NOTE TO READERS: Some of the evidence federal prosecutors have in the Ponzi scheme case against AdSurfDaily President Andy Bowdoin is coming into clearer focus. The PP Blog expects to publish a report within the next couple of hours.
Our report is based on an affidavit originally filed under seal by the U.S. Secret Service in February 2009, during a time in which some ASD members were promoting a purported “offshore” autosurf known as AdViewGlobal — even after the August 2008 seizure of tens of millions of dollars from Bowdoin’s bank accounts amid wire-fraud and securities allegations.
The affidavit builds on earlier affidavits and paints a picture of a worried Bowdoin at the helm of ASD — and of astonishing corruption and deceit within ASD leading up to the summertime seizure nearly three years ago.
Instead of pulling the plug on his crime before investors were ruined, Bowdoin ramped up the criminality and sought to sanitize it, going so far as to trade falsely on the name of the President of the United States and permit others to do so, according to the Secret Service affidavit.
Much of the information in the affidavit never before has been published, although it was previously known that Bowdoin allegedly tried to tie ASD to the White House to disarm skeptical investors and keep the firm’s money wheel greased.
Here is a verbatim snippet from the affidavit:
“Hand-written notes that Bowdoin prepared in about December 2006 (which were recovered in August 2008, during a search warrant at Bowdoin’s home) show his and his silent partner’s awareness of the risks of the auto-surf program they were conducting. Bowdoin’s notes indicate that he told his silent partner that the partner should have made him better aware of those risks ‘knowing regulators were on the prowl for surfing sites.’”
Translation: Bowdoin knew at least 18 months prior to his June 2008 trip to Washington to receive the “Medal of Distinction” that ASD was playing with fire.
The “medal” was not a presidential acknowledgment of Bowdoin’s business acumen. Rather, it was a “marketing” memento from the National Republican Congressional Committee, according to the affidavit.
And the affidavit also spells out other things Bowdoin allegedly knew while he was touting Presidential recognition of his business career. (We’ll write about those things in the upcoming story.)
The February 2009 affidavit was prepared in part to seize more than $413,000 held in the bank accounts of certain ASD members from Iowa — and also to seize more than $310,000 in the bank accounts of two other ASD members: one from Florida, the other from Missouri.
At least $10,510 of the amount the government moved to seize was traceable to E-Bullion, according to the affidavit.
E-Bullion is a shuttered California money-services business whose operator, James Fayed, was convicted last month of ordering the murder of his estranged wife, Pamela Fayed, a potential witness against him.
Fayed faces the prospect of execution for the murder. The jury recommended the death penalty earlier this month. Formal sentencing is scheduled for September.
Get ready for some prosecutorial bombshells in the ASD case . . .
This post begins with background because the autosurf world, which is dominated by serial scammers, financial fraudsters and shadowy criminals, is about as murky as it gets.
On Aug. 1, 2008, tens of millions of dollars in the bank accounts of AdSurfDaily President Andy Bowdoin were seized. Federal prosecutors went on to say that Bowdoin, a recidivist swindler in his seventies, was conducting an international Ponzi scheme involving at least $110 million from the small town of Quincy, Fla.
ASD allegedly had more than 100,000 members.
Bowdoin was running the massive scheme through his 10 personal bank accounts and trading on the name of the President of the United States to sanitize the fraud, prosecutors said in a forfeiture complaint.
A federal magistrate judge in the District of Columbia, the nation’s capital and center of power, ordered the money seized by the U.S. Department of Homeland Security after reviewing a 37-page affidavit by the U.S. Secret Service and a 57-page evidence exhibit. Incredibly, though, some ASD members didn’t take the strong clues that the U.S. government had come to view ASD and others like it as a threat to to the nation.
The government made sure that the allegations and certain information about Bowdoin, including the fact that ASD was not his first brush with securities felonies and that he was partnered with a man implicated by the SEC in the 1990s in three prime-bank schemes, were available for wide distribution. The forfeiture complaint was published on the Internet in multiple places and was made available at no charge by the government.
Bowdoin reacted to the seizure by describing it as an act of “Satan” and comparing it to the 9/11 terrorist attacks. A message from Bowdoin on ASD’s answering machine claimed God was on the company’s side. Within days of the breathtaking seizure and a follow-up raid of company headquarters caught on camera by a local TV station, ASD members started pitching other fraud schemes, positioning them as ways to make up for ASD losses. The disconnect of ASD members was stunning.
They hawked cash-gifting schemes, HYIP schemes, cycler matrices and other autosurf schemes — often using an appeal to religion in their pitches and claiming the “programs,” unlike ASD, operated outside U.S. jurisdiction and thus insulated the players from prosecution. They made the claims despite the fact the “programs” were targeted at U.S. citizens and players were paid in U.S. dollars after using U.S. dollars to join the “programs.”
On Nov. 19, 2008, ASD lost a key court battle. A federal judge ruled that ASD, which had requested an evidentiary hearing, had not demonstrated it was a lawful business and not a Ponzi scheme. Instead of exiting the autosurf Ponzi “industy,” some ASD members next turned their attentions to an upstart “offshore” surf known as AdViewGlobal.
Which brings us to the reason for this post . . .
A woman who said she believed she was an AdSurfDaily investor entitled to restitution through the government remissions program administered by Rust Consulting Inc. told the PP Blog yesterday that she gave $5,000 to her sponsor, who converted the sum to cashiers’ checks made payable to a murky enterprise known as TMS Association.
The PP Blog referred the woman to the office of U.S. Attorney Ronald C. Machen Jr. in the District of Columbia.
But her transaction, according to the woman, occurred in April 2009 — eight months after the August 2008 seizure of tens of millions of dollars by the Secret Service in the ASD Ponzi case. ASD ceased operations after the seizure.
Although the woman apparently believed she was investing in ASD, her story strongly suggests that she actually was investing in AdViewGlobal (AVG), one of the so-called ASD “clones” that launched in the aftermath of the ASD seizure. TMS Association was a murky Arizona business linked to eWalletPlus, which reportedly was the in-house payment processor for AVG.
The woman, saying she believed she was an ASD victim, also said she believed she was entitled to restitution through the remissions program set up for ASD victims through Rust. Her remissions claim, however, appears to have been rejected because the program is for victims of ASD, LaFuenteDinero and Golden Panda Ad Builder, not victims of AVG.
“I am having troubles with the Ad Surf Daily Remission Administrator on getting the information that my checks I sent in that were endorsed to TMS Association were ‘linked’ to the Ad Surf fraud suit that is going on,” the woman asserted.
Facts surrounding TMS, eWallet Plus and AVG are exceptionally murky, and there is no remissions program for victims. It is believed that the U.S. government has opened a probe into the companies, and AVG was referenced as an extension of ASD in a 2009 racketeering lawsuit filed against Bowdoin by a group of ASD members seeking class-action certification.
At least three companies, including a penny-stock firm known as Vana Blue, have claimed to own eWallet Plus, which AVG also claimed to own. Also adding confusion are the presence of company names such as TMS Corp. USA LLC, TMS Corp., Karveck International and Karveck Corp. — all of which haven been referenced in the context of AVG.
The woman said she contacted the PP Blog because of its reporting on TMS Association.
