BULLETIN: Autosurf Biz Takes Another Pounding; Federal Judge Adds Noobing As Receivership Defendant In Fraud Case Against Parent Company; 14 Other Subsidiaries Named

UPDATED 6:05 P.M. EDT (U.S.A., Jan. 20, 2011.) In yet another case that portends disaster for the so-called “autosurf” industry, a federal judge has ordered the Noobing autosurf to be added as a receivership defendant in a fraud case brought against its parent company.

The FTC and attorneys general from Minnesota, North Carolina and Kansas brought the case against Noobing’s parent — Affiliate Strategies Inc. (ASI) — in July 2009. Several other companies were named defendants in the case, which alleged the firms participated in a scheme that promised guaranteed government grants from economic-stimulus funds.

Brett Blackman, ASI’s head, also was president of Noobing, members said. Noobing was not initially named a receivership defendant.

U.S. District Judge Julie A. Robinson issued an asset freeze Sept. 1, along with stern orders to preserve evidence and repatriate to the United States all assets and documents held on foreign soil. She also broadened the powers of Larry Cook, the court-appointed receiver.

Through his investigation, Cook determined that Noobing was operating under the umbrella of Apex Holdings International LLC, the same company under which ASI operated. Cook also determined that at least 14 other companies were operating under the Apex Holdings umbrella.

Noobing, which was registered in the United States, also had an offshoot in Nevis, according to court filings. Noobing targeted people with hearing impairments.

Cook asked Robinson last month to add Noobing and the other companies as receivership defendants after determining “each of the Subsidiaries used the same post office box as the [initial] Receivership Defendants.”

Moroever, Cook advised Robinson that he had received “receive numerous inquiries from creditors, former independent contractors, and tax authorities for the Subsidiaries.” He further argued that “each of the Subsidiaries was entirely reliant upon the business operations of the [initial] Receivership Defendants.”

Robinson, saying Cook had shown “good cause,” added Noobing and the others as defendants March 18.

No party  — including the FTC, the state attorneys general, the initial set of defendants and the new defendants — objected, Robinson noted. In December, Illinois joined the FTC, Minnesota, North Carolina and Kansas in the action.

On the previous day, March 17, FBI Director Robert Mueller III, without naming names, testified before Congress. Mueller said that “shell corporations” are emerging as a threat to the U.S. banking system because owners were using them “to facilitate the concealing of criminal proceeds” and engage in money-laundering.

Neither Noobing not its corporate parent has been accused of a crime.

In February, the U.S. Secret Service alleged in a civil forfeiture complaint that INetGlobal, a company that operates an autosurf, was engaged in money-laundering and wire fraud while operating a Ponzi scheme.

INetGlobal is operated by Steve Renner, under his “umbrella corporation, InterMark,” the Secret Service alleged. The agency identified what it described as “subsidiaries,” specifically referencing “Virtual Payment Systems [LLC of Wisconsin/Brackets Denoting the LLC Designation added Jan. 20, 2011], V-Media, Cash Cards International, and V-Local,” as well as a company named “INet Global Productions.”

NOTE IN BOLD ADDED JAN. 20, 2011: An Indianapolis-based company known as Virtual Payment Systems Inc. has contacted the PP Blog to let it know it is not affiliated with the Renner company Virtual Payment Systems LLC of Wisconsin, which is referenced in the paragraph above.

“The commission by Renner of the federal crimes of wire fraud, in violation of Title 18, United States Code Section 1343, and money laundering, in violation of Title 18, United States Code Section 1957, is essential to the operation of this Ponzi scheme,” the Secret Service alleged.

In August 2008, the Secret Service said AdSurfDaily, a Florida-based autosurf company, also was engaging in wire fraud and money-laundering while operating a Ponzi scheme.

U.S. District Judge Rosemary Collyer — on Jan. 4, 2010 — ordered the forfeiture of more than $65.8 million in the personal bank accounts of ASD President Andy Bowdoin. A little more than a month later, on Feb. 23, the Secret Service moved against INetGlobal.

Records show that ASD’s Bowdoin operated several corporations over the years. In September 2009, the state of Florida revoked the corporate registrations of AdSurfDaily and Bowdoin/Harris Enterprises Inc.

The revocations occurred just four days after Bowdoin told members he had exciting plans for ASD’s future. Despite his claim, Bowdoin never bothered to submit the paperwork to keep the firm’s registration intact, despite having been given a five-month window to do so.

In his remarks to members, Bowdoin said the government had seized the assets of ASD members. In his own sworn court filings, however, Bowdoin said the seized assets belonged to him and his company.

The Secret Service transcribed Bowdoin’s remarks, and presented them to Collyer Sept. 28. Federal prosecutors said Bowdoin’s remarks were evidence that “this con man cannot manage to keep his stories straight.”

Collyer ordered the ASD asset forfeiture a little more than three months later. In the INetGlobal case, the Secret Service said one of its undercover agents was on the receiving end of a sales pitch from an ASD member who was trying to recruit the agent into INetGlobal.

Renner’s autosurf  “began operating just weeks after ASD was put out of business by the Secret Service, and this new entity uses the same terminology and business model as ASD,” the agency said in an affidavit for a search warrant.

At least one of the undercover agents working the INetGlobal case also worked the ASD case, according to court filings. The Secret Service searched the Web for an INetGlobal affiliate site, and the INetGlobal affiliate who pitched the undercover agent also had been an ASD member, according to the affidavit.

“The member asked if [the undercover agent] was a network marketer,” the Secret Service said. “The member said he had previously been a member of ASD . . . and said, ‘We know what happened there.’

“The member said he was reluctant to join iNetGlobal due to it being similar to ASD,” the agency continued in the affidavit. “The member said, ‘we all know what this program is.'” The member said his daughter and wife surfed the websites and the member did not care about the services provided. The member said he just wanted to put his money in and get it out. The member said you convert your earnings to V-cash and then receive payouts by check or through an ATM card you can sign up for.”

Less than a month later, FBI Director Mueller told Congress that “shell corporations” and “stored value” debit devices and “reloadable debit cards” increasingly were being used “to move criminal proceeds.”

“This has created a ‘shadow’ banking system, allowing criminals to exploit existing vulnerabilities in the reporting requirements that are imposed on financial institutions and international travelers,” Mueller said.

