So, You Want To Push An Autosurf And Tell Your Prospects You’ve Performed ‘Due Diligence’ On The Operator?

“Due Diligence” is a phrase that gets tossed around a lot in the autosurf trade. People posing as “industry” authorities — all while denying they’re pushing an “investment” — routinely tell prospects they’ve done their homework on a company.

Such was the case in the earliest days of AdSurfDaily, a Florida company federal prosecutors said was selling unregistered securities, engaging in wire fraud and money-laundering and operating a $100 million Ponzi scheme.

Screen shot of claim 'due diligence' had been performed on ASD.

Screen shot of claim 'due diligence' had been performed on ASD.

Today a New York company involved in mainstream investing agreed to pay more than $814,000 to settle charges that it did not perform adequate due diligence on a firm it recommended. The company it pushed turned out to be a colossal fraud.

It is a case with far-reaching implications — one that puts both Wall Street traders and people pushing illegal, underground investment programs such as autosurfs on notice that the phrase “due diligence” is not to be taken lightly.

<!–adsensestart–>The SEC said that the Hennessee Group skipped steps while subjecting Samuel Israel’s infamous Bayou fund to due diligence, relied on Bayou’s claims rather than performing independent research — and failed to spot obvious deceptions.

Bayou collapsed in 2005, costing investors more than $400 million. Even though only 40 Hennessee clients joined the fund based on the firm’s recommendation, the clients lost “millions of dollars,” the SEC said.

Not only will Hennessee have to pay $814,000 to settle false due-diligence claims, it also has to tell clients for the next two years about the settlement and provide clients and prospects copies of the settlement agreement, according to the settlement terms.

Hennessee neither admitted nor denied wrongdoing in the settlement.

“Forewarned is forearmed — investment advisers must make good on their promises or face the consequences of vigorous SEC enforcement action,” said Robert Khuzami, director of the SEC’s Division of Enforcement.

“Instead of analyzing Bayou’s results and processes through a review of Bayou’s historical trading methods to determine whether the fund was, in fact, successfully executing its purported day-trading strategy, Hennessee Group and [Charles] Gradante decided not to perform any analysis after Bayou refused to produce its trading data,” the SEC said.  “They relied entirely on Bayou’s uncorroborated representations about its strategy and its purported rates of return.”

One of the deceptions Bayou used was to end a relationship with a top auditing firm and create a bogus auditing entity to sustain the fraud — something Hennessee missed during due diligence, the SEC said.

Hennessee dealt above ground, of course. But what happened to this Main Street firm sends a strong message to the autosurfing “industry,” which is infamous for recruiting prospects by making false claims of due-diligence.

Look at the screen shot above. Not only are there claims that due diligence had been completed, there are claims that ASD provided shelter from the FTC and the SEC — and that ASD deposits were insured by the FDIC.

In addition, there are claims that ASD had top management, was well-capitalized and had a powerful parent company and financial stability.

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33 Responses to “So, You Want To Push An Autosurf And Tell Your Prospects You’ve Performed ‘Due Diligence’ On The Operator?”

  1. One of the greatest users of “Due Diligence” with these ponzi schemes was ASD promoters TeamAaronShara. They would use their “expert” and “trusted” status to perform “Due Diligence” on a ponzi scheme and would declare it OK. I think they even had a logo like VeriSign does. I think they would do “Due Diligence” on a wet sock & declare it OK if they thought they could get referrals from it.

    After a while some people caught on and started asking questions. TAS stopped doing “Due Diligence” for a while soon after.

    “Due Diligence” is another one of those terms that is thrown around these ponzi schemes. Just like “honest admin” and “ponzi game”, it’s used as an excuse for fraud.

    Going a bit off topic, some people have commented about the fact that Andy didn’t run off with the money when he could have. I was reading this article:
    http://www.fool.co.uk/news/investing/2009/04/20/famous-scams-ponzi-schemes.aspx
    One part caught my eye:

    You might think you wouldn’t fall for such a transparent con, but, Bernard Madoff managed to swindle a large number of wealthy and supposedly sophisticated investors out of nearly $65m with his Ponzi scheme. His big mistake was not having an exit strategy — he was too high profile to take the money and disappear, and he knew it would eventually collapse and he’d be caught. Madoff’s fraud is a salutary lesson that the well-heeled can be as gullible as Albanian peasants.

