Blog

EDITOR’S NOTE: Claims often are made that it’s “safe” for U.S. residents to invest in “offshore” opportunities and that offshore enterprises are outside the reach of U.S. regulators and law-enforcement agencies. This column refutes those assertions — and also includes information on Abdul Tawala Ibn Ali Alishtari, also known as “Michael Mixon.” Alishtari operated an investment scheme known as FEDI and was convicted in September of stealing millions of dollars from participants and of financing terrorism.

UPDATED 3:58 P.M. ET (U.S.A.) Lots of people say that HYIPs are harmless. They continue to promote the programs even though they’d never encourage their children to hop into a car driven by a  stranger or tell their parents or friends it was OK to hire a roofing contractor who was not registered at City Hall.

Why purported operators of online High Yield Investment Programs (HYIPs) get a pass when strangers driving cars and fly-by-night home-improvement contractors do not is a matter for great introspection. It’s a pretty safe bet, though, that it comes down to reckless — and even criminal — greed.

The Gold Nugget Invest (GNI) HYIP tanked Friday, after collecting untold sums. GNI’s website disappeared for a while after an announcement by the company that it was embarking on a “Re-organization.” The site now is back online. The “Re-organization” appears to be just another way to collect money by changing the distribution scheme.

“Earn up to . . . 20% monthly,” the site says. “No Risk Wager.” There is no corresponding announcement on the site’s landing page that it changed the rules, withheld payouts to members under a previous scheme and, apparently, lost access to a hefty sum of its cash when assets linked to Yesilada Bank through a purported “Correspondent Bank” purportedly were frozen by “German Authorities” on an unspecified date.

GNI’s announcement about the purported actions by “German Authorities” was vague and ambiguous.

“This particular frozen account contains all of Yesilada’s client’s foreign exchange funds,” GNI said Friday. “There are dozens of legitimate clients, along with GNI, whose lives have been put on hold pending the resolution of an investigation which has NOTHING to do with GNI. It’s a matter of being at the wrong place at the wrong [] time.”

GNI’s claims could not be independently verified. The company does not publish financial information that could help investors make an informed decision. Its announcement was so overwrought with florid language that members still don’t know what it means.

Even if the claims are true, however, the only thing they demonstrate is that the company is responding to a purported crisis caused by unspecified third parties by advertising a “No Risk Wager” that implies a payout of 20 percent a week.

Good grief. (Look in the Comments section below for GNI’s entire announcement about its problem and its “Re-organization” plan. It is one for the ages.)

As we reported yesterday, the conspiracy theorists already have surfaced in an apparent bid to help GNI deflect attention from the fact it collected money under one set of rules, changed the rules — and now intends to continue to collect money (while holding onto earlier money it collected), thus further distancing its original investors from their money and not informing new investors in plain sight about the previous problems.

Incredibly, some existing members of GNI are applauding GNI’s actions, saying they are consistent with a company that is “honest.” Some of the same cheerleaders are saying the United States does not have jurisdiction in matters pertaining to GNI or its purveyors. Why the apologists would tout the company’s “honesty” while also saying the SEC can’t touch it is just another one of the many incongruities of the HYIP world.

If you are on the fence about GNI — if you find yourself desperately wanting to believe the cheerleaders and apologists — perhaps you’ll find this story at Canada.com informative. It’s a brief on Brian David Anderson, a Canadian citizen who was just sentenced to federal prison in the United States for targeting U.S. citizens in a financial-fraud scheme.

Anderson, by the way, originally was arrested by Spanish authorities in Madrid. He was jailed in the United States and pleaded guilty in August 2008 . It is not even remotely unusual for governments to cooperate when investigating fraud and Ponzi schemes. The British Columbia Securities Commission noted Anderson was in a U.S. jail when it issued this news release on his penalty for targeting Canadians in a securities scheme.

“Anderson told the panel in a letter that he was ‘unable to appear in response’ to the findings because he is incarcerated in a New York prison,” BCSC said. “He also said he is not in a position to pay the [$250,000] fine.”

He was not in position to pay the restitution, either. Many HYIP promoters know that, if the operator goes to jail, no one gets paid.  Investors are told not to raise a ruckus, the suggestion being that raising a ruckus might capture the attention of authorities — and if the authorities swoop in, well, game over.

Under this reasoning, it is best to stay quiet, even if it means a schemer has to steal from others to make payments to his or her original investors. Many of the promoters suspect a theft has occurred. They ignore it or talk around it because no gun was used. They’d call the police if a roofing contractor ever scammed their widowed mother. They’d join a posse if — heaven forbid — their missing child last was seen getting into the car of a stranger. The HYIP schemer get a pass because personal investment cash or commission cash is on the line.

Know Who Your HYIP Neighbors Are?

Anderson helped pitch a scheme known as Flat Electronic Data Interchange (FEDI). The FBI identitied Abdul Tawala Ibn Ali Alishtari as the operator of FEDI. Alishtari pleaded guilty in September 2009 to fleecing investors in the scheme — and also to charges of financing terrorism and conspiracy to commit wire fraud.

Alishtari, who used the name “Michael Mixon,”  facilitated the “transfer of $152,000, with the understanding that the money would be used to fund training for terrorists,” the FBI said. “In the latter half of 2006, Alishtari agreed to discreetly transfer these funds for an undercover officer, believing that the money was going to be used to purchase night vision goggles and other equipment for a terrorist training camp in Afghanistan. During his guilty plea, Alishtari admitted that he sent the money from the United States knowing that the funds were to be used to help finance alleged terrorist activity in Pakistan and Afghanistan.”

Anderson was not linked to terrorism, but his ties to FEDI are documented in one filing after another in Canada. Here is a mention of FEDI from the Alberta Securities Commission.

International law enforcement regularly shares information and works cooperatively. Here are some more examples:

Colombia recently handed over to the United States Colombian citizen David Murcia, whose pyramid scheme caused rioting in South America and later was linked to international narcotics trafficking. Authorities in Panama recently arrested U.S. citizen Jeffrey Lane Mowen, who is now in a U.S. jail awaiting trial on Ponzi charges and charges he plotted to have four witnesses against him murdered.

John and Marian Morgan  were arrested in Sri Lanka and brought to the United States. Their alleged financial scheme purportedly operated out of Europe, although the Morgans are U.S. citizens who allegedly targeted U.S. customers.

Web records suggest that GNI’s servers are in the United Kingdom and that almost 57 percent of GNI’s website traffic originates in the United States. Other countries driving measurable traffic are Canada, Australia, the U.K., Italy and Japan. The records, however, strongly suggest that traffic from the United States dwarfs traffic from other countries.

This almost certainly means that GNI was reliant on U.S. dollars to sustain itself. Much of the cheerleading for the company appears to come from U.S.-based investors. The most probable reason for their continued support of the company is the fear that they’ll lose their current stakes and perhaps even get sued by people they enrolled in the program if they don’t spin the recent GNI events as a positive.

The Gag Reflex

The behavior of cheerleaders in murky HYIP circles is enough to make a person want to hurl. The most offensive cheerleaders are the ones who position themselves as “experts.” They are experts only in the same sense that Charles Ponzi and Bernard Madoff were experts. They are people who prey on ignorance to line their pockets with commissions. The arguments are an embarrassment to any person with a functioning brain, so utterly pretentious — and often so utterly passive-aggressive — that they trigger the gag reflex.

A common tactic is to position people concerned about their funds as troublemakers or whiners. The worried parties are told that they are immature, that responsible adults don’t whine — and that responsible adults never put in more money than they can afford to lose. Such insults, which often are encased in smiles and expressed with great confidence, often include the claim that the SEC has no jurisdiction or that the “opportunity” is a “game” and therefore cannot be regulated by government.

Professional HYIP pushers are at risk of being charged under U.S. law with selling unregistered securities as investment contracts — at a minimum. The Ponzi board “experts” argue that no contract exists and that it therefore follows that no charges can be brought. The argument does not pass the giggle test. Among the reasons it’s made is because the purveyors don’t want investors to call the SEC — or the FBI or state attorneys general or state securities regulators or provincial securities regulators or international law-enforcement agencies.

The purveyors also are at risk of being criminally charged under U.S. law with wire fraud. GNI operated over the Internet — just like AdSurfDaily, an alleged autosurf Ponzi scheme based in Florida. It is known that some ASD members also promoted GNI. They announced their participation even after the U.S. Secret Service seized tens of millions of dollars from ASD in August 2008 amid allegations of selling unregistered securities and operating a wire-fraud and money-laundering scheme.

A racketeering statute also is cited in two forfeiture complaints against ASD-connected assets. When the Secret Service filed the ASD allegations, federal prosecutors included copies of successful complaints filed against 12DailyPro and PhoenixSurf, two autosurf firms prosecuted under securities statutes.

GNI’s apologists would rather you not know about these things.

Bottom line: The cheerleaders don’t want to give up their commissions or profits. At the same time, they don’t want to be sued or named a defendant in a civil-enforcement action or a criminal complaint. They know the programs are illegal and that they have vast exposure, so they make excuses for the company and just plain lie — or pass along deceptions such as the SEC has no jurisdiction over the enterprises.

Let us say it plainly: You do not have an idea of who your HYIP neighbors are. You do not have a clue about what happens to the money after it leaves your bank account or your payment processor. If you claim otherwise, you are deluding yourself. If you race to announce to forums to exclaim you “got paid,” you are setting the stage for others to get fleeced.

This applies to virtually all the online HYIPs.

If you are a U.S.-based GNI investor, you likely bought an unregistered security from a person who was not licensed to sell securities or are the victim of some sort of commodities or forex fraud. As noted above, web records suggest that nearly 57 percent of GNI’s traffic originated in the United States. It is likely that more than 57 percent of GNI’s money pool was comprised of U.S. dollars because of the ready supply of U.S.-based promoters, sometimes called referral “whores.”

It’s an offensive description, to be sure. The “industry” itself is offensive. It leads to one ugly result after another. Eventually it’s going to lead to a result that is so unquestionably ugly that it cannot be pooh-poohed or explained away by greedsters and scammers posing as “experts” on Internet forums.

Did we mention that Brian David Anderson, who pushed FEDI and whose name now is linked with the name of a man convicted of financing terrorism, was a Christian minister — and that he is in his 60s, and that he pitched FEDI in a hotel room and that he claimed repeatedly that it was “backed by gold?”

Make sure you get a copy of our PDF compilation of President Obama’s Executive Order establishing the Interagency Financial Fraud Enforcement Task Force and remarks on the Task Force by U.S. Attorney General Eric Holder. Read this story, and get the PDF near the bottom.