AVG, which had close ASD ties, announced it was suspending cashouts two years ago this month. The surf was positioned as a remedy for ASD losses, amid claims it operated in Uruguay outside of U.S. jurisdiction. Its servers resolved to Panama, as did the servers for eWallet Plus.
One promo for AVG claimed that $5,000 turned into $15,000 “instantly.” Some ASD members have claimed Bowdoin was a silent partner in AVG and fronted the money to purchase eWallet Plus.
Although AVG purported to have no ties to ASD, it listed George and Judy Harris as its owners. George Harris is Bowdoin’s stepson. The AVG incongruities did not end there. Indeed, AVG’s graphics once appeared on an ASD-controlled website, an event that was bizarrely explained away as an “operational coincidence.”
Even as AVG was disclaiming ASD ties in early 2009, the person disclaiming the ties was a former ASD employee, Chuck Osmin, who testified on ASD’s behalf at an evidentiary hearing in 2008. Despite the claims, AVG listed its first chief executive officer as Gary Talbert, a former ASD executive who filed a sworn court affidavit on ASD’s behalf in 2008.
The woman’s claims, however, lead to questions about whether some AVG members are trying to use the ASD remissions program to cover losses in AVG, perhaps with encouragement of their upline sponsors
Among other questions raised by the woman’s claims is whether ASD sponsors who promoted for AVG despite the ASD seizure told the truth about ASD to their recruits or shielded them from the news, thus denying recruits information they needed to make an informed decision about joining AVG.
At the same time, the woman’s story leads to questions about whether AVG recruits denied the facts by their sponsors about the ASD prosecution tried to pressure their AVG sponsors for refunds when the truth became known — and whether the AVG sponsors are trying to cover their tracks by pointing their recruits to the ASD remissions program without disclosing that it is reserved for ASD, LaFuenteDinero and GoldenPandaAdBuilder victims only.
It is likely that any bids to mask AVG losses as ASD losses will fail because the government requires ASD members to certify themselves as crime victims and provide paperwork as proof of investment.
Based on the woman’s claims, it also seems possible that some AVG members may have been serving as unlicensed brokers and investment advisers by collecting cash or negotiable instruments from recruits, converting the money to cashiers’ checks and then sending the money to AVG.
If transactions such as that occurred, it leads to questions about whether AVG investors ever could prove they’d actually joined the program. If the accounts were not opened in their names and instead were opened in the names of sponsors who collected their money, there may be no proof at all that the recruit was the source of the funding.
Even if the AVG accounts were opened in the names of the recruits, it may be hard for a recruit to prove they provided the funds if the money was converted to cashiers’ checks and submitted to AVG by the sponsors
The extent to which AVG sponsors may be trying to game the remissions system is unclear. What is clear is that the woman’s story is yet another reminder that the universe in which ASD and other autosurfs operated was dark and dangerous to the purse strings.
We are plugging our nose as we publish this document (link at bottom of post). You should know up front that we converted the document to PDF format after receiving it in Microsoft Word format. We did so based on the belief that many readers may not own Word but likely have a free PDF reader among the programs on their computers.
We obtained the document from a source. An email introducing the document prompted recipients to “Please forward this to as many of our people as you can.”
The PDF conversion altered the format of the original document, causing certain typesetting errors to appear — but the text content of the body of the document is unchanged. We did not edit the body text in any way. For the sake of convenience, we named the PDF file declaratoryreliefdraft.
The Word original is titled “T&D v USA UNITED STATES DISTRICT COURT.” It purports to be a draft of a “Complaint for Declaratory Relief” some AdSurfDaily members say they intend to file in U.S. District Court for the Southern District of Florida. The document lists ASD members Todd Disner and Dwight Owen Schweitzer as pro se plaintiffs.
It is unclear if other plaintiffs will emerge. Previous ASD pro se litigants appeared to have shared a do-it-yourself litigation template. U.S. District Court for the District of Columbia was inundated with ASD-related, pro se filings in 2009.
No other plaintiffs are listed in the caption of the draft. The defendant is listed as:
THE UNITED STATES OF AMERICA
c/o United States Attorney’s Office
555 Fourth Street N.W.,
Washington, DC 20530
The address is the office of U.S. Attorney Ronald C. Machen Jr. No individual defendants are named. The document, which references U.S. District Judge Rosemary Collyer of the District of Columbia, misspells her name as “Collier.”
Disner lost a pro se round in the civil forfeiture complaint against Andy Bowdoin’s assets filed in the District of Columbia in August 2008. His petition — and the petitions of dozens of other ASD pro se filers who sought to intervene in the case amid claims the government “confiscated” their assets “wrongfully” — was denied for lack of standing.
In the original set of pro se pleadings in Collyer’s D.C. court, former Assistant U.S. Attorney William Cowden’s last name was misspelled as “Crowden.”
ASD President Andy Bowdoin advised Collyer in a sworn affidavit nearly three years ago that the seized assets in the U.S. Secret Service probe belonged to him or ASD, not individual members. In short, Bowdoin agreed with the prosecution’s view of the case with respect to the ownership of the seized assets.
In its current form, the draft appears to advance the notion that individual ASD members can gain standing in Florida after having been denied in the District of Columbia, get a judgment against the government and undo the government’s remissions program organized by the Secret Service and federal prosecutors in the District of Columbia. Prosecutors have said the ASD Ponzi scheme case may have 40,000 or more victims.
Among other things, the draft asks a Florida federal judge to declare that the government conducted an “illegal search and seizure in that it failed to meet the requirements of the fourth amendment to the United States Constitution and that therefore the search and seizure of their assets was illegal and void.”
At the same time, the draft appears to suggest ASD had a subset of members who should have been treated differently than ordinary members whose lives were altered by the alleged Ponzi scheme. Meanwhile, the draft makes a puzzling argument that ASD’s Terms of Service superseded federal law.
(In this snippet from the draft, the PP Blog added the emphasis to this Blog post.)
“Among the items seized were the accounts, funds and records specifically identified as belonging to the plaintiffs which were separately accounted for on the computer programs and data seized as they were members of ASD, having bought ad packages as specified in the rules and regulations of the ASD business model,” a section of the draft complaint reads.
“Consistent with the rules and regulations applicable to the plaintiffs’ their information was confidential and could only be accessed by them through the use of their password protected account with ASD and their accounts were separate and distinct from any other individuals or businesses who were participants in the ASD advertising program,” the section claimed.
If the document does get filed in a final form — and if the U.S. Attorney’s Office in D.C. gets served and files a response — we sincerely hope the government moves instantly to protect ASD victims at large from further restitution delays caused by pro se sideshows.
Make no mistake: This is gamesmanship.
An email currently circulating among ASD members and attributed to Disner even describes it as such.
“Let the games begin!” the email declares.
It’s as though the first round of games were not enough for some ASD members.
“Here is a draft of the complaint Dwight finished today,” the email, which is dated today, reads.
“I think you will be impressed.
“We will schedule another conference call to field any “feed back” to this motion.
“Please forward this to as many of our people as you can. (As I know you will)
James Clark Howard: Source: Boca Raton Police Department
UPDATED 2:25 P.M. EDT (U.S.A.) In a complex case unfolding in Florida, the SEC has filed fraud charges against two companies that allegedly sold unregistered securities and conducted a $27.5 million “investment scheme” involving “purported commodities contracts.” A receiver has been appointed to marshal the assets of the murky businesses, which are known as Commodities Online LLC and Commodities Online Management LLC.