    Madoff didn’t have an exit strategy. Neither did Andy, which is why he didn’t run off with the money.

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  2. Patrick,

    The screen shot is not company produced material and everyone should know that. It is not stating claims made by ASD. Rather it was produced by an overly aggressive alledged member who is breaking the rules of ASD. How is it relevant? It is good conversation, but nothing more. Suppose a car salesman lied to potential customers, is the dealership or the manufacturer liable for the deception of employees? That screen shot has been around for a while now and it not what ASD claimed about the company. To show it here is misleading your readers. Again, all I ask is that you be fair and accurate. Thank you!

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  3. CORRECTION!Suppose a car salesman lied to potential customers, is the dealership or the manufacturer liable for the deception of employees?

    If the dealership and manufacturer know about the deception and are quite happy to profit from it, then of course they are liable just like Bowdoin is/was.

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  4. I wonder just how you go about doing ‘due diligence’ on a company in the “Autosurfing Industry”. The concept is simple enough, people will get paid to get on the Internet and spend time ‘surfing” or looking at websites.

    Now there have been a few dozen on line attempts to make a business out of this concept, and several in the past couple of years, however, all of them were shut down by the FTC or USDOJ as Ponzi Schemes because all the money involved came from the marketing partipants, and the new people joining were paying off the existing people…..none of them had any significant revenue from ‘real customers’…..so the minute you start to do some research you discover this fact. It is like trying to do due diligence on an illegal drug trafficing operation”……yeah people are making some money but the basic business in and of itself is illegal and probably won’t be around very long. Ditto for all the emerging ‘autosurfing operations” unless they have real customers bringing them revenue other than what happens from their own marketing participants who pay to play.

    Richard

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  5. Not true, although at first they were maybe breaking hte law, Noobing, as now operated, is perfectly legal. Of course, the guys at ASA are screaming because it won’t break the law, steal a bunch of money, and give them their cut.

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  6. Pistol: If the dealership and manufacturer know about the deception and are quite happy to profit from it, then of course they are liable just like Bowdoin is/was.

    ASD did not approve of the screen shot. The member is responsible for the ad, not the company. Vilify the greedy advertiser, not the company in this case.

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  7. That is an old ad Patrick! lol It is from the old AdSurfDaily site (preASDCashGenerator). The company which was “hacked for a million$ by the Russians”. Those were the days when Andy Bowdoin knew exactly what was going on and answered his own phone calls and there were only a few thousand members.

    On that basis, CORRECTION, I am afraid that I must make a correction to your animated defence of ASD’s innocence.

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  8. Gregg Evans: Not true, although at first they were maybe breaking hte law, Noobing, as now operated, is perfectly legal.Of course, the guys at ASA are screaming because it won’t break the law, steal a bunch of money, and give them their cut.

    Why is it legal?

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  9. CORRECTION!: Patrick,The screen shot is not company produced material and everyone should know that.It is not stating claims made by ASD.Rather it was produced by an overly aggressive alledged member who is breaking the rules of ASD.How is it relevant?It is good conversation, but nothing more.Suppose a car salesman lied to potential customers, is the dealership or the manufacturer liable for the deception of employees?That screen shot has been around for a while now and it not what ASD claimed about the company. To show it here is misleading your readers.Again, all I ask is that you be fair and accurate.Thank you!

    Aren’t you missing the point ???

    The article quoted pointed out that those who claim to have done “due diligence” when recommending an “investment” can and are being prosecuted when it can be shown they have not, in fact, completed adequate “due diligence”

    The OP (Admin) makes no claims as to the source of the original screen shot. He merely points out that claims of “due diligence” being done were made with reference to ASD.

    Given the amounts involved, and given the fact that the laws regarding what constitutes the rights and responsibilities of “brokers” are quite clear, then it is not inconceivable that the authors of such “due diligence” claims are right in the firing line for similar prosecution.

    Likewise, many observers are of the opinion that such “due diligence” claiming “brokers” would be found responsible in any civil case brought by their “downlines”

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  10. CORRECTION,

    You do have a valid point wrt the Ponzi promoter who was “out of line” with the ad that Patrick posted. As Pistol points out however, there is some responsibility on ASD’s part to reign in the blatant lies in the ad. Further, even ignoring the ad in question, there are PLENTY of other twists of the truth (at best) directly associated with Bowdoin and ASD. The list includes:

    – Fictitious presidential medal
    – Bowdoins longtime successful business track record
    – Significant external revenue sources for ASD
    – Andy’s clean past (a traffic ticket, overlooking the previous fraud charges)

    and others as well. Even if we grant you that the ad above is not Andy’s responsibility, how do you address the other deceptions, and how do you address Andy’s admission of the illegality of ASD in his pro se filings?

    CORRECTION!: Patrick,The screen shot is not company produced material and everyone should know that. It is not stating claims made by ASD. Rather it was produced by an overly aggressive alledged member who is breaking the rules of ASD. How is it relevant? It is good conversation, but nothing more. Suppose a car salesman lied to potential customers, is the dealership or the manufacturer liable for the deception of employees? That screen shot has been around for a while now and it not what ASD claimed about the company. To show it here is misleading your readers. Again, all I ask is that you be fair and accurate. Thank you!

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  11. They have said that there is no way any member can surf enough ads to receive more in rebates than they paid for the “advertising”
    That’s perfectly legal, since the revenues (the payments for “ads”) can be shown to be more than the “rebates”

    Like I said, the members are having kittens because there’s no way for them to make money for nothing

    Pistol:

    Gregg Evans: Not true, although at first they were maybe breaking hte law, Noobing, as now operated, is perfectly legal.Of course, the guys at ASA are screaming because it won’t break the law, steal a bunch of money, and give them their cut.

    Why is it legal?

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  12. Gregg Evans: They have said that there is no way any member can surf enough ads to receive more in rebates than they paid for the “advertising”
    That’s perfectly legal, since the revenues (the payments for “ads”) can be shown to be more than the “rebates”Like I said, the members are having kittens because there’s no way for them to make money for nothing

    That’s all well and good providing that Noobing can be trusted to tell the truth. Without being an “insider” I cannot see how anybody can know that everything is legal and above board. Without an independent audit there is no way of telling whether the “books are being cooked” or not.

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  13. Yes, Pistol is right. “Perfectly legal” is quite likely an exaggeration. They may not be a mathematical ponzi scheme now (money in == money out), but they may well be breaking other laws.

    Real companies produce audited accounts. But as the Madoff scam shows, they can’t always be trusted.

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  14. Noobing is an interesting case. It started out by leading people to believe they could get up to 3 percent. It has a considerable presence in the deaf community. Lots of ads for deaf people to join Noobing.

    It behaved as a common autosurf for a while, with payouts matching expectations. Then the payouts were slashed. Noobing cited an unclear ruling in the ASD case — whatever that means.

    Some of the folks claimed “bait and switch.” And then people started doing chargebacks, saying they didn’t get what they paid for. They meant Ponzi scheme, but they didn’t say that, of course. They said they didn’t get the value for their ad dollars.

    To me, one of the key issues is the sale of unregistered securities. As in all autosurfs, people treated it like an investment — thus the wailing and gnashing of teeth when Noobing slashed rebates. I also saw some claims that “due diligence” had been performed — and Noobing was a winner.

    Same story, different day, different company.

    I don’t believe a company can decide to sell unregistered securities by calling them advertisements, make payouts like a garden-variety autosurf — and then suddenly retreat into seeming legality — without creating exposure for itself.

    The “retreat” into seeming legality doesn’t undo what was done before.

    I think Gregg is using deliberately ironic language here — simply because the irony is so delicious. People thought they were joining an investment Ponzi scheme. Noobing slashed the rebate, and members were left largely with only the ads, plus a chance to win lunch money by surfing enough pages.

    It’s sort of like “wink-nod-wink” — as opposed to simple “wink-nod” — because Noobing has fallen back on the explanation that customers bought advertising.

    The reason the irony is so rich is because autosurf scammers love to hide behind the whopper that the surfs engage in “advertising” sales. At Noobing, things were fine — but only until the rebates largely vanished and people were left with nothing but the “advertising” they had purchased.

