accepting, or depositing any monies obtained from actual or prospective investors, individuals, customers, companies, and/or entities, through the Internet or other electronic means for Traffic Monsoon or a business model substantially similar to Traffic Monsoon’s sale of AdPacks”
The SEC and court are obviously aware of the relationship between Scoville and Traffic Hurricane.
Does any one have an idea when this horror show will be over, nd people can look for some happiness and get there money back and these evil people get some payback .!!
Should be over within two years, give or take.
2 years from when pls..? 2020..!!
Could be more.
Zeek Rewards ($850 mil Ponzi) Receivership still hasn’t wound up, and that started in 2012.
TelexFree ($3 bill Ponzi) affiliates are still waiting on a first distribution payment and that Receivership started in 2014.
Traffic Monsoon is smaller but the majority of investors are outside of the US. Sorting out Ponzi messes takes a long time.