Mueller did not name any companies in his Congressional testimony.

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15 Responses to “BULLETIN: Autosurf Biz Takes Another Pounding; Federal Judge Adds Noobing As Receivership Defendant In Fraud Case Against Parent Company; 14 Other Subsidiaries Named”

  1. Thanks for the update about Noobing. My questions are simple. First, does Noobing have anything to do with iNetGlobal? If so, — not to my knowledge, since I have no clue who or what Noobing is — never heard of them. Secondly, so if (which I assume my “if so” is — no, there is no connection between Noobing and iNetGlobal) — then why are you seeming to make the connection?? I will review your response later tonight. Thanks again. Ken

      (Quote)

  2. Ken: does Noobing have anything to do with iNetGlobal

    Noobing, iNetGlobal and ASD were all obvious ponzi schemes using the same “AutoSurf” “business” model.

    Also, some ASD promoters also promoted Noobing, and some members of ASD were joining iNetGlobal. ASD is the connection.

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  3. Ken,

    Surely you are brighter than that. Patrick is merely listing companies that believe that autosurfing is a viable business model when in reality it is disguising a Ponzi scheme. While it has yet to be proven definitively in the case of iNetGlobal, it has in several other cases. Most people who have observed these previous cases would be stunned if iNetGlobal is NOT a Ponzi scheme. The essential business model is essentially the same mathematically, and the government allegations confirm this. Further, you would be well-advised to learn more about the laws regarding civil actions and civil forfeiture. Surely you know that the standard is not “beyond a reasoable doubt” in those cases. Further, the asset seizure issue has been previously well-discussed and the government’s actions have never been found to be illegal when they have seized the assets of criminal Ponzi autosurf enterprises. Why would iNetGlobal be different?

      (Quote)

  4. Off Topic Alert!

    I’ve just seen this story – I wonder if it is relevant to the ASD victims?
    Ponzi tax breaks proposed by U.S. bipartisan group
    http://news.yahoo.com/s/nm/20100325/us_nm/us_tax_ponzi

      (Quote)

  5. Ken: Thanks for the update about Noobing. My questions are simple. First, does Noobing have anything to do with iNetGlobal? If so, — not to my knowledge, since I have no clue who or what Noobing is — never heard of them. Secondly, so if (which I assume my “if so” is — no, there is no connection between Noobing and iNetGlobal) — then why are you seeming to make the connection?? I will review your response later tonight. Thanks again. Ken

    Ken,

    First, whether you care to acknowledge it or not, the issues I write about are real. Whether you take them seriously is up to you, of course.

    Some of the most knowledgeable people in the world post here on the subject of autosurf Ponzi schemes. You can learn from them — if you’re interested. If not, you can rail against the government and the media. In my view, that hardly advances the discussion.

    Besides, the government and media rants have been present in every autosurf prosecution of which I’m aware. Longtime observers — many of whom post here — say the script never changes. You’re helping them prove their point.

    Now, on to issues . . .

    The story above, which you imply is not relevant to INetGlobal, is relevant in many ways. Allegations of fraud are common to all of the companies cited above. Moreover, each of the companies operated under an umbrella of some sort and used electronic payment processors and/or debit cards of some sort at a time in which the FBI director is warning the Congress of new threats posed by shell corporations and a “shadow” banking system.

    As it were, INetGlobal, ASD and Noobing all operated autosurfs. All three companies find themselves confronting serious litigation.

    Other potential issues:

    Heard anything about INetGlobal changing things and asking members to “rate” sites?

    That’s what Noobing did — “rating.” That’s some more commonality for you. It’s also what an entity in the CEP Ponzi scheme did. (More on CEP below.)

    “Rating” sites for a prospective payout MAY be a key marker of a scam. Another key marker is a model that shifts, perhaps from a straight surfing site to a rating site. Historically, surf operators have tweaked just about everything that can be tweaked.

    The ultimate tweak is simply to go away: No autosurf has EVER survived. Some have lasted longer than others. If Entertained has the time and is so inclined, perhaps he again can explain the “slow” Ponzi vs. the “fast” Ponzi.

    The abridged version of tweaking is this: Some autosurf Ponzis tweak the language. Instead of calling it an “investment” program, they call it an “advertising” program or a “revenue-sharing” program. These are just semantic games to skirt securities laws.

    Other tweaks include automatic (or recommended) “repurchasing” programs. These are just ways to slow down the Ponzi and limit the outflow of cash. Sometimes these are generically called “80/20” programs. The bottom line is that they are designed to keep money in the system.

    People who are not professional money managers or licensed broker/dealers generally manage the programs. The next time the “books” are presented publicly so members can make informed decisions to join or not to join will be the first. Mind you, I’m not talking about a financial statement; I’m talking about audited, certified books, and a CPA appearing in court for an autosurf to testify the surf is not insolvent.

    I am not aware of a single autosurf prosecution in which the company was not catastrophically insolvent. I am aware of a number of prosecutions — and hundreds of cases that did not result in prosecutions because the surf simply vanished — in which the instant claim was made that the surf was solvent.

    ASD, for example, claimed to be solvent. CEP claimed to be vested in real estate and other brick-and-mortar holdings. The claims were untrue.

    The U.S. government has never lost an autosurf prosecution. Not one. You probably noted that the Secret Service cited the ASD, Golden Panda, LaFuenteDinero and PhoenixSurf prosecutions in the INetGlobal affidavit.

    No amount of tweaking — zero — can unring the bells of things that happened in the past, make a Ponzi scheme a nonPonzi or cause wire-fraud and money-laundering allegations to go away.

    You also might want to familiarize yourself with the judicially declared CEP Ponzi scheme:

    Here’s the complaint from July 2007, almost three years ago:

    http://www.sec.gov/litigation/complaints/2007/comp20191.pdf

    I encourage you to take the time to read the complaint. Does it “match” the INetGlobal case brought by the Secret Service perfectly? No. But there are a number of elements in common. If you observe no commonality after reading the CEP complaint, then I submit you are being deliberately obtuse.

    Some people do make that choice, Ken — and I’m neither saying nor implying you are one of them. What I am saying is that autosurf misery has spread the world over because of the choice some promoters make to be willfully blind.

