A federal judge in Texas has ruled that investments in the alleged Bitcoin Savings and Trust HYIP Ponzi scheme met all three prongs of the Howey Test and constituted an “investment contract” under federal securities laws.
The ruling by U.S. Magistrate Judge Amos L. Mazzant of the Eastern District of Texas means that a lawsuit filed last month by the SEC against Trendon T. Shavers of McKinney will proceed. Shavers challenged the jurisdiction of the court, asserting that BTCST investments were not securities because Bitcoin is not money and is not part of anything regulated by the United States. He further contended that his transactions were were all Bitcoin transactions and that no money ever exchanged hands.
For its part, the SEC argued that the BTCST offerings were both investment contracts and notes, and, thus, securities. Among other things, the SEC alleged that Shavers promised investors up to 7 percent weekly interest based on BTCST’s Bitcoin market arbitrage activity, which supposedly included selling to individuals who wished to buy Bitcoin ‘off the radar’ in quick fashion or large quantities. In reality, BTCST was a sham and a Ponzi scheme in which Shavers used Bitcoin from new investors to make purported interest payments and cover investor withdrawals on outstanding BTCST investments.”
UPDATED 11:33 A.M. EDT (APRIL 1, U.S.A.) On April 1, the PP Blog published a story that informs Profitable Sunrise participants on how to contact state and provincial securities regulators in the United States and Canada.
April 1 was the date the Profitable Sunrise “Long Haul” plan was supposed to pay out. That didn’t happen.
Here, below, our March 25 post . . .
Now the subject of Investor Alerts or cease-and-desist orders in at least 30 states and provinces in the United States and Canada, the Profitable Sunrise HYIP has passed a milestone of sorts: Its website has been offline for 10+ days.
Despite the extended outage, wild, unverified reports have surfaced on Facebook and the Ponzi boards that Profitable Sunrise will resurface in Hong Kong, restarting with a 4-percent-a-day scheme.
Even if Profitable Sunrise still has control over servers — and even if it relaunches with a 4-percent-a-day scheme — history cannot be taken off the table. Part of HYIP history includes the renaming and relaunching of schemes designed to give scammers access to new cash to sustain the Ponzi deception. The “trick” has been used so many times in HYIP Ponzi Land that it has become a virtual cliché.
The AdSurfDaily Ponzi scheme appears to have operated under at least three different names, all the while positioning itself as a “Christian” enterprise. An HYIP scheme bizarrely known as Cash Tanker once was promoted on the pro-ASD “Surf’s Up” forum. Cash Tanker, which promised a Profitable Sunrise-like 2 percent a day and used an image of Jesus Christ in promos, later collapsed.
On March 6, the PP Blog observed information in a nonEnglish, international forum that strongly suggested an ASD promoter had become a key pitchman for Profitable Sunrise. The information suggested that the ASD promoter had assembled a “group” that carried a purported balance of more than $18.8 million in Profitable Sunrise.
ASD collapsed in 2008.
Because Profitable Sunrise traded on Bible verse and images of Jesus Christ and was promoted by self-identified Christians, the scheme now has caused divisiveness in the Christian community. Among the key unanswered questions: Who would benefit from such divisiveness and was Profitable Sunrise deliberately structured to turn Believers against each other?
Cheerleading for the “program” continues. On a conference call last week, a Profitable Sunrise pitchman assured listeners that “all is good” with the enterprise. The claim appears to have been based on second- and third-hand reports that morphed into a purported “consensus” among leaders/members given to confirming their own biases.
“Everyone agrees that the Easter gift from the [Profitable Sunrise] Long Haul [plan] is on,” the pitchman said. “It’ll be given on schedule.”
One speaker on the same call claimed “[w]e can do what we want,” despite government warnings and even legal proceedings to the contrary.
“[W]e’re not selling any securities and we’re free citizens,” the speaker intoned.
Separately, a claim was made on the MoneyMakerGroup Ponzi forum that the Howey Test from a famous Supreme Court case in 1946 does not apply to Profitable Sunrise because the “Howey Test is for Private Real Estate Loans.”
Like many things surrounding Profitable Sunrise, the claim about the purported inapplicability of the Howey Test is absurd. The Howey Test is a key test of what constitutes an investment contract. Profitable Sunrise itself positioned the “program” as an investment opportunity. Meanwhile, various members of the “program” — including ones who continue to support it — have written or spoken publicly about their “contracts” that purport to pay up to 2.7 percent interest a day through a plan bizarrely known as the “Long Haul.”
