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Tag: MoneyMakerGroup

  • Affiliate Links Show That Surf’s Up Mod And ASD Members Hold High Positions In Upstart Surf: Things To Consider If You Are Tempted To Join AdPayDaily

    Alfred E. Neuman: From Wikipedia.

    Dear Readers,

    We have received a few inquiries about a new surfing program called AdPayDaily (APD). Our initial take is that the program is a dressed-up version of AdSurfDaily, AdViewGlobal, BizAdSplash and AdGateWorld and that the operators are persuaded they’ve found a word combination and legal structure that will neutralize critics and law enforcement should concerns about the sale of unregistered securities and a Ponzi and pyramid scheme be raised.

    AVG, BAS and AGW were positioned by former ASD members as offshore “clones” of ASD. APD, like ASD, appears to be operating in the domestic United States.

    In our view, APD’s presentation raises numerous red flags. At a minimum, it is starting out as an MLM absurdity, if not a potential monstrosity. To get a flavor of the absurdity, imagine that Walmart was clueless enough to start an autosurf and provide a corporate-approved greeter who says, “Welcome to Walmart Pay Daily. We count all the money out of sight in the back room at midnight to determine how much you get, and keep 50 percent of the cash for ourselves. Don’t worry. We have excellent lawyers, and we’ve instructed the money-counter not to rip you off.”

    That’s effectively what APD is saying.

    Another red flag is the fax number listed on a document APD refers to on its website as “Ad Pay Daily’s Conference Registration Form For July 30th and 31st 2010.” The fax number is listed online as a number used by a Kansas real-estate flipping company billed as National Flips. Like APD, the National Flips domain registration is hidden behind a proxy, although the website says this: “To learn how to become a Hard Money Lender and earn 30+% per annum, call [a telephone number] . . .”

    Meanwhile, the invitation for the APD conference that uses the National Flips fax number says this — not once, but twice: “Any person who does not provide photographic proof of identity will not be permitted to attend this event, so don’t forget your photo ID.”

    Why a photo ID would be required to attend a sales pitch for an advertising company is left to the imagination. Undercover Secret Service agents have been known to attend such functions, however.

    Virtually every autosurf that has come along has used strange approaches or applied language tweaks designed to skirt securities laws, disarm critics and sanitize the “opportunities” for prospects. Serial autosurf promoters are infamous for telling prospects that a particular surf has found the magic pill that makes everything legal. Historically they rely on the surf operators to provide a legal cover. When things go south, they claim no one can blame them for promoting the schemes. After all, they relied on the assertions of the operators that everything was above-board and legal. They have been disingenuous in the same way that Alfred E. Neuman, Mad magazine’s fictional mascot, was disingenuous.

    “What, me worry?”

    Worry, however, appears to be front-and-center at APD, which is preemptively denying in multiple places that it is a Ponzi scheme. This strikes us as a big red flag. There are others.

    ASD, Surf’s Up Members Become APD Players

    During its early research into APD, the PP Blog has determined that a number of members of the alleged AdSurfDaily autosurf Ponzi scheme have high positions in the APD venture. Some of the former ASD members hold more than one position in the top 80 positions in APD, including a former Surf’s Up Mod who appears to hold positions 76 and 77. It is possible that another Surf’s Up Mod also is high up in the pecking order of APD affiliates at No. 56.

    The Blog determined the names of APD promoters by researching the method by which APD creates affiliate links. At least one ASD member who made himself part of the ASD Ponzi litigation by submitting pro se pleadings holds positions 9 and 10 in APD, according to the affiliate links.

    Surf promoters are not fond of pointing out the pain of previous prosecutions of autosurfs and the time-consuming and expensive litigation involving both the government and court-appointed receivers that may occur when a surf collapses. It is not uncommon for millions of dollars to go missing in a surf.