    The “industry” has MANY promoters in common. You’ve likely noticed that the Secret Service said one of its agents was introduced to INetGlobal by an ASD member.

    Some ASD members made that particular Secret Service agent the subject of a certified-mail campaign designed to trap him into a contract to which he never agreed. They tried the same thing with two federal prosecutors.

    Turned out that one of the organizers of the campaign against the agent once started a nonprofit agency for a man accused (now convicted) of shooting a woman to death in cold blood and shooting a police officer four times and another man eight times.

    ASD members also promoted CEP, Noobing, BAS, AGW, AVG, Adv4U and MegaLido — to name a few. All of those surfs died either as a result of litigation or as a result of rotting on the Ponzi vine — but not before some people collected piles of money.

    Here’s the CEP receiver’s site:

    http://www.wfperkinsforcep.com

    Here is a line or two from one of the receiver’s reports:

    “CEPCoast and Coastin88 . . . were identical functionally, but had different financial restrictions and payout amounts.

    “Participants purchased advertising packages, or ‘Ad Packs,’ at $5.00 each allowing the advertiser to place his website into a pool of websites that would be viewed and rated on a scale of one to five. Investors who purchased Ad Packs were eligible to recover their costs, or even make a profit, by viewing and rating 15 websites — no more, no less — each day.”

    BTW, the CEP receiver just won a judgment of approximately $230,000 against three CEP participants he sued for accepting ill-gotten gains from the Ponzi scheme. The receiver forced CEP into bankruptcy. At last count, I believe, he had filed more than 60 lawsuits against CEP winners and insiders.

    On a side note, AdSurfDaily once advertised that it accepted CEP Trust. That was the payment processor operated by the operators of the CEP Ponzi scheme. In December 2006, two months after founding ASD, ASD’s Andy Bowdoin registered the name “World Payment Systems Inc.”

    Did you know ASD almost wasn’t called ASD? Bowdoin registered the name DailyProSurf in Florida in August 2006, two months before ASD came out of the gate. Did you know that the company that supplied debit cards to ASD was indicted for for helping a Colombian drug operation launder money at ATM machines?

    The Drug Enforcement Administration says it has audio and photographic evidence that Virtual Money Inc. — the company that provided the debit cards to ASD — accepted $100,000 and agreed to launder drug money in the Dominican Republic for a fee of 10 percent of the amount.

    http://patrickpretty.com/2009/08/18/analysis-drug-enforcement-administration-reportedly-has-photographic-evidence-that-firm-that-provided-debit-cards-to-adsurfdaily-accepted-cash-to-launder-money-offshore-in-drug-sting/

    CEP claimed that it had diverse holdings to offset the rebates. It did not.

    It also claimed to have more than 16,000 members. In reality, it had about 5,000.

    On another side note, some ASD sponsors had downline members pay them directly for ad packs, rather than paying ASD itself. The sponsors used ASD’s in-house system to move a corresponding amount of ad packs to their downline members and pocketed the cash.

    The reason I point this out is because I’ve seen claims — as opposed to proof — that some INetGlobal sponsors were doing the same thing. A member of AdViewGlobal, a surf with close ties to ASD, recommended a similar approach.

    That kind of thing can get dicey in a hurry. People who do it potentially could be charged with wire fraud, money-laundering and tax evasion, and perhaps some securities-related charges.

    ASD never had a CPA appear with certified books at its evidentiary hearing. One of the possible reasons why is that it did not know its own bottom line — in part because of side deals made by insiders and key promoters.

    One of the key weaknesses of the autosurf model is the “rebates aren’t guaranteed” disclaimer that some surfs put into play. It creates problems for a couple of reasons:

    1.) It creates a license to steal.

    2.) It sets the stage for operators to treat liabilities as assets — and then to vaporize the liabilities by exercising the “rebates aren’t guaranteed” clause.

    That’s what AdViewGlobal did, BTW.

    Perhaps you’d also be interested in these lines (below) from the allegations against Golden Panda Ad Builder, one of the surfs implicated in the ASD probe. Golden Panda was the so-called “Chinese option” of ASD. Undercover agent listened to a Golden Panda conference call in the summer of 2008, and quoted Busby saying this:

    “The building of [Bowdoin’s] company is based on a great business model, the business model says if you’ll do your work and buy ‘ad packages’ we’ll be successful. It’s not different than any other company, every company out there has to have some kind of sale, it doesn’t matter if it’s a mom and pop grocery store, or a Walmart, or a Bell South, or your local church, you got to have some money coming in a consistent manner.

    “The way this money comes into Golden Panda is we sell ‘ad packages’ and those ‘ad packages’ create an opportunity for you to surf and look at other
    people’s ads and also you get rebates from that. With that, if this company doesn’t have sales, it’s not a viable company. Every company has to have sales that’s what makes this company work because the great business model, not because it has a lot of outside resources, but with that said we have a lot of things planned in the next weeks and months ahead. This will create lots more wealth for you.”

    A federal judge ordered the forfeiture of more than $14 million from Golden Panda and more than $65.8 million from ASD.

    These worlds can be mighty murky, Ken.

    Patrick

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  6. Ken,

    Patrick’s reference to “fast” vs. “slow” Ponzi schemes is a reference to the rate at which they self-destruct, if left to their own devices. All Ponzi’s are mathematically unsustainable, unless the scheme pays out a zero rate of return (and then they never actually get going). HYIP-style Ponzi’s are fast Ponzi’s. There is no such thing as an investment that pays 1.5% per week or whatever that is legitimate. They are all scams. The greatest investor of the last half century, Warren Buffet, has managed a stunning annual return of 20.3%, by far and away higher than any other mutual fund manager (people who are paid millions, or occaisionally billions, to get high rates of return). Even Mr. Buffet has down years. Fast Ponzi schemes offer a (fictitious) high rate of return, and mathematically become unsustainable very quickly as a results. Promoters of the NarcThatCar Ponzi would have you believe that you can legitimately, legally, turn a $100 investment into $5000, or $50,000, in a short period of time. Mr. Buffett would take 21 years to get there…… Slow Ponzi’s, such as Madoff’s, offer more believable returns (but still wildly mathematically improbable). Madoff’s returns were only slightly higher than the underlying stock market during its run and Madoff actually never reported a losing year (a major red flag that the investments weren’t real — even Buffet has down years). The illusion of a more real rate of return convinces a greater number of more sophisticated investors that they are real (NO sophisticated investor would ever fall for a HYIP). This in turn enables the shell game to go on for a very long time, and to get very large. The believability of Madoff’s “secret investing strategy” combining with affinity fraud allowed in to propagate for many years. Your an innocent until proven guilty kind of a guy — according to you, I guess Madoff was innocent for 20 years, and had every right to fleece people during those 20 years, live like a billionaire, and steal many people’s money just because he had yet to be convicted, right?

