‘MISPRISION OF FELONY’: Could It Be Used In Autosurf Ponzi Cases? Feds Trot Out Old-Fashioned Law To Combat Ponzi Epidemic; Georgia Woman Gets Jail Time

It’s called “misprision of felony” under Section 4 of the U.S. Code, and here’s how it reads:

“Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.”

It has been used as a weapon in certain drug cases involving violence left unreported, and in cases against public employees who did not report crimes.

And today “misprision of felony” was used in Georgia against Saundra McKinney Pyles, who was accused of concealing a Ponzi scheme operated by her friend, Gary Sheldon Hutcheson. Hutcheson pleaded guilty to mail fraud and money laundering.

In essence, Pyles was accused of choosing not to report Hutcheson, even though she knew he was operating an investment scheme and committing mail fraud.

Pyles was sentenced to 14 months in prison, and made equally responsible with Hutcheson to pay $1.6 million in restitution to victims. Hutcheson was sentenced to five years in prison.

Do autosurf promoters who turn a blind eye to fraud or choose to become a participant in a wink-nod Ponzi enterprise now have something new to worry about?

Watch the video on 13WMAZ-TV.

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19 Responses to “‘MISPRISION OF FELONY’: Could It Be Used In Autosurf Ponzi Cases? Feds Trot Out Old-Fashioned Law To Combat Ponzi Epidemic; Georgia Woman Gets Jail Time”

  1. Wow,

    This is a very positive judgement and precedent to be watched. The concept of applying criminal responsibilities to the passive concealers of ponzi schemes is a fascinating one and certainly may give a new meaning to the promotion of “passive income” schemes.

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  2. This certainly spells problems for the serial promoters, as well as those close to ASD who knew it was crooked. I looked up the statute; it was an English law, adopted by the first Congress in 1789. It’s still on the books, so why not use it?

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  3. Pont, Milner, McIntyre, Hoy, Watt…..I know some of you read this blog. What say you? Do you have your criminal attorneys lined up yet?

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  4. Entertained:

    You forgot to add Robert Lee Guenther to the list.

    I wonder if that law would apply to the promoters of the ASDMBA?

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  5. Don’t forget about Mark Simmons!

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  6. And let’s not leave out the ‘wink, nod’ activities of the payment processors also.

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  7. Also you can add in the clowns, professors, fat lawyers, Indians, pedophiles, etc., etc.

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  8. I really hope they put that Kat and Pont in shackles as well. That will be their restitution to me for deleting all my posts.

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  9. Entertained,

    “Misprision of felony” appears to require the government to prove active concealment. So, perhaps it could fit the bill in certain autosurf contexts.

    A weapon against serial promoters perhaps?

    These are just thoughts about how “misprision” could apply:

    1.) Surf promoter knew OR SHOULD HAVE KNOWN that his or her favorite suspended surf was engaged in (or suspected of) wire fraud, money laundering and the sale of unregistered securities — and had a history of changing names and regrouping when things went south — but the surf promoter actively concealed the knowledge/crime when he or she promoted the replacement surf.

    In theory, “misprision” could be used against mid-level promoters who make their livings by staying below a certain presumptive threshold, figuring they could “safely” mine $10,000 to $20,000 in profits and stay under the Feds’ radar if agents moved against the surf.

    Perhaps it could be charged this way: “Misprision of felony: Knowledge of the commission of a conspiracy to commit wire fraud” — or even ““Misprision of felony: wire fraud.”

    2.) All of the elements of No. 1 above are present, and the surf promoter adds a new wrinkle — claiming “offshore shelter” or “offshore for safety,” for instance — thus adding a new layer of conspiracy/concealment.

    READ: “It’s still ASD. We’ll just call it something else and ad a few more talking points.

    3.) Surf promoter has been in many autosurfs and knows the SEC or DOJ could move against them at any moment, but actively conceals this knowledge in promotions. In other words, the promoter is fully aware of the wink-nod nature of the enterprises, and carries the deception from one surf to another to conceal the crime.