    ASD’s Andy Bowdoin has told members that he has spent more than $1 million in his legal defense. Nothing (other than GIGO passed along by promoters) suggests Bowdoin was a man of means prior to the Secret Service raid on ASD’s headquarters in August 2008. His money for his defense appears to have come from ASD members. On a side note, Bowdoin tried to persuade members in September 2009 that the million dollars he dropped to keep himself out of prison was for their benefit. At the same time, he claimed his fight with the government was inspired by a former Miss America.

    ASD gathered at least $65.8 million. When the sum seized in the Golden Panda Ad Builder action, which is part of the ASD litigation, is factored in, the number surges to more than $80 million. That’s a big number, of course — one that shows why others want to start surfs and just tweak and tweak and tweak in search of the elusive magic pill.

    APD’s website was registered on Nov. 18, 2008. That’s just one day before U.S. District Judge Rosemary Collyer ruled that ASD had not demonstrated it was a lawful business and not a Ponzi scheme. APD’s domain-registration date also coincides with a string of registration dates by the so-called ASD clones:

    • Aug. 18, 2008: Domain name for AdGateWorld registered. (About two weeks after the ASD raid by the U.S. Secret Service, which is working in concert with the IRS and federal prosecutors.)
    • Sept. 22, 2008: Domain name for AdViewGlobal registered. (AVG had very close ties to ASD.)
    • Nov. 7, 2008: Domain name for BizAdSplash registered. (ASD and Golden Panda figure Clarence Busby purportedly was both the “chief consultant” and owner of BAS.)

    APD’s domain was registered just 11 days after the BAS domain was registered and only a couple of weeks before ASD declared that the now-defunct Surf’s Up forum was its official organ for ASD news. Surf’s Up became infamous for shilling for Bowdoin, fracturing the facts of the ASD wire-fraud and money-laundering case and misinforming members.

    Each of the surfs in the bullet points above failed spectacularly. Each of them blamed members for their problems. Each of them had promoters and members in common with ASD. Each of them also offered various “bonuses” to join — something APD is doing at the moment.

  • KABOOM! Affidavit In Pathway To Prosperity Case Paints Picture Of Wanton Criminality; Complaint References TalkGold, ASAMonitor, MoneyMakerGroup Posts; United States Throws Down Gauntlet

    Federal prosecutors serving under U.S. Attorney A. Courtney Cox of the Southern District of Illinois have thrown down the gauntlet, declaring that “[a] large percentage, if not all, HYIPs, are Ponzi schemes.”

    In a criminal complaint and accompanying affidavit that only can be described as remarkable, prosecutors and the U.S. Postal Inspection Service said the Pathway To Prosperity (PTP) HYIP was operated by a man with convictions for selling and cultivating drugs and driving the getaway car in a robbery.

    Part of the strategy of the HYIP scheme was to tell investors it was not an HYIP scheme and to trade on the purported moral fiber of operator Nicholas A. Smirnow, investigators said.

    Smirnow, 53, has a criminal past dating back to at least 1979, including convictions for breaking and entering and possession of stolen property, authorities said. Smirnow, who was charged Friday with operating an international Ponzi scheme from Canada and the Turks and Caicos Islands that gathered more than $70 million and fleeced more than 40,000 people, also told a colleague he was involved in a double homicide in Canada and claimed to have ties to organized crime in Ontario.

    U.S. and Canadian authorities are working under a Mutual Legal Assistance Treaty (MLAT) between the countries “in which both parties agreed to provide evidence to the other in criminal investigations,” prosecutors said.  “An ‘MLAT’ request was submitted by the Office of International Affairs of the U.S. Department of Justice to the International Assistance Group of the Department of Justice Canada on January 13, 2010.

    “While the Ontario Provincial Police has provided some materials to the United States Postal Inspection Service informally, as it is permitted to do under Section 3(2) of the Canadian Mutual Legal Assistance in Criminal Matters Act, the government is awaiting the production of the balance of the investigation materials by Canada,” U.S. authorities said.

