URGENT >> BULLETIN >> MOVING: Accused Fraudster Andy Bowdoin Enters Defense That Could Provide Legal Cover For Autosurf Ponzi Schemes If He Wins Case; ASD Operator Claims Business Model Stands Up To ‘Howey Test’ Scrutiny

Andy Bowdoin

BULLETIN: In an argument that almost certainly will give comfort to operators of some of the most corrupt and insidious businesses on the Internet, AdSurfDaily President Andy Bowdoin has advised a federal judge that his company and business practices are legitimate because they stand up to scrutiny when the “Howey Test” is applied.

Bowdoin, 77, made the argument despite the fact the government claims that he signed a proffer letter at least two years ago in which he acknowledged ASD was operating illegally and that the prosecution’s material allegations were all true. In 2009, Bowdoin acknowledged in his own court filings that he had made statements against his interests over a period of at least four days in the hopes of avoiding a prison sentence by cooperating with investigators.

But Bowdoin now says criminal charges of wire fraud, securities fraud and selling unregistered securities as investment contracts brought against him last year “must” be dismissed. It is believed that hundreds — if not thousands — of autosurfs are operating over the Internet at any given time.

Separately, Bowdoin filed a motion to transfer the case to the Northern District of Florida’s Tallahassee Division from the District of Columbia, saying that trying the case in Florida was the fair and most cost-effective thing to do. The government is expected to oppose Bowdoin’s bid to move the case from Washington to Tallahassee.

U.S. District Judge Rosemary Collyer, who was assigned the civil forfeiture case against Bowdoin’s assets after the U.S. Secret Service raided ASD in August 2008 and ordered $65.8 million found in Bowdoin’s personal bank accounts ceded to the government after nearly a year and a half of litigation, also was assigned the criminal case. Criminal charges against Bowdoin were announced in December 2010.

Although Bowdoin previously claimed Collyer was biased against him and sought unsuccessfully to have her removed from the civil case, he has not raised the issue of bias so far in the criminal case. Instead, he petitioned Collyer for an order that would remove the case from her courtroom and put it in the hands of a federal judge in Florida, arguing that most of the witnesses in the case resided in Florida and that hearing the case in Collyer’s court would force unnecessary costs and transportation burdens on both Bowdoin and witnesses.

An affidavit signed by Bowdoin requesting the transfer was filed yesterday. It appears to have been notarized by Judy Harris of Tallahassee, whom some ASD members said operated the AdViewGlobal (AVG) autosurf with her husband, George Harris. George Harris is the son of Bowdoin’s wife, Edna Faye Bowdoin, and a Tallahassee home owned by the Harrises was seized in an ASD-related forfeiture complaint filed in December 2008.

Both George and Judy Harris benefited from the ASD Ponzi scheme because a $157,000 mortgage on their house was retired with Ponzi proceeds, prosecutors said in December 2008.

The Harrises also received a car valued at nearly $30,000 from the scheme, and the car also was paid for with Ponzi proceeds, prosecutors said.

Florida records show that Judy Harris has been a licensed notary since at least October 2008. Why she would notarize a document for Andy Bowdoin when she, her husband and her mother-in-law were alleged to have been a beneficiaries of the ASD Ponzi scheme was not immediately clear.

AVG, which purported to be headquartered in Uruguay and launched after the seizure of assets linked to Bowdoin and the Harrises, suspended payouts to members in June 2009. The surf blamed members’ greed for its problems. The name of Judy Harris also appears in a document filed in April 2009 with the Florida Department of State that canceled the fictitious registration of AVG, which also was known as the AV Global Association.

Andy Bowdoin’s New Argument

Prosecutors have not responded to Bowdoin’s new assertion filed yesterday that ASD can stand up to Howey Test scrutiny. A blistering response is expected in the days ahead because a ruling in Bowdoin’s favor to dismiss the case or an outright win by Bowdoin at trial could have grave economic and security implications for the United States.

Autosurfs operate in the darkest corners of the Internet, fueled by corrupt promoters and scammers who position them as legitimate  “advertising” businesses that share revenue with participants. Untold sums of money — believed to be in the billions of dollars — have disappeared in recent years, and prosecutors say the enterprises operate as virtually pure Ponzi schemes.

Purveyors almost certainly would view any win by Bowdoin as a mandate that legalized Internet-based Ponzi schemes and created a virtual license to collect vast sums of money and simply pocket it by claiming member payouts, which ASD called “rebates,” were not guaranteed.

“[N]o guarantee or promise of any profits, any specific level of rebate payouts, or return on an alleged ‘investment’ occurred during the AdSurfDaily operation,” Bowdoin claimed. He also asserted that the allegations against him were Constitutionally vague and that none of the four civil cases brought against autosurfs — 12DailyPro, PhoenixSurf, CEP Holdings and the forfeiture case against ASD’s assets filed in 2008 — has clarified the legal issues.

“As none of these actions has proceeded to final judgment, no judicial opinion has yet clarified whether payment of membership fees by advertisers into auto-surf businesses constitute unregistered sales of ‘securities,’ as alleged by the government,” Bowdoin claimed.

The criminal charges “must be dismissed because the ad-surf business model employed by AdSurfDaily, Inc. and [Bowdoin’s] related businesses, as alleged in the indictment, cannot constitute an SEC-regulated ‘investment contract’ security as defined under the three-prong test established” by Howey, Bowdoin argued.

The Howey Test is a threshold securities test and litigation benchmark from the 1946 U.S. Supreme Court decision in S.E.C. v. W.J. Howey Co. The decision spoke to the issue of what constitutes an “investment contract.”

Bowdoin now claims the entire case against him is fatally flawed because he never sold investment contracts as defined under Howey.

“[T]he Howey test,” Bowdoin argued, “determines whether a particular instrument or transaction is a prohibited, unregistered ‘investment contract’ by searching for the presence of three factors: ‘(1) the investment of money (2) in a common enterprise (3) with an expectation of profits to be derived solely from the efforts of the promoter or a third party.”

ASD did not meet any of the three prongs of the Howey Test, Bowdoin argued.

It was not an investment because ASD was an advertising company, not an investment company through which participants placed money at risk in anticipation of profit, Bowdoin argued. Therefore, he asserted, ASD did not meet the first Howey prong.

Meanwhile, Bowdoin argued that ASD did not meet the second prong because participants did not place their money in a “common pool” put at risk in expectation of a profit.

“[T]here was no ‘common enterprise’ at work here,” Bowdoin argued.

And because ASD members had to click on ads and view them to get paid, they performed “actual efforts,” taking the third prong of the Howey Test out of play, Bowdoin claimed.

“Here, the payment of both rebates and referral commissions were directly tied to the actual efforts of the advertisers,” Bowdoin argued.

Prosecutors, though, asserted in the ASD forfeiture case that ASD told investors that rebates “will” be paid until investors received back 100 percent of the money they plowed into the scheme, plus a profit of 25 percent.

Gerald Nehra, an attorney and expert witness for ASD in the forfeiture case, conceded under cross examination in 2008 that the ASD Terms of Service specified that rebates “will” be paid.

Bowdoin’s most recent arguments also put him with odds with dozens of ASD members who claimed in court filings that the government had no “evidence” and no “witnesses.”

In his filings yesterday, Bowdoin said he believed that the “vast majority” of the prosecution’s witnesses resided in Florida. He said he planned to counter them with witnesses of his own — as many as 136 — including George and Judy Harris, Rob Cefail of InTouch Marketing of Clearwater, and Tari Steward, who also provided Clearwater-based marketing services.

At least 56 of ASD’s witnesses were ASD employees, Bowdoin said. The document was notarized by Judy Harris.

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22 Responses to “URGENT >> BULLETIN >> MOVING: Accused Fraudster Andy Bowdoin Enters Defense That Could Provide Legal Cover For Autosurf Ponzi Schemes If He Wins Case; ASD Operator Claims Business Model Stands Up To ‘Howey Test’ Scrutiny”

  1. Amazing, virtually comical and borderline deluded.

    I especially like that Andy says the trial being in DC would cause him a “financial hardship” because it might cost him $51,000 in expenses for a 6 week trial. Hold on a sec, here. What about the financial hardships Andy orchestrated in the fraud that was ASD? He has a few million offshore, let him use that to pay his expenses. Can he be this heartless and sociopathic?