    4.) Surf promoter believes surfs should be legal, and actively conceals their illegality by applying new naming conventions when certain phrases become poisonous: using “VIPs” instead of “rebates,” for instance.

    I do wonder if “misprision of felony” could be helpful if applied as a weapon to pulverize the wink-nod nature and take away the disingenuous, “Who? Me? He told me it was legal!” defense.

    The Feds very neatly included the 12DailyPro and PhoenixSurf cases in the August filing against ASD’s assets. Virtually the entire membership knew about the case.

    It’s going to be hard for any AVG promoter to claim lack of knowledge about the core elements — in other words, “SHOULD HAVE KNOWN” easily could come into play.

    Maybe “”misprision” could be helpful in specific autosurf contexts. It does have some teeth. The woman in Georgia got 14 months, with seven of them on home confinement.

    Patrick

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  10. Patrick:

    I wonder if the application of this law could reach through to those who provide the advertising platform for these ponzi schemes.

    Websites like Money Maker Group, Talk Gold and other supposed research and discussion sites that accept money to advertise these very ponzi schemes.

    Would sure be an interesting development!

    ARWR

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  11. Patrick,

    I think that for most of the promoters, the government won’t need to rely on misprision. In most cases, they’ll have direct evidence of wire fraud and promoting a Ponzi scheme, with a trail of transactions that will show that the promoters profited illegally from a criminal enterprise. Some MIGHT get off of the criminal charges by claiming ignorance of the law if they didn’t also play a role in AVG, like Barb McIntyre. Others, like Kathryn Milner et al., may not be so lucky. They will not be ablt to claim the ignorance excuse. As you point out though, staying at the small-fry level, if they did, might get them off the hook. So to could their testimony on behalf of the government against the big fish, if they choose to go down that route (are you listening Barb??).

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  12. Entertained: I think that for most of the promoters, the government won’t need to rely on misprision. In most cases, they’ll have direct evidence of wire fraud and promoting a Ponzi scheme, with a trail of transactions that will show that the promoters profited illegally from a criminal enterprise. Some MIGHT get off of the criminal charges by claiming ignorance of the law if they didn’t also play a role in AVG,

    Thanks for sharing your thoughts, Entertained.

    Regards,

    Patrick

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  13. Hi ARWR,

    A Random Walk Rant: I wonder if the application of this law could reach through to those who provide the advertising platform for these ponzi schemes.

    Websites like Money Maker Group, Talk Gold and other supposed research and discussion sites that accept money to advertise these very ponzi schemes.

    Would sure be an interesting development!

    I agree it would be an interesting development. It also would set up a Constitutional clash and become a jobs factory for 1st Amendment attorneys.

    My initial thoughts on this are that it would be more productive for, say, the FTC, the SEC and the DOJ to bring simultaneous civil/criminal prosecutions against the surf industry in a gigantic sting in a way that would avoid a 1st Amendment showdown.

    I don’t believe there is an inherent right to engage in false advertising by citing the 1st Amendment as a catch-all that protects one’s right to fleece buyers — any more than I believe the theory advanced by some of the ASD pro se litigants that all commerce is legal as long as there is a contract and that the government is not permitted to interfere with commerce, even if it’s illegal.

    The defense in the GQI case, for example, basically was that Ponzi schemes are legal because a group of purported sovereigns said they were legal. As you know, the case was way out there, and featured a claim that an unrecognized Indian tribe from North Dakota with a corporate registration in Panama was Constitutionally entitled to operate a Ponzi scheme from Las Vegas.

    The judge didn’t weigh in on the Constitutional claims; he simply struck the mindless pleadings from the record. On a side note, one of the people making the claim that securities laws did not apply to GQI left the courtroom to plug a parking meter.

    So, the litigants wanted to pick and choose the laws that applied to them. By all means, follow the parking-meter laws, but ignore the securities laws.

    I don’t believe the Feds would gain much by attacking the Ponzi-pushing forums. It would give the operators a chance to change the subject, and spin the case as an attack on the 1st Amendment. Beyond that, attacking the forums might have the side effect of making it harder on the Feds to gather intelligence. As things stand, they always can go to the forums to keep up with the latest schemes and perhaps track ones that appear to be mushrooming.

    At the same time, though, the Feds could sue/charge some of the forum operators and Ponzi promoters as co-conspirators in schemes to defraud. The FTC, for instance, could look at the false-advertising angle; the SEC could go with the securities angle; and the DOJ could go with the criminal aspects of wire fraud/money laundering/racketeering/securities.

    The prosecution could proceed in such a way as not to permit the respondents/indictees to deflect from the issues by waving the 1st Amendment.

    Pat Dunn pointed out here once that no one has the right under the 1st Amendment to scream “Fire!” in a crowded movies house when there is no fire.

    To me, by extension, that means no one has the right to place/profit from deceptive advertisements, perhaps particularly ones that fail to inform prospects about all the litigation surrounding autosurfs, by simply citing a 1st Amendment protection.

    Personally, I don’t believe the Founders wanted the 1st Amendment to be used to provide cover for criminals. I do believe the Founders wanted it to be used to protect unpopular speech and even inflammatory speech at lawful gatherings and in lawful publications.

    I guess what I’m saying is that the Feds might actually lose ground in the battle if prosecutions proceeded in such a way that the discussion became about the 1st Amendment, not the specific crimes they seek to prosecute.

    Regards,

    Patrick

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  14. I posted information on Surf’s Up about Misprision of Felony. It lasted about 10 minutes before it disappeared. Looks like it hit close to home for someone.

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  15. Hi Don,

    Don: I posted information on Surf’s Up about Misprision of Felony. It lasted about 10 minutes before it disappeared. Looks like it hit close to home for someone.

    A few days ago — after the ruling — someone started a thread and a poster criticized Andy. It was gone within minutes.

    I also noticed over at ASD-Biz that one of the conspiracy-theorist cheerleaders from Surf’s Up opined the judge was crooked, had violated all kinds of rights of ASD members and that she and the prosecutors “are the criminals who should be tried and convicted.”

    The poster proved to be the same conspiracy-theorist/cheerleader who opined at Surf’s Up that the Feds/state of Florida conspired against Andy when Florida dissolved the corporations because ASD Inc/Bowdoin/Harris Enterprises Inc. didn’t file the two documents needed to maintain their standing.

    I guess the conspiracy-theorist/cheerleader didn’t notice that Florida had given the corporations five additional months to file the paperwork before it took its action.

    Then again, why would he take some time to do some actual research? It might restrain his ability to post conspiracy theories if he had to deal with what is, rather than what he can imagine.

    Regards,

    Patrick

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  16. just asking. Has a new lead attorney been named yet for the “evil government”?

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  17. Patrick,

    Roger that…

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  18. IM(very)HO, the only thing standing between a wholesale demolition of the whole HYIP ponzi and “autosurf” scene is the political will (or rather the lack of it) to make it so.

    It is, and has been for a number of years, relatively simple for a rag tag band of the usual suspect “naysayers” to identify, track and report many of the main “playas” using only the tools and resources available to any ‘net user so inclined.

    “Playas” like the forum owner who allegedly purchased a new home in Las Vegas using his “cut” from one of the post 12DP clones.

    “Playas” like the “Faith R Sloans” “Jake Amadees” and “Broker Jones'” who have for years carried out their fraudulent activities with seeming impunity.

    There may be extremely good reasons for the apparent lack of official action/s against the HYIP ponzi “industry”

    One could, however, speculate about how differently the outcome of the AdSurf Daily saga(and number of victims) could have been if ONE agency or ONE politician had displayed the will to act against the industry which spawned it.

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  19. Hi Don,

    Don: Patrick,

    Roger that…

    It took me a couple of hours, but I finally “got it” and now recognize the pithiness of your comment. :-)

    Patrick

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