After he was charged criminally in 2010 for his role in the ASD Ponzi scheme, ASD President Andy Bowdoin argued that the Howey Test did not apply to ASD, a purported “advertising” company that purported to pay 1 percent a day.
Despite Bowdoin’s Howey argument, a federal judge ruled that “these alleged facts smack of an investment.”
And, the judge ruled, “Based on the allegations set forth in the Indictment, the evidence already before the Court, and the government’s proffers of expected trial evidence, the Court finds that the allegations, if proven, would be sufficient to permit a jury to find that ASD members were investing.”
Bowdoin later pleaded guilty to wire fraud. He was sentenced to 78 months in federal prison.
UPDATED 11:22 A.M. EDT (JUNE 13, U.S.A.) Images of a man described as “Alan Chapman” appear in online promos for both the JSS Tripler/JustBeenPaid and Zeek Rewards “programs” that plant the seed that enormous daily returns on the order of 1 percent to 2 percent are possible.
In one Blog pitch for JSS/JBP dated Oct. 6, 2011, “Chapman” is quoted as saying, “I have been with JustBeenPaid! since it launched in early 2010, which proved to be very successful. But now in these last 4 short months JSS-Tripler has proven to be my best income earner compared to all the other programs I have joined in the previous 4 years!”
The ad includes a photo of “Chapman.”
Meanwhile, in a Blog pitch for Zeek in a publication titled “ZeekRewardsPays,” “Chapman” is quoted as saying Zeek members can post their “ads” on the ZeekRewardsPays site “to qualify [for] your [Zeek] earnings for that day!”
The Zeek pitch also includes a photo of “Chapman.”
Zeek members who want to share in the firm’s purported revenue pool are required to post an ad online to qualify for a payout. The ad-posting requirement may be a bid to undermine the “Howey Test,” which determines what constitutes a security/investment contract.
One of the questions posed by the Howey Test is whether profits can be derived from an opportunity solely from the efforts of the purveyors. By insisting that Zeek members cannot get paid unless they post an ad, Zeek may be setting the stage to argue that Zeek’s ad-posting requirement constitutes “work” by affiliates and therefore the payouts do not derive solely from Zeek’s efforts.
Both Zeek and JSS/JBP use offshore payment processors such as AlertPay (now Payza) and SolidTrustPay that are friendly to fraud schemes promoted on known Ponzi-scheme forums such as TalkGold and MoneyMakerGroup. Both Zeek and JSS/JBP have promoters in common, and both “programs” are being promoted on the Ponzi boards.
Because Zeek and JSS/JBP have common promoters and a presence on Intenet cesspits, questions have been raised about whether the “programs” and their banks and payment-processing vendors have come into possession of funds tainted by fraud schemes.
On the ZeekRewardsPays site with the photo of “Chapman, the following claim is made today:
ZeekRewards Daily Profit Last 7 Days!
June 11 2012 1.89 %
JUNE 10 2012 0.88 %
JUNE 09 2012 0.96 %
JUNE 08 2012 0.92 %
JUNE 07 2012 1.91 %
JUNE 06 2012 2.00 %
JUNE 05 2012 1.93 %
In recent days, Frederick Mann, the purported operator of JSS/JBP, has raised the prospect that JSS/JBP members could be on their own if law-enforcement agencies take action against the “program.”
JSS/JBP also has banned discussion about customer-service issues on its weekly conference call. That announcement was made during the June 7 call, a week after a woman identified as “Ping” begged Mann for assistance, asserting her concerns had not been addressed in a month.
On May 31, “Ping” implied she was ill with a serious heart condition, was managing three JSS/JBP accounts that had been hacked a month ago and said her “sister borrowed on her house [to] put money in JBP.”
During the June 7 call, Mann also implied that JSS/JBP members were free to start their own business-with-a-business — for example, they could create pools from investor money at the local, regional, national or international level and a single JSS/JBP member could manage the pools and perhaps make a profit by playing the spread between what JSS/JBP pays and the fees a local pool manager would charge for managing the pool.
JSS/JBP has no known securities registrations, does not identify where it is operating from and may have ties to the “sovereign citizens” movement.
Mann now has taken to doling out medical advice during the JSS/JBP calls, insisting that JSS/JBP members should not trust their doctors.
Nor should they trust attorneys, Mann implied.
JSS/JBP members are required to affirm they do not work for the “government.”
Zeek recently has encountered problems at at least two U.S. banks. Zeek preemptively has denied it is a pyramid scheme. The firm also claims it is not offering an investment product.
