The litigation against INetGlobal amid Ponzi scheme allegations is turning into a legal slugfest in multiple venues. On one side, federal prosecutors are seeking to disqualify INetGlobal attorney Mark Kallenbach, claiming that he is attempting to be both a lawyer and a witness in the same case.
Now, employees of INetGlobal are seeking a protective order that effectively would block the U.S. Secret Service and other law-enforcement agencies “from contacting these represented individuals and requesting interviews.”
Attorney Paul Engh filed the motion in federal court on behalf of INetGlobal’s 70 employees, arguing that he is the gatekeeper for the employees’ legal interests and that the government has approached an unspecified number of employees without going through him.
“These approaches have been made on a cold-call basis, at [employees’] homes, at night or in the early morning hours, and all without notice to counsel,” Engh said in a brief.
His request that the practice stop was “refused,” Engh argued, asserting that the government claims “that since the employees are on laid off status. . . they are no longer employees.”
“Having been an employee is a status that doesn’t disappear because the Government wants it to,” Engh asserted. “None were fired.”
At least one employee — Donald Allen, a former vice president of a company related to INetGlobal and its operator Steve Renner — said earlier this week that he had his own attorney and was cooperating with the Secret Service and federal prosecutors.
Allen said he was approached by the Secret Service, which appeared at his home unannounced a week ago today, and was asked by the agency if he wanted an attorney. Allen said that he answered yes, and described his first meeting with the agency as “excellent.”
Allen said he was advised he had “exposure” in the case. He denied he had done anything wrong, saying he was not privy to INetGlobal’s internal financial workings.
On Tuesday, Allen said he had a second meeting with the Secret Service April 26, adding that he is cooperating in the investigation “100 percent.”
Also on Tuesday, Steve Renner went to Hennepin County Court in Minneapolis and obtained a restraining order against Allen, claiming that Allen was harassing and threatening him and trying to extort $100,000 from the company.
Allen said that what Renner claimed to be extortion was actually an attempt to work out a severance package.
The extortion claim was the second against a former INetGlobal employee. Former CEO Steven Keough was accused in court filings by Renner last month of trying to extort $500,000 from the company. Keough may be the government’s star witness in the case. The Secret Service said Keough had come to believe that Renner had hired him to be a “good face” for the company and that Renner had fired him for asking too many questions.
Engh argued in his brief yesterday that the government appeared to be ignoring his duty as counsel to INetGlobal employees “on some federalist notion of superiority or entitled sense of un-accountability.”
Separately, some members of INetGlobal have asserted the government is not playing fair. Similar claims were made in the prosecution of the assets of the AdSurfDaily autosurf. The government ultimately won three separate orders of forfeiture totaling more than $80 million in the ASD case.
ASD President Andy Bowdoin, whose company has been linked to international fugitive Robert Hodgins, who allegedly laundered money for a Colombian drug cartel, has filed an appeal. The ASD case has been in litigation since the Secret Service raided the company’s Florida headquarters in August 2008. The ASD case is referenced in filings by the prosecution in the INetGlobal case that allege an undercover agent was introduced to INetGlobal by an ASD member who promoted the program despite describing it as a wink-nod enterprise.
Renner, who was convicted in December of four felony counts of income-tax evasion and is awaiting sentencing, has not been charged in the INetGlobal case. The government seized about $26 million in its investigation into Renner’s business practices, and prosecutors have argued that Renner is attempting to get the government to expose its case before a formal action is brought.
Renner has denied wrongdoing, and the companies have said they are legitimate enterprises.
Former INetGlobal CEO Steven Keough now has some company on the list of people alleged to have tried to extort money from the Steve Renner family of companies.
Renner went to court yesterday in Minnesota to seek a restraining order prohibiting Donald Allen from harassing him. The order was granted after Renner asserted Allen tried to extort $100,000 and had engaged in a pattern of abusive behavior, including raising “havoc” with employees, threatening “to destroy him and his family,” posting libelous and defamatory material on the Internet and engaging in verbal harassment.
Allen also was accused to taking pictures of Renner’s offices and employees without their consent.
