EDITOR’S NOTE:Part 1 of this two-part PP Blog series covered allegations against an alleged New York City-based TelexFree promoter . . .
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2ND UPDATE 9:42 A.M. EDT U.S.A. Though not charged as a defendant, the emerging “MyAdvertisingPays” (MAPS) scheme is referenced in a proposed class-action lawsuit filed against multiple TelexFree figures and financial vendors in U.S. District Court for the Southern District of New York in December 2014.
Because both New York’s Southern District and Eastern District are key centers of prosecutions against U.S. financial fraudsters, the proposed TelexFree class-action — now transferred to Massachusetts federal court — leads to questions about whether other “programs” such as MAPS could become the subjects of prosecutions.
Those odds might increase because Staten Island-based Daniil Shoyfer, alleged by the TelexFree plaintiffs “to have been the largest single Promoter in the greater New York area,” also is promoting MAPs, according to a YouTube site in his name.
Beyond that, Shaun Smith, alleged by the receiver in the Zeek Rewards Ponzi- and pyramid case to be one of the largest Zeek “winners” in the United Kingdom, also is promoting MAPs. Receiver Kenneth D. Bell is suing Smith and other alleged U.K. Zeek promoters for return of the funds, alleging they are Ponzi proceeds that came from Zeek victims.
Bell has expressed concern about MLMers or network marketers moving from one fraud scheme to another.
The TelexFree-related class action describes MAPS as a “120% ROI advertising-based Ponzi scheme.”
MyAdvertisingPays (MAPS) is referenced in this TelexFree-related class-action complaint. Red highlight by PP Blog.
Using the familiar advertising credit + Ponzi scheme business model, MyAdvertisingPays simpl[y] shuffle new affiliate money around to pay off existing investors.
The business model of MAPS is similar to the $119 million AdSurfDaily Ponzi scheme broken up by the U.S. Secret Service in 2008. MAPS purports to operate from George Hill, Anguilla, a British overseas territory in the Caribbean.
In the proposed TelexFree class action, the reference to MAPS appears in a section that alleges various TelexFree financial vendors enabled the fraud. Some of the vendors are alleged to have engaged in racketeering activity.
On its website, MAPS claims it does not accept PayPal because PayPal “has a bad habit of freezing or limiting members accounts for little or no reason at all.” Instead, it encourages prospects to use SolidTrustPay, a vendor used by both the Zeek and ASD schemes.
MAPS also says it uses something called “VX Gateway,” which purports to operate out of Panama.
From an Achieve promo playing on YouTube. Masking by PP Blog.
Two domains linked to the alleged “Achieve Community” pyramid- and Ponzi scheme appear to have been disconnected. On Feb. 17, the PP Blog reported that the domains — ReadyToAchieve.com and TheAchieveCommunity.com — were displaying “Account Suspended” messages.
ReadyToAchieve appears still to have DNS servers, but now displays nothing and will not return a ping. TheAchieveCommunity, meanwhile, displays a “no nameserver” message in registration data.
In a complaint filed under seal in U.S. District Court for the District of Colorado on Feb. 12, the SEC described Achieve as a pyramid- and Ponzi scheme operated by Kristine L. Johnson of Colorado and Troy A. Barnes of Michigan. The agency announced the case on Feb. 18, after the seal was lifted.
Both Johnson and Barnes have asserted their Fifth Amendment rights not to incriminate themselves in the SEC case. Barnes reportedly has claimed he’s under criminal investigation, although it is unclear where and by whom. Both ASD Updates and BehindMLM.com have reported Johnson is the subject of a criminal investigation by the office of U.S. Attorney Anne M. Tompkins of the Western District of North Carolina.
Tompkins is leaving her post today, after nearly five years on the job. North Carolina is a banking center, and Tompkins has become known for her role in bringing cases involving multimillion-dollar investment schemes, securities fraud and mortgage-fraud conspiracies.
One such case was the criminal prosecution of three figures associated with Zeek Rewards, an alleged Ponzi scheme said to have gathered on the order of $897 million. Why Johnson, a Colorado resident charged civilly by the SEC in Colorado federal court last month in the Achieve case, is under criminal investigation in North Carolina is unclear.
Zeek receiver Kenneth D. Bell has raised concerns about network marketers proceeding from one fraud scheme to another. At least one filing in the Achieve case in Colorado suggests Zeek and Achieve had promoters in common, given that the woman who filed the document asking for her Achieve money back also is listed by Bell as a “winner” in the Zeek scheme broken up by the SEC and the U.S. Secret Service in 2012.
As the PP Blog reported on Aug. 17, 2012, the date news of the Achieve probe became public (italics added):
The Secret Service leads a multiagency electronic crimes Task Force in Charlotte, N.C. The Charlotte Task Force is known by the acronym CMECTF.
One promo for Achieve claimed its members had the “God given universal right” to spend their money however they pleased and were choosing “not to sell out to the banking system.” Among other things, Achieve claimed $50 turned into $400.
In court filings, the SEC said it has examined at least five Achieve-related bank accounts. The filings also suggest Achieve polluted the commerce stream at at least least nine points of contact: three banks, one credit union, four payment processors and one brokerage firm.
Johnson is alleged to have provided $10,000 to a church. One or more churches sent money to Zeek Rewards, according to court filings.
Because an untold number of Achieve members received debit cards that could be used at ATMs to offload “earnings,” fraudulent proceeds had the potential to flow through many hundreds of towns and cities, effectively turning local banks into dispensaries for Ponzi schemes or warehouses for them. Achieve is said to have had between 9,000 and 14,000 members.
Ads for other fraud schemes were displayed when Achieve members accessed the “program’s” private forum, contributing to concerns that fraudulent proceeds are circulating between and among scams.
“Because that’s where the money is.” — Classic rejoinder attributed to Brooklyn-born criminal Willie Sutton, reportedly after he was asked why he robbed banks. The often-quoted line may or may not be apocryphal. (Also see “Sutton’s Law” on the need to consider the obvious and “When you hear hoofbeats, think of horses not zebras.”)
UPDATED 5:26 P.M. EDT U.S.A. If you had the means to throw down $140 for “Chocolate Body Therapy” or $260 to get the “Prince or Princess for a Day” treatment, would you also have the means to direct some cash to an MLM “program” purported to double or triple your money?
Daniil Shoyfer of Staten Island perhaps thought so. In a proposed class-action lawsuit against various TelexFree figures, the plaintiffs accuse Shoyfer of holding TelexFree pitchfests at Salon Delacqua, a beauty shop that offers moderately priced and upscale services on 86th Street in Brooklyn. The meetings appear to have occurred at 8 p.m., near or at the shop’s published closing time.
These pitches included promises of “fabulous wealth,” according to the plaintiffs. The salon also advertises a “Brazilian Karatine” hair-strengthening treatment that takes three hours and begins at $250.
And when Shoyfer wasn’t at the salon, he allegedly was at the Marriott Hotel Grand Ballroom at 102-05 Ditmars Blvd. in the Queens neighborhood of East Elmhust near LaGuardia Airport, pitching the “program” in a room that hotel says on its website can be configured to seat 400.
The demographics from the neighborhood (2010) suggest that 30 percent of its residents were born outside of the United States, with a Latino population on the rise. TelexFree was accused last year by the SEC of targeting immigrants.
Shoyfer pitchfests also were hosted elsewhere in the Greater New York City region, and allegedly were conducted in English and Russian. The sites included the SOHO Lounge in Brooklyn and a real-estate office in the Rego Park neighborhood of Queens.
Accused TelexFree executive Steve Labriola was a co-host at a Shoyfer Marriott pitchfest, dubbed a “Superweekend in NY,” according to the plaintiffs.
Shoyfer allegedly took his marching orders from Labriola and other TelexFree “founders,” including accused Ponzi schemers James Merrill, Carlos Wanzeler and Carlos Costa. Also within the alleged den of financial impropriety were accused TelexFree securities fraudster Joe Craft, an accountant, and Katia Wanzeler, the wife of Carlos Wanzeler.
Along for the ride in the TelexFree swindle, according to the plaintiffs, were Sann Rodrigues, Faith Sloan, Randy Crosby and Santiago de la Rosa, all four of whom were accused by the SEC last year of securities fraud and named defendants in the proposed class action. It is one of several tied to the alleged TelexFree Ponzi- and pyramid scheme.
“Defendant Shoyfer was the creator and leader of a large network of TelexFree Promoters based primarily in New York City, but extending into other states as well, including Massachusetts, and he is believed to have been the largest single Promoter in the greater New York area,” the plaintiffs alleged. “Under any view, Shoyfer funneled a portion of his ill-gotten gain up the food chain to TelexFree, its masterminds and other Defendants.”
The complaint includes alleged passages from Shoyfer text messages to his TelexFree group. These suggest he was gathering cashier’s checks from his downline, and included a claim that he had made “$142,320 in a single week in February 2014” from TelexFree.
According to the complaint, in December 2013, prior to TelexFree’s Sunday night bankruptcy filing in April 2014, Shoyfer told his group this on behalf of himself and TelexFree “founders” (italics added):
From my upper line “Happy New Year everyone!!! 2014 is gonna be the best year for Telexfree$$$! TelexMobil is about to be launched in January! ! And, on Thursday January 23rd at 6.30 pm I will be doing my first Telexfree Superweekend in NY with Steve Labriola (director of international marketing TF) at Marriott Hotel Grand Ballroom by La Guardia Airport at 102-05 Dimars Blvd, Flushing NY 11369 (parking available). Now is the time to meet with top corporate representative..and my top leaders in my rapidly growing team.. You MUST invite your people (forward this msg to them), especially those who r still sitting on sidelines, debating about legibility [sic] and future of this company. .Trust me after this event, all negativity will disappear. .and you will double and triple you earnings in this busine$$ venture in 2014…”
On Feb. 26, 2014, about two days before the Massachusetts Securities Division made public the news that TelexFree was under investigation, Shoyfer allegedly told his group this on behalf of himself and TelexFree “founders” (italics added):
I just received checks from everyone but will wait for u to bring it until 2 p.m… then I’m going to FedEx.
Bring me certified checks now I will send them to ewallet by federal express and they will post it immediately.
TelexFree is alleged to have changed its compensation plan on March 9, 2014, much to the fury of affiliates. Shoyfer, however, continued to promote it, according to the plaintiffs (italics added):
Hey..my team Telexfree! ! And here we go again..Come to check out and learn about new compensation plan TF 2.0.. and how to grow it even faster and MUCH more aggressively and efficiently than the one we had before.…Here is this week’s schedule. . Monday 03/24 at Salon Delacqua (2027 86 str) at 8.00 pm (in English) ..Wednesday 03/26 at SOHO launch(2213 65th street) at 7.45 pm ( in Russian) and Thursday 03/27 at 7.30 pm at 63-112 Woodhaven Blvd in a real estate office. In my case, since I havestarted from absulute zero during this passed week Mon 03/17- Sun 03/23/14 I booked 11,500 from new one and 21,600 still coming from old plan..A total of 31,100 in 7 short days… Go Telex!!!”
The import of this, according to the plaintiffs, is that [a]fter the institution of the new TelexFree compensation plan in March of 2014, Shoyfer took part in a closed meeting with TelexFree’s Directors and Owners in Marlborough, Massachusetts, at which Shoyfer was instructed not to discuss the new TelexFree compensation plan with other, non-insiders, as the new compensation plan was detrimental to Promoters and was adopted to forestall filing bankruptcy.”
In short, the plaintiffs accuse Shoyfer of working in concert with TelexFree management to dupe people into enrolling “right up until TelexFree’s bankruptcy filing.”
Filings in the TelexFree bankruptcy case suggest Shoyfer received nearly $88,000 from TelexFree in two separate payments just prior to the April 13 bankruptcy filing. The first, for $9,902.37, occurred on March 21, and the second, for $78,037.33, occurred on March 28.
NOTE: Part 2 of this two-part PP Blog series on the class-action lawsuit, which was filed in U.S. District Court for the Southern District of New York, will be published later. Part 2 will cover other allegations from the complaint, filed Dec. 12. A copy of the complaint is available through TruthInAdvertising.org. (Link to complaint temporarily disabled by PP Blog at 9 p.m. EDT March 9, 2015.)
“Birdman[:] The Pigeon King and the Ponzi Scheme That Shook Canada” appears online today at the website of the New York Times Magazine.
The story by Jon Mooallem examines the strange case of Arlan Galbraith, the narratives surrounding his “Pigeon King” scheme, Galbraith’s efforts to serve as his own attorney, how a veteran prosecutor new to fraud cases traced a “whole maze of sensational subplots” and eventually scored a conviction.
Most of all, Mooallem’s story shatters myths that frequently accompany Ponzi schemes.
As longtime PP Blog readers have observed, one Ponzi scheme after another serves up sensational subplots. But in the end, many Ponzi schemes can be viewed as a sort of rolling confessional. Perpetrators feeling the heat from investors or the media may blame “haters” — or, as the Times put it, quoting Galbraith, “fear mongers and envious critics.” At least in the early stages, some investors may side with the perpetrators because the alternative is simply too painful to contemplate.
Can a Ponzi scheme last for years? Certainly. The Times’ story brings home this point, shattering the myth that a lack of police action (or the perception of a lack of such action) means that everything is OK.
Are payments to investors proof no underlying fraud is occurring? No. The Times also drives home this point.
What about a venture that owns property or advances a development plan and perhaps a new product? Are those things proof no scam is occurring?
Of course not, as the Times’ story points out.
One of Galbraith’s victims, an early believer who eventually accepted the reality that she and her husband had been duped, took out a loan for $125,000 to invest in the scheme. This ultimately resulted in a classic confrontation on the witness stand, resulting in a “catharsis” that happened “on both sides.”
The victim is stuck with at least $86,000 in remaining payments on the loan at $1,000 a month, but that’s just part of it from an emotional standpoint.
From Mooallem’s story (italics added):
Officials in Ontario realized they had a potential avian refugee crisis on their hands. Farmers in the province had been left holding an estimated 400,000 pigeons — birds they suddenly had no incentive to keep. There was concern the pigeons could swarm into downtown Toronto like a plague.
The province’s agricultural ministry was inundated with calls. It gave out advice about euthanasia and resources for proper disposal. Then in July, the agency began clearing out some of the largest barns itself. Crews gassed 175,000 pigeons in five weeks, working 16-hour days, six days a week. An internal assessment noted that, in retrospect, it would have been wise to have grief counselors on hand; many breeders had grown attached to their pigeons.
Not all of the pigeons could be gassed because they were kept in barns that could not be sealed. How to dispose of them? The methods, according to Mooallem, included drowning and wringing their necks. Investors horrified by the circumstance in which they found themselves made the call in certain instances.
The scheme gathered about $42 million. When it collapsed, it took with it hundreds of thousands of birds.
Galbraith’s “pigeon” Ponzi scheme involved tales of breeding pigeons for racing and meat. It was not an MLM HYIP scheme, but many of the lessons are the same. He trotted out the “haters” defense, something in common with many Ponzi-board schemes.
At least for a while, even his victims were willing to support him, another thing in common with MLM HYIP scams.