BULLETIN:UPDATED 9:29 P.M. ET (U.S.A.) Prosecutors have advised a federal judge that AdSurfDaily President Andy Bowdoin and unnamed “others” traveled to Costa Rica in the spring of 2008 to get the lay of the land for an offshore autosurf that would be “another version” of ASD.
The alleged trip occurred less than two years after the SEC accused 12DailyPro, an autosurf based in North Carolina, of selling unregistered securities in the form of investment contracts, prosecutors said.
The explosive claim Bowdoin ventured offshore to pursue the creation of an ASD satellite may signal that the government views ASD not only as a Ponzi scheme, but as a business that deliberately sought to dial up its efforts to circumvent U.S. laws and create an even greater Ponzi war chest by establishing a footprint outside the United States.
Since at least February 2006, the SEC has described the autosurf business model as anathema and a form of obvious securities fraud. Bowdoin was well aware of the SEC lawsuits and scrutiny domestic autosurfs such as 12DailyPro, PhoenixSurf and CEP had sparked in 2006 and 2007, prosecutors said.
Meanwhile, investigators have evidence that shows ASD’s internal software system described payments to members as “ROI,” an acronym that that means “return on investment,” prosecutors said.
The assertions by prosecutors — if proven true — may undermine ASD’s defense strategy of arguing it was an “advertising” program, not an “investment” program.
Prosecutors did not identify by name the surf allegedly contemplated for Costa Rica. In late 2008 and early 2009, a surf with close ASD ties known as AdViewGlobal (AVG) debuted. The launch occurred about four to five months after the U.S. Secret Service seized $65.8 million from the personal bank accounts of Bowdoin in August 2008.
Bowdoin’s trip to Costa Rica occurred before the ASD seizure, prosecutors said. If true, the claim could be used to prove ASD was seeking an exit plan even before the Secret Service raid. In 2008, prosecutors asserted that Bowdoin had moved millions of dollars offshore and talked about purchasing a home in another country.
AVG purported to operate from Uruguay, but had servers that resolved to Panama. Some ASD members have said Bowdoin was a silent partner in AVG.
Prosecutors described the “ROI” development as just another ASD incongruity, advising U.S. District Judge Rosemary Collyer that Bowdoin was well aware that a serious securities challenge could be made against his firm and chose to ignore the risk and misinform members.
Beginning as early as January 2007, “[O]thers warned Bowdoin that ASD was nothing more than an investment scheme and that the program needed to be changed if it were to operate legally,” prosecutors argued in a brief to Collyer. “Bowdoin did not heed that advice and continued unabated in offering members higher returns than banks or brokerage firms. Moreover, based on his prior criminal experience, Bowdoin was well aware of the securities regulations and knew he was offering a security.”
Any argument that ASD was not offering “investment contracts” as defined under the Howey Test should be dismissed, prosecutors said, arguing that ASD meets all three prongs of the Howey Test.
Bowdoin sought about three weeks ago to have the criminal charges filed against him dismissed, arguing that ASD met none of the three Howey prongs.
Nonsense, prosecutors said.
ASD’s advertising was “merely a cover for Bowdoin’s sale of a get rich quick scheme,” prosecutors said.
And prosecutors also cited other alleged proof that ASD was running an investment program — namely that some employees were being paid in ASD “ad packs.”
“Bowdoin and the employees of ASD treated the ‘ad packages’ as shares from which they could expect to earn returns,” prosecutors argued.
Prosecutors also pointed out a section of ASD’s Terms of Service that stated the firm “will” pay members 125 percent of the money they paid in. At the same time, prosecutors quoted video evidence of Bowdoin wooing members by focusing on ASD as a money-making opportunity.
Bowdoin, prosecutors said, eventually limited the amount of money investors could pay ASD “because he did not want any one member dominating the return pool.”
The prosecution’s assertions occurred against the backdrop of dozens of competing claims by ASD members who filed pro-se pleadings in the civil portion of the case that asserted the government had no “EVIDENCE.”
Members made the claim despite the fact that some of the evidence against ASD had been part of the public record for more than a year at the time the claims were made in 2009.
In a footnote to Collyer, prosecutors said they’d be happy to present the actual video of Bowdoin making various claims instead of simply quoting from a transcript.
“[T]he government’s review of ASD’s bank records revealed that of the approximately $31 million ASD paid out to early members, more than 98% of that money came from monies paid to ASD by other members,” prosecutors said.