    The extra wink in “wink-nod-wink” in this case perhaps can be viewed as, “See, we told you we were an advertising company. What’s your beef?”

    Patrick

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  15. You’re right Patrick, and were I a betting man I’d say Noobing is run by just another group of conmen and made possible only buy the Faith Sloans and Jake Amedees of the world. And if you gave me the books for a day I’m sure I’d find something that would need to be explained to one part or anotehr of the government. But as far as what Noobing did today, and for the last while, in operating their advertising business…perfectly legit…bad business and stupid product, but so was the Edsel….

    What really steams me about that is the people getting chargebacks…it’s fraud pure and simple…they tried to use the service to ehlpe them steal and when they company deceded they could really just steal all the money legally, so the suckers didn’t get their cut, they run to VIsa and MasterCard etc…which makes MY banking fees go up…

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  16. Gregg EvansWhat really steams me about that is the people getting chargebacks…it’s fraud pure and simple…they tried to use the service to ehlpe them steal and when they company deceded they could really just steal all the money legally, so the suckers didn’t get their cut, they run to VIsa and MasterCard etc…which makes MY banking fees go up…

    Oh stop it, Gregg, you are making me weep.

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  17. Gregg Evans: .But as far as what Noobing did today, and for the last while, in operating their advertising business…perfectly legit…

    Well, it may be perfectly legit in the US but if it was in the UK I could almost guarantee that our OFT would be taking an awful long hard look at it.

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  18. Just another little thought. If Noobing was perfectly legit then surely the credit card companies wouldn’t allow chargebacks. Would they?

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  19. Gregg Evans: What really steams me about that is the people getting chargebacks…it’s fraud pure and simple…they tried to use the service to ehlpe them steal and when they company deceded they could really just steal all the money legally, so the suckers didn’t get their cut, they run to VIsa and MasterCard etc…which makes MY banking fees go up…

    What’s even worse is that, behind the scenes, the “usual suspects” are promoting the credit card chargeback route as a “risk free” way to play HYIP ponzi/autosurf “games”

    The practice was rife during the heady 12DP days and even today, a HYIP ponzi which (at least initially) can accept credit cards is an extremely valuable commodity to regular “playas”

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  20. Pistol,

    I’d actually guess the opposite — CC companies are OK with chargebacks at legit companies because they can recover the chargebacks from (I believe) what amounts to a security deposit by any company that accepts their credit card. The reserve is used to fund paybacks.

    Pistol: Just another little thought. If Noobing was perfectly legit then surely the credit card companies wouldn’t allow chargebacks. Would they?

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  21. That is my understanding too. do you remember the declarations by Andy Bowdoin about the deposit they had to make to the offshore credit card company (half a million $?) in order to be able to use their services?

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  22. Entertained: Pistol,I’d actually guess the opposite — CC companies are OK with chargebacks at legit companies because they can recover the chargebacks from (I believe) what amounts to a security deposit by any company that accepts their credit card.The reserve is used to fund paybacks.

    Yes but surely you need a legitimate reason to request a chargeback before it will be granted? i.e. faulty goods, goods/services not as described etc. etc. My understanding is that credit cards will not allow a chargeback simply because you have changed your mind. I think if you read your credit card terms and conditions you will find that I am somewhere near the mark.

    Given that Legal Eagle Evans has determined that Noobing is completely legit and on the up and up I cannot think of any reason why a chargeback would be allowed.

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  23. I once was employed by a company that accepted credit cards for big-ticket sales (multiples of $5,000). I learned that security deposits are required with each type accepted, i.e., MasterCard, Visa, Discover and American Express, in order for a business to be able to obtain the right to accept credit cards.

    Regarding chargebacks, customers would, on occasion, submit their chargeback requests to the CC Company and my employer would respond with a defense showing that they’d delivered the service involved. Because it was a service, it had usually been received by the time of the chargeback request and couldn’t be returned or the order cancelled.

    Bottom line: Some of the customers were not satisfied with the results and thought that was sufficient reason for a chargeback. Others simply had buyer’s remorse and wanted their money returned. The CC companies would look at the requests – and the company’s response – and decide whether the request should be granted.