    Why, yes.. yes he can…

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  2. I’m still reading through the new filings (thanks Don for posting them) and trying to wrap my head around them. Here’s a quote from page 4 (8 on the PDF) of document 19:

    “.,..To the Defendant?s knowledge, no reported decision nationally, nor any enactment of Congress, has yet classified the ad-surf business model as an iteration of the amorphous securities “investment contract”, and yet Bowdoin is now faced with loss of liberty and property at this Court?s potential ad hoc determination that the ad-surf business model is a regulated “investment contract” – a determination never available to Bowdoin prior to his indictment..,.”

    Excuse me? How is SEC v. Colon End Parenthesis Trust LLC not a “reported decision”? Correct me if I’m wrong but Andy was a member of CEP, was he not? And even if he wasn’t how can he claim that an autosurf ponzi prosecuted by the SEC is a “determination never available” to him before he got busted?

    I still have some reading to do but this looks like an attorney doing more to justify his fee to his client than one trying to make a case to the judge.

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  3. Correct me if I’m wrong but Andy was a member of CEP, was he not?

    I’m not sure that he was, but he has admitted to being a member of 12DailyPro. However your point is valid as 12DailyPro was investigated by the SEC.
    http://www.sec.gov/litigation/litreleases/lr19579.htm

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  4. How is SEC v. Colon End Parenthesis Trust LLC not a “reported decision”? Correct me if I’m wrong but Andy was a member of CEP, was he not?

    The answer to the question of whether Bowdoin was a member of CEP is unclear. However, ASD once advertised that it accepted CEP Trust as a payment method — and CEP Trust was operated by the defendants in the CEP Ponzi case.

    Meanwhile, Bowdoin’s stories about whether he was a member of 12DailyPro have varied. He allegedly told some members that he was, but told others that he was not. He also allegedly told the Secret Service that he had modeled ASD after 12Daily Pro.

    I have thought for quite some time that the tweak in the autosurf “industry” to force members to click on ads — instead of letting the ads load themselves — was designed to get around the third prong of the Howey Test.

    From the very beginning, some ASD members railed that ASD was not an autosurf because participants had to perform the work of clicking on ads. The argument always seemed fractured to me. If accepted, it would mean that one of the few things one would need to do to make an investment autosurf “legal” was to design software that made clicking mandatory.

    On a side note, the bankruptcy judge in the CEP case ruled CEP a Ponzi scheme. One of the filings in the case shows that CEP invested in at least 26 other autosurfs or HYIPs, meaning that customers funds were invested in more than two dozen Ponzi schemes.

    It’s one of the things that make these “programs” so dangerous: Ponzi schemes are funding other Ponzi schemes. Who knows where the money ends up going?

    Patrick

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  5. Wow, I don’t think I was aware that none of the previous surf ponzi cases (12DP, Phoenixsurf or CEP) have gone to final judgment yet. I’m sure Andy finds some solace in that, he ~might~ be able to draw this out a few more years.

    Most of the rest of the motion to dismiss is just a regurgitation of the same old cover story. No one was making an “investment,” they were all buying advertising. Yea and so valuable was this advertising that you didn’t even need to be selling anything for you to profit from it.

    “There was no money at risk – only completed payments made to buy time on the advertisement rotator,”.

    No risk? LOL tell that to all the many people coming out on the short end of nearly every program pimped on TalkGold or any of the other ponzi sites. Do Andy’s lawyers understand basic mathematics? No wonder they’re fighting so hard to get the trial moved out of Judge Collyer’s court. She’s seen these arguments before and seen them for what they are.

    “By contrast, when a purchaser is motivated by a desire to use or consume the item purchased . . . the securities laws do not apply.”

    I loved that one, yea so many people were motivated by a desire to use or consume Andy’s advertising that most of them never realized they had no product to sell thus no need to purchase “advertising.” No worries Andy would find you a website to advertise if you didn’t have one.

    “Furthermore, there was no “expectation” of profits here.”

    This was a point made crystal clear at all the conventions. Andy boasted about how many millionaires ASD would create, what he didn’t tell people is that he was talking about his legal defense team.

    “an investment contract can exist where the investor is required to perform some duties, as long as they are nominal or limited and would have little direct effect upon receipt by the participant of the benefits promised by the promoters.”