Millions of dollars generated in the scheme were moved to Mexico and the Netherlands even as the SEC was issuing subpoenas in the case last month, according to court filings. The agency described the transactions as “extremely suspicious.”
Although the SEC successfully halted the alleged Commodities Online scheme on April 1, the only defendants named to date are the companies themselves. The agency described the individuals presiding over the scheme — a former managing member and a vice president — as convicted criminals.
One of the individuals, according to the SEC, was a “convicted felon who was, in March 2010, charged with grand theft and organized scheme to defraud in conjunction with an unrelated Ponzi investment scheme.”
The other, according to the SEC, was an individual who “pled guilty to bank fraud and narcotics charges in 2005 and to transmitting a threat to injure charge in 2007.”
The PP Blog confirmed that, on March 5, 2010, the Boca Raton Police Department arrested James Clark Howard, who is listed as a “managing member” of Commodities Online LLC in documents filed with the Florida Department of State on Jan. 26, 2010.
Howard was charged with grand theft and organized scheme to defraud in a Ponzi case that may involve as many as five companies and their associates acting in concert to scam investors. Boca Raton authorities said the Florida Office of Financial Regulation also was conducting an investigation.
On Feb. 11, 2011, Louis Gallo was identified as a manager of Commodities Online Management LLC in records filed with the Florida Department of State. The Sun Sentinel newspaper reported that Gallo is “on probation for bank fraud and a cocaine charge out of New Jersey federal court.”
AdSurfDaily Member And Surf’s Up Mod Emerges As Figure In New Florida Flap
Other records show that, on Sept. 15, 2010, a Nevada-based company that listed former AdSurfDaily member and Surf’s Up moderator Terralynn Hoy as a “director” sued Howard and others in federal court in Fort Lauderdale. The Nevada company — SSH2 Acquisitions Inc. — alleged that Howard and the others were running a Ponzi scheme into which SSH2 had plowed $39 million.
Hoy, who has not been accused of wrongdoing, was a member of Florida-based AdSurfDaily, which the U.S. Secret Service said in August 2008 was conducting an international Ponzi scheme involving tens of millions of dollars. After the ASD seizure, Hoy became a moderator at the pro-ASD “Surf’s Up” forum, which mysteriously vanished in January 2010 after cheerleading nonstop for ASD President Andy Bowdoin for more than a year.
Bowdoin was the target of a federal criminal probe the entire time Surf’s Up operated, according to court filings. In November 2008, just days after a key court ruling went against ASD, the firm endorsed Surf’s Up as its mouthpiece.
By February 2009, Hoy became a conference-call host and moderator of a now-defunct forum that promoted the now-defunct AdViewGlobal (AVG) autosurf. AVG, which had close ties to ASD, launched in the aftermath of the federal seizure of more than $80 million in ASD-related assets, the filing of two forfeiture complaints against ASD-related assets and the filing of a civil racketeering lawsuit against Bowdoin.
On June 30, 2009 — one day after Bernard Madoff was sentenced to 150 years in federal prison for his colossal Ponzi scheme — lawyers suing Bowdoin for racketeering alleged that AVG was an extension of ASD. In September 2009, federal prosecutors made a veiled reference to AVG in court filings in the ASD case.
AVG disappeared in June 2009, about a month after the grand jury that ultimately indicted Bowdoin for wire fraud, securities fraud and selling unregistered securities as investment contracts began to meet. The indictment against Bowdoin was unsealed in November 2010, and Bowdoin was arrested in Florida on Dec. 1, 2010.
Surf’s Up was known for unapologetic, unabashed cheerleading for Bowdoin, whom prosecutors said had swindled investors in Alabama in a previous securities caper during the 1990s. Clarence Busby, an alleged business partner of Bowdoin and the operator of the Golden Panda Ad Builder autosurf, swindled investors in three prime-bank schemes in the 1990s, according to the SEC.
More than $14 million linked to Golden Panda was seized as part of the ASD case — and yet the cheerleading for Bowdoin continued on Surf’s Up. The forum labeled ASD pro-se litigant Curtis Richmond a “hero” after he accused the judge and prosecutors of crimes in 2009.
Richmond was associated with a Utah “Indian” tribe a federal judge in a separate case ruled a “complete sham” after it filed enormous judgments against public officials in performance of their duties. Regardless, the cheerleading on Surf’s Up continued — even after it was revealed that Richmond had a contempt-of-court conviction for threatening federal judges and had been sued successfully under the federal racketeering statute by the Utah public officials and was ordered to pay nearly $110,000 in penalties and damages.
Federal prosecutors now say they have linked ASD to E-Bullion, a shuttered California payment processor whose operator — James Fayed — is accused of arranging the contract murder of his wife, a potential witness against him in a fraud case. E-Bullion has been linked by investigators in the United States and Canada to multiple Ponzi schemes.
SSH2, the company that listed Hoy as a director, alleged in September 2010 that Howard was part of a Ponzi scheme that also involved Patricia Saa, Sutton Capital LLC and Rapallo Investment Group LLC.
Howard had been arrested by the Boca Raton Police Department in March 2010, about six months before SSH2 accused him in the September 2010 lawsuit of operating a Ponzi scheme. In the lawsuit, SSH2 said it had conducted business with the defendants from “early 2009 through March 2010,” and ultimately turned over $39 million.
Howard and the defendants, according to the lawsuit, told SSH2 it was trading in commodities and “would produce profits of 40% per month or more, while not risking any of the invested funds.”
SSH2 did not say in the complaint how it had come to believe that a return of 40 percent a month with no risk was possible. Nor did the company describe its efforts to conduct due diligence on Howard and the other defendants.
Of the $39 million directed at Howard and the other defendants, SSH2 received back approximately $19 million in “fake and fraudulent ‘profits,’” according to the lawsuit.
If SSH2’s assertions that it conducted business with Howard and the others beginning in “early 2009” and expected a return of 40 percent a month are true, it means that the business was being conducted in a period after which both the Bernard Madoff Ponzi scheme and the alleged AdSurfDaily Ponzi schemes were exposed.
Both Madoff and ASD bragged about returns that were far less than the monthly returns allegedly offered by Howard and the other lawsuit defendants.
Madoff’s fraud was exposed in December 2008, about four months after ASD’s alleged fraud was exposed.
And if SSH2’s assertions against Howard and the others are true, it also means the transactions occurred during a period in which Hoy, later to emerge as an SSH2 director, also was moderating forums for ASD and AVG and also was serving as a conference-call host for AVG, which purported to operate from Uruguay and enjoy protection from U.S. regulators because of its purported “private association” structure.
ASD’s Bowdoin initially ceded the money seized by the Secret Service in January 2009, dropping his claims to the cash “with prejudice.” By the end of February 2009, however, Bowdoin sought to reenter the case as a pro se litigant and renew his claim to the money, which totaled about $65.8 million.
Bowdoin’s sudden reappearance in a case he had abandoned coincided with a meeting AVG reportedly conducted with Karl Dahlstrom, a convicted felon. In March 2009 — in a letter posted on Surf’s Up — Bowdoin claimed he had decided to reenter the case after consulting with a “group” of ASD members. Bowdoin did not name the members, but chided federal prosecutors in his letter, writing that his pro se pleadings should “really get their attention.”