    It is fairly rare for a fasy Ponzi (like CEP, AVG, ASD, iNetGlobal, Noobing, NarcThatCar, etc.) to get bigger than $100M. It is not rare, unfortunately, for slow Ponzi’s to get much larger (e.g. Madoff, Petters) because they are far more believable, but mathematically equally unlikely.

      (Quote)

  7. There are many, many high yield INVESTMENTS.

    There are NO high yield investment PROGRAMS.

    Canny investors such as Mr Buffett only return profits to Berkshire Hathaway investors at the end of each financial year AFTER working out the profits and losses.

    Even Mr Buffett can’t estimate a fixed amount of interest and/or profit weekly or even monthly IN ADVANCE, much less daily.

      (Quote)

  8. 66651.1
    UNITED STATES DISTRICT COURT
    DISTRICT OF MINNESOTA
    Mag. No. 10-MJ-71 (FLN)
    In Re Search Warrants of February 23,
    2010, and Later Days SWORN DECLARATION OF
    MARK J. KALLENBACH, ESQ.
    Mark J. Kallenbach, Esq. makes the following sworn declaration pursuant to 28
    U.S.C. § 1746.
    1. Since approximately 1981, I have been licensed as a certified public
    accountant by the Minnesota Board of Accountancy.
    2. As a certified public accountant, I have prepared hundreds of financial
    statements, including audited statements, reviews and compilation reports. I have also
    prepared hundreds of tax returns.
    3. In 1983, I was admitted to practice law in Minnesota. I am admitted to
    practice before the federal court for the District of Minnesota, to the Eighth Circuit Court
    of Appeals, and to the United States Tax court.
    4. My present law practice consists of consulting with companies which are in
    the early stage of development and are experiencing growing pains. I also handle
    business litigation, professional malpractice claims, and claims against insurance
    companies and banks. I also prosecute appeals when appropriate.
    5. In the late 1980s or early 1990s, I placed my license to practice public
    accountancy on an inactive status. Since then I have been practicing law and engaging
    in other business endeavors.
    66651.1 2
    6. In my law practice, I continue to use the skills that I acquired as a certified
    public accountant. I analyze at least ten financial statements or similar documents in a
    given month.
    7. On January 13, 2010, Inter-Mark Corporation ( IMC ) employed me on a
    monthly basis to assist it with legal matters. Since then, I have acted in that capacity.
    8. My investigation shows that Inter-Mark and its subsidiary iNetGlobal and
    its other subsidiaries are clean, legitimate and profitable businesses.
    9. One of the matters that I was asked to address was IMC s January 5, 2010
    termination of Mr. Steven Keough, its President, Chief Executive Officer, and lawyer.
    Mr. Keough was terminated because within a month or so after being hired in late
    October of 2009, Mr. Keough made no progress in understanding the business, did not fit
    in with IMC s rank and file, was unwilling to work with IMC s board of directors, and
    attempted to take over IMC s business from Mr. Steven Renner.
    10. As part of my due diligence in wrapping up IMC s termination of Mr.
    Keough s employment, I investigated and explored the reasons for Mr. Keough s
    termination.
    11. Among other things, I have viewed a marketing tape made by Mr. Keough
    on December 29, 2009. This video was posted on iNetGlobal s website on January 5,
    2010 for review by customers and the public. iNetGlobal is a subsidiary of Inter-Mark.
    When the Secret Service viewed the website, it would have seen this video. In it Mr.
    Keough stated that his focus in 2010 was going to be to recruit many more customers all
    around the world. He did not say anything about the business being illegal.
    66651.1 3
    12. On January 6, 2010, Mr. Keough attempted to extort over $500,000 from
    iNetGlobal. He demanded payment of the money by 5:00 p.m. that day or all bets are
    off. A copy of the e-mail is attached as Exhibit A.
    13. According to the Secret Service s affidavit, Keough contacted the
    government in this matter for the first time on January 8, 2010.
    14. As of that date, January 8, 2010, Mr. Keough had not informed any officer,
    board member, or employee of Inter-Mark or iNetGlobal that he thought there was any
    illegal activity.
    15. On or about January 17, 2010, IMC learned that the United States Secret
    Service was conducting an investigation of it.
    16. On January 17, 2010 or thereabouts until January 25, 2010, I left three or
    four voicemails with Ms. Katherine Westpetal of the United States Secret Service. I
    asked whether the Secret Service was investigating IMC and informed her that IMC
    would cooperate with any investigation.
    17. On the morning of January 26, 2010, I met with Mr. Keough for breakfast
    to discuss his dispute with IMC. The meeting lasted 45 minutes. Mr. Keough presented
    a three-ring binder to me containing a draft of a 13 page complaint against IMC and
    others. At no time did Mr. Keough indicate to me that IMC was involved in any illegal
    business. His complaint was that he had been illegally terminated because he questioned
    disbursements that were made to Mr. Renner so that Mr. Renner could pay taxes due and
    owing to the government.
    66651.1 4
    18. On the afternoon of January 26, 2010, Special Agent Westpetal left a voice
    message in response to my January 25, 2010 voicemail with her office. She stated in her
    voicemail message to me that she appreciated my offer of cooperation and stated that she
    did not think she needed any input at all. She stated its we just have some initial
    concerns from awhile ago and we ve been looking into it so again, not that big of a deal,
    nothing that we need cooperation on by any means but if we do deem that appropriate
    down the line I will definitely give you a call. I never heard anything again from the
    Secret Service until it executed search warrants on February 23, 2010.
    19. I believe there are statements in Ms. Westpetal s affidavits in support of the
    search and seizure warrants in this case which are either knowingly false or in reckless
    disregard of the truth. The entire premise of Ms. Westpetal s first affidavit, Docket No.
    3, is that iNetGlobal does not sell any legitimate advertising services. It is a business, she
    contends, that does not really do business and that depends upon member growth to
    pay rebates. ¶46. At paragraph 54, Ms. Westpetal states that Special Agent William
    Stack had logged into iNetGlobal and begun to visit its paid advertisements. She stated
    that ads range from other multi-level marketing sites to affiliate programs, non-English
    websites, and even iNetGlobal s home page. Her affidavit then states Few Legitimate
    Advertisers.
    20. I have visited the website several times myself over the past days since the
    search warrant was executed.
    66651.1 5
    21. It is not true that the website advertisements include only other multi-level
    marketing sites, affiliate programs, non-English websites, and iNetGlobal s home page.
    Anyone who viewed the website would know this.
    22. The website indicates the precise number of advertisements that are posted
    on iNetGlobal s website by its customers daily. For example on March 23, 2010, there
    were 19,061 ads posted. Historically there have been between 10,000 and 20,000 ads per
    day posted. Most of the ads run for a short period of time. A viewer has the option of
    searching the ads by key word. I have done a random survey of the ads posted in the
    days since February 23 and have found ads for small businesses selling numerous goods
    and services, including bowling lessons, golf lessons, nutritional supplements, purified
    water, camera equipment, photograph lessons, investments in foreign currency
    exchanges, optical products, wedding services, fishing secrets, soccer conditioning,
    gardening manuals for organic vegetables, travel agency services, manuals on building
    high performance computers, dental hygiene clinics, food recipes, making wine and beer
    at home, golf, Chinese medicine, acupuncture and herbs, home woodworking, coffee, real
    estate sales, auto insurance, online grocery shopping, and thousands of other businesses,
    each of which is selling products unique to that business. I estimate 90% of the ads are in
    English. It is simply false to say there are Few Legitimate Advertisers or to say the ads