“[Allen] has attempted to extort $100,000 from Petitioner’s businesses [and] if not paid will go to the FBI and Secret Service,” Renner asserted.
A judge ordered Allen not to harass Renner, not to have any contact with Renner and to stay away from Renner’s home. The judge also ordered Allen to stay one “city block” away “in all directions” from Renner’s businesses in Minneapolis.
Should Allen violate the order, he could be arrested, jailed for up to 90 days and fined up to $1,000, according to the order. Subsequent violations of the order could result in stiffer measures, including the filing of felony charges that could land Allen in jail for for up to 10 years and force him to pay a fine of up to $20,000.
Allen is referred to in court papers as a previous employee of a Renner company.
In a story published yesterday on the PP Blog, Allen said he was cooperating with the U.S. Secret Service “100 percent” in a probe of Renner’s business practices. The Secret Service said in February that it believed Renner was operating a Ponzi scheme and engaging in wire fraud and money laundering.
Renner has not been charged with a crime and denies wrongdoing. Allen was vice president at V-Newswire, one of the “V” entities in the Renner family of companies. The Secret Service said in February that Allen had given confusing information to a customer of INetGlobal, another Renner entity.
Allen denies wrongdoing, and now says he has met with the Secret Service twice and is cooperating fully in the Ponzi probe. The first meeting with the Secret Service occurred Friday, after agents showed up unannounced at his home, Allen said yesterday.
In March, Renner accused Steven Keough, the former CEO of INetGlobal, of trying to extort $500,000 from the company. Keough may be the government’s star witness if charges are filed.
“This is the same move they tried on Steve Keough,” Allen said this morning. “I never tried to extort anything.”
BULLETIN: The vice president of marketing and public relations for V-Newswire — an entity in the Steve Renner family of companies — said he will cooperate “100 percent” with federal prosecutors in the INetGlobal Ponzi scheme investigation.
Donald W.R. Allen II said this morning that he has met with the U.S. Secret Service twice in recent days. Allen added that he believed INetGlobal had maligned former company CEO Steven Keough in the days following a Feb. 23 raid at the company’s offices in Minneapolis.
“I respect [Keough] highly,” Allen said. “Keough had the corporate skill . . . to make sure everything was in compliance,” but the company saw him as a “threat,” Allen said.
Allen said this morning that he had an “excellent” meeting Friday with the Secret Service after agents showed up unannounced at his home.
“I have nothing to hide,” Allen said. “I will cooperate 100 percent.”
A full story will appear in a separate post later this morning . . .
Denying it was a Ponzi scheme, INetGlobal says a federal judge should release about $25 million, business records and computer equipment seized in an investigation by the U.S. Secret Service last month because the property was “unlawfully seized.”
Meanwhile, INetGlobal has accused its former chief executive officer — whom it describes as a “informant” who lied to the Secret Service — of hatching a plot to extort $500,000 from the company about seven weeks prior to the Feb. 23 raid.
Steven Keough, the former CEO, could not be reached for comment on this story.
INetGlobal also accused the Secret Service of lying.
At the same time, the company said it was part of a family of companies that are “clean, legitimate and profitable businesses,” and it accused the government of leaking the search-warrant affidavit in the case to the media, specifically citing the PP Blog.
INetGlobal and its operator, Steve Renner, are represented by Jon Hopeman. No criminal charges have been filed against Renner or the company.
A spokeswoman for U.S. Attorney B. Todd Jones declined to comment on INetGlobal’s court filings, saying that prosecutors would litigate the case in court and not in the media.
Also filing papers for INetGlobal in the case was attorney Mark J. Kallenbach.
Government Did Not Contact PP Blog; PP Blog Did Not Contact Government
“None of the information we published was obtained as a result of the government or an agent contacting the Blog and providing information for a story,” the PP Blog said. “Nor did the Blog contact the government or an agent to obtain the information.”
An exhibit the company produced for U.S. District Judge Donovan Frank reproduced a story the Blog published at 1:41 a.m. (ET) Feb. 25. The story was based on the Secret Service affidavit, which the Blog obtained from a government website open to any person with an Internet connection.
In its court filings, INetGlobal complained that its attorneys did not get a copy of the affidavit until Feb. 26.
“As of February 25, 2010, I had tried to get a copy of the affidavit,” Kallenbach wrote. “I was informed by the U.S. Attorney’s Office it was sealed. I was not provided a copy until February 26, 2010 at 1:57 p.m., 36 hours after the press had it. Someone leaked the affidavit to the press.”
The PP Blog was the first news outlet to publish information from the affidavit.
No member of government contacted the Blog though any means to arrange for access — exclusive or otherwise — to the material. Nor did the Blog contact any member of government to seek access — exclusive or otherwise — to the material. The Blog obtained the affidavit through the normal course of its reporting.
A Fiery Defense
Attorneys for Renner, INetGlobal and Inter-Mark Corp., the parent company of INetGlobal, appear ready to come out firing.
Among the documents the attorneys plan to present to Frank is a copy of an email dated Jan. 6 from Steven Keough, the former CEO, to attorney Aaron Hall of Minneapolis.
Keough, according to the email, said he was declining to accept a severance proposal offered by the company.
“If your client, Mr. Renner, is serious about resolving this quickly and amicably, then the minimum acceptable severance payment amount must be $500,000 — payable immediately,” the email read. “This reflects the promised signing bonus of $212,000 and promised one year salary of $288,000.”
The email suggested Keough was set on the amount of $500,000 and unwilling to negotiate. Keough proposed that Hall schedule a meeting at a place convenient for Hall on Jan. 8.
“Come with a check and signable documents to the meeting location,” the email read. “After noon on Friday all bets are off as to how this matter will be handled.”
The email was signed “Thank you,” followed by the word “Regards.” Keough’s name appeared below the closing.
INetGlobal argued that the email was evidence of an extortion plot.
“On January 6, 2010, Mr. Keough attempted to extort over $500,000 from iNetGlobal,” Kallenbach argued in a brief. “He demanded payment of the money by 5:00 p.m. that day or all bets are off. According to the Secret Service’s affidavit, Keough contacted the government in this matter for the first time on January 8, 2010.”
Why Kallenbach referenced the time of 5 p.m. — and not noon, as the email referenced — was not immediately clear. Also unclear was the amount INetGlobal offered in the severance package that Keough purportedly rejected.
Whether Keough could argue the amount was too small and did not reflect his understanding of how he would be compensated should be be terminated or choose to leave the company was unclear.
In the Secret Service affidavit, Keough, an attorney and former naval officer, was portrayed as having asserted he was fired for asking too many questions and had come to believe InetGlobal owner Steve Renner had hired him to be a “good face” for the company.
Kallenbach, whose brief said Keough had been fired Jan. 5 — the day before Keough sent the email to Hall — claimed Keough had been fired for cause.
“Mr. Keough was terminated because within a month or so after being hired in late October of 2009, Mr. Keough made no progress in understanding the business, did not fit in with IMC’s rank and file, was unwilling to work with IMC’s board of directors, and attempted to take over IMC’s business from Mr. Steven Renner,” the brief argued.
Secret Service Accused Of Lying
Hopeman asserted in his brief that the Secret Service affidavit contained “intentional and reckless falsehoods” that undermined the probable cause to search.
“In this case, the entire premise of the search warrant affidavit is that little advertising was sold, little was used, and there were no legitimate advertisers,” Hopeman argued. “The search warrant affidavit states that the advertisements ranged from other multi-level marketing sites to affiliate programs, non-English websites, and even iNetGlobal’s home page . . .
“It concluded, without support, that there were ‘few legitimate advertisers,’” Hopeman argued.
At the same time, Hopeman argued that the Secret Service also omitted facts from the affidavit that were favorable to Renner.
“Keough appeared on the company’s website as of January 5, 2010 stating that he intended to recruit new customers from all around the world,” Hopeman asserted. “These are not the same words that Keough spoke to the agents days later when he claimed that the entire business was fraudulent. The agents knew this fact because it is posted on the website, which they studied. This fact if included in the affidavit would have cast substantial doubt on the credibility of the informant, who provided the principal basis for probable cause.”
Hopeman also said the Secret Service painted an unfair picture of how Renner behaved at a January INetGlobal gathering in New York. The Secret Service, which had at least two undercover agents in the room, said Renner often spoke over an interpreter even though many of the attendees had little facility in English, started a pandemonium by handing out $20 bills in exchange for $10 bills, and told at least two different stories about INetGlobal’s revenue figures.
“A viewing of the tapes show that Mr. Renner was very candid about the nature of the business,” Hopeman argued. “During these same presentations, he informed those assembled that this was not an investment, and that one could not earn money by doing nothing. He also explained the internet services that he was selling and made it clear that web hosting, domain registration, and advertising, were his products.”
In previous autosurf prosecutions, the government has argued that surf operators attempt to mask investment programs by calling them something else. Prosecutors in the AdSurfDaily Ponzi case, for example, said that the ASD program was an investment program disguised as an “advertising” program.
It is not uncommon for autosurfs to instruct members to avoid using certain words, including the words “investment” or “investing.” Some autosurf members have scolded others for using the word “investment,” which prosecutors have painted as evidence of the wink-nod nature of autosurfs.
In the ASD case, which was filed in August 2008, the Secret Service described a member speaking to an undercover agent, instructing the agent to be careful not to use certain words.
“Don’t call it investing, you know what I mean, we can get in trouble if we say that, we have to be careful,” the agency quoted an ASD member as saying.
The agency, which asserted in its affidavit in the INetGlobal case that an ASD member tried to recruit an undercover agent to join Renner’s surf, said the ASD member demonstrated the wink-nod nature of the autosurf business.
“The [ASD] member said he had previously been a member of ASD . . . and said, ‘We know what happened there,’” the Secret Service alleged in the INetGlobal affidavit. “The member said he was reluctant to join iNetGlobal due to it being similar to ASD. The member said, ‘we all know what this program is.’ The member said his daughter and wife surfed the websites and the member did not care about the services provided. The member said he just wanted to put his money in and get it out.”
Hopeman, though, said the Secret Service was wrong.
“On February 23, 2010, the United States Secret Service strapped on its guns and raid jackets, searched the premises of Mr. Renner s business, took all of its documents and computers, seized over $25 million in cash belonging to the business and its customers, put 75 people out of work, and seized the money for their paychecks and their children s health insurance,” Hopeman argued. “The sealed affidavit was leaked to the press. This was not a cocaine cartel. It was not a mafia front. It was a legitimate business.”
In the ASD case, prosecutors argued that an ASD filing to counter the government’s Ponzi assertions was”full of sound and fury, [but] signifying nothing.â€
How the prosecution intends to respond to INetGlobal’s arguments is unclear.
Hopeman was the attorney for Tom Petters, implicated in a masssive Ponzi scheme in 2008. Petters was convicted in December.
UPDATED 11:07 A.M. ET (U.S.A.) One of the undercover Secret Service agents who joined INetGlobal discovered that the company had implemented an “automatic repurchasing” program by default and that the program could not be switched off, thus distancing participants — many of whom may not have understood English — from their money.
Although it is unclear when the automatic-repurchasing program began, it was in operation in the weeks after INetGlobal owner Steve Renner was convicted on Dec. 8, 2009, of four felony counts of income-tax evasion, according to court filings.
Other filings show that another Renner company — Cash Cards International (CCI), a money-transmission business — was upside down by more than $2.5 million when a court-appointed receiver in a Ponzi scheme case sought to convert electronic credits to cash to compensate victims of the scheme.
Beginning on Feb. 1, the Secret Service agent — a woman — repeatedly tried to turn off INetGlobal’s automatic-repurchasing feature, but it “came back on” each time. The agent, who speaks and writes in English, attempted to disable the feature “several times on different days,” failing each and every time, according to an affidavit for a search warrant filed in the case.
INetGlobal had a high concentration of Chinese members who did not speak English, according to the affidavit. How they even could understand the automatic-repurchasing scheme or fully comprehend INetGlobal’s operations and English-language website is far from clear, and has led to questions about whether the company deliberately was targeting members who could not understand what they were purchasing and would have both a language and a geographic disadvantage when seeking explanations or filing complaints with authorities.