The defenses and support unraveled over time — and there was plenty of time to contemplate events surrounding the Pigeon King scheme. It may take years to bring a case. The case then may be delayed in the courts.
An investigative report by Better Farming magazine helped bring down the scheme, Mooallem reports. So did Plain Interests, an Amish newspaper.
And so did David Thornton, the operator of CrimeBustersNow. (PP Blog note: Thornton wrote about Pigeon King here in this July 19, 2010, comment.)
Thornton, Mooallem wrote in the Times, was an “eccentric with a bullhorn.”
There is no good state in which to run a Ponzi scheme, but Michigan and Colorado — the states in which “Achieve Community” operated — are two of the worst.
This is because both states have racketeering statutes that have been used in Ponzi-scheme cases. The case of Joel Wilson, convicted yesterday in Michigan on criminal charges of racketeering, selling unregistered securities, securities fraud and larceny, is one Achieve Community members can use to inform themselves.
Achieve reportedly is under investigation by the state of Michigan. It’s also under investigation by the state of Colorado, and the U.S. Securities and Exchange Commission has filed civil charges that Achieve was a combined Ponzi- and pyramid scheme that gathered more than $3.8 million.
Alleged Achieve operators Troy Barnes of Michigan and Kristi Johnson of Colorado have asserted their Fifth Amendment right not to incriminate themselves. Criminal probes may be occurring on more than one front.
The office of Michigan Attorney General Bill Schuette has declined to talk about Achieve. But Schuette had plenty to say about Wilson and his investment company known as “The Diversified Group Advisory Fund LLC.”
“I am pleased we have secured justice for the victims who lost their life savings,” said Schuette. “Financial exploitation is a growing crime in Michigan, and we are cracking down on these con artists. Be skeptical of anyone who promises huge returns for a small investment.”
Wilson potentially faces decades in prison.
Fallout from the case was not limited simply to Wilson. A saleswoman also was charged criminally. She, too, was convicted of racketeering, plus embezzlement from a vulnerable adult, and seven counts of false pretenses.
The saleswoman, Shawn Dicken, 40, of Bay City, was sentenced last year to “to 11 years, eight months to 20 years” in prison, Schuette’s office said.
Achieve Community allegedly offered a return of 700 percent in as little as a few months. Promoters of the scheme parroted information put out by the “program” to draw recruits who’d help drive the “cycler.”
With Diversified Group, Dicken “failed to disclose the risks associated with the actual investment in question,” prosecutors said.
She also touted “guaranteed” returns, they noted.
That senior citizens were targeted led to the charge of embezzlement from a vulnerable adult which, like racketeering and false pretenses, is a felony.
Achieve Community largely operated over the Internet and is known to have recruited senior citizens. Internet-based schemes typically increase the odds that vulnerable people will be plundered.
Inset from a video promoting TLC’s “laso” tea by Rodney Blackburn on YouTube.
UPDATED 3:08 P.M. ET U.S.A. Fresh from the alleged “Achieve Community” pyramid- and Ponzi scheme, the apparent collapse of “Trinity Lines” and potential debacles involving “BRING THE BACON HOME,” “Unison Wealth” and others, Rodney Blackburn now is promoting a “tea” purported to mitigate HIV.
HIV is the virus that causes AIDS.
The tea, called “laso,” is offered by an MLM “program” known as “Total Life Changes” or TLC, Blackburn says.
Laso also “prevents colds and flu,” “prevents cardiovascular diseases” and reduces cancer risks, according to footage from Blackburn’s TLC promo on YouTube.
At the same time, according to the 11:48 Blackburn promo titled “Total Life Changes – Rodney’s Review,” the tea tackles weight loss, combats aging, “helps in Herpes treatment,” “prevents high blood pressure,” “prevents wrinkles,” “alleviates asthma,” “removes intestinal sludge,” “removes parasites” and plenty more.
The tea, according to Blackburn’s promo, also is “good for reducing diabetes” and even participates in the battle against tooth decay,
On Feb. 12 in a sealed court filing, the SEC described “Achieve Community” as a scheme engaged in securities fraud. A federal judge approved an asset freeze, and one or more Achieve-related criminal investigations are under way. “Trinity Lines” then went missing, and so did a bunch of Blackburn promos for other schemes.
A Blackburn sales video for TLC, however, appeared yesterday. Blackburn suggests in the production that he’s interested in returning to his MLM roots after taking HYIPs out for a ride. He previously claimed that 97 percent of people lose money in MLMs — this in a video in which he was touting multiple HYIP schemes and practically daring the SEC to investigate.
Earlier this year Blackburn was touting something called “Military Medical Relief 21,” or MMR21, a “program” aimed at military personnel. Those promos also disappeared.
“Mitigates HIV,” Blackburn says of the tea, after narrating other purported claims about its medicinal power.
“I mean, strengthens your memory — all sorts of things,” the huckster continues. “They have twenty-six different benefits.”
Read the definition of “mitigate” at dictionary.reference.com. (One of the meanings is “tomakelesssevere.”)
Whether an MLM tea can make HIV “less severe” and do all the other things advertised in Blackburn’s video is an open question.
From a YouTube pitch for TLC’s “laso” tea by Rodney Blackburn.
“Many investors gave cash to the company and to their leaders (or upline sponsors) who then deposited the cash along with other investor funds.” — Krista L. Freitag, court-appointed receiver in the WCM777 pyramid- and Ponzi case, Feb. 27, 2015
EDITOR’S NOTE: Tens of millions of dollars allegedly flowed through WCM777 and related entities. At the bottom of this column, you’re going to read that an apparent apologist for accused Ponzi schemer Ming Xu is claiming the U.S. Securities and Exchange Commission is violating his human rights. Fair warning: You might want to have your vomit bucket at the ready . . .
UPDATED 10:31 A.M. ET U.S.A. Here’s how you rob the Christians in an offering fraud that involves the sale of tens of millions of dollars in unregistered securities across state and national borders: You start an MLM “program,” get it in the churches and on YouTube, permit “leaders” to gather money from their enraptured audiences and put out the word that $1,999 returns $3,200 in 100 days.
It might help if you have a storefront in, say, Peru. It also might help if you have, say, promoters willing to tout the “program” in webinars and from a “function room in a hotel in Massachusetts.” At the same time, it might help if you have promoters willing to steal the intellectual property of the “Rocky” movie franchise to drive dollars into any of the “77 domestic and 23 foreign bank accounts” you’re using. (The bank-account information is sourced from a forensic accounting by Krista L. Freitag, the court-appointed receiver in the WCM777 case. It was filed Feb. 27 in U.S. District Court for the Central District of California and is the basis for part of this PP Blog column. Links to exhibits are provided near the bottom of the column.)
Along the way, it might help if you follow the standard blueprint from one MLM scam after another that calls for you to disarm skeptics by dropping the names of plenty of famous businesses, perhaps with the aim of hoping your “leaders” will follow your lead and do the same thing. Damn! Wouldn’t you know it! They did exactly that! (See link in first paragraph of this story.)
It might be particularly helpful if you make a calculation that a bank such as HSBC in Hong Kong might frown upon a subpoena issued in the United States and clam up when it comes to assisting the receiver appointed to your case after the SEC moves in.
“To date, HSBC-Hong Kong has not responded to the Receiver’s requests/subpoena,” Freitag advised U.S. District Judge John F. Walter in her forensic accounting.
Or maybe HSBC doesn’t want to open a new can of worms after it settled with the Justice Department in December 2012 by forfeiting $1.256 billion and entering into a deferred-prosecution agreement after it was accused of “willfully failing to maintain an effective anti-money laundering (AML) program, willfully failing to conduct due diligence on its foreign correspondent affiliates, violating [the International Emergency Economic Powers Act] and violating [the Trading with the Enemy Act].”
“Vincent,” the alleged Ming Xu email to Messina began. “We have lots of members for our social capital company, WCM777 in Brazil. They paid us in Brazil. How to move the money legally from Brazil to USA or Hong Kong?”
Whether Messina provided guidance on how to get money out of Brazil and move it to the United States and Hong Kong is unclear. Ming Xu’s email, however, suggests that WCM affiliates in Brazil, like their U.S. counterparts, also were collecting money directly from MLM recruits and that Ming Xu needed to find a way to get the cash under his control.
Freitag says she has traced $5 million in Ming Xu proceeds to Messina, and Walter ordered Messina to return it. Only $2.133 million has been returned, Freitag says.
Messina wasn’t just a lawyer; he was a WCM777 “insider,” the receiver alleges.
Because Freitag has access to certain WCM777 banking records, she has been able to determine that “$29,404,996” went to HSBC in Hong Kong “for 7 Receivership Entities and 1 individual.”
Ming Xu used numerous companies as part of his overall money-moving scheme, the receiver contends.
Here’s how she describes one transaction that occurred after WCM777 got in trouble with the Massachusetts Securities Division in late 2013 and agreed to return money to the fleeced investors in that state (italics added):
“ . . . rescission payments were made to WCM777 investors in accordance with the Consent Order issued by the Massachusetts Securities Division. Bank records show that funds from ToPacific bank accounts were used to make payments to the Massachusetts WCM777 investors.”
“ToPacific” was a company in the WCM777 fold.
How circuitous were things within WCM777 (italics added):
“the payment methods with which investors payments were made varied from third-party electronic disbursement (primarily Global Payout) to physical checks written directly on Receivership Entity bank accounts. There does not appear to be any consistency in the bank accounts from which investor checkswere written. Rather, bank records indicate payments were made to investors from whichever accounts happen[ed] to have funds available at the time the payments were made.”
The FBI has been warning about shell companies involved in crime and how banks and payment processors can get caught up in it since at least 2010. Even so, the WCM777 entities somehow managed to open at least 100 bank accounts while also gaining access to bank wires and at least one payment processor.
Here’s how Freitag describes the overall scheme (italics added/light editing performed):
“The Receivership Entities’ primary source of income was investor deposits, which was also the primary source of virtually all funds distributed to the investors; [t]he vast majority of the Receivership Entities’ business activities revolved around raising and distributing investor funds; [i]nvestor funds were so materially commingled between and among the Receivership Entities that the entities operated as a unitary enterprise, rather than as separate entities.”
And while WCM777 recruits thought they were joining an MLM “program,” their money financed the purchases of two golf courses in California, several pieces of real estate, including one with live koi, and a series of purported investments elsewhere. These allegedly included jewelry or gold, oil and gas — and even piles of “jeans, shorts, pants and leggings” stored by Ming Xu’s sister.
Ming Xu’s Mom allegedly got a new house, but not until after the cash to purchase the home had passed through bank accounts linked to Ming Xu and his sister.
The Ming Xu Twitter account, which once claimed all would become known when “blood moons” appeared in the sky and published a picture of Apple co-founder Steve Wozniak, whom Ming Xu had corralled at a networking event in California, now includes a link to a website that claims (italics added):
U.S. Securities and Exchange Commission was wrong to close down the company and confiscate about $43M cash asset and oil reserve asset of $50M. It has violated the company’s legal interests and human rights of Ming Xu.
Read the exhibits from Freitag’s forensic accounting. (Here’s one; here’s the other.)
As noted above, you might want to have a vomit bucket handy if you’re contemplating how certain MLM “programs” are operating these days in the era of epic white-collar fraud and while terrorism, beheadings and attacks on police are occurring.
EDITOR’S NOTE: The MLM “program” known as Wings Network is alleged to have operated through two business entities that used the name “Tropikgadget.” The SEC’s case, announced Friday, is filed in U.S. District Court for the District of Massachusetts. That’s the same venue in which the agency’s epic TelexFree case was filed last year.
There can be no doubt — zero, none — that vulnerable immigrant populations in Massachusetts are being targeted in one MLM scheme after another. Speakers of Spanish or Portuguese may be particularly at risk. It’s also apparent that Asian, Haitian and African population groups are being targeted and that the risk is not unique to Massachusetts residents. The WCM777 “program,” for example, brushed through Massachusetts, where it was aimed at speakers of Portuguese and was stopped by the Massachusetts Securities Division in late 2013.
MSD also has squared off against a “program” known as EmGoldEx. In this scam, investors were promised returns of up to 1,105% and photos of children “getting paid” were used as lures to drive dollars.
One of the Tropikgadget entities — Tropikgadget Unipessoal LDA — allegedly was set up in the Madeira Free Trade Zone in November 2013 and later abandoned. Madeira, whose largest city is Funchal, is a North Atlantic Portuguese archipelago slightly closer to continental Africa than continental Europe. It is worth pointing out that the SEC publicly thanked both Portugal’s securities regulator (Comissão do Mercado de Valores Mobiliários) and the office of Portugal’s Attorney General (Procuradoria-Geral da República of Portugal) for assistance in the American probe.
The other Tropikgadget entity — Tropikgadget FZE — appears to have been set up in Sharjah, United Arab Emirates, also in November 2013. Sharjah, on the Persian Gulf, is the UAE’s third most populous city, behind Dubai and Abu Dhabi, according to WikiPedia. The paper presence of these companies at geographic points on the North Atlantic and the Persian Gulf more than 4,300 miles away from each other and how they enlisted Massachusetts residents to do their bidding probably is a story unto itself, but it is a story for another day. What’s news today is that Wings Network was operating in Massachusetts at Ground Zero for TelexFree after the TelexFree action and, like TelexFree, is accused of fleecing vulnerable immigrant populations.
At least seven of the 12 charged Wings Network promoters had addresses in Marlborough, Mass. This is potentially important because TelexFree’s U.S. operations were based in Marlborough. TelexFree operated through various U.S. entities and a Brazilian entity known as Ympactus. Brazil-based TelexFree/Ympactus figure Carlos Costa has TelexFree business partners in Massachusetts, waved the flags of Madeira and Portugal in a 2013 TelexFree promo and invoked God in appeals to support TelexFree. Sann Rodrigues, a charged TelexFree promoter associated with an MLM entity known as iFreeX that also operated in Massachusetts and has come under scrutiny, has claimed “God” invented MLM and “binary.” Rodrigues, according to the SEC, is a recidivist pyramid-schemer.
There’s also evidence that the Zeek Rewards “program” taken down by the SEC in 2012 targeted vulnerable people.
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Funchal, Madeira, to Sharjah, UAE. Source: Google Maps.
UPDATED 11:32 A.M. ET U.S.A. The SEC’s “Wings Network” case announced Friday is the latest example of the MLM world’s intolerable capacity to deceive. Though the facts alleged by the SEC are alarming, the action against two companies, three officers and 12 promoters is not an indictment of the trade. Indeed, the agency worked with the Direct Selling Association to expose one of the most mind-numbing lies.
But you still have to wonder if MLM and network marketing in general are on the road to perdition. This is because the horrifying abuses and thematic lies that propped up Wings Network are so common across the larger MLM trade that one can be forgiven for wondering if targeting vulnerable population groups and institutionalizing prevarication is Rule No. 1.
How DSA Got Involved In The Wings Network Case
Adolfo Franco, the trade association’s executive vice president and chief operating officer, sits at the intersection of commerce and government affairs. He’s an old political hand and has worked as a Republican strategist and assistant administrator for Latin America and the Caribbean for the U.S. Agency for International Development (USAID). Franco wants the MLM industry to prosper, and he wants to make sure he has a wholesome story to tell in government corridors.
Wings Network didn’t give him one, to be sure.
You see, Wings Network is accused by the SEC of using the DSA’s name to sugarcoat a creeping, cross-border fraud scheme that ultimately gathered at least $23.5 million. What actually happened, according to the SEC and an affidavit prepared by Franco, is that DSA received an “e-mailed request” for a DSA membership “application.” It then sent out the application, which was never returned. Not only was the application not returned, according to the affidavit, DSA never even heard back from Wings Network.
What allegedly happened next will surprise no one who follows the bizarre dramas MLM has been serving up for the past several years. This simple request for a membership application was conflated by Wings Network and affiliates as an endorsement by DSA of Wings Network.
By April 2014, according to the SEC, DSA became aware of this ribald deception. The association reacted by sending Wings Network a cease-and-desist letter, directing Wings Network and affiliates to stop claiming membership in DSA and stating point-blank that “any indication that Wings Network is a member of the DSA is fraudulent.”
Multiple Layers Of Deception
Could it get worse? Sure. Wings Network hucksters also are accused of duping participants into believing the “program,” which advertised guaranteed income, had the additional benefit of insuring them against loss.
Anyone who’s been following the unbelievably noxious example of TelexFree can tell you that the same thing allegedly happened there. The same thing currently is happening in a “program” known as “MooreFund,” and it previously happened in the AdSurfDaily Ponzi scheme in 2008 broken up by the U.S. Secret Service.
The MLM scammers look for a tiny kernel of truth and then wrap a lie around it: A “program” may have a bank account, for example. Money in the account may be insured by the FDIC in the event of a bank collapse.
From this, the “programs” themselves and affiliates conflate a fantastically malignant construction by which no one can lose money because of the “insurance.” It is just a contemptible lie. It’s also one that has been bettered by new versions of the lie. These versions — as is the case with Wings Network, TelexFree and MooreFund — hold that private insurers or even software companies such as Symantec have the companies’ backs and that these private insurers never would do business with a fraud scheme.
Supplementing this lie are companion lies — advanced by Wings Network, TelexFree and others — that a business registration with a Secretary of State or equivalent agency domestically or overseas is proof that there is no underlying scam. (One need only to look at Bernard L. Madoff Investment Securities LLC to understand just how preposterous this type of lie is.)
Here’s the thing: The type of lies advanced by Wings Network are not unusual for “opportunities” using an MLM or network-marketing business model. DSA happened to be the victim of brand-leeching and runaway disingenuousness in this case, but other cases show it’s hardly alone. Even the names of the U.S. government and various U.S. agencies have been dropped in this fashion.
Not even the “brands” of God and Jesus Christ are off-limits in the MLM sphere. Sometimes an asserted endorsement by a deity is supplemented by suggestions that living legends of entertainment and business have piled aboard a “program” train.
This is a short summary of these tactics as employed by recent MLM or network-marketing schemes that either cratered on their own or collapsed after regulatory intervention. (Note: Some background information also appears in the summary):
WCM777. Operated by Ming Xu. Targeted people who spoke Spanish, Portuguese, English and Asian languages. Dropped names of God, “Yahweh,” Jesus Christ, Al Gore, Steve Wozniak, Sylvester Stallone, “Rocky,” Eric Garcetti, Siemens, Goldman Sachs, the Denny’s restaurant chain and many, many more famous companies. (As many as 700.) Basic sales message: Send us money. Get rich. Estimated haul: $80 million in less than a year. Estimated number of victims: tens to hundreds of thousands.
TelexFree. Operated by James Merrill, Carlos Wanzeler and Carlos Costa. Largely targeted people in the United States and internationally who spoke Spanish, Portuguese and English. Global penetration at an almost unfathomable level. Appears to have created black market and back-alley economy in Massachusetts. Became subject of undercover investigation by the U.S. Department of Homeland Security. Dropped names of God, Jesus Christ, MLM Attorney Gerald Nehra, President Obama, Massachusetts Commonwealth Secretary William Galvin, the SEC, the U.S. Attorney General. Basic sales message: Send us money. Get rich. Estimated haul: $1.82 billion in about two years. Estimated number of victims: hundreds of thousands to more than 1.8 million.
Zeek Rewards. Operated by Paul R. Burks. Targeted people who spoke Spanish, Portuguese, English and Asian languages. Global penetration at an almost unfathomable level. Affiliates targeted Christians. Dropped names of the Association of Network Marketing Professionals, MLM attorneys Gerald Nehra and Kevin Grimes, plus MLM consultants Keith Laggos and Troy Dooly. Basic sales message: Send us money. Get rich. Estimated haul: $897 million in less than two years. Estimated number of victims: hundreds of thousands. “Clawback” cases to return alleged ill-gotten gains may affect 10,000 or more affiliates.
eAdGear. Operated by Charles Wang and Francis Yuen. “Primarily” targeted “investors in the U.S., China, and Taiwan,” according to the SEC. Dropped names of Google, Yahoo, Target Corp., Lbrands (Victoria’s Secret), Avon, Sears, Nordstrom, eBay, QVC, HSN, J.C. Penney, Banana Republic, Dillard’s, Kohl’s, Macy’s, Amazon.com, Men’s Wearhouse, Kmart, New York magazine and many, many more. (As many as 253 brands were abused.) Basic sales message: Send us money. Get rich. Estimated haul: $129 million. Estimated number of victims: tens of thousands.)
Wings Network now stands accused of targeting “many members of the Brazilian and Dominican immigrant communities in Massachusetts” in a combined pyramid- and Ponzi scheme that raised at least $23.5 million.
If that sounds familiar, perhaps it is because the TelexFree “program” was accused last year by the SEC of doing the same thing in the same place. Like Wings Network, TelexFree reached across national borders to plunder investors. Recent filings by the court-appointed trustee in the TelexFree bankruptcy case — and these filings are subject to amendment in part because there are more than 1 trillion disparate data points involved in the reverse-engineering of TelexFree — list the “nature” of the company’s business as “pyramid scheme.”
Other filings by Stephen B. Darr, the trustee, suggest that TelexFree gathered more than $1.8 billion in about two years of operation through a series of entities in the United States and an affiliate in Brazil known as Ympactus. The dollar volume alone is simply mind-boggling, more so when one considers the records so far denote “1,894,940 Participant names, spanning 35,110 pages.”
Some readers who sift through the TelexFree material will need a name-pronunciation guide and a world atlas. TelexFree didn’t just mow down Americans. The records suggest, for example, that the “Embassy Of Nigeria P O Box 1019 Addis Ababa Ethiopia” has contacted Darr. One document lists “Baker Island,” which WikiPedia says is an uninhabited Pacific atoll tended to by the U.S. Fish and Wildlife Service, as the “country” of an investor.
It is clear that TelexFree had investors (at least) in Argentina, Australia, Belarus, Belgium, Bolivia, Cambodia, Canada, Chile, China, Colombia, Croatia, Cyprus, Dominican Republic, Ecuador, Egypt, El Salvador, France, French Polynesia, Germany, Ghana, Guatemala, Honduras, Hong Kong, Hungary, India, Indonesia, Ireland, Italy, Japan, Jordan, Kenya, Lebanon, Luxembourg, Malaysia, Mexico, Moldova, Netherlands, New Zealand, Nigeria, Norway, Paraguay, Peru, Philippines, Poland, Portugal, Puerto Rico, Qatar, Romania, Russia, Rwanda, San Marino, Serbia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Togo, Turks and Caicos, U.S. Virgin Islands, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, “Unknown” country, Uruguay, Uzbekistan and Venezuela.
MLM in this form is “fraud creep” running wild. It is posing dangers to individual participants, including those who can ill afford to take a financial hit. Beyond that, it is posing a danger to the U.S. financial infrastructure.
Economic security is national security, friends. These MLM HYIP “programs” pose an untenable security threat. Many of them are shrouded in multiple layers of mystery.
DSA Needs To Do More
It is good to see that the DSA worked with the SEC on the Wings Network case. It would be better yet if the organization studied why so many MLM HYIPers appear to move from fraud scheme to fraud scheme to fraud scheme.
Where did these people start their “MLM journeys?” Did they start at, say, Herbalife or Amway after buying into the dream and the attendant hype? And did they get churned by those “traditional” MLMs, only to become shark bait for the HYIPs?
With so many of the scams selling the message that it’s nearly impossible to make money in “traditional” MLMs and that 97 percent of people who latch onto the MLM dream of riches emerge as losers or highly vulnerable treaders of water in rough seas, isn’t it time for those traditional MLMs to question whether they are creating the refugees and providing the training for the targeting?
Herbalife is not an HYIP. But it sells a dream and has a high burn rate. The most recent scheme to sell against traditional MLM is “Achieve Community,” taken down by the SEC last month.
Whether or not “the 97 percent” claim is precisely true is immaterial. What’s material is the ready availability of vulnerable population groups and refugees from “traditional” MLMs.
TelexFree even may have channeled Herbalife, calling its cheerleading sessions “extravaganzas” and latching onto the sport of soccer.
Stemming this hurtful tide should be a top priority at DSA. The wave of scams is not docile. It very well might be eroding protective shores in violent fashion and creeping up on the road to perdition.
URGENT >> BULLETIN >> MOVING: (14th update 3:19 p.m. ET U.S.A.) The U.S. Securities and Exchange Commission has gone to federal court in Massachusetts, alleging the “Wings Network” MLM “program” is a Ponzi and pyramid scheme that gathered at least $23.5 million.
Wings Network purported to offer “digital and mobile solutions to customers, including apps and cloud storage.”
“However, Wings Network’s revenues actually came solely from selling memberships to investors, not from the sale of any products,” the SEC said.
Company operators and at least 12 promoters have been charged, the SEC said. A federal judge has ordered an asset freeze. Some of the SEC employees involved in the prosecution of the Wings Network action also are involved in the TelexFree Ponzi- and pyramid case filed last year in Massachusetts federal court.
“Although Wings Network purported to use a multi-level distribution network to sell products and services, it had little or no revenue from the sale of those products or services,” the SEC charged. “Instead, to the extent that it and its members obtained revenue, that revenue was derived from the recruitment of new members. In fact, its own procedures made it clear that members were not required to sell products to receive promised profits – simply recruiting other members to purchase membership packs was enough.”
The SEC also charged that Wings Network last year falsely implied that it had a “relationship” with the Direct Selling Association, a trade association for MLM firms. But when the DSA “compliance monitoring team became aware that Wings Network was claiming membership, the DSA sent Wings Network a cease and desist letter to stop representing that DSA had any connection with Wings Network.”
Charged Wings Network entities include Tropikgadget Unipessoal LDA and Tropikgadget FZE. The LDA entity was incorporated in the Madeira Free Trade Zone in November 2013 with its principal place of business in Lisbon, Portugal, the SEC said.
“It withdrew its license from the Madeira Free Trade Zone in April 2014,” the SEC said.
The FZE entity “incorporated in the United Arab Emirates in November 2013 with its principal place of business in Lisbon, Portugal,” the SEC said. “Tropikgadget FZE holds the rights to Wings Network marketing and brand services, which includes but is not limited to, the names Wings Network, Wingsnetwork, and WingsNetwork.Com.”
Charged executives and/or operators include Sergio Henrique Tanaka, 40, of Sao Paulo, Brazil, and Davie, Fla.; Carlos Luis da Silveira Barbosa of Lisbon, Portugal; and Claudio de Oliveira Pereira Campos, also of Lisbon. No ages were given for Barbosa and Campos.
Meanwhile, the charged promoters include Yinicius Romulo Aguiar, 42, of Marlborough, Mass.; Thais Aguiar, 34, the wife of Yinicius and also of Marlborough; Andrew Elliot Arrambide, 47, of Sandy, Utah; Julio G. Cruz, 34, of Duluth, Ga.; Wesley Brandao Rodrigues, 28, of Marlborough; Dennis Arthur Somaio, 35, of Marlborough; Elaine Amaral Somaio, 35, of Marlborough; Pablo Andres Garcia, 38, of Waco, Texas; Viviane Amaral Rodrigues, 37, of Clinton, Mass.; Simonia De Cassia Silva, 43, who sometimes operated from Massachusetts and Florida; Geovani Nascimento Bento, 41, of Marlborough; and Priscila Bento, 36, of Marlborough.
Named relief defendants as the alleged recipients of ill-gotten gains from the scam were Uninvest Financial Services Corp. of Deerfield Beach, Fla.; Compasswinner LDA of Setubal, Portugal; and Happy SGPS SA of Santa Cruz, Madeira, Portugal.
“After establishing a network of lead promoters, recruitment of new members surged through the use of social media such as Facebook and YouTube,” the SEC said. “The promoters used Facebook to publicize ‘business meetings’ that took place at hotels and other locations in Connecticut, California, Florida, Massachusetts, Pennsylvania, Texas, Georgia, and Utah. The promoters also set up storefronts or ‘training centers’ to lure investors into attending Wings Network presentations. For example, one promoter used a storefront in downtown Philadelphia to make presentations to prospective investors, and another promoter rented office space in Pompano Beach, Fla., and spread the word in the local Latino community to attract prospective investors to come in and hear presentations.”
The scheme raised at least $23.5 million and targeted “many members of the Brazilian and Dominican immigrant communities in Massachusetts,” the SEC said.
Massachusetts Commonwealth Secretary William Galvin, head of the Massachusetts Securities Division, charged Wings Network and some individuals last year. Both Galvin and the SEC have squared off against TelexFree, a massive scheme targeting immigrant communities.
In a statment today, the SEC thanked MSD and Comissão do Mercado de Valores Mobiliários of Portugal and the Procuradoria-Geral da República of Portugal.
Here are the alleged hauls or alleged qualifying criteria in the pay plan for some of the charged promoters, according to the SEC:
Yinicius Romulo Aguiar, “at least $1 ,302,880.”
Andrew Elliot Arrambide allegedly reached the “Director” rank, “indicating that he had accumulated at least $6 million from investors.”
Julio G. Cruz also achieved the Director rank, “indicating that he had accumulated at least $6 million from investors.”
Wesley Brandao Rodrigues allegedly achieved the “Senior Manager rank, “indicating that he had accumulated at least $1.5 million from investors. According to Tropikgadget records, Wesley Rodrigues generated commissions of $791,745 from the sale of Wings Network membership packages.”
Elaine Amaral Somaio. “According to Tropikgadget records, Elaine Somaio generated commissions of $557,240 from the sale of Wings Network membership packs.”
Pablo Andres Garcia. “According to Tropikgadget records, Garcia generated commissions of
$550,135 from the sale of Wings Network membership packs.”
Viviane Amaral Rodrigues. Allegedly reached the Director rank, “indicating that she had accumulated at least $6 million from investors. According to Tropikgadget records, Viviane Rodrigues generated commissions of at least $434,150 from the sale of Wings Network membership packs.”
Simonia De Cassia Silva. “According to Tropikgadget records, Silva generated commissions of $419,900
from the sale of Wings Network membership packs. She temporarily moved and used an office space in Pompano Beach, Florida where she and Vinicius Aguiar promoted Wings Network locally.”
Geovani Nascimento Bento. “According to Tropikgadget records, Geovani Bento generated commissions of $163,845 from the sale of Wings Network membership packs.”