    only include multi-level marketing sites, affiliate sites, non-English websites, and
    iNetGlobal s home page. It is false to say there was no legitimate business, and false to
    say iNetGlobal depended only on member growth for revenue.
    66651.1 6
    23. SA Westpetal states at paragraph 56 that customers were paid to view ads
    even when it was impossible to view them. The reason customers were given credit on
    these three days was due to technical problems with the platform on those days. This was
    an isolated incident. Most of these customers had paid for the right to view ads, and to
    receive discounts for viewing. There was no regular practice of paying customers to
    view ads when there were none to be viewed.
    24. Other false statements in the Westpetal affidavit involve paragraphs 63-69.
    25. These paragraphs describe an iNetGlobal seminar at which Mr. Renner
    spoke in New York on January 23, 2010. In fact, it was a two day seminar extending into
    January 24, 2010. I have watched a tape of parts of that seminar. These paragraphs are
    false by omission. On January 24, Mr. Renner clearly told those present that iNetGlobal
    was a sales company, that iNetGlobal did not guarantee that the customers would make
    any money, that no commissions were paid unless a sale is made, and that commissions
    could be earned only through the customers own efforts. The Westpetal affidavit does
    not tell the court of these disclaimers.
    26. Paragraph 67 of the Westpetal affidavit specifically describes a subsidiary
    of iNetGlobal called V-Local. SA Westpetal implies that V-Local has very few listings
    and its search engine does not work.
    27. SA Westpetal describes in paragraph 67 searching for coffee shop in
    Minneapolis, Minnesota on V-Local, and finding no results. Westpetal also alleges that
    when she searched under coffee shop, food and dining, six coffee shops in Iowa,
    66651.1 7
    Kansas and other states were identified, only one of which was in Minnesota. She also
    describes searching on V-Local for gym and restaurant .
    28. To test Ms. Westpetal s affidavit, on March 3, 2010, I did a search on VLocal
    for restaurant. As Ms. Westpetal stated, the search yielded no results. However,
    the user is urged by the program to use a less generic, more specific key word.
    Accordingly, I searched in Minneapolis, Minnesota for Chinese restaurant and located
    six restaurants in V-Local. I searched for Mexican restaurant in Minneapolis and was
    given twelve listings. I searched for barbeque restaurants, and was given six listings. I
    also found two Mediterranean restaurants.
    29. I then searched for coffee shops in Minneapolis, Minnesota and came up
    with six listings in the Minneapolis area. Ms. Westpetal s affidavit is false in stating that
    V-Local is populated only with one coffee shop in all of Minnesota, and no gymnasiums
    or restaurants. Anyone viewing the website would see this then and now.
    30. The true facts are that V-Local has 3,511,000 businesses listed on its search
    engine. iNetGlobal purchased the right to populate V-Local with these listings from a
    company called Info USA. In addition, V-Local has sold 37,832 additional listings by
    new customers on V-Local.
    31. I believe that if the Court knew of the above false statements made by SA
    Westpetal, it would not have signed the search and seizure affidavits in this case.
    32. The effect of the seizure of the business assets and records is to put almost
    75 people out of work. These are workers of modest means. Eight of them are computer
    programmers. Some of the programmers work in research and development. Some
    66651.1 8
    employees are in customer service. Some have language expertise in Mandarin, Russian,
    and Spanish. Some are salespeople. Some are accountants and bookkeepers. The money
    seized was in part for their paychecks. It was in part for payment of their children s
    health insurance premiums.
    33. The money seized, $25 million in all, consists of approximately $11 million
    which is owed to customers of iNetGlobal.
    34. iNetGlobal is not an investment business. It makes no promise of return on
    investments. It sells internet services to individuals and to small businesses. Most of its
    revenues come from the sale of those services.
    35. iNetGlobal sells a product called V-Web which is a web hosting service. It
    provides customers a place where they can set up their own websites. It also provides
    customers a place where they can register their proprietary domain names.
    Approximately 50,000 customers have purchased the right to set up websites. So far,
    2,378 websites have been set up. As the business is less than 18 months old, most
    websites have been set up within the last six months. The sales trend here is up. 24
    websites were set up in April of 2009, 91 in September of 2009, 338 in December of
    2009, 361 in January of 2010, and 327 in February of 2010, even though the month was
    shortened by the execution of the search warrant affidavit.
    36. 50,000 customers have purchased the right to register their domain names.
    So far 3,031 have registered their domain names with V-Web. The sales trend here is
    also up over time.
    66651.1 9
    37. The Court may ask why so few websites and domain names have been
    registered. The Court should understand that most of the customers are older people in
    their 40s, 50s and 60s who have no experience with the use of the internet to set up a
    website, register a domain name, do advertising, or run a business. Many of our
    customers are neophytes. They are gradually learning these skills.
    38. iNetGlobal also sells a product called V-Mail and e-mail marketing service.
    It provides a way for customers to create an e-mailing marketing list and to communicate
    with their own customers.
    39. Another product is called V-Shops which provides a way for businesses to
    sell online to their customers.
    40. Another service sold is called V-Train. This is an online training service
    which teaches customers how to register domain names, to set up their own websites, to
    establish their own e-mail marketing service, and to market their business on the internet.
    It allows a customer to view hundreds of hours of films, still shots and text that teaches
    them these skills.
    41. iNetGlobal also sells online trafficking and advertising services. There are
    two principal services. One is the Acesse search engine, which is similar to Yahoo,
    Google and Bing. The company has a development agreement with Yahoo. Yahoo
    allows Acesse to use its search results in the Acesse search engine for free. At some
    point when Acesse builds enough volume, Yahoo will begin to charge for this service.
    42. The second service is a pay per view platform where customers place
    their own advertisements for their own businesses. In doing so, customers generate more
    66651.1 10
    traffic to their websites which are hosted by iNetGlobal, and to any websites they may
    have which are not hosted by iNetGlobal. They are also able to sell goods and services
    directly to their own customers.
    43. iNetGlobal also sells a service called V-Local, described above at ¶30.
    44. Another service sold is V-Webcast which sells online conferencing services
    to allow people to conduct online video and audio conferences over the internet.
    45. Another service sold is V-Newswire. It sells press release services. For a
    fee, the company will write and distribute press releases over the internet. iNetGlobal
    purchased the right to distribute press releases to over 800,000 media outlets around the
    world.
    46. Most of the company s revenues come from customer purchases of the web
    hosting, domain registration, web training, e-mail services and advertising. The sale of
    advertising generates the most revenue. The most important thing a business needs are
    these services, which allow it to register a domain name, get the websites up and running
    (many have more than one), place their weblogs, promotions, and advertisements.
    47. Most of the customers about two-thirds and it is this point that the
    Secret Service did not grasp are constantly putting new money into the business in the
    form of monthly subscription fees and advertising purchases. Most of the customers buy
    services on an ongoing monthly basis. Most of the customers are not just surfing ads, as