    Certain records of  the Canadian payment processors AlertPay and Solid Trust Pay (STP) have been obtained by the United States, U.S. officials said.

    “STP was interviewed by the Anti Rackets Section of the Ontario Provincial Police (“OPP”),” the U.S. affidavit says. “The OPP advised [the investigating U.S. postal inspector] that STP also identified [Smirnow] as P-2-P’s principal, based upon identification documents submitted by Smirnow and communications between the two.”

    Investigators also have acquired records from International Payout Solutions (IPS), a payment processor based in Florida, authorities said.

    About 75 percent of payments made in the scheme flowed through STP, U.S. authorities said. The postal inspector said he had determined the identities of 11 people or entities that had received the most money from the scheme.

    “The largest payee of the top eleven was Tru-Mar Holdings which received $2,117,752.50,” the complaint said. “Tru-Mar Invest and Tru-Mar Holdings were names under which TMI Group, SA (“Tru-Mar”) operated. According to documents submitted by Tru-Mar to IPS, the principal of TMI Group, SA was E.M.”

    A second big winner was a company in Sweden referred to as “SV Holdings” and operated by “SV.”

    “The third largest payee is a company owned by someone I will refer to as ‘K.B.,” the postal inspector said in the affidavit. “K.B. received over $500,000 from P-2-P. K.B. was the owner of a web site that touts high yield investment programs. From the nature of K.B.’s business, it does not appear likely that P-2-P funneled $500,000 to K.B. to make legitimate investments on P-2-P’s behalf.”

    Other payees in the top 11 included “CWM from Oregon, JP from Florida, and CM of Washington State,” according to the complaint. Because the investigator could not contact some of the winners, they were not referred to either by names or initials in the complaint.

    Although Smirnow claimed not to be operating an HYIP scheme, the claim was a lie. Posts on forums such as ASA Monitor, TalkGold and MoneyMakerGroup sought to sanitize the scheme, authorities said.

    Not only was P2P an HYIP Ponzi scheme, it was operating in virtually every corner of earth, authorities said.

    “[Smirnow,] a Canadian citizen, was a resident of the Greater Toronto Area in the Province of Ontario, Canada,” prosecutors said. “When his scheme was first hatched, it was operated out of a rented house in Baysville, Ontario, which served as both his office and personal residence. Sometime around September 2007 [Smirnow] diverted approximately $315,000 Canadian in investor funds to purchase a substantial personal residence. He later fled Canada for the Philippines when his scheme began to unravel and also transferred some of P-2-P’s money to the Philippines as well.”

    The scheme was almost unimaginably widespread, the U.S. Postal Inspection Service said in an affidavit.

    “Financial records of payment processors utilized by P-2-P to collect investment funds from investors show that approximately 40,000 investors in 120 countries established accounts with P-2-P,” a postal inspector said. “Despite the fact that the investment was supposedly ‘guaranteed, investors lost approximately $70 million as a result of [Smirnow’s] actions.”

    The probe began when the U.S. government received a referral from the Illinois Securities Department “concerning an elderly Southern District of Illinois resident who had made a substantial investment in P-2-P,” the postal inspector said in the affidavit.

    “In addition to P-2-P’s own website, I discovered that P-2-P’s investment scheme was marketed on other websites, including High Yield Investment Program forums, which I was able to access directly through the internet,” the inspector said.

    Before long, the inspector determined that the scheme cost investors losses in 48 of the 50 U.S. states, and 18 of the 38 counties that comprise the Southern District of Illinois, prosecutors said.

    Such penetration in Illinois may suggest Smirnow had a promotional arm in the state. The complaint spells out a case against conspirators “known and unknown,” and the complaint notes that family members told other family members about the scheme.

    “When P-2-P’s funds were depleted and when investors did not receive a return of their funds as they had been promised, [Smirnow] caused a posting on P-2-P’s private forum warning investors not to complain to payment processors about P-2-P’s failure to return their money or they would find themselves ‘on the outside looking in,’” prosecutors charged.