    As Patrick noted above, this is the closest thing to an argument in this filing. The 15 mouse clicks per day needed to cycle the rotator are both nominal AND limited but they were directly required to earn your share of that days profits. Of course it never mattered exactly who or what made those mouse clicks. Some promoters bragged about having their young children do their clicking for them and honestly near any freeware macro program could be configured to automate the entire process. I look forward to the prosecution’s response to this motion and particularly to this argument. I don’t think these arguments stand a snowballs chance in hell but I want to see the puddle forming.

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  6. How much work goes into clicking an autosurf ad one centimetre? Perhaps Andy can define the unit of work (erg)

    An erg is the amount of work done by a force of one dyne exerted for a distance of one centimeter. In the CGS base units, it is equal to one gram centimeter-squared per second-squared (g·cm2/s2). It is thus equal to 10?7 joules or 100 nanojoules (nJ) in SI units.

    1 erg = 10?7 J = 100 nJ

    1 erg = 624.15 GeV = 6.2415 ×1011 eV

    1 erg = 1 dyn cm.

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  7. I was looking around and found that AUSA Vasu B. Muthyala, who I thought was just a criminal prosecutor, used to try cases for the SEC. Coincidence?? I think not…

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  8. I’m not sure that he was, but he has admitted to being a member of 12DailyPro. However your point is valid as 12DailyPro was investigated by the SEC.http://www.sec.gov/litigation/litreleases/lr19579.htm  (Quote)

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  9. It’s just so simple.

    Once the forensic experts wade through the documents and ascertain the total amount of unexpired “ad packs” (or whatever they are calling them) exceed (my guess) $300,000,000 or more and the company had on hand, what $100MM that was seized…..

    How in the world could any rationale judge or jury ever come to the conclusion that this is not a classic ponzi.

    All one can do is to shake one’s head.

    Oh, and, the argument against the Howey Test and the three prongs. Laughable!

    Someone please explain to me how it is NOT a pooling of interests. Please explain how viewing sites contributed to the creation of the income supposedly generated to pay the revenue share.

    This is going to be fun.

    Where are those forensic accountants?

    ARWR

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  10. And the true believers scoffed when the naysayers predicted this would be drawn out over at least 3 or 4 years by the defendant/s.

    Being a naysayer in this arena is excellent for ones’ self esteem.

    Simply develop a tiny bit of patience and perseverance and you can never be wrong.

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  11. ARWR,

    Funny that you should mention the second of the prongs. Clearly the evidence shows that there never was a common pool of funds, so Andy is right on that angle. Rather, the funds were segregated into a large pile of money for Mr. Bowdoin, a smaller pile for his co-conspirators and the early entrants, and, well, a pile of nothing for the vast majority…….

    ……snip….Someone please explain to me how it is NOT a pooling of interests. Please explain how viewing sites contributed to the creation of the income supposedly generated to pay the revenue share.This is going to be fun.Where are those forensic accountants?ARWR  

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  12. Patrick:

    I have not read everything concerning this case or the current postings…but, if Judy Harris notarized the documents sent to the court then they are void and she has violated Florida’s Notary Laws. Any Notary who is related to the person requesting a document to be Notarized is related to that person in anyway CAN NOT notarize those documents.

    My wife has been a notary for almost twenty years and I am well versed on those laws.

    Most of the situations in which notaries must refuse are set forth in sections 117.05 and 117.107, Florida Statutes, and relate primarily to taking acknowledgments and administering oaths. Other prohibitions, not discussed here, may apply to less common types of notarial acts, such as attesting to photocopies and performing marriage ceremonies. The most common situations with statutory prohibitions occur when:

    * the signer is not present;
    * the document is incomplete or blank;
    * the notary is the signer;
    * the signer is the notary’s spouse, parent, or child;
    * the signer has been adjudicated mentally incapacitated and has not been restored to capacity as a matter of record;
    * the notary does not personally know the signer and the signer cannot produce acceptable identification;
    * the notary is a party to the underlying transaction or has a financial interest in it; or
    * the signer does not speak English and there is no one available to translate the document into a language the signer understands.

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  13. Quick note:

    Another CEP/ASD parallel is the assertion that real estate somehow was involved. ASD — likely surprisingly to most investors — allegedly asserted it had a “real-estate division.” CEP made similar claims, and at least some of the money went to the retirement of a mortgage or mortgages — rather like ASD.

    Some of the surfs — AdPayDaily, for example — also appear to be tied to the concept of “hard-money lending.” The purported aim seems to be to use the surfs to pool capital for the purpose of lending it out to purchase real estate or interests in real estate that would provide ROI.