The company generated “at least” 87 percent of its revenue from the sale of memberships to members “residing in China,” according to an analysis referenced in the affidavit. The analysis was performed by an unnamed INetGlobal employee.
On Feb. 17, the undercover agent sent an email to INetGlobal customer service, asking if the feature could be turned off.
“Customer service replied in the negative,” the agent said, suggesting that the automatic-repurchasing feature was forcing participants to keep at least 40 percent of their money in the company.
In the affidavit, the Secret Service said a “high level iNetGlobal member” from Nevada was becoming increasingly frustrated by an inability to withdraw funds. The member complained to management that “for over one week [in January] they had been unable to get a money order payment from the company for value they are owed.”
“The victim contacted iNetGlobal’s customer service on several occasions only to get excuses,” the Secret Service said.
Eventually, the victim spoke with former InetGlobal CEO Steven Keough.
Keough, according to the Secret Service, told the victim on Jan. 11 to “cash out” of the system.
“We can’t cash out,” the victim said. “[I]t is not possible, due to mandatory repurchasing built into the system.â€
On the very next day — Jan. 12 — Keough, an attorney and former naval officer, met with the Secret Service. He had contacted federal prosecutors Jan. 8 to express concerns about the company’s business practices. His first contact occurred only two months after he was appointed CEO on Nov. 7, 2009, according to the affidavit.
Steve Renner’s Tax Convictions, Link To Previous Ponzi Scheme
Renner was found guilty Dec. 8 of four felony counts of federal income-tax evasion.
Prosecutors said he “diverted substantial funds” from CCI between 2002 and 2005 to pay his personal living expenses as well as to make personal investments in coins, oil wells, art, stamps, and vintage musical instruments.
CCI, which once served as a money-transmitter for a California Ponzi scheme known as “Learn Waterhouse,” used the same office facility in Minneapolis as INetGlobal, the Secret Service said.
When a court-appointed receiver in the Learn Waterhouse case attempted to get Renner to return money due Ponzi scheme victims, he explained that he could not do so because it had been “invested,” according to the affidavit.
Thomas Lennon, the receiver in the Learn Waterhouse case, met with Renner, who “provided . . . financial statements indicating that the assets of Cash Cards and Renner are insufficient to cover all outstanding vcredit balances and obligations to other creditors.
“Specifically, the statements show that Cash Cards and Renner have assets with an estimated value of $2,946,000 and an outstanding v-credit liability of $5,450,000,” Lennon said in court filings in 2007. “Renner has also informed the Receiver that he is currently being audited by federal and state taxing authorities which may result in large additional liabilities and liens on his property.”
Lennon’s name is well-known among victims of financial crimes. He also was the court-appointed receiver in the 12DailyPro autosurf Ponzi scheme.
Repurchasing programs, which autosurf operators employ to minimize the outflow of cash, are one of the oldest tricks in the Ponzi book. “Trainers” for Florida-based AdSurfDaily, implicated in a $100 million Ponzi scheme, routinely pushed a so-called “80-20” program whereby members would remove no more than 20 percent of money they were due and plow 80 percent back into the surf.
In June 2009, AdViewGlobal, an autosurf with close family, management and promotional ties to ASD, announced it was ceasing payouts and making an 80/20 program mandatory should payouts ever resume. AdViewGlobal promptly crashed and burned.
In January, according to the affidavit, Keough told investigators that he could not make sense out of what was going on inside INetGlobal and had observed instances in which Renner appeared to be gaming the payout system.
“Keough said he was concerned that large amounts of money were flowing through bank accounts related to iNetGlobal and that unusual system manipulation was being conducted by . . . Renner,” the Secret Service said. “Keough had recently been fired by Renner. Keough believed he had been fired because he continually questioned iNetGlobal’s business practices.”
On Jan. 20, according to the Secret Service, the agency received information that TCF National Bank was closing the accounts of a Renner entity known as Inter-Mark Corp. after an investigation by the bank led to “suspicions that the activity in the accounts might be money laundering,” according to the affidavit.