False Claims Of Insurance Coverage
Perhaps mirroring a TelexFree trick in Brazil, Wings Network hucksters also are accused of duping members into believing their payments were insured. From the SEC complaint (italics/carriage returns added):
Campos, Viviane Rodrigues, Vinicius Aguiar, and other promoters represented to prospective investors that their initial investments in the Member Packs would be 100% guaranteed through insurance issued by Porto Seguro, the fourth-largest insurance company in Brazil.
In making these claims, Campos, Viviane Rodrigues and Vinicius Aguiar pointed to the existence of Porto Seguro S.A. insurance associated with the Wings Card, a debit card issued to Wings Network members for payment processing.
In a You Tube video that solicited investors to purchase Wings Network memberships, Campos guaranteed that everything purchased by the investors would be insured for a year by Porto Seguro. In their presentations to investors, Rodrigues and Aguiar emphasized that the investments were guaranteed while juxtaposing the Porto Seguro logo. Viviane Rodrigues and Vinicius Aguiar also included a slide purportedly of a Porto Seguro insurance policy.
BULLETIN: (Updated 8:17 a.m. ET Feb. 25 U.S.A.) An HYIP “program” that operates at MooreFund.com is using a “Norton Secured” seal that is not authorized, Symantec told the PP Blog late this afternoon.
Symantec, owner of the famous Norton brand, is a software and computer-security company. Its name is misspelled as “Symentec” on the FAQ page of MooreFund in an awkwardly worded passage that plants the seed Symantec and other security firms are providing deposit insurance.
Under a subhead that reads “How can I be sure that Moore Fund is licensed and safe,” the MooreFund site claims (italics added/verbatim):
Moore Property Investment Co Limited is registered in United Kingdom and verified by Worlds most popular security insurance company like Symentec-Norton (veriSign), Comodo and TRUSTe. MOORE PROPERTY INVESTMENT CO LIMITED holds a website identity assurance warranty of $1,750,000. This means that you are insured for up to $1,750,000 when relying on the information provided by IdAuthority on this site. US Patent Number 7,603,699.”
The PP Blog contacted Symantec after observing a YouTube promo today for MooreFund by Achieve Community huckster Rodney Blackburn. The Blog also contacted the U.K.’s Financial Conduct Authority because MooreFund purports to operate from the United Kingdom through Moore Property Investment Co Ltd. FCA, closed for the evening, did not immediately respond to a request for comment.
Update 8:17 a.m. ET Feb. 25 U.S.A. Chris Hamilton, a spokesperson for FCA, declined this morning to comment specifically on MooreFund. Hamilton added, however, that “the FCA is one of a number of organisation that does investigate, and prosecute, Ponzi schemes. The other UK authorities include the Police and the Serious Fraud Office.” (Original story continues below . . .)
“They have insurance to cover . . . so, it helps you to feel, you know, more peace of mind in getting into an investment like this,” Blackburn says in his video for MooreFund. The 13:11 production is dated today and titled, “Moore Fund- Rodney’s Review on this HYIP.”
Blackburn also advised MooreFund registrants to place banner ads for the “program” on other HYIP sites. In what might be a troubling trend, HYIP schemes recently have been publishing ads for other HYIP schemes, a development that suggests tainted proceeds are circulating among any number of scams.
Achieve Community, which was charged by the U.S. Securities and Exchange Commission on Feb. 12 with operating a Ponzi- and pyramid scheme that had gathered more than $3.8 million, permitted members to place banner ads for other “programs.”
Like Achieve, MooreFund has a presence on well-known Ponzi-scheme forums such as MoneyMakerGroup and TalkGold. The “program” purports to offer four investment plans. These promise absurd daily interest rates of between 1.5 percent and 3 percent, with “compounding” available on three of the four plans and tiered recruitment commissions offered on all four.
Investors, according to the website, may send in sums from $15 to $99,999, a circumstance that suggests MooreFund is operating both a micro and macro scam.
MooreFund claims its accepts Bitcoin. It also claims prospects can send money via Western Union, bank wire and a range of processors, including well-known fraud enablers such as SolidTrustPay, Perfect Money and EgoPay.
The site includes a number of awkward passages in English such as “Fill up the form to make a new deposit,” “Sometime website is down due to ongoing maintenance work,” “You just have to contact the support department and ask for cancelling your investment” and “MooreFund minimizes risk level by offering deposit insurance system.”
This is the supposed insurance (italics added/verbatim):
Plan Beginner – 99.99% of the funds are insured Plan Pro – 75% of the funds are insured Furthermore, You can cancel and refund your money anytime between first 7 days of your deposit.
Using a calculator on the MooreFund site, Blackburn asserts that by compounding his $500 deposit over the course of a year, he’ll emerge with $53,721.54.
“Guys, that is a nice little nest egg right there,” he says.
EDITOR’S NOTE: The personnel information in the first section below is gleaned from public records in the SEC’s pyramid- and Ponzi case against the “Achieve Community” and alleged principals Kristi Johnson and Troy Barnes. Some of the numbered points include additional notes by the PP Blog. These notes are based on public records or information in the public domain, including a Feb. 18 statement by the SEC.
**___________________**
The U.S. Securities and Exchange Commission announced on Feb. 18 it had filed a pyramid- and Ponzi complaint that alleged securities fraud against “Achieve Community” and that a federal judge had granted an emergency asset freeze.
Supporting documents filed by the SEC paint a picture of significant legwork that took place at the agency as it studied how Achieve had evolved from its alleged start in April 2014 through the days immediately prior to the freeze. This column focuses on human assets, the public servants who played a role in stopping the harm caused by Achieve by applying their individual specialties.
The SEC assigned (at least) the following individuals to the case prior to filing a complaint under seal against Achieve and requesting an emergency asset freeze on Feb. 12:
1.)An IT specialist assigned to the Division of Enforcement in Washington, D.C. This person performed website/video-capture duties involving public sections of two Achieve sites (TheAchieveCommunity.com and ReadyToAchieve.com) and at least one YouTube video. (Longtime readers will recall the 2012 Zeek Rewards probe that led to spectacular allegations of pyramid-and Ponzi fraud also involved website capture.)
2.)A senior paralegal employed by the Division of Enforcement and assigned to the SEC’s Denver Regional Office. This person reviewed and transcribed 11 Achieve-related public video files and one public audio file. Some of the video files were on the Achieve sites. Others were on YouTube. The audio file was on the Achieve site. (A segment of a transcript shown a federal judge from the audio file shows “Rodney” serving up softball questions to Kristi Johnson and Troy Barnes, Achieve’s accused operators. The segment was on the topic of Achieve’s purported “triple algorithm.” It is referenced in “Exhibit D.” The screen shot that introduces this column is from a pdf of Exhibit D. More from Exhibit D appears in the form of a screen shot below.)
3.)An attorney/investigator employed by the Division of Enforcement at the SEC’s Denver Regional Office. This attorney reviewed web sources of information on Achieve, bank statements and source material provided by Achieve vendors, including FirstBank and Payoneer. He filed a 28-page declaration in advance of the asset freeze. This document distilled key pieces of evidence from Achieve sales pitches and financial records, calculating that investors had directed at least $3.829 million to Achieve and that Johnson and Barnes had taken “a minimum” of $336,975 “of investor funds.” (That’s roughly 9 percent, a circumstance that suggests Achieve’s Ponzi was digging a deeper and deeper hole.)
4.Two other SEC attorneys assigned to the Denver office. These attorneys brought the 17-page complaint against Achieve that alleged Achieve had “no legitimate business operations” and that “the sole source of repayments to earlier investors is funds contributed by newer investors.” (Though not referenced on the court docket of the Achieve case, the SEC, in a Feb. 18 public statement, confirmed a fourth agency attorney is involved in the probe.)