    Some of this undoubtedly is tied to folks who have utter contempt for the government, the Fed, the banks, etc. In one way or another, these various schemes are forms of fraud creep.

    One of the ASD members held the fanciful theory that one could defeat a mortgage foreclosure by filing a bond consisting of $21 in “silver coinage” at the courthouse.

    Patrick

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  14. Thanks for the note, Jack. Readers may wish to see this story, which delved into other notarized documents Andy Bowdoin submitted to the court:

    http://patrickpretty.com/2010/02/17/bulletin-new-affidavit-filed-by-andy-bowdoin-appears-to-be-at-odds-with-claims-he-made-in-september/

    Patrick

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  15. Quick note:One of the ASD members held the fanciful theory that one could defeat a mortgage foreclosure by filing a bond consisting of $21 in “silver coinage” at the courthouse.
    Patrick  

    Perhaps he had been reading the famous Somerset Maughn novel about two farmers who had a battle in court. One of them was awarded damages and he paid the other with a cheque, which he had written on his cow. He presented both cow and weitten cheque to his rival’s bankers for clearance.

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  16. I think the “Howey Test” argument is irrelevant and may work against “Honest” Andy. His argument is that there was no “investment” just “rebates” paid to investors, sorry, “advertisers”. What “Honest” Andy doesn’t say is where the money to pay the 125% “invested” comes from. It’s the old argument – “where does the money come from?”

    Obviously, the only income ASD was getting was from the punters. There was no “pooled investments” to generate an outside income stream. Therefore, old “advertisers” were “rebated” with money from new “advertisers”. Classic ponzi.

    Also, saying that the SEC didn’t inform him that the autosurf business model could be a bit dodgy is false. Here’s what the SEC has posted since about 2006 on autosurfs:
    http://www.sec.gov/investor/pubs/autosurf.htm

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  17. I agree on the relevance of the Howie Test. Andy is facing criminal charges of wire fraud and theft I think, not SEC Civil charges of selling unregistered securities. The Howie Test doesn’t apply to wire fraud or any other criminal charges, it’s not a lot different than him saying that none of the ad packs was ever laboratory checked for Cocaine Content and therefore if he was facing charges of drug trafficking none of it would apply because there was no common enterprise or expectation of profits etc,…

    The Howie test is a from a Civil Case on charges not at all related to what Andy has been charged with. No one has to prove you were selling unregistered securities in order to prove you were stealing millions of dollars from them,

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  18. Gregg, nice to see you.. The argument the “brilliant legal minds” Andy has retained are arguing that if they can demonstrate that the SEC charges are unfounded, then ALL the charges must also be unfounded!! Yeah, that’s their argument.

    I’m not sure, but getting convicted on 2 out of 3 still puts Saint Uncle Andy in a really bad place, PRISON! If only we can be so lucky, he will serve the rest of his weasel-like liver-spotted life behind bars.

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  19. Seems like Gregg made a point that Bowdoin’s overpriced and apparently underskilled attorneys have missed. The Howie argument isn`t going to do them much good against criminal charges of wire fraud and money laundering.

    Did anyone say improperly recorded Cash purchases, rallies in Las Vegas, Miami and Chicago, and offshore bank accounts??

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  20. Especially since the unsealed indictment specifies the period 2006 and 2008 and indicates both that Bowdoin began operating on the ‘net as “AdSurfDaily.com AFTER the SEC initiated closure of 12DP, a closure of which Bowdoin was fully aware

    As well,the indictment alleges Bowdoin “asserted to” members he had met with members of the SEC in Washington who had agreed with Bowdoins’ analysis that he/ASD was not selling securities, nor did he/they require registration AND that he(Bowdoin) was fully aware of both state and federal securities registration requirements because of his prior interactions with securities regulators. (for “interactions” read: he had been busted before)

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  21. arandomwalkrant: It’s just so simple.

    Once the forensic experts wade through the documents and ascertain the total amount of unexpired “ad packs” (or whatever they are calling them) exceed (my guess) $300,000,000 or more and the company had on hand, what $100MM that was seized…..

    How in the world could any rationale judge or jury ever come to the conclusion that this is not a classic ponzi.

    Admin plug-in test.

    Patrick

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