“TCF Bank had given notice to Renner that the accounts were going to be closed,” the Secret Service said. It is unclear if Renner ever advised INetGlobal members that the bank had closed the accounts, citing suspicions they were being used to commit crimes.
TCF prepared a cashier’s check for “for a little over $5 million,” presenting it to a Renner employee.
Later that day, the check was deposited into Bremer Bank, which also held Renner-connected accounts, according to the Secret Service.
Balances in Renner-connected accounts began “moving up sharply in August 2008,” the Secret Service said.
August 2008 was the month in which the Secret Service raided the headquarters of ASD — and the month in which Renner’s autosurf was coming onto the stage. Golden Panda Ad Builder, a surf that is part of the ASD litigation, positioned itself as a company that sought to cater to Chinese members.
Golden Panda’s operator — Clarence Busby — was implicated by the SEC in a prime-bank investment scheme in the 1990s, the same sort of scheme that engulfed Learn Waterhouse and later resulted in the determination that Renner’s CCI money-services business was impossibly upside down because he had used customers’ money to make personal purchases.
INetGlobal issued a statement yesterday that acknowledged the Secret Service probe, but did not mention Renner’s tax conviction in December or the trouble he encountered when he could not fund a payment to the Learn Waterhouse receivership estate in the Ponzi case.
“iNetGlobal offices will remain open to provide support to our 1,000’s of customers from around the world,” the company said. “iNetGlobal will continue to provide the level of quality service our customers have come to expect now and into the future.
“We would like to thank all of our Members and Customers for their support and well wishes in this trying time,” the company said.
The U.S. Secret Service observed Minnesota-based INetGlobal’s operations for weeks in January, dispatched undercover agents to join the autosurf, learned that a bank recently had closed accounts tied to the firm amid money-laundering suspicions — and already had received incriminating information from the firm’s former chief executive officer prior to executing multiple search warrants Tuesday, according to records.
Agents even traveled to a company function in New York, mixed in with the audience and observed INetGlobal owner Steve Renner, according to records. The function was known as “Freedom Conference 2010.â€
Most of the attendees were Chinese, the Secret Service said.
“[C]onference registration took a long time because nobody at the registration desk spoke Chinese, and many of the conference attendees could not make themselves understood in English,” the agency said. “There was an interpreter in the main hall, but Renner often spoke over the interpreter.”
At one point, Renner started a pandemonium by holding up $20 bills, which he began handing out to attendees in exchange for $10 bills, the agency said.
“This caused a crush of people to approach the front of the hall, and Renner eventually needed assistance moving people back,” the Secret Service said. “Renner asked, through an interpreter, how many people in attendance had their own business, and only two raised their hands.”
Steven Keough, a retired naval officer who was INetGlobal’s CEO for only weeks before being fired by Renner, contacted federal prosecutors Jan. 8 to report concerns about Renner and the company, according to court documents.
Meanwhile, the search-warrant application cites the government’s prosecution of assets tied to Florida-based AdSurfDaily and a Jan. 4 order of forfeiture by U.S. District Judge Rosemary Collyer to bolster the case against INetGlobal and related companies. The application also cites the successful prosecution of the 12DailyPro and Phoenix Surf Ponzi schemes by the SEC.
As was the case in the ASD prosecution, the Secret Service raised allegations of Ponzi fraud, wire fraud and money-laundering against INetGlobal, saying the company had grossly overstated its membership numbers, had co-mingled funds and operated the business in slipshod fashion.
Agency Assigns Veteran From ASD Case To INetGlobal Case
At least one of the Secret Service agents involved in the INetGlobal investigation also was involved in the ASD investigation, according to the search-warrant affidavit. Agents located an INetGlobal sales pitch online, and the agent involved in the ASD probe called the INetGlobal member.
Out of the gate, INetGlobal was described by the member as a wink-nod proposition, the Secret Service said — and it turned out that the INetGlobal member also had been an ASD member.
“The member said he had previously been a member of ASD . . . and said, ‘We know what happened there,’” the Secret Service said. “The member said he was reluctant to join iNetGlobal due to it being similar to ASD.