    If you think about it, the CC processor gets a percentage of the sale – 2%, 3% or whatever – and granting chargebacks means they lose that revenue. I don’t recall any chargebacks ever being granted with the company I worked for because they had signed contracts from every customer before doing the work.

    If a company gets too many chargebacks – or is deemed to be less than honorable – the CC companies can cancel the account or refuse to offer it in the first place, meaning the company must do business via cashiers checks, wire transfers or payment processors.

    Like ASD and the other scams.

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  24. …..quite so, although in the easy credit markets in the US recently card companies bent over backwards to please their cardholders (given the high fees the card companies make, 1% to 5% of the purchase price from the merchants typically) and would really not push back too hard against cardholders asking for chargebacks (personal experience, though I had a legit complaint of non delivery).

    I am picturing a Visa customer service agent handling the call… “So, you want to request a chargeback? May I ask why?”….”Oh, you invested in a Ponzi scheme in the hopes of easy money, and then the Ponzi scheme decided to go legit so you couldn’t make the easy money?”……”No sir, I don’t think that is grounds for a chargeback. You DID get your advertising, didn’t you??? So what’s the problem?”

    Pistol:

    Yes but surely you need a legitimate reason to request a chargeback before it will be granted? i.e. faulty goods, goods/services not as described etc. etc. My understanding is that credit cards will not allow a chargeback simply because you have changed your mind. I think if you read your credit card terms and conditions you will find that I am somewhere near the mark……..

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  25. EntertainedSo what’s the problem?”
    :

    As I see it, both Evans and Patrick said that Noobing “investors” made, presumably, successful chargebacks against Noobing. Evans has determined that Noobing is perfectly legit. My problem is that I cannot see both things being true i.e. successful chargebacks AND Noobing being legit. If I had to choose between the two, I think I would go for the former, regardless of what the resident barrack-room lawyer may say.

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  26. I didn’t say Noobing was perfectly legit, quit twisting my words…I said that as they currently operate their advertising business, I can’t see any laws being broken. In order to determine if the initial stage where they were paying up to 3% a day I’d first need to see the balance sheet, if they had sufficient capitalization I would think that was legal, they didn’t pay those numbers long enough for anyone to make a profit by surfing, (you’d have to factor in ref commissions, but that is prolly legal too, even ASD passed that test). So, taken at their word, I do think Noobing at least tried to skirt the law, if you read back now, Mike Reed was very meticulous to say even early that Noobing was not for making money, it was for advertising. I personally think that they planned all along to do what they did. The best chance I see for a prosecution would maybe be conspiracy to wire fraud, but it’s a long shot, I kind of think they got away with it, and while that would make them scum sucking somethings, I don’t to this day have a law I can point to and say “they broke the law”, certainly I don’t see a prosecutor going after them cause their lawyers can make the same points I’ve made here and have a decent chance of selling it to a jury.

    As to the chargebacks, my business didn’t pay any deposit to get a merchant account that I recall, but we had a few years of records to present and used the same bank we use for general accounts, if you go through a bank you have established accounts with, sometimes you get out of them. Visa and Mastercard have chargeback policies that vary but in some cases, to comply with the Fair Credit Reporting Act, they will conditionally honor a chargeback to the customer but it’s not a final transaction for a certain time, 60 days sticks in my head for some reason. Also, a lot of it depends on if the merchant in question tries to fight the chargeback, something Noobing may not be doing in an attempt to not draw attention to themselves.
    I strongly suspect the people who are saying they got their money back are either not telling the whole truth (the bank may have taken the form and said they’ll look into it and then they said I got my money back before they did or even they may have gotten a conditional refund) and my reasons aren’t just wanting it to not be true. I’m dead certain that the merchant does have an opportunity to dispute it, and that is I think 30 days,(may vary by processor) and until that process is complete, no final refund can be made, and the claims showing up don’t fit that timeline….