    The postal inspector has spoken to “hundreds of P-2-P investors” during the course of the investigation, according to court filings.

    “Hundreds [of people] sent me copies of printouts they had made of P-2-P’s website, postings that had been made on the P-2-P’s members forum, and internet sites touting high yield investment programs which contained postings related to P-2-P,” the postal inspector said.

    International Financial Experts Weigh In On Alleged Fraud

    Prior to bringing the P2P case, prosecutors consulted with Professor James E. Byrne, an associate professor of law at George Mason University. Byrne has been an expert witness for both the Federal Reserve and the SEC in the area of High Yield Investment Programs, according to court filings. He also is an expert in international banking and served as chair of the Group of Experts on Commercial Fraud of the Secretariat of the United Nations Commission on International Trade Law (UNCITRAL), co-chair of the UNCITRAL Symposium on International Commercial Fraud, and co-chair of the North American and European Standing Committees on Combating Commercial Fraud.

    “In my considered professional opinion, the investment scheme described in the materials that I have reviewed are not legitimate but resemble and are classic instances of so-called high yield frauds and fraudulent pyramid schemes,” Byrne said in an affidavit. “The proposed returns are excessive for even the most risky legitimate investments and are simply preposterous for investments whose principal is supposedly guaranteed.”

    “It is apparent to me that the materials and the scheme which they describe were deliberately and artfully constructed, drawing on similar scams to deceive, confuse, entice and trap would-be investors,” Byrne said.

    Another professor and financial expert, Todd T. Milbourne of the Olin Business School at Washington University in St. Louis, also consulted with the government in the case. Prior to joining Washington University, Professor Milbourne was on the full-time faculty at the London Business School from 1996 to 1999. In 1999-2000, he was a Visiting Assistant Professor of Finance at the University of Chicago.

    Milbourne also described the alleged scheme as preposterous.

    “According to Professor Milbourne, Warren Buffett, Chairman arid CEO of Berkshire Hathaway, is considered one of the best investment managers there is,” prosecutors said, referring to their consultation with Milbourne. “[Buffet’s] nickname is the ‘Oracle of Omaha.’ Between 1977 and 2009, the average return to stockholders of Berkshire Hathaway was 27.3%, more than double the average return of the S&P 500,” prosecutors said.

    “However, Warren Buffet’s performance pales in comparison with the supposed financial acumen of [Smirnow], who claimed to be capable of achieving annual returns exceeding 500% in all four of his plans, more than twenty times better than the performance of one of the best performing money managers in the world,” prosecutors said.

    Countries Affected

    The scope of the alleged scheme was described as mind-boggling.

    “In reviewing records submitted by P-2-P to payment processors, I have found accounts set up by P-2-P investors from all of the permanently inhabited continents of the world,” the postal inspector said. “P-2-P account holders, when they registered for a P-2-P account, gave addresses in the following countries . . . :  the United States, Canada, and Mexico in North America; Costa Rica, EI Salvador, Honduras and Panama in Central America;

    “Argentina, Bolivia, Brazil, Chile, Columbia, Equador, Guyana, Peru, Uruguay and Venezuela in South America; The Bahamas, Barbados, Belize, Bermuda, British Virgin Islands, Cayman Islands, Dominica, Dominican Republic, Grenada, Guadeloupe, Haiti, Jamaica, Martinique, Netherlands Antilles, Saint Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, and Trinidad and Tobago in the Caribbean;

    “Iceland, Norway, Sweden, Finland, Denmark, Iceland, the Faroe Islands, United Kingdom,
    Ireland, France, Belgium, Netherlands, Germany, Switzerland, Liechtenstein, Luxembourg, Monaco, Andorra, Portugal, Spain, Malta, Italy, Austria, Hungary, Czech Republic, Slovakia,
    “Slovenia, Romania, Bulgaria, Poland, Estonia, Latvia, Lithuania, Russian Federation, Belarus, Ukraine, Azerbaijan, Republic of Georgia, Greece, Macedonia, Croatia, Bosnia and Herzegovina, and Yugoslavia in Europe;

    “Turkey, Cyprus, Armenia, Uzbekistan, Kazakhstan, Afghanistan, Pakistan, India, Republic of Maldives, Sri Lanka, Nepal, Cambodia, Thailand, Vietnam, Taiwan, South Korea, North Korea, Peoples Republic of China, Peoples Republic of China Hong Kong SAR, Singapore, Macau, Indonesia, Malaysia, Philippines, and Japan, in Asia.”