    the Secret Service suggests. New money from new customers is not being used to pay
    off old customers.
    66651.1 11
    48. It is possible for customers to earn commissions. To do so they register as
    sales consultants for $59.95 and they sell the company s services to other people. They
    can get a commission for doing so. They can also get a commission by recruiting
    someone else to sell on their sales team. For example, one could sell advertising to
    another person to be placed on the pay per view platform.
    49. No one gets commissions simply by recruiting a consultant. The new
    consultant has to make a retail sale of one of the company s services. Then both the
    consultant and the new recruit share in the commission.
    50. It is critical to know that all commissions are calculated by the computer
    software on a daily basis. And the accounting is done daily. When the company incurs a
    liability to a consultant for commissions, the commission is immediately booked on an
    accrual basis and the money is set aside in a separate escrow account to pay the
    commissions. A given sales consultant s commissions are tracked, escrowed, and paid
    out to the customer within two weeks upon request. This business has never paid out
    more money than it took in. It has never promised to pay out more money than it took in.
    It has never paid old customers their commissions with monies from new customers.
    51. You will see in the seizure returns that the Secret Service seized $25
    million or so. Of that $25 million, $11 million is money that was escrowed for
    customers. Of the $25 million, many thousands represent employee pay and health
    insurance premiums. The company had monies escrowed to cover all commissions
    owed, and to cover taxes as well. The tax money was also seized by the Secret Service.
    66651.1 12
    52. The books and records of the company support what I say. In a Ponzi
    scheme, the liabilities of the company increase drastically over time. Its cash on hand,
    however stays flat or even declines. The books and records of the company over the past
    14 months show that as the liabilities of the company have increased, the revenues and
    the cash on hand have increased even more. For the last 3 months the liabilities have
    been only about 11 percent of the cash on hand. All of these figures are in financial
    statements prepared independent of Mr. Renner.
    53. There is an iNet surf program. It relates to the advertising. It is too
    complicated to fully explain in this space. In essence, one can sign up to participate as a
    free surfer. This is free. It does not cost anything. If one free surfs, meaning clicks on
    the customers advertisements posted on the company s pay per view platform, the
    customer can get gift coupons to redeem through Amazon.com. There are 10,000 to
    20,000 customer ads posted at any one time. The ads are changing daily. Some of them
    are up only for a few days. If a customer clicks on 25,000 ads for 30 seconds at a time,
    the customer can get a $25 gift certificate. That is all. The free surfers do not get
    anything else. The company purchased the gift cards from Amazon. The cash reserves
    to cover this obligation going forward are also escrowed.
    54. There is another form of surfing. The customers who pay in monthly can
    earn back a percentage of the services they purchase. They do this by viewing the ads on
    the iNetGlobal website. If a customer purchases $100 in webhosting service, for
    example, the customer can get up to $50 back from the company by viewing ads posted
    by advertisers.
    66651.1 13
    55. Here is the value of the advertising with iNetGlobal:
    a. There are so many surfers on the pay per view ad platform that an
    advertiser is assured of immediate eyeballs seeing the ads, there
    being 1.5 million page views per day. Within minutes of any ad
    being posted, it is being viewed. It is as efficient as a television ad.
    b. The market s brand awareness of the product or service the
    advertiser is selling is increased.
    c. Advertisers drive customers to their own websites, enabling them to
    sell their perfumes, or auto parts, or paper products, or whatever.
    d. Viewers from 120 countries view the ads.
    e. The customer optimizes his website s profile on the major search
    engines. The more ad views he accumulates, the more credibility he
    or she has with Google, Yahoo, Bing and Acesse. His rankings by
    these engines based on customer hits will increase and result in even
    more traffic. Some of iNetGlobal s customers are ranked first by
    Google in their business specialties in their communities.
    f. Viewers do not have to randomly surf. They can search for goods
    and services by keyword.
    g. iNetGlobal gives the advertiser detailed statistics showing the
    impression (how many times the ad is shown on iNetGlobal s
    rotator) and clicks (how many times the ad is viewed), which allows
    the advertiser to target a specific market.
    66651.1 14
    56. As of the date of the warrants, the vast majority of the customers were
    paying monthly for services. 50,000 customers pay for monthly web hosting services,
    50,000 for domain registration, and 50,000 for online training. 40,000 pay for monthly email
    marketing services. 40,000 pay each month for advertising.
    57. All payments back to customers are strictly limited. The company does not
    incur obligations it cannot pay.
    58. Mr. Renner was putting most of the revenues back into the business. He
    was about to purchase a building for expansion space. He was pouring hundreds of
    thousands of dollars into software development. He was hiring more employees.
    59. SA Westpetal contends in paragraph 59 of her affidavit that this is a Ponzi
    scheme because of the absence of any reasonable or legitimate business investment.
    60. It is obvious that the Secret Service did not have in its possession IMC s
    financial statements. In order to ensure the accuracy of IMC s financial and tax
    reporting, it retained the CPA firm of Lethert, Skwira, Schultz & Co., LLP, which
    prepared the statements. I have reviewed them.
    61. The books show that for the 12 month fiscal year ending October 31, 2009,
    IMC s sales amounted to approximately $47.4 million with an after tax net income of
    $1.7 million. For the month of November 2009 IMC s sales were $16.7 million with an
    after tax net income of $0.56 million. For the month of December 2009, IMC s sales
    were $22.8 million with an after tax net income of $0.7 million. For the month of
    January 2010, IMC s sales were $29.5 million with an after tax net income of $1.2
    million.
    66651.1 15
    62. The books show that for the fiscal year ending on October 31, 2009, IMC
    had cash on hand of $8.3 million. Its total liabilities amounted to $7.5 million leaving a
    cash surplus of $0.8 million. For the month of November 2009, IMC s total cash
    amounted to $10.7 million and its total liabilities amounted to $9.8 million, leaving a
    cash surplus of $0.9 million. For the month of December 2009, IMC s total cash
    amounted to $14.5 million, its total liabilities amounted to $12.9 million, leaving a cash
    surplus of $1.7 million. For the month of January 2010, IMC s cash amounted to $15.7
    million, its total liabilities amounted to $12.7 million, leaving a cash surplus of $3
    million.
    63. The accounting firm based its numbers upon numbers provided to it by
    IMC s finance and accounting department. I know from my study of the business that
    Mr. Renner does not have anything to do with the generation of the figures that the
    accounting department in turn uses. The accounting department uses figures generated
    by the computer system run by other persons.
    64. Based on my 30 years of experience in the business and legal communities,
    I believe that if IMC was closed today, and all of its obligations paid, IMC would still
    have as of January 31, 2010 $4.5 million in cash.
    65. My investigation has also revealed that the informant Steven Keough told
    numerous lies to the United States Secret Service.
    66. The entire premise of Keough s falsehoods to the Secret Service, and of the
    Secret Service s affidavit, is that money from new customers is being used to pay
    obligations to old customers. I have analyzed the business. This is not the case. Over
    66651.1 16
    the course of the life of the business there has been a constant flow of new money