    My problem with the chargebacks, and this goes back to 12DP is the people went after the processor in that case, cause 12DP didn’t take payments direct by credit card, only through processors. Now the victims got refunds from the processor, who I hold harmless because they did what they were instructed to do, take X money in my account, and transfer it to 12DP’s account, and they did that. What did Stormpay do wrong (well, running an unlicensed payment processor, doing business with scams aside anyhow)? I agree the customer was wronged, I just don’t agree Stormpay did them wrong. But I digress…I don’t in the Noobing case think Noobing technically broke the law, and since they did go out of the way to say “not an investment” I think the credit card companies should not allow it. I don’t think if it went to court they could be forced to, but they may do it on their own (especially if Noobing has a fat deposit to get them their money back) or as I would have done it had I been the guys at Noobing, I wouldn’t have disputed it and just let it go lest someone get one denied and go looking for lawyers and/or cops to get their satisfaction.

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  27. Pistol:

    Entertained: Pistol,I’d actually guess the opposite — CC companies are OK with chargebacks at legit companies because they can recover the chargebacks from (I believe) what amounts to a security deposit by any company that accepts their credit card.The reserve is used to fund paybacks.

    Yes but surely you need a legitimate reason to request a chargeback before it will be granted? i.e. faulty goods, goods/services not as described etc. etc. My understanding is that credit cards will not allow a chargeback simply because you have changed your mind. I think if you read your credit card terms and conditions you will find that I am somewhere near the mark.Given that Legal Eagle Evans has determined that Noobing is completely legit and on the up and up I cannot think of any reason why a chargeback would be allowed.

    I have never claimed to be a lawyer, but I do currently attend a law school, in a way that won’t likely lead to me being a lawyer, (I more or less audit the courses), although I have in the past had a forensic accountancy practice and have taken a few dozen cases to trial as an auditor. I am familiar with the process and I’m damn familiar with the accounting. My comments are just that, my comments, and not intended to be legal advice. And I think looking back to what I’ve written about ASD, it’s pretty much played out as I thought and wrote it would.
    I don’t have any agenda in this whole thing aside from trying to help people understand what is happening, and hopefully to prevent some people from losing money. If you have a problem with that, well, I can’t help you…

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  28. Gregg Evans: I didn’t say Noobing was perfectly legit, quit twisting my words…

    Oh but you did my dear chap, you did. Not only did you say it was perfectly legit, you also said it was perfectly legal.

    Gregg Evans: Noobing, as now operated, is perfectly legal.

    Gregg Evans: .But as far as what Noobing did today, and for the last while, in operating their advertising business…perfectly legit…

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  29. I’ve wrote a book on how to due diligence online businesses called Due Diligence Toolkit. All I want to add is that the full responsability is on user side and they should review sites on their own and not trust so called gurus, monitoring sites or experts.. Some have hidden interests in making look legit scamming sites as they earn through affiliates commissions

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  30. Due Diligence Toolkit: I’ve wrote a book on how to due diligence online businesses called Due Diligence Toolkit. All I want to add is that the full responsability is on user side and they should review sites on their own and not trust so called gurus, monitoring sites or experts.. Some have hidden interests in making look legit scamming sites as they earn through affiliates commissions

    Excuse me for asking but did you have someone proof read your book before it was published?

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  31. Pistol,

    Have you visited the duediligencetoolkit.com web site? Amazingly enough, the author in his post above calls out that some so-called gurus are actually promoting their own “programs” and then has the cajones on his web site to do pretty much the same thing as he warns against (and OBTW doesn’t take credit cards or Paypal……). Further, a pop-up appears touting his other book, “How To Make Money in HYIP’s”. So Pistol, is the poster above legit or not??

    Pistol:

    Due Diligence Toolkit: I’ve wrote a book on how to due diligence online businesses called Due Diligence Toolkit. All I want to add is that the full responsability is on user side and they should review sites on their own and not trust so called gurus, monitoring sites or experts.. Some have hidden interests in making look legit scamming sites as they earn through affiliates commissions

    Excuse me for asking but did you have someone proof read your book before it was published?

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  32. Entertained.So Pistol, is the poster above legit or not??

    I dunno, perhaps you better ask Evans. Legitimacy and legality are his speciality, not mine. If I were to hazard a guess, after taking into account what you have said about DDT’s website I would say he is a legitimate 100% arsehole but then one doesn’t have to be a scammer to be put in that category by me. No names, no pack drill.

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  33. What about http://www.adpacs.com, is this legitimate? Any feedback on this? Thanks for your time.

    Barry

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