Although ASD claimed to have funding sources beyond advertising payments made by members — things such as banner ad sales and ebooks — those outlets provided only de minimis revenue, prosecutors argued.
“Each night, there was nothing more than new members funds to divide among existing members,” prosecutors argued. “Moreover, Bowdoin himself admitted, on video, that members funds are pooled and they will share in the profits and losses equally.
“Specifically, Bowdoin, in the ‘New Member Success Video,’ claimed that “[w]hen sales increase, the rebates increase. When sales decrease the rebates decrease . . .”
“Clearly Bowdoin, through ASD, was pooling all of the member’s funds which allowed him to make the requisite return payments,” prosecutors said.
Prosecutors also argued that the ASD case should remain in Collyer’s courtroom in the District of Columbia. Bowdoin argued that the case should be transferred to Florida, in part because he and many witness live there.
Although prosecutors agreed that many prospective witnesses live in Florida, they argued that witnesses reside in multiple jurisdictions because of the national and international scope of the case.
In addition to Floridians, witnesses the government may present hail from the District of Columbia, North Carolina, Nevada, Oklahoma, Iowa and elsewhere, prosecutors asserted.
ASD also had members from at least 18 countries, and conducted “rallies” in Illinois and Minnesota, among other states, prosecutors said.
Read Bowdoin’s claims that the charges against him should be dismissed and that ASD did not meet any of the three Howey Test prongs.
BULLETIN: In an argument that almost certainly will give comfort to operators of some of the most corrupt and insidious businesses on the Internet, AdSurfDaily President Andy Bowdoin has advised a federal judge that his company and business practices are legitimate because they stand up to scrutiny when the “Howey Test” is applied.
Bowdoin, 77, made the argument despite the fact the government claims that he signed a proffer letter at least two years ago in which he acknowledged ASD was operating illegally and that the prosecution’s material allegations were all true. In 2009, Bowdoin acknowledged in his own court filings that he had made statements against his interests over a period of at least four days in the hopes of avoiding a prison sentence by cooperating with investigators.
But Bowdoin now says criminal charges of wire fraud, securities fraud and selling unregistered securities as investment contracts brought against him last year “must” be dismissed. It is believed that hundreds — if not thousands — of autosurfs are operating over the Internet at any given time.
Separately, Bowdoin filed a motion to transfer the case to the Northern District of Florida’s Tallahassee Division from the District of Columbia, saying that trying the case in Florida was the fair and most cost-effective thing to do. The government is expected to oppose Bowdoin’s bid to move the case from Washington to Tallahassee.
U.S. District Judge Rosemary Collyer, who was assigned the civil forfeiture case against Bowdoin’s assets after the U.S. Secret Service raided ASD in August 2008 and ordered $65.8 million found in Bowdoin’s personal bank accounts ceded to the government after nearly a year and a half of litigation, also was assigned the criminal case. Criminal charges against Bowdoin were announced in December 2010.
Although Bowdoin previously claimed Collyer was biased against him and sought unsuccessfully to have her removed from the civil case, he has not raised the issue of bias so far in the criminal case. Instead, he petitioned Collyer for an order that would remove the case from her courtroom and put it in the hands of a federal judge in Florida, arguing that most of the witnesses in the case resided in Florida and that hearing the case in Collyer’s court would force unnecessary costs and transportation burdens on both Bowdoin and witnesses.
An affidavit signed by Bowdoin requesting the transfer was filed yesterday. It appears to have been notarized by Judy Harris of Tallahassee, whom some ASD members said operated the AdViewGlobal (AVG) autosurf with her husband, George Harris. George Harris is the son of Bowdoin’s wife, Edna Faye Bowdoin, and a Tallahassee home owned by the Harrises was seized in an ASD-related forfeiture complaint filed in December 2008.
Both George and Judy Harris benefited from the ASD Ponzi scheme because a $157,000 mortgage on their house was retired with Ponzi proceeds, prosecutors said in December 2008.
The Harrises also received a car valued at nearly $30,000 from the scheme, and the car also was paid for with Ponzi proceeds, prosecutors said.
Florida records show that Judy Harris has been a licensed notary since at least October 2008. Why she would notarize a document for Andy Bowdoin when she, her husband and her mother-in-law were alleged to have been a beneficiaries of the ASD Ponzi scheme was not immediately clear.
AVG, which purported to be headquartered in Uruguay and launched after the seizure of assets linked to Bowdoin and the Harrises, suspended payouts to members in June 2009. The surf blamed members’ greed for its problems. The name of Judy Harris also appears in a document filed in April 2009 with the Florida Department of State that canceled the fictitious registration of AVG, which also was known as the AV Global Association.