    See story from earlier today that references another alleged Ponzi scheme known as Legisi, which involved more than $70 million, affected at least 3,000 investors and also was pitched on ASA Monitor, Talk Gold and MoneyMakerGroup.

  • Nicholas A. Smirnow, Pathway To Prosperity (P2P) Operator, A ‘Convicted Burglar, Robber And Drug Dealer’ Who Fleeced At Least 40,000 People In International Ponzi Scheme

    Here is how Pathway To Prosperity (P2P), operated by Nicholas A. Smirnow, was described by members of the indefatigable, Ponzi-pushing ASA Monitor forum in 2007:

    “Just talked with Nick today on the phone,” one member said. “I always enjoy talking with him — honest and straightforward.”

    “This one is a WINNER,” another crowed. “People, you don’t know what you are missing if you aren’t in this program.”

    Here is how a member of TalkGold, another Ponzi-pushing site, described P2P:

    “[T]his program will go a long way to bringing back stability to investment sites,” he wrote. “[T]his one you can trust 100% and also the admin Nick . . . come and join our happy group.”

    Here is how P2P was described by a member of MoneyMakerGroup, yet another Ponzi-pushing site:

    “[T]his is the kind of program that is needed,” the poster wrote. “p-2-p gives the little man a chance to invest and relax knowing your money will be safe at the end of the investment.”

    And here, according to the St. Louis Post-Dispatch, is how the U.S. Postal Inspection Service and federal prosecutors described Smirnow after charging him yesterday with operating an international Ponzi scheme that gathered more than $70 million and fleeced more than 40,000 people:

    “convicted burglar, robber and drug dealer who told a former employee that he was involved in a double homicide.”

    Smirnow, believed to be on the lam in the Philippines, used aliases such as Nicolay Smirnow, Alexander Judizcev, Nicholas Kachura and Jeff Prozorowiczm. The scam spread across the world, and P2P shielded itself by using a website in the Netherlands and a company incorporated in the Turks and Caicos Islands.

    Although the program pitched interest rates of up to 17,000 percent, a poster on ASA Monitor incongruously said, “This is not a HYIP — Nick does not believe in them.” Regardless, the same poster — despite his cheerleading — acknowledged he was worried “about the authorities getting in and shutting things down . . . but since it is not a site being heavily promoted like CEP and not so open, it may keep under the radar . . .”

    CEP was yet another Ponzi scheme.

    It has been an electrifying week for opponents of HYIP and autosurf frauds, who routinely are derided as “naysayers” by commission-grubbing pitchmen who spread Ponzi pain across the planet for a share of illegal profits.

    On Tuesday, the SEC announced it had charged Mazu.com operator Matthew J. Gagnon, 41, of Weslaco, Texas, and Portland, Ore., with helping “orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight . . . and his company, Legisi Holdings, LLC.”

    The Legisi scheme raised about $72.6 million from more than 3,000 investors “by promising returns of upwards of 15% a month,” the SEC said.

    Like Pathway to Prosperity, Legisi also was promoted on ASA Monitor, TalkGold, MoneyMakerGroup and other forums criminals and their shills frequent to separate people from their money.

    A U.S. warrant for Smirnow’s arrest was issued yesterday — although Smirnow is believed to have been ducking Canadian authorities for months because of an investigation into his business practices.

    Smirnow now joins Robert Hodgins — yet another international fugitive allegedly associated with the drug and HYIP trades — on the lam.