    injected into the business by old customers who are continuing to purchase IMC s
    products and services on a monthly basis. On March 2, 2010, I asked IMC to produce a
    listing of its ongoing customers for me. This report showed that IMC has 9,566
    customers who pay $20 per month for web hosting, e-mail marketing services, and
    training. In addition, there are 39,169 customers who pay $40 per month to IMC for web
    hosting, e-mail marketing services and training, and V-Mail. Thus, IMC receives
    approximately $1,758,080 in recurring sales from old customers each month. This is the
    opposite of what one would expect in a Ponzi scheme, where no new money comes in
    from old customers. IMC has collected millions of dollars in monthly subscription fees
    since October of 2009. This is why it had the cash on hand to meet all of its obligations,
    until the Secret Service took the cash.
    67. At paragraphs 60-62 of the Westpetal affidavit, the Secret Service is very
    critical of iNetGlobal s customer service. This impression is based upon falsehoods
    conveyed by Keough. When Keough first began working at the company, the company
    had just installed new servers. Thus, the system was down a tiny bit more frequently than
    before the installation of the new servers. I have been provided with documents which
    have recorded the amount of time that the servers and computer programs have been up
    and operating at iNetGlobal during the time that Keough was employed there, from
    October 27, 2009 through January 5, 2010. The servers were up 99.97% of the time
    when Keough was employed there. They were offline approximately 3 minutes total in 8
    weeks. During the same period of time, the programs on the servers were working
    66651.1 17
    99.395% of the time. There were approximately 500 minutes over that 8 weeks where
    customers could not use the actual site. This amounted to approximately 1 hour per
    week.
    68. Paragraph 44 of the Westpetal affidavit contends that there was only one
    iNetGlobal employee available to assist customers in placing their advertisements on the
    rotator. This misconceives the business. In truth, the customers place their own
    advertisements on the rotator based upon the online training that is available to them. In
    truth, when Keough was employed at the company there were 10 iNetGlobal employees
    and some employees of Cash Cards, another subsidiary, who worked in a call center
    room that was charged with taking calls from customers in 4 languages. Keough was
    well aware that there were 10 persons minimum available to service the customers.
    Keough also went to Canada to meet with 4 of the support people there.
    69. Paragraph 51 of the Westpetal affidavit contends the auto repurchase
    feature of the computer program could not be turned off, forcing customers to re-invest
    their money rather than cashing out. Paragraph 60 recounts Keough s claims of his
    conversations on January 11 with a Nevada customer. Paragraph 61 recounts Westpetal s
    registration as a free surfer and her attempt to cancel the auto repurchase feature.
    70. There have been no significant problems with the auto repurchase feature.
    It is completely optional and can be turned off at any time. Customers have had other
    problems with cashing out, which were usually due to their not filling out the proper IRS
    W-9 form, and other reasons. These problems were all resolved by customer service.
    66651.1 18
    71. SA Westpetal recounts the experience of a single Nevada customer who
    was unable to cash out due to the auto repurchase problem. This customer is well known
    to iNetGlobal. He has consumed more customer service time than any other customer.
    He is unskilled with computers and the internet. On six separate occasion he was
    incapable of absorbing the instructions he was given.
    72. SA Westpetal did not understand, or chose not to tell the court, that as a
    free surfer she was not earning any money which she could cash out. The auto
    repurchase feature does not even apply to a free surfer account. Whether it is on or off
    for a free surfer is irrelevant.
    73. Paragraph 48 of the Westpetal affidavit says that Keough claims there were
    only 30,000 customers, not 50,000. I have reviewed company records which show that as
    of January 5, the day Keough was fired, the company had a total of 69,551 customers.
    24,259 of them were free surfers. 45,292 of them were paying customers. Mr. Keough
    lied to the Secret Service by claiming there were only 30,000 customers.
    74. Paragraph 49 of the Secret Service affidavit is incoherent. It contends that
    Keough stated that at least 87% of the company s revenue was generated from the sale of
    memberships to members residing in China. It then goes on to describe the revenue for
    the company, and in very confusing terms gives the impression that overall revenue was
    $28 million, 87% of which came from China, only one quarter of one percent of which
    was from the sale of outside income, namely the sale of 1,000 memberships at $59.95
    each. The false impression is, this was the company s only source of outside income. I
    have reviewed documents and computer printouts from the company which show that this
    66651.1 19
    is totally false. First, the total revenue for the company from its inception on all products
    is $96,231,692. This means that when Mr. Renner states at seminars that the company s
    revenue has been $100 million, he is substantially correct.
    75. Second, the $59.95 sales kit only generates a small amount of the
    company s revenue. The company has sold 50,078 consulting kits, despite Mr. Keough s
    contention that only 1,000 were sold. These sales brought in $2,959,454 altogether. The
    bulk of the company s revenues come from the sale of the advertising. Customers, old
    and new, pay fees on an ongoing basis for the right to post advertisements.
    76. Just one week prior to the February 23, 2010 execution of the search
    warrant, IMC was in the process of renting 4,000 square feet of additional space for
    customer service representatives and was seeking an executive to train customer service
    representatives. I believe that Keough was aware of these plans. In 2008, IMC hired
    skilled and competent attorneys from the firm of Reece & Grimes, who are familiar with
    marketing law, FTC rules and regulations, and the like. IMC has also employed counsel
    outside of the United States to ensure compliance with foreign law.
    77. 75 people lost their jobs on February 23, 2010, as a result of these warrants.
    They were computer programmers, computer program researchers and developers,
    customer service workers, accountants, and sales people. Since the warrants, the
    company made the business decision not to take in new money from customers. It has no
    cash. It has survived by hiring back a skeleton crew and borrowing money to pay
    employees and for working capital.
    66651.1 20
    78. I attach as Exhibit B, a news article dated February 25, 2010 at 1:41 a.m. by
    Patrick Pretty, a journalist, posted online. The article shows that as of that date and time,
    the journalist had in his possession a copy of the search warrant affidavit in this case. As
    of that time, the affidavit was still sealed, and no returns had been made to the court,
    according to the docket sheet. As of February 25, 2010, I had tried to get a copy of the
    affidavit. I was informed by the U.S. Attorney s Office it was sealed. I was not provided
    a copy until February 26, 2010 at 1:57 p.m., 36 hours after the press had it. Someone
    leaked the affidavit to the press.
    79. I have learned that the Secret Service agents investigating this case are
    informing customers, witnesses, and employees that Steven Renner is running a Ponzi
    scheme. I believe it is an improper investigative technique to suggest answers to a
    witness. They have also told employees they cannot have a lawyer present when the
    Secret Service interviews them.
    80. Attorney-client privileged documents were seized, both in electronic and
    hard copy forms. They were demanded back from the government. The government
    refused to return them.
    81. I have made this declaration pursuant to 28 U.S.C. § 1746. I declare under
    the penalty of perjury under the laws of the United States that the foregoing is true and
    correct.
    /s/ Mark J. Kallenbach
    Mark J. Kallenbach, Esq.