Andy Bowdoin’s New Argument
Prosecutors have not responded to Bowdoin’s new assertion filed yesterday that ASD can stand up to Howey Test scrutiny. A blistering response is expected in the days ahead because a ruling in Bowdoin’s favor to dismiss the case or an outright win by Bowdoin at trial could have grave economic and security implications for the United States.
Autosurfs operate in the darkest corners of the Internet, fueled by corrupt promoters and scammers who position them as legitimate “advertising” businesses that share revenue with participants. Untold sums of money — believed to be in the billions of dollars — have disappeared in recent years, and prosecutors say the enterprises operate as virtually pure Ponzi schemes.
Purveyors almost certainly would view any win by Bowdoin as a mandate that legalized Internet-based Ponzi schemes and created a virtual license to collect vast sums of money and simply pocket it by claiming member payouts, which ASD called “rebates,” were not guaranteed.
“[N]o guarantee or promise of any profits, any specific level of rebate payouts, or return on an alleged ‘investment’ occurred during the AdSurfDaily operation,” Bowdoin claimed. He also asserted that the allegations against him were Constitutionally vague and that none of the four civil cases brought against autosurfs — 12DailyPro, PhoenixSurf, CEP Holdings and the forfeiture case against ASD’s assets filed in 2008 — has clarified the legal issues.
“As none of these actions has proceeded to final judgment, no judicial opinion has yet clarified whether payment of membership fees by advertisers into auto-surf businesses constitute unregistered sales of ‘securities,’ as alleged by the government,” Bowdoin claimed.
The criminal charges “must be dismissed because the ad-surf business model employed by AdSurfDaily, Inc. and [Bowdoin’s] related businesses, as alleged in the indictment, cannot constitute an SEC-regulated ‘investment contract’ security as defined under the three-prong test established” by Howey, Bowdoin argued.
The Howey Test is a threshold securities test and litigation benchmark from the 1946 U.S. Supreme Court decision in S.E.C. v. W.J. Howey Co. The decision spoke to the issue of what constitutes an “investment contract.”
Bowdoin now claims the entire case against him is fatally flawed because he never sold investment contracts as defined under Howey.
“[T]he Howey test,” Bowdoin argued, “determines whether a particular instrument or transaction is a prohibited, unregistered ‘investment contract’ by searching for the presence of three factors: ‘(1) the investment of money (2) in a common enterprise (3) with an expectation of profits to be derived solely from the efforts of the promoter or a third party.”
ASD did not meet any of the three prongs of the Howey Test, Bowdoin argued.
It was not an investment because ASD was an advertising company, not an investment company through which participants placed money at risk in anticipation of profit, Bowdoin argued. Therefore, he asserted, ASD did not meet the first Howey prong.
Meanwhile, Bowdoin argued that ASD did not meet the second prong because participants did not place their money in a “common pool” put at risk in expectation of a profit.
“[T]here was no ‘common enterprise’ at work here,” Bowdoin argued.
And because ASD members had to click on ads and view them to get paid, they performed “actual efforts,” taking the third prong of the Howey Test out of play, Bowdoin claimed.
“Here, the payment of both rebates and referral commissions were directly tied to the actual efforts of the advertisers,” Bowdoin argued.
Prosecutors, though, asserted in the ASD forfeiture case that ASD told investors that rebates “will” be paid until investors received back 100 percent of the money they plowed into the scheme, plus a profit of 25 percent.
Gerald Nehra, an attorney and expert witness for ASD in the forfeiture case, conceded under cross examination in 2008 that the ASD Terms of Service specified that rebates “will” be paid.
Bowdoin’s most recent arguments also put him with odds with dozens of ASD members who claimed in court filings that the government had no “evidence” and no “witnesses.”
In his filings yesterday, Bowdoin said he believed that the “vast majority” of the prosecution’s witnesses resided in Florida. He said he planned to counter them with witnesses of his own — as many as 136 — including George and Judy Harris, Rob Cefail of InTouch Marketing of Clearwater, and Tari Steward, who also provided Clearwater-based marketing services.
At least 56 of ASD’s witnesses were ASD employees, Bowdoin said. The document was notarized by Judy Harris.
A federal judge in Texas has ruled that investments in the alleged Bitcoin Savings and Trust HYIP Ponzi scheme met all three prongs of the Howey Test and constituted an “investment contract” under federal securities laws.