For the balance of 2009, Surf’s Up continued to cheerlead for Bowdoin, despite the fact he never told the membership at large about a second forfeiture complaint that had been filed against ASD-connected assets in December 2008. Bowdoin also did not inform ASD members that he had been sued for racketeering and had signed a proffer letter in late 2008 or early 2009 and acknowledged that prosecutors’ material allegations against ASD were all true.
Surf’s Up continued to operate even after prosecutors revealed the existence of the proffer letter. In Bowdoin’s own court pleadings, he had acknowledged he had given information against his interests to prosecutors. Bowdoin said he hoped to work out a deal by which he could avoid prison time, despite the fact prosecutors had alleged he was at the helm of a massive Ponzi scheme.
In October 2008 — at the conclusion of an evidentiary hearing ASD had requested — Surf’s Up conducted an online party for ASD members, complete with images of champagne and fireworks. Members were fed one-sided accounts of what had happened at the hearing, and a federal prosecutor was described derisively as “Gomer Pyle.” ASD’s lawyers were described as the “Perry Mason” team.
A month later — in November 2008 — U.S. District Judge Rosemary Collyer ruled at ASD had not demonstrated at the hearing that it was a lawful business and not a Ponzi scheme. The AVG forum led by some of the Surf’s Up mods, including Hoy, launched shortly thereafter, and the Surf’s Up forum soldiered on.
AVG was positioned as a way for members to make up their losses in the alleged ASD Ponzi scheme.
Surf’s Up became infamous for deleting comments and information unflattering to Bowdoin. The forum also was used to hatch a rumor that the prosecution secretly had admitted ASD was not a Ponzi scheme but was clinging to the case in a bid to save face.
As time progressed, dozens of pro se litigants attempted to intervene in the ASD case, claiming the government had no “EVIDENCE.” These filings occurred despite the fact that some of the evidence had been a matter of public record since August 2008.
Critics referred to Surf’s Up, whose formal name was the ASD Member Advocates Forum, as the AS[Delusional] forum. Various tortured explanations for Bowdoin’s conduct appeared on the forum, and there were calls for a “militia” to storm Washington, D.C., and for a prosecutor to be placed in a medieval torture rack. Prosecutors and federal agents were derided as “goons” and “Nazis,” and critics were derided as “maggots.”
The SEC’s Case Against Commodities Online
On April 1, the SEC filed an action against Commodities Online that alleged it was selling unregistered securities and operating a commodities fraud that had absorbed at least $27.5 million. Florida attorney David S. Mandel was appointed receiver.
“In connection with the unregistered securities offerings, the Defendants made numerous material misrepresentations and omissions regarding the nature of Commodities Online’s business model and operations, the risks and earnings associated with investing in its securities, and the background of its co-founder and vice-president,” the SEC charged.
“On December 15, 2010, Commodities Online announced on its website that ‘[t]o date, we have 32 contract offerings that have been completed for which our steadfast subscribers have been paid. The dollar total of these contracts is approximately $7.5 million and the payout was in excess of $8.5 million, producing an average earning of over 14.5%.’
“That statement was untrue,” the SEC charged. “There is no evidence to support this amount of investor return. In fact, Commodities Online’s bank records show a net loss for the companies associated with these promised contracts. Further, the company’s records show a net outflow of cash for each of these associated companies.”
By March 14, 2011, the SEC charged, Commodities Online had upped its number of purported successful contracts to 48. That claim also was untrue, the agency charged.
Referring to Howard but not naming him, the SEC said that the company “failed to disclose that in 1997, he was convicted of federal narcotics and firearms felonies and sentenced to 57 months in prison. The Defendants never disclosed his past criminal background to investors either through the Commodities Online website or any other company communication to investors.”
Referring to Gallo but not naming him, the SEC said that, in 2005, he “pled guilty in the United States District Court for the District of New Jersey to bank fraud and narcotics charges.
“In 2007, in the same court, he pled guilty to transmitting a threat to injure,” the SEC continued. “He is currently serving a three-year term of supervised release, which expires in July 2011.”
In a separate filing accompanying the complaint filed on April 1, the SEC said that Commodities Online “recently sent approximately $3.8 million to entities and individuals in Mexico and the Netherlands.”
Investigators deemed the transactions “extremely suspicious,” given that the transactions allegedly occurred between March 15, 2001, and March 25, 2011. The SEC said it issued subpoenas to the defendants on March 15, the same day the international transactions began to occur.
Bartow County Bank, which once held deposits tied to Golden Panda Ad Builder and the alleged AdSurfDaily Ponzi scheme, has failed in Georgia.
The Georgia Department of Banking and Finance closed the small bank today and appointed the FDIC receiver. Bartow once held $644,266 linked to Golden Panda, federal prosecutors said in a December 2008 forfeiture complaint.
Bartow’s failure is expected to cost the Deposit Insurance Fund nearly $70 million, the FDIC said. Georgia leads the United States in bank failures.
Golden Panda President Clarence Busby and his daughter, Dawn Stowers, voluntarily ceded the money in the Bartow account to the government more than two years ago, according to court filings. U.S. District Judge Rosemary Collyer formerly ordered the money forfeited on March 31, 2010.
Golden Panda was the purported “Chinese” arm of the Florida-based ASD “autosurfing” enterprise, which prosecutors said was a $110 million Ponzi scheme. Most of the money from the scheme was routed through Bank of America, according to court filings.
Busby, who was implicated by the SEC in three prime-bank schemes during the 1990s, advised Collyer in 2008 that Golden Panda was formed after a “relaxing” day of fishing with Bowdoin and a minister on a Georgia Lake.
Along with the more than $644,000 in Golden Panda cash seized in the December 2008 forfeiture case, prosecutors also seized an $800,000 building in Florida for which Bowdoin had paid cash, according to court filings.
Prosecutors also seized a boat, cars and other equipment in the December 2008 complaint. In a forfeiture complaint filed in August 2008, prosecutors seized nearly $80 million held in Bank of America accounts, including $65.8 million in 10 accounts in Bowdoin’s name, and $14 million in Golden Panda-related accounts.
Collyer ordered Bowdoin’s money forfeited in January 2010. Golden Panda’s money was ordered forfeited in July 2009.
As was the case with many things associated with ASD, the December 2008 forfeiture case turned into Theatre of the Absurd. Although Bowdoin family members were named beneficiaries of much of the fraud outlined in the December complaint, neither Bowdoin nor a family member entered claims for the seized property.
Regardless, Bowdoin filed an appeal after Collyer ordered the money and property forfeited.
The FDIC said today that Bartow County Bank will repoen tomorrow as a branch of Hamilton State Bank. Bartow’s failure will cost the Deposit Insurance Fund an estimated $69.5 million.
“The FDIC and Hamilton State Bank entered into a loss-share transaction on $247.5 million of Bartow County Bank’s assets,” the FDIC said. “Hamilton State Bank will share in the losses on the asset pools covered under the loss-share agreement.”
Four other U.S. banks failed today, bringing the year-to-date total to 34. In 2007, only three banks failed in the United States.
Eight banks have failed in Georgia so far this year. Two have failed in Florida.