    Hodgins, who provided debit cards for the alleged AdSurfDaily Ponzi scheme and is believed also to have a tie to the PhoenixSurf autosurf Ponzi scheme and other autosurf and HYIP schemes, is wanted for helping a Colombian narco business launder money at ATM machines in Medellin and also for accepting $100,000 in purported drug proceeds for laundering money in the Dominican Republic.

    INTERPOL is searching for Hodgins.

    Read the Smirnow story in the St. Louis Post-Dispatch.

  • ONLINE PONZI FORUM BOMBSHELL: Matt Gagnon A ‘Danger To The Investing Public,’ SEC Says; Federal Judge Freezes Assets Of Mazu.com Pitchman Who Promoted Legisi, Other Alleged Scams

    Matt Gagnon of Mazu.com

    Ponzi forum operator or moderator? Online HYIP aficionado? Think you’re safe pitching fraud schemes because you’re “only” a promoter or forum “expert” and not the operator of the programs?

    Have a secret partnership deal with an HYIP fraudster? Using fancy, professional-sounding terms such as “due diligence” in your forum posts? Claiming you’ve done thorough research before recommending an “opportunity.”

    Pitching programs that advertise unusually large returns — while at once showcasing your knowledge about investment scams and steering people away from certain programs because they sound too good to be true?

    In an action that may send shockwaves across the Web world and Ponzi forums such as ASA Monitor, TalkGold and MoneyMakerGroup, the SEC has gone to federal court and filed an emergency action to halt “a series of fraudulent, unregistered securities offerings” made through Mazu.com.

    U.S. District Judge George Caram Steeh of the the Eastern District of Michigan has frozen the assets of Matthew J. Gagnon, 41, of Weslaco, Texas, and Portland, Ore. Gagnon is Mazu.com’s operator.

    “From January 2006 through approximately August 2007, Gagnon helped orchestrate a massive Ponzi scheme conducted by Gregory N. McKnight . . . and his company, Legisi Holdings, LLC,” the SEC said.

    The Legisi scheme raised about $72.6 million from more than 3,000 investors “by promising returns of upwards of 15% a month,” the SEC said.

    “Gagnon promoted Legisi but in doing so misled investors by claiming, among other things, that he had thoroughly researched McKnight and Legisi and had determined Legisi to be a legitimate and safe investment,” the SEC said.

    Among other things, the SEC alleged that Gagnon “had no basis for the claims he made about McKnight and Legisi.

    “Gagnon also failed to disclose to investors that he was to receive 50% of Legisi’s purported ‘profits’ under his agreement with McKnight,” the SEC said. “Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.”

    Then, beginning in August 2007, “Gagnon fraudulently offered and sold securities representing interests in a new company that purportedly was to develop resort properties,” the SEC said.

    In this scheme, Gagnon “falsely claimed that the investment was risk-free and ‘SEC compliant,’ and guaranteed a 200% return in 14 months. In reality, however, Gagnon sent the money to a twice-convicted felon, did not register the investment with the SEC, and knew such an outlandish return was impossible,” the SEC said.

    Gagnon took in at least $361,865 from 21 investors, the SEC said.

    Still unfinished, Gagnon — in April 2009 — began promoting “a fraudulent offering of interests in a purported Forex trading venture,” the SEC said. “Gagnon guaranteed that the venture would generate returns of 2% a month or 30% a year for his investors. Gagnon’s claims were false, and Gagnon had no basis for making the claims.”

    Gagnon next turned to another Forex sceme, the SEC said.

    From October 2009 to November 2009, Gagnon “offered another purported Forex trading venture in which he claimed to have a trader in Europe who would trade foreign currencies for investors in exchange for 40% of any profits he generated,” the SEC said. “Gagnon removed this offer from his website in November 2009 when he received notice that the SEC had subpoenaed his bank records.”