      (Quote)

  9. Items 78 and 79 leave one gob smacked! Accusing the Secret Service of leaks is quite a serious allegation.

    What’s the scoop Patrick?

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  10. alasycia: Items 78 and 79 leave one gob smacked!

    They are quite hilarious. lollerz

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  11. Entertained: HYIP-style Ponzi’s are fast Ponzi’s. There is no such thing as an investment that pays 1.5% per week or whatever that is legitimate. They are all scams. The greatest investor of the last half century, Warren Buffet, has managed a stunning annual return of 20.3%, by far and away higher than any other mutual fund manager (people who are paid millions, or occaisionally billions, to get high rates of return). Even Mr. Buffet has down years. Fast Ponzi schemes offer a (fictitious) high rate of return, and mathematically become unsustainable very quickly as a results.

    Hi Entertained,

    Appreciate your entire post — not just the part I quoted.

    Thank you.

    Patrick

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  12. I presume the redacted affidavit was available on PACER. Perhaps ING or its attorneys (Messrs. Hopemann and Aaron Hall) should have looked there.

      (Quote)

  13. Patrick,

    Less than a month later, FBI Director Mueller told Congress that “shell corporations” and “stored value” debit devices and “reloadable debit cards” increasingly were being used “to move criminal proceeds.”

    Can you clarify the exact date (dd/mm/yy) when Mueller told Congress the above? Thanks!

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  14. Christie: Less than a month later, FBI Director Mueller told Congress that “shell corporations” and “stored value” debit devices and “reloadable debit cards” increasingly were being used “to move criminal proceeds.”

    Can you clarify the exact date (dd/mm/yy) when Mueller told Congress the above? Thanks!

    Christie,

    March 17, 2010

    http://www.fbi.gov/congress/congress10/mueller031710.htm

    Patrick

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  15. Hi Patrick, Thanks for the prompt response. Are there examples or patterns on how the government handles the money after seized from a Ponzi scam operation? Does the government ever give the money back to the victim (presuming the victims claim) or simply confiscated it all? any examples on this? How does the government identify criminal proceeds verses what belongs to the victims? Are there any article (yours or somebody else’s) or researches done on this aftermath that you can direct me to? Much appreciated, thank!

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