After the assets of ASD and Golden Panda were seized, some members immediately turned their attention to promoting other autosurfs. They also pushed HYIPs and cash-gifting schemes, saying the miserable businesses were a good way to make up for ASD/Golden Panda losses.
When an MLM program known as MPB Today launched in Florida last year, promoters urged foreclosure subjects and Food Stamp recipients to part with their money to join the business. Records show that one of the banks MPB Today used was operating under a consent agreement with the FDIC.
MPB Today said last year that it had recruited more than 30,000 members.
Florida has one of the highest foreclosure rates and bank-failure rates in the United States.
BULLETIN: It has happened again, this time in the Sunshine State.
Mark D. Leitner has been indicted in Florida on charges of filing false liens against federal prosecutors, investigators and court personnel involved in his criminal trial last year on tax charges.
Leitner, whose age and address were not provided in a Justice Department statement, was accused of filing liens for $48.489 billion against a number of federal employees. He was specifically accused of filing false liens, corruptly endeavoring to impede and impair the Internal Revenue Service and publicly disclosing Social Security numbers in the commission of illegal activity.
In at least five instances, Leitner disclosed the Social Security numbers of federal officials, prosecutors said. Records at the U.S. Court of Federal Claims, meanwhile, show that Leitner unsuccessfully tried to sue the United States last year.
Records at the Federal Bureau of Prisons show that Mark Daniel Leitner is an inmate at the Lewisburg federal penitentiary in Pennsylvania. His age is listed as 39.
Mark Daniel Leitner was convicted in Pensacola last year in a tax case, according to federal records.
The new case against Leitner is reminiscent of events surrounding the AdSurfDaily autosurf, which federal prosecutors described as a $110 million Ponzi scheme.
ASD figures Kenneth Wayne Leaming and Christian Oesch unsuccessfully sought to sue the United States last year, apparently for the staggering sum of $29 TRILLION, after key court rulings went against the Florida-based company operated by Andy Bowdoin.
Leaming and Oesch also used the U.S. Court of Federal Claims. As was the case with Leitner, their lawsuit bid was rejected.
ASD is known to have members who define themselves as “sovereign” beings who are not answerable to U.S. law.
In the Leitner case, prosecutors said that he “filed and mailed numerous harassing and frivolous documents to the court and personnel.”
Some ASD members claimed a federal judge owed tens of millions of dollars for her role in the ASD case. The U.S. Secret Service and federal prosecutors also were targeted with mail that demanded them to take certain actions.
See earlier story on Kenneth Wayne Leaming. See another one. Leaming, who claims to practice maritime law but appears never to have attended law school, has been sanctioned in Washington state for filing bogus liens, according to records.
See December 2010 story about a false-liens case against Andrew Isaac Chance in Maryland.
See an August 2010 story about a false-liens case against Thanh Viet Jeremy Cao in California.
See a June 2010 story about a false-liens case against Ronald James Davenport in Washington state.
BULLETIN: John Neil Hirst has been charged by the Serious Fraud Office (SFO) in the United Kingdom in a case that alleges he was at the helm of an international Ponzi scheme that targeted British, French and Americans through a company registered in Panama and Seychelles.
The company was known as Gilher Inc., the SFO said. Hirst operated from Mallorca, investigators said.
U.K. officials said Hirst, 59, appeared in Bradford Magistrates Court today to face charges of money-laundering and conspiracy to defraud. The scheme is believe to have gathered more than £10m (about $16.2 million U.S.), causing losses of about £6m (nearly $10 million U.S.).
Investigators said in November 2009 that Gilher hawked a “fund” that offered “a guaranteed return of 20% a year.”
It was the second major Ponzi case brought in Europe in recent weeks. German Cardona Soler was arrested in Spain last month in a case described as a $300 million Ponzi scheme that affected more than 100,000 investors globally.
The SFO investigation of Hirst “is still continuing in regards to the involvement of a number of additional individuals,” the SFO said today. Investigators did not name the other individuals or say how many others were under scrutiny.
“Gilher Inc was a Panama and Seychelles registered company, operated by Hirst, which invested funds on behalf of private clients who were mainly based in the UK and Spain,” SFO said. “The investigation started in November 2009 following complaints made to the SFO by investors and has been investigated with the assistance of West Yorkshire and Surrey Police and overseas law enforcement authorities.”
SFO did not identify the overseas authorities that assisted in the probe.
Cardona is a figure in the alleged EMG/Finanzas Forex Ponzi scheme, which has been tied to multiple fraud schemes in Florida and a narcotics probe in Arizona, according to U.S. court filings. Some of the U.S.-based legwork in the alleged caper was performed by members of the same Task Force that brought a $110 million Ponzi prosecution against AdSurfDaily President Andy Bowdoin of Quincy, Fla.
Cardona’s name also has surfaced in the George Theodule Ponzi scheme in Florida.
Both EMG/Finanzas and AdSurfDaily were promoted on Ponzi and criminals’ forums such as TalkGold and MoneyMakerGroup.
Hirst was ordered to remain at his residence and not to contact prosecution witnesses. He also was ordered to surrender his passport, SFO said.
“[I]f this company doesn’t have sales, it’s not a viable company. Every company has to have sales that’s what makes this company work because the great business model, not because it has a lot of outside resources, but with that said we have a lot of things planned in the next weeks and months ahead. This will create lots more wealth for you.”— Federal prosecutors, quoting Golden Panda Ad Builder President Clarence Busby in August 2008 forfeiture complaint that seized $80 million in the ASD/Golden Panda Ponzi case.
“Our electronic wallet offered by our financial partners can make a great difference to you and your family. If you don’t utilize these programs and services and take advantage of everything that Club Asteria offers, you are not helping yourself. Our services are priceless — but only if you take advantage of them.
“We are privileged to work for you and we hope that you feel privileged to be part of our Club that is striving to make a real difference for you and the rest of the world. When the revenue sharing is announced each week, remember that we are doing our part to bring about the best services and products — you need to do your part as well to maintain the highest revenue sharing.”— Club Asteria announcement to members, April 2, 2011.
Members of Club Asteria, an online “opportunity” that trades on the name of the World Bank, purportedly issues member payments from Hong Kong and is promoted on Ponzi scheme and criminals’ forums as a “revenue sharing” business, now say that the club’s worldwide membership roster has swelled to more than 230,000.
A new wave of “I got paid” posts appeared on TalkGold and MoneyMakerGroup over the weekend, and promoter “manolo” announced that a “matching bonus” program had been extended through April. Separately, other Club Asteria members are seeking to drive business to the firm, which touts its relationship with offshore payment processors, by issuing press releases in multiple languages.
Google News has picked up a number of the releases in recent days, including one dated March 28 that touts a Miami-based promoter and claims “Club Asteria is exploding in every corner of the world.”
When clicked, a URL in the press release takes visitors to a text and audio pitch for Club Asteria. “Some members are making in excess of $20,000 US Dollars per month,” the promo claims in bold. Prospects who pay Club Asteria a fee of $20 to join as a “GOLD Member” are offered a coaching program that promises the “best tips and tricks that you WILL need to succeed with Club-Asteria!” according to the promo.
Google rejected an application by the PP Blog in June 2010 to become part of its Google News service. The PP Blog covers online fraud schemes and is written by a journalist with more than 20 years’ experience.