    Despite his knowledge about Ponzi and fraud schemes, Gagnon repeatedly pitched such schemes, the SEC said.

    “Gagnon has been unrelenting in his efforts to raise money from the public through
    fraudulent, unregistered offerings,” the SEC said. “He remains a danger to the investing public.”

    Despite his sales pitches, “Gagnon has never been associated with a registered broker-dealer and has never been registered with the Commission as a broker or dealer or in any other capacity,” the SEC said.

    Among the people to whom Gagnon directed money was the late Bryan K. Foster, who was convicted in 1997 of five felony counts of wire fraud and sentenced to 41 months in prison. These convictions were recorded in U.S. District Court in Montana, according to records.

    In 2000, Foster was convicted in Colorado of one felony count of wire fraud and sentenced to five years in prison, according to records.

    Between July 13, 2007 and September 17, 2007, Gagnon sent at least $800,000 to accounts in the name of Trails Home LLC, which was controlled Foster, the SEC said. Money from the illegal Legisi program was included in the sum transferred to Foster for his purported investment program, the SEC said.

    The Legisi Program

    In 2005, McKnight was an underemployed General Motors worker living outside Flint, Mich., the SEC said, adding that he had financial problems.

    “In December 2005, McKnight began offering and selling interests in a pooled investment program variously called Legisi.com or Legisi,” the SEC said. “McKnight promoted the offering around the globe through an Internet website at www.legisi.com,” promising monthly returns of up to 15 percent.

    By February 2006, “McKnight incorporated a shell company called Legisi Holdings, LLC in the bank-secrecy haven of Nevis in the West Indies,” the SEC said.

    “McKnight asserted on the Legisi website that the Legisi program was merely a ‘loan program’ through which investors would ‘loan’ money to Legisi and, in return, Legisi would pay investors high rates of interest.

    But Legisi actually was “a classic pooled investment vehicle, in which investors invested money into a common venture with the expectation that the money would be used to generate profits, for McKnight and the investors, solely through the efforts of McKnight or others working on his behalf. The Legisi program was a security in the form of an investment contract,” the SEC said.

    “The Legisi program was also a massive Ponzi scheme,” the SEC said.

    In January 2006, McKnight and Gagnon discussed a deal by which Gagnon would promote Legisi on the Mazu.com website, the SEC said.

    “McKnight and Gagnon had known each other for several years after Gagnon recruited McKnight into a multilevel marketing business called ‘Mannatech,’” the SEC said. “McKnight became part of Gagnon’s ‘down line,’ meaning that a portion of McKnight’s commissions from selling Mannatech products went to Gagnon.”

    McKnight paid Gagnon “a total of approximately $4,532,512 between January 29, 2006 and April 14, 2008,” the SEC said. “All of the money Gagnon received from McKnight consisted of investor funds. There were no ‘profits’ generated by Legisi.”

    Gagnon netted about $3.8 million in the scheme, the SEC said.

    “On behalf of McKnight, Gagnon solicited investors around the world through the publicly available Mazu.com website,” the SEC said. “Gagnon wrote and/or reviewed and approved the content of the Mazu website. No valid registration statement was filed or was in effect with the Commission in connection with Gagnon’s offer and sale of Legisi program investment contracts.”

    SEC: Forum Moderators Helped Push Ponzi Scheme

    “Between approximately January 2006 and August 2007, Mazu employees working on Gagnon’s behalf and at his direction promoted the Legisi program in emails, in Mazu Business Packs and DVDs they sent to investors, and on the Legisi Forum,” the SEC charged.

    “The Legisi Forum was an on-line chat room accessible through the Legisi.com website. Several Mazu employees served as ‘moderators’ on the Legisi Forum. Mazu’s support services also included answering questions over the telephone and email,” the SEC said.

    Forum shills performed services for Legisi and deflected concerns when CNN carried a negative report on the company, the SEC said.