5.An SEC staff accountant employed by the Division of Enforcement and assigned to the Denver office. This person has been with the SEC for 20 years and examined and summarized records from at least five Achieve-related bank accounts, including “underlying detail” such as account-opening forms, statements, checks, wire transfers and deposit slips. (No criminal wrongdoing has been alleged and it is unclear if a criminal investigation is under way, but this information shows that the SEC, in part, halted Achieve the same way Internal Revenue halted Al Capone: with an accountant’s skill and experience in understanding numbers and tracking money flow. The same SEC accountant was involved in the memorable prosecution of recidivist con man Larry Michael Parrish, accused in 2011 of going to a Colorado hospital room to swindle a man dying of cancer.)
6.An SEC financial economist who holds a Ph.D in economics from the Massachusetts Institute of Technology. (This individual also studied in Chile and the Dominican Republic. She is a native speaker of Spanish, is fluent in English and also understands French. Based on her CV, I wouldn’t describe her as a secret weapon. But I do note that her international experience in areas that know poverty is a bonus, given that so many HYIP/Ponzi-board scams are targeted at people of limited means or people desperate for a positive economic result. Her MIT dissertation was titled, “Essays on Entrepreneurship” and was based in part on “survey data on the portfolios of U.S. families to study the tightness of borrowing constraints for entrepreneurs.” This may be important in context, because some Achievers already are making the absurd claim the SEC stands in opposition to entrepreneurship. One Achiever has claimed the agency’s Achieve action was a “systemic destroy tactic.” The same person has suggested the 9/11 terrorist attacks were a “false flag set up,” repeating a conspiracy theory that bizarrely accompanies just about any action that U.S. government takes against an HYIP scheme.)
Friends, Ponzi schemes are fraud per se — that is, they exist for no other reason than to commit fraud by theft. In the Internet Age in the network-marketing sphere, they have become organized schemes to defraud that are capable of involving thousands, hundreds of thousands or even millions of people. There is no such thing as a benevolent Ponzi scheme or a Ponzi scheme with “good intentions.”
Creating legions of victim-investors is only part of the problem.
The SEC’s supporting documentation suggests Achieve itself polluted the commerce stream at at least nine points of contact: three banks, one credit union, four payment processors and one brokerage firm. This number does not take into account the fact that some Achieve participants were issued debit cards onto which their “earnings” were loaded, thus putting any number of financial institutions in the position of becoming either dispensaries or warehouses for fraud proceeds.
At least one Achieve promoter recorded a video of himself offloading Achieve money at an ATM in Hawaii. The SEC says bank records indicate Johnson gave $10,000 to a church, a circumstance that suggests the church came into possession of tainted funds.
Prior to filing the Achieve action, the SEC says in supporting filings, the agency did not contact “any” Achieve investors. Nor did it subpoena Achieve for information or personally view information in the private areas of Achieve’s websites.
Why not?
Because there was a “need to not alert Defendants of the investigation,” the SEC said in supporting materials. Beyond that, the agency said, “if investors were alerted to the SEC’s investigation, they would quickly disseminate that information to other TAC investors, as well as Defendants, which could risk additional dissipation or misappropriation of investor funds.”
An Outtake From The Paralegal’s Transcription
Image source: pdf from U.S. court filings by the SEC.
The next section of the PP Blog’s Special Report seeks to anticipate and then answer questions Achieve members may have. The answers are gleaned from supporting documents the SEC provided a federal judge as part of the process of bringing the Achieve complaint and seeking an emergency asset freeze. This section includes some commentary/analysis by the PP Blog.
Q: When did the SEC open its investigation into Achieve?
A: At least by January 2015. The specific date is unclear.
Q: Did the SEC receive tips about the operations of Achieve?
A: Yes. The number of tips and the identities of persons who provided them are not disclosed.
Q: Prior to the Feb. 12 asset freeze, did Achieve know it was under investigation by the SEC?
A: The agency said it did not advise Achieve of the probe. However, Kristi Johnson knew at least by Jan. 13 that the Colorado Division of Securities, the state-level regulator, was asking questions about Achieve, according to the SEC. On that date, the Division learned in an “interview” with Johnson that Achieve did its banking at FirstBank. The Division shared this information with the SEC. By Feb. 2, the SEC had obtained Achieve’s banking records. The SEC accountant then began to examine the records, sharing information with the SEC attorney/investigator.
Moreover, the SEC has alleged Johnson is a former “registered representative.” With experience in the securities industry and with Achieve already under investigation by a state regulator, Johnson must have contemplated that the SEC was hot on the Achieve trail. The SEC alleges she lives in Aurora, Colo. That’s only about 25 minutes away from the agency’s regional headquarters in Denver. It goes without saying that the SEC is particularly unfriendly to Ponzi schemes, perhaps particularly ones operating in its own back yard.
Q: Why the asset freeze?
A: Direct quote from SEC filings: “In light of the egregiousness of Defendants’ conduct, the ongoing and active Ponzi scheme, Defendants’ increasingly desperate attempts to make Ponzi payments and misappropriate investor funds, and the concern that Defendants will dissipate or misappropriate the remaining investor funds if they become aware of this action prior to the entry of the requested order, the Commission respectfully requests that the Court grant ex parte relief freezing the assets of Defendants and Relief Defendant, prohibiting them from soliciting additional investors or otherwise continuing their fraudulent scheme, and ordering other relief to ensure a prompt, fulsome, and fair hearing on Plaintiff’s motion for a preliminary injunction.
“Absent an order granting such emergency ex parte relief, there is no reason to think Defendants’ fraudulent scheme, and their misappropriation and dissipation of the remaining investor funds, will cease, or that there will be any funds available to compensate investor victims at the conclusion of this litigation.”
Q: What did the SEC accountant discover?
A: Plenty, including banking records pertaining to this Achieve International LLC check for $90,000 made payable to “Cash” on Jan. 8, 2015. (Note: The check is dated Jan. 8, 2014, but that’s a new-year mistake. The banking records themselves note the correct date. The black redactions appear in a pdf of an SEC evidence exhibit. The PP Blog added the red redaction in this screen shot from the pdf. The $90,000 allegedly ended up in Kristi Johnson’s personal account at the Credit Union of Colorado.)
An SEC attorney/investigator who reviewed the accountant’s work across multiple Achieve-related bank accounts alleged in a declaration to the court that the “bank records indicate that on at least thirteen occasions, Johnson went to a FirstBank branch and withdrew cash in the form of currency, or cash in the form of a check written to ‘cash.’ Virtually all of thee funds ended up in an account at the Credit Union of Colorado . . . that is Johnson’s personal account.” Such transactions involved $153,300.
Q: Will I get my money back or a percentage of it from Achieve?
A: Possibly. How that would occur is unclear. No receiver has been appointed. The SEC investigation is ongoing.
A: Too soon to tell. The SEC investigation is ongoing. An ongoing investigation sometimes means an amended complaint or additional complaints will be filed that names additional defendants or “relief defendants” — those in alleged possession of ill-gotten gains.
Q: I’ve read online that the best practice with these programs is to throw in my stake with affiliates promoting them on YouTube and Facebook. These purported experts also say not to risk more than I can afford to lose and to quickly remove my “seed money” to create a situation that I’m only playing with “house money” — “profits” from the scheme. What am I to believe?
2ND UPDATE 9:42 A.M. EDT U.S.A. Though not charged as a defendant, the emerging “MyAdvertisingPays” (MAPS) scheme is referenced in a proposed class-action lawsuit filed against multiple TelexFree figures and financial vendors in U.S. District Court for the Southern District of New York in December 2014.