“The member said, ‘we all know what this program is.’ The member said his daughter and wife surfed the websites and the member did not care about the services provided. The member said he just wanted to put his money in and get it out. The member said you convert your earnings to V-cash and then receive payouts by check or through an ATM card you can sign up for. The member said members earn a daily return on their investment but that he was not sure what he exactly earned. The member said he has not been able to figure out the percentage of return due to the convoluted information provided on the iNetGlobal website.”
Regardless of the member’s own concerns about the program, the member nonetheless was eager to recruit the undercover Secret Service agent, according to the affidavit.
“The member pushed [the undercover agent] to join and wanted to conduct a three way call with his sponsor,” the Secret Service said. “The member said bringing in new members under you was the best way to earn maximum returns.”
CEO Met With Secret Service Prior To Raid
Keough’s holds a Bachelor of Science in Chinese from the U.S. Naval Academy at Annapolis, Md.; a Master of Arts in Congressional Studies from the Catholic University of America, Washington, D.C.; and a law degree from Boston College Law School.
After working for INetGlobal for only weeks, Keough said things going on inside the firm made no sense and he had come to believe Renner had hired him as a “good face†for the company, according to the search-warrant application.
Keough told agents he believed Renner fired him for asking too many questions, according to the filings.
“Keough described what he called his first ‘red flags,’ which were the reported size (50,000 members) and purported revenue ($100 million) of iNetGlobal; the complete disarray and disorganization of the businesses; and the seemingly small outside legitimate income,” the Secret Service said. “Keough further stated that the companies’ website never seemed to work properly, making him question what customers who purchased the advertising service alone, without the possibility of rebates, were getting for their money.
“Keough said on occasion he witnessed Renner manually manipulating the iNetGlobal system to pay out percentages that were different, and smaller, from the percentage listed on the iNetGlobal website,” the Secret Service continued. “Keough also wondered how, with so little outside income, the company could pay these outlandish returns. Keough said Renner would explain away his concerns by telling him how beneficial the advertising was and about all the different levels a member could achieve. Keough said, ‘I never really understood how it could work.’
“Renner told him iNetGlobal had 50,000 members, had been in business for 10 years, was debt free, and had made over $100 million in revenue. Keough said he later learned all these facts were ‘lies.’
“Keough further stated that Renner used the misleading information in power point presentations and webinars to recruit others,” the agency said.
Once becoming CEO, “Keough conducted his own internal audit and found, contrary to Renner’s statements, that iNetGlobal had only approximately 30,000 members, iNetGlobal had only been in business for 14 months, there were huge liabilities associated with the members’ ‘investments’ and the company’s estimated revenue was approximately $28 million, not the $100 million in revenue claimed by Renner.
“Keough said he was particularly alarmed because he knew Renner and/or representatives of iNetGlobal were using these false statements to promote and market iNetGlobal to would-be members (investors),” the Secret Service said. “Keough believed these false statements caused individuals to invest with iNetGlobal.’
“Keough said he had an iNetGlobal employee conduct an analysis to determine the member liability,” the Secret Service said. “The employee reported back to Keough that at least 87% of the company’s revenue was generated from sale of memberships to members residing in China.”
The search-warrant application also claimed that a company Renner owned provided payment-processing services for a Ponzi scheme called “Learn Waterhouse,” which was smashed by the SEC in 2004.
When a court-appointed receiver asked Renner to turn over funds to the receivership estate by converting electronic credits to cash, it was learned that Renner could not do it because he had “invested” more than $2.5 million in Learn Waterhouse V-Credits on “stamps, coins, Salvador Dali sculptures, autographed letters, guitars and amplifiers, fractional interests in motion picture companies, and fractional interests in oil wells, among other things.
“Additional sums of customers’ money had been spent by Renner personally, including on daily living expenses,” the Secret Service said.
The litigation against INetGlobal amid Ponzi scheme allegations is turning into a legal slugfest in multiple venues. On one side, federal prosecutors are seeking to disqualify INetGlobal attorney Mark Kallenbach, claiming that he is attempting to be both a lawyer and a witness in the same case.