    “The Mazu employees acting as moderators encouraged readers to invest in Legisi, assisted them in transferring money to Legisi, encouraged investors to bring in new investors, and offered investors personal assistance in bringing in referrals,” the SEC said. “They also encouraged investors to keep their monthly earnings with Legisi, rather than withdrawing them, in order to achieve purportedly higher returns. They made sure transfers of money between investors and Legisi went smoothly. The moderators updated investors on changes to the Legisi program like new minimum investment amounts and referral fee rules.

    “The moderators made posts on the Legisi Forum to prevent and diffuse investor rumors and concerns,” the SEC continued. “After an article questioning Legisi’s legitimacy appeared on the CNN Money website on May 8, 2007, one moderator wrote, ‘I think it is worth mentioning that the Forum is probably being read by people who are not Legisi members. So let’s not raise red flags to any bulls out there shall we. . .. Of course so far as any discussion on the [CNN Money] article is concerned I’m sure that everyone is aware that Greg went into Legisi knowing the law and planning for this eventuality. So keep a cool head and stop worrying about what you should do.”

    No Due Diligence

    McKnight was operating a classic Ponzi scheme fueled in part by Gagnon’s cheerleading on Mazu.com, the SEC said.

    Despite the relentless hype, Gagnon performed no due diligence and simply fabricated information or passed along claims as though they were factual, the SEC said.

    “Gagnon did not obtain or review any of McKnight’s trading records, bank and brokerage account statements, or e-currency account records at any point prior to, or during, Gagnon’s promotion of Legisi,” the SEC charged.

    SEC: Gagnon ‘Recklessly Disregarded’ Scam Warning Signs

    “Throughout the time that Gagnon promoted Legisi, he simultaneously warned readers about a type of fraud referred to as a high yield investment program. High yield investment programs, commonly called ‘HYIPs,’ typically involve off-shore companies promising very high rates of interest generated by investment in foreign currencies and a variety of other vehicles, along with repeated hyping of the legitimacy of the program,” the SEC said.

    Gagnon understood the HYIP fraud universe, but nevertheless pitched Legisi, which had promoted an unusually high rate of return and had other markers of the exact kind of scam Mazu.com warned about on its website, the SEC said.

    “From at least April 2006 through at least May 2007 Gagnon provided on the Mazu website an accurate description of a HYIP by stating that they (emphasis added by PP Blog):

    collect funds from lenders as investment capital or deposits and promise a return that is usually extremely high in exchange for ‘borrowing your money.’ The result? Generally after a period of time you are free to withdraw your capital and or your profits, or you can ‘reinvest’ them to earn additional profits. In theory, the compounding can create a crazy return on investment given time . . .

    * * * * * *

    Sadly, most HYIPs are offshore fronts that don’t lie within U.S. jurisdiction and you have no recourse when they steal your money. Most HYIPs realize this and they bank on it! They’ve got you right where they want you. Most also allude to making their profit in legitimate investment vehicles when in reality, you have no idea where they’re making their profit.

    And Gagnon also warned readers about Ponzi schemes.

    “On the Mazu website between at least April 2006 and May 2007, Gagnon accurately described a Ponzi scheme as an ‘investment program touting huge returns in a short period of time. Any returns someone sees are paid out of monies gathered from the investors. No real product, investment, or business takes place,’” the SEC said.

    The Legisi Ponzi began to unravel by September 2007, its decay brought about in part by “the federal seizure of an e-currency provider that was holding $1.8 million for McKnight,” the SEC said.

    Gagnon then “attempted to extort money from McKnight,” the SEC said.

    “On September 9, 2007, Gagnon informed McKnight that he was ending the partnership between Legisi and Mazu,” the SEC said. “Gagnon offered McKnight a choice: send Gagnon and several of Gagnon’s associates approximately $2.5 million, tell the Legisi members that Gagnon was starting a real estate fund, and that Mazu and Legisi were parting amicably, or Gagnon would email the entire Legisi membership and tell them ‘the truth’ about McKnight’s fraud.”

    Read the SEC complaint.