“[W]e’re unable to include it in Google News at this time,” Google advised the Blog. “We don’t include sites that are written and maintained by one individual.”
Some Club Asteria members say the company is based in the United States. Why payments purportedly are issued from Hong Kong is unclear.
Forum posts that declare “I got paid” have been associated with Ponzi schemes that spread virally on the Internet. Such schemes have used press releases to sanitize the business “opportunities,” and also have made use of “matching bonus” programs and offshore processors.
A March 30 sales pitch from a Club Asteria promoter claims the program “ia (sic) a basically (sic) Human Development Program.”
The pitch continues with an all-caps paragraph that purportedly defines what the program is not and includes 15 exclamation points.
“A CHANCE TO CREATE INCOME FOR LIFE…!!! YES…!!! INCOME FOR LIFE FINANCIAL FREEDOM…!!! CLUB ASTERIA EARN AND SHARE, NO SCAM, NO HYIP, NO PONZI, NO GET RICH QUICK SCHEME. EARN $ 400 EVERY WEEK FOR LIFE LONG. JUST A TRUE INVESTMENT AND A GREAT WAY TO EARN AND SHARE THE WEALTH WITH ALL THE PEOPLE OF THE WORLD. RUN BY FORMER DIRECTOR OF THE WORLD BANK ANDREA LUCAS. NOW CLUB-ASTERIA IS PRELAUNCH PHASE. GET ON NOW TO GRAB PRELAUNCH OFFERS…!!! JOIN NOW…!!!”
Preemptive claims that emphasize what a program is not also have been associated with Ponzi schemes.
The World Bank said last month that it once employed a person named Andrea Lucas, but that she left her job as a department head in Washington, D.C., in December 1986, nearly 25 years ago. Lucas was not a member of the World Bank’s board of directors, as hundreds — and perhaps thousands — of promotions for Club Asteria have implied.
Some Club Asteria members have identified Lucas as a former World Bank “Vice president” and “Chairman.”
Although Club Asteria has been promoted as a “passive” investment opportunity in which customers would simply register, pay a fee and earn money from the efforts of others, Club Asteria now appears to be trying to distance itself from those claims — while keeping the “matching bonus” program intact.
Claims that members can make money passively by simply paying a fee and relying on Club Asteria to generate profits leads to questions about whether the company and its army of affiliates are selling unregistered securities as investment contracts. On March 17, the company said that members who registered for its program and paid a fee were in position to “help the people of Japan” after last month’s devastating earthquake.
About two weeks later, Club Asteria suggested that members were overselling the earnings program and making false claims.
“The revenue will go up or down depending on how many members actively take advantage of utilizing and/or selling any one of our programs or services,” Club Asteria said in an April 2 note on its website. “If anybody has told you something different, they are mistaken and incorrect. We share our revenue that is earned by our membership. There is no guarantee. It would be impossible to guarantee this.”
Club Asteria members earned a payout of 4.01 percent last week, according to “akledba,” who was posting on the MoneyMakerGroup Ponzi forum in 36-point type.
“Wow, that is great,” replied MoneyMakerGroup member “strosdegoz.”
“I didn’t realize it was higher than last week,” strosdegoz noted. Below the post was a link for a program called “Exotic FX,” which bills itself a “PRIVATE ASSET HAVEN.”
MoneyMakerGroup is referenced in U.S. federal court filings as a place from which the alleged Pathway to Prosperity and Legisi Ponzi schemes were promoted. The schemes gathered more than $140 million, according to court filings.
Club Asteria did not say how much money it had collected as a result of purported misrepresentations by members or how members could be assured that the firm’s money stream was free of Ponzi and scam proceeds. The company does not publish verifiable financial data. Because the “opportunity” is being promoted on well-known Ponzi forums, it is possible that serial fraudsters have polluted Club Asteria’s revenue stream with proceeds from autosurf fraud schemes, HYIP fraud schemes, MLM fraud schemes, Forex fraud schemes, “arbitrage” fraud schemes and other forms of online fraud.
“Matching bonus” programs have been one of the hallmarks of online Ponzi schemes, some of which swelled to victimize tens of thousands of participants. AdSurfDaily, an “autosurf” firm that also was promoted on the Ponzi boards, routinely used matching bonuses to attract prospects. ASD’s membership ranks swelled to 120,000, according to promos for the firm, which now is accused of operating an international Ponzi scheme that gathered at least $110 million.
In 2009, a firm known as AdViewGlobal (AVG), which is said to have recruited 20,000 members in only weeks after the seizure of ASD-related assets, also used matching bonuses. One promoter claimed that $5,000 sent to AVG turned into $15,000 “instantly.” AVG also was promoted on the Ponzi boards.
AVG collapsed in June 2009. Private attorneys suing ASD President Andy Bowdoin in a racketeering case have referenced AVG in court filings. Federal prosecutors who brought both civil and criminal charges against ASD have made veiled references to AVG in court filings.
Recent promos for Club Asteria have made claims such as these (below): (NOTE: These are verbatim and are from multipe websites, all of which could be driving money to Club Asteria.)
“Earn a realistic $400 a week… PASSIVELY!”
“Discover How You Can Earn $400 Per Week Passively With No Sponsoring Requirement And How To Make Money Starting Now!”
“We help you become financially secure, YOU help others become financially free. We are restoring balance of financial equality.”
“Join Our TEAM and Earn $400 weekly for $20”
“Club Asteria” A site of “World Bank’s former Vice president Andrea Lucas”
“We all can be millionaires in 2 years if we can afford to invest N15,300 ($100). Thanks to ANDREA LUCAS, a former World Bank Director who established the investment outfit, CLUB ASTERIA.” (Continued below graphic.)
This Club Asteria promo, which trades on the names of Google, Yahoo, MSN and America Online, claims Club Asteria members earn $400 a week "passively." Such claims lead to questions about whether Club Asteria members are selling unregistered securities as investment contracts.
“Be 100% passive and still earn $400 weekly from Real/Legal/Safe Co.”
“Hi, club Asteria is founded by former world bank Chairman. running in 141 countries worldwide,21 years experience,its main aim is to eradicate poverty by giving micro-loans.If u pays $20 monthly for life-long by taking gold membership,you earn weakly $400 for lifelong from 19 th Month.No-referrals.But,If u refer one member, U get $9 monthly for lifelong.”
Charged by the CFTC were James A. Ward of Ft. Lauderdale, and Nathaniel R. Walker of Lauderhill. Also charged was their firm, Kastle & Hawke Inc. of Fort Lauderdale.
Florida has been plagued by spectacular fraud schemes. Just two days ago, David A. Smith, a citizen of Jamaica, pleaded guilty to charges in a $220 million Ponzi scheme. Last week, the U.S. Court of Appeals for the District of Columbia Circuit ruled that Ponzi-related orders of forfeiture totaling more than $65.8 million in a 2008 civil case would stand against Florida resident Andy Bowdoin, who now is charged criminally in the alleged AdSurfDaily Ponzi scheme. Prosecutors said Bowdoin’s ASD had gathered at least $110 million.
In the case against Ward and Walker, the CFTC said “the defendants never held or acquired any metals for customers and charged customers interest on non-existent loans.”
U.S. District Judge James I. Cohn has frozen their assets, amid allegations the company misappropriated at least $319,000 from customers hoodwinked in the scheme. Cohn also ordered books and records to be preserved.
“To conceal their fraud, the defendants allegedly manufactured and sent false account statements and transaction confirmations to customers,” the CFTC charged.
“K&H does not hold, nor has it ever acquired, any physical precious metals on behalf of customers,” the CFTC charged.
When customers wanted to sell the metals they believed they had acquired, Ward manufactured one excuse after another, the CFTC alleged. Customers were told that “rogue” traders were responsible for his inability to sell the metals, according to the complaint.
And they also were told that the metals could not be sold because of “problems in London,” because markets were closed for the holidays and because “force majeure” — things beyond the company’s control — had occurred, the CFTC charged.
One of the things that occurred was that the unregistered company had advertised it was selling palladium on a leveraged basis to customers, an unlawful act in itself, the CFTC said.
On the K&H website, the company told prospects they could take advantage of a “Leveraged Purchase Program” that allowed them to finance up to 77 percent of the costs of the precious metals over five years — “without having to make monthly payments or undergo credit checks,” the CFTC charged.
Customers were told the company’s approach would lead to hefty profits, but it was all a scam, the CFTC charged.
In April and May of 2010 — as the firm was explaining to customers why they could not claim their profits even as it was charging them interest on nonexistent loans — Ward withdrew $21,350 in cash from the company’s bank account “and spent nearly $9,000 at a grocery store chain, draining the bank account to a balance of less than $500,” the CFTC charged.
BULLETIN: Andy Bowdoin and AdSurfDaily Inc. have lost their appeal of a January 2010 order by U.S. District Judge Rosemary Collyer that $65.8 million be forfeited to the government in the August 2008 civil Ponzi scheme case against Bowdoin’s assets.
The U.S. Appeals Court for the District of Columbia unanimously upheld Collyer, rejecting Bowdoin’s claims he had been denied due process and been hoodwinked by his former attorneys into releasing his claims to the seized cash in January 2009.
“To begin with, there can be no doubt that appellants meant to withdraw their claims,” the panel ruled. “Their withdrawal motion expressly stated that they wished to ‘withdraw and release with prejudice’ their verified claims and that they ‘consent[ed] to the forfeiture of the properties.”
“Nor is there any basis to conclude that appellants were somehow tricked into releasing their claims,” the panel continued. “Despite Bowdoin’s protests to the contrary, his own affidavit shows that he understood well that he was receiving no promise in return for relinquishing his claims.”
Bowdoin’s withdrawal of his claims was “free and deliberate,” the panel ruled.
Although Bowdoin blamed one of his former lawyers for giving him bad advice, the appeals panel said nonsense.
“[F]ar from being negligent, appellants’ attorney had sound reasons for recommending that they cooperate with prosecutors by relinquishing their claims,” the panel ruled.
The ruling means that the government now has title to about $80 million seized in the ASD case. Bowdoin lost a previous appeal for a smaller sum in a separate forfeiture action brought in December 2008, and Collyer ordered the forfeiture of more than $14 million from Golden Panda Ad Builder in July 2009.
Golden Panda was the purported “Chinese” arm of ASD. It was operated by Clarence Busby, whom the SEC had implicated in three prime-bank schemes in the 1990s, according to court filings.
About $65.8 million of the total sum seized in the August 2008 forfeiture case was in Bowdoin’s personal bank accounts, including one account that contained more than $31 million.
Bowdoin initially released his claims to the money in January 2009. By late February of the same year, he sought to reassert his claims as a pro se litigant. He ultimately retained new counsel, and unsuccessfully sought to have Collyer removed from the case.
Collyer refused to step down, and issued the forfeiture order for $65.8 million in January 2010. At least one other ASD member also sought unsuccessfully to force Collyer to disqualify herself from hearing the case.
That member — Curtis Richmond — accused the judge of treason. In a separate case in Utah in 2008, Richmond claimed a federal judge owed him $30 million. That judge, too, refused to step down, finding that a purported Indian tribe with which Richmond was associated was a “sham.”
Richmond has claimed to be a “sovereign” being, as have other people with ties to ASD.
Bowdoin was charged criminally with wire fraud, securities fraud and selling unregistered securities in December 2010. The U.S. Secret Service said he was operating a Ponzi scheme that had gathered at least $110 million by disguising itself as a “advertising” business.
ASD perhaps created as many as 40,000 victims, according to court filings. The civil portion of the case featured dozens of templated, pro se filings from ASD members who asserted the government had no “EVIDENCE” of wrongdoing.
Almost three years into the case, some ASD members still are claiming the government has no evidence — despite the fact that the evidence has been discussed in open court and in public filings dating back to August 2008.
“[A]nd the poets down here don’t write nothing at all, they just stand back and let it all be.” — “Jungleland,” Bruce Springsteen
There is no delicate way to put it: Frank Kern is among a core group of well-known Internet Marketers who are playing a dangerous and destructive game. If you’ve absently become one of his product-launch automatons and your gradually dulling brain is slow to signal the gag reflex when Kern says things such as “syndicate” is just another word for “trade union,” you may be on the verge of losing your marketing soul.
Frank Kern and his serial excuse-makers are selling a one-way ticket to the junk heaps of IM history and exposing the entire industry to well-deserved, intense scorn. The only real question that remains is whether that scorn will translate into government scrutiny — and it’s not as though the FTC isn’t well-versed on the subject of Irwin F. “Frank” Kern IV.
Kern is an advocate for what has become known as the “Syndicate” model of selling products online. Under the Syndicate model, competitors at all levels bizarrely reimagine themselves as strategic partners and divine a construction by which they’re no longer competitors. They agree formally or informally to product-launch schedules and pricing, positioning their ruinous conduct as genuine wisdom. Plenty of people extol the faux virtues of the Syndicate. The most cloddish among them even may suggest you should be executed by shotgun blast for seeing things a different way.
In spreading the cultish feel and wink-nod idiocy of Syndicate gospel and positioning himself as a control expert, Kern potentially has put the industry on the radar screens of U.S. regulators and law-enforcement agencies while vainly creating a monstrous PR problem. Like Andy Bowdoin of AdSurfDaily infamy, Kern has a never-ending supply of Stepfordian apologists who claim the critics don’t “get it” and are motivated by jealously and hatred.
What the critics don’t understand, according to the apologists, is that Frank Kern is a genius who is being unfairly labeled a huckster, particularly by the Salty Droid Blog. The people and companies joining Kern . . . well, they’re geniuses, too.
To imagine the breathtaking gall and sheer lunacy of the “Syndicate” model, imagine a scheme by which 10 top competitors in any product-creation niche would form a sales wedge and magically redefine themselves as strategic partners. These sudden partners then would agree to a product-launch schedule, agree to sell the products of companies or people who just the day before were rivals, agree to sell at a predetermined, premium price point of, say, $2,000, agree to take a turn as the featured seller and thus get most of the proceeds from an individual launch, agree to limit the sales ceiling to just 500 units to create precisely $1 million in sales volume before closing up shop, agree to describe the products as innovative and even life-changing despite the arbitrarily imposed ceiling of 500 sales, agree to reopen sales if order cancellations or chargebacks caused the sales number to fall below 500 — and also agree to create populist fervor by inviting all the freelance salespeople for all of the Syndicate purveyors to become partners in the scheme.
Or simply imagine Bruce Springsteen selling out both his artistic integrity and his legions of fans by getting Paul McCartney on the phone and telling him there is a way that 10 hand-selected, A-List rockers can split the lion’s share of multiple $1 million pots repeatedly over the course of a year by simply chatting each other up and emailing their fans to invite them to join the scheme. The rockers wouldn’t even have to leave home to do it, wouldn’t have to do a critical assessment of their colleagues’ music, wouldn’t have to purchase the music to determine if it was praiseworthy, wouldn’t have to listen to the music — and could split millions of dollars by simply stating that the most recent $2,000 digital album in the marketplace had come from a legend (and new strategic business partner), so it must be good.
Nor would they have to burden themselves with thoughts of creating a hit song or doing anything musically innovative or interesting. Meanwhile, they wouldn’t have to hire roadies to haul the equipment and stage from city to city, and wouldn’t have to hire a single new employee or expand the support operation to accommodate a hit song. The person or persons currently employed to answer the phone and take notes would do just fine.
All the A-List rockers would have to do was digitize a recording, claim it was unique, claim it was worth $2,000, sell it online, limit sales to precisely 500 units, take one turn in the catbird seat, agree to tell their fans to visit the sites of the other nine rockers when it was their turn to sit in the million-dollar catbird seat — and instruct their fans that, they, too, would have the high honor of participating in the new profit-sharing model. A single sale by a fan of a $2,000 recording would net the fan $1,000 — a commission of 50 percent.
The fans, who have become a source of free labor, would get to collect the cash so long as an aggrieved customer didn’t charge it back or cancel the order after reflecting on the wisdom of putting $2,000 on a credit card to listen to an acoustic recording of, say, “Thunder Road” or “Let it Be” and sift through hundreds of pages of “special” liner notes and high thoughts from the legends on DVD.
Springsteen and McCartney, of course, wouldn’t even think of involving themselves in such a harebrained scheme, particularly a harebrained scheme bizarrely mapped out on a whiteboard with a camera capturing it all, a harebrained scheme openly called the “Syndicate” model with the word “GODFATHER” neatly drawn on the whiteboard, and a harebrained scheme positioned in the marketplace as the byproduct of genius.
Beyond that, they certainly wouldn’t insult their fans by describing them as the B-Team underlings who make the A-Team profits possible, as Kern does.
The scandal such a harebrained scheme would cause in the recording industry if it gained so much as a day’s worth of traction among established musicians and up-and-comers would bring the business to its knees. There would be front-page stories in the New York Times, even as the National Enquirer rushed special editions to the news stands and members of various Congressional committees were barking orders to their attorneys and staffers to start issuing subpoenas pronto — like right now.
The Attorney General or maybe even the President of the United States might feel compelled to chime in. No responsible capitalist would tolerate this behavior, and no responsible individual or company would participate in it. In Kern’s world, Jif would be selling peanut butter for Skippy (and others); McDonald’s would be selling hamburgers for Burger King (and others); Apple would be selling tablet computers for Motorola (and others); HP would be selling laptops for Sony (and others); Comcast would be selling satellite subscriptions for DIRECTV (and others); Verizon would be selling cell-phone subscriptions for AT&T (and others); the New York Times would be selling subscriptions for the Wall Street Journal (and others); CNN would be selling ad space for Fox News (and others); and Madonna would be selling old recordings for the estate of Perry Como (and others). The initial beneficiaries later would reciprocate — for all of the “others” on a predetermined schedule.
Pricing, R&D, innovation and hiring to accommodate demand would become instant casualties, and the marketplace would be dominated by interchangeable wolves who put up a “Sold Out” sign after artificially constraining the supply not only of their products and services, but also the products and services of their strategic partners. The star-struck fans of the individual brands would become “B-Team” purveyors of the madness, hoping against hope to wrest a commission check in a universe in which the major product-makers all were selling against them and closing up shop within days, if not hours.
That’s how harebrained Frank Kern’s Syndicate scheme is.
And yet Kern is accorded the description of genius in the IM sphere, a sphere outside of which such thoughts would be abandoned instantly if formed. The madness and impossibility are obvious to most people outside of the sphere, but somehow get packaged (and pass) as genuine wisdom inside the sphere. Some of the people helping popularize his myth are the very people he’s leading down the primrose path. He calls fans thirsty to make a $1,000 commission the “B-Team.” IM rockstars with big lists who dominate the market and actually are selling against the fans are the “A-Team” in the Syndicate model.
Even if the U.S. government does not intervene — and even if the New York Times and National Enquirer never publish a story on the Syndicate and the model doesn’t cause a single blip to appear on the Congressional radar screens — the Syndicate model will fail. It will fail because it must fail.
And the reason it must fail is that it is a system that requires a fantastical construction and complete suspension of disbelief to thrive. The Syndicate model has nothing to do with genuine innovation and everything to do with avoidance of the responsibilities of success. It is designed to reward men who behave badly before reporting to the site of the next scheme to be rewarded again for behaving badly.
It is deviously simple. One of its aims is to stay under the radar of the credit-card chargeback monitors by minimizing the universe of possible complainers during any given launch. Another is to keep seats unfilled at the support desk. The money gets counted and divided off-stage, and the A-Listers move to the scene of the next scheduled hack job — and the process repeats itself.
There isn’t even the pretense of trying to create a hit. Indeed, the strategy is to quickly siphon $1 million from a collection of 500 suckers authorized by their credit-card companies to charge at least $2,000, close up shop, declare a win and start rehearsing the noise that will attract the next group of 500 suckers who can put at least $2,000 on their individual cards.
Nothing about the Syndicate model is consistent with a commitment to quality, innovation and excellence. Simply put, it is the ravenous A-Team vultures leading the hungry B-Team crows to the kill site with the suggestion that some chunks of choice $2,000 flesh will remain after the principal gorging and gluttony end.
The Syndicate method is an Internet Marketing abomination advanced by a collection of fools who’ve reimagined themselves as coaches, leaders, trainers and deep thinkers. This asinine business approach is utterly ruinous. The stain it leaves behind is indelible, the stench permanent.
Kern’s Syndicate avoids the challenges business leaders and entrepreneurs with genuine vision embrace: how to put the biggest number of fannies in the biggest number of seats, how to create hits and deliver them to the widest possible audience, how to scale distribution systems to accommodate demand instead of putting artificial constraints on supply, how to instill brand loyalty, how to sell nobly, capably and proudly instead of poisoning the marketplace with gimmickry.
The Syndicate model is all about avoidance of worthy aims. It is something to be jeered, not embraced — and certainly not emulated. It is the byproduct of vanity and greed run amok, not genius. And it is delivered to your inbox — on cue — by a group of professional hacks. They do it because it works, not because it is good. Period.
Unlike Bruce Springsteen, the people delivering it to you are poets of the most awful kind: They just stand back and let it all be. What’s worse, they do it by design.
Make no mistake: No savior graces these miserable Internet Marketing streets, which are dominated by hacks who are pretenders to the title of genius.
“You can hide ‘neath your covers
And study your pain
Make crosses from your lovers
Throw roses in the rain
Waste your summer praying in vain
For a savior to rise from these streets,” “Thunder Road,”Bruce Springsteen
