Touted on the MoneyMakerGroup Ponzi forum by former Zeek Rewards pitchman “mmgcjm,” a bizarre “program” known as CashCropCycler appears to have tanked. Joining CashCropCycler in the recent HYIP DOA lineup was NEOMutual, a purported “crowdfunding” opportunity that claimed it used bitcoin and a series of offshore payment processors to provide daily interest rates of 1.4 percent, 1.6 percent and 1.9 on sums between $20 and $250,000.
The websites of both NEOMutual and CashCropCycler are throwing error messages. Precisely when the sites went offline is unclear. In August 2012, the SEC described Zeek as a $600 million Ponzi and pyramid scheme.
Among other things, CashCropCycler was notable for its provocative name, which led to questions about whether the “program” was designed as a taunt and perhaps was using the HYIP world to crowd-source the cultivation of marijuana. The “program” also claimed enrollees received $10 just for signing up, a practice once used by the JSSTripler/JustBeenPaid scam.
An ad for NEOMutual once appeared on the landing page of the CashCropCycler website. NEO Mutual said it was located at Revolution Tower in Panama City, Panama. Like the “Profitable Sunrise” HYIP scheme, NEO Mutual purported to be in the bridge-loan business. In April 2013, the SEC called Profitable Sunrise a scam that may have gathered millions of dollars while using a “mail drop” in England and offshore bank accounts.
In July, the SEC issued an investor alert that warned about the dangers of potential investment scams involving virtual currencies promoted through the Internet.
“We are concerned that the rising use of virtual currencies in the global marketplace may entice fraudsters to lure investors into Ponzi and other schemes in which these currencies are used to facilitate fraudulent, or simply fabricated, investments or transactions. The fraud may also involve an unregistered offering or trading platform. These schemes often promise high returns for getting in on the ground floor of a growing Internet phenomenon,” the SEC said in the warning.
Among the strange claims on the CashCropCycler website was that the “program” was interested in building “a network that ticks.”
A February 2013 ad for Profitable Sunrise that appeared on a classified-ads site in Montana South Dakota (Sept. 5, 2013 edit) claimed that “Finally we have the bomb.” In an April 2013 Investor Alert on Profitable Sunrise, the state of Idaho warned that “Those investors who receive compensation for soliciting other investors may themselves be subject to the licensing and anti-fraud provisions of state and federal securities laws.”
In court filings on April 4, the SEC said Profitable Sunrise pitchmen may have pushed the “program” without even knowing for whom they were working.
The court-appointed receiver in the Zeek Rewards Ponzi-scheme case is reporting “significant progress” in securing assets for return to victims and says the estate has gathered approximately $325.1 million since the receivership began in August 2012.
As of 5 p.m. on July 29, Zeek victims had filed claims seeking about $287 million. The claims portal accessible though the receivership website will close Sept. 5, meaning the number could grow even higher — potentially by the tens of millions.
An estimated $290 million in fraudulent transfers occurred at Zeek, and receiver Kenneth D. Bell says he intends to file clawback litigation against both Zeek’s U.S. domestic and “foreign winners,” beginning as early as this quarter.
Bell advised the court that, on June 28, he deposited about $2.5 million seized by the U.S. Secret Service from Solid Trust Pay, one of Zeek’s ewallet providers. Another $3.6 million from NxPay is expected to be deposited soon — “and the Receiver is working with [the Secret Service] to investigate and secure additional Receivership assets that NxPay identified and are being held by its payment processor, LST Financial, Inc.”
Moreover, Bell said, the receivership — working with the Secret Service — recovered about $5 million from ePaymentAmerica and about $800,000 from PlasticCash.
Meanwhile, a “foreign account” that may contain $9.5 million still is under investigation by the receivership, and two other foreign accounts that may hold Zeek assets were discovered in the second quarter, Bell said. Those accounts also are under investigation.
Zeek operated as part of Rex Venture Group LLC of North Carolina. Court filings suggest that Zeek money flowed through at least 16 domestic and foreign accounts, not including the accounts of individual participants. Those accounts may number in the thousands.
Bell said he also may have claims against certain Zeek “third party-advisors, vendors and other service providers that knew or should have known” about Zeek’s inappropriate activities “and yet faciliated those activities for their own gain.”
Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina is presiding over the Zeek case, which was brought by the SEC last year.
“The Court has reviewed Receiver’s brief and proposed settlement and finds that the proposed settlement is fair and equitable and is in the best interests of the Zeek victims.” — Senior U.S. District Judge Graham C. Mullen, July 26, 2013
UPDATED 9:43 P.M. EDT U.S.A. If you’re from the camp that claims Zeek Rewards victimized no one, a federal judge set you straight today.
Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina has approved a motion by the court-appointed receiver to settle with certain Zeek winners at discounts. The judge deemed the agreements “fair and equitable” and “in the best interest of the Zeek victims.”
Mullen’s order applies to at least 136 winners who entered successful prelitigation settlement negotiations with receiver Kenneth D. Bell, who said the agreements provided immediate and concrete benefits to the receivership estate. The order is expected to cause about $1.8 million to flow into the Zeek estate over time, some of it immediately. Bell listed the “Settlement as % of Winnings” at 56.12 percent in a June 28 filing.
Bell is marshaling Zeek assets for return to victims.
Zeek “winners” of $1,000 or more who bypassed the springtime opportunity to settle now face the prospect of clawback litigation beginning sometime this summer. Records show that even some winners of less than $1,000 settled with Bell
In August 2012, the SEC described Zeek as a $600 million pyramid and Ponzi scheme. The purported Zeek “opportunity” operated through Rex Venture Group LLC, a North Carolina MLM firm.
Rex and Rex/Zeek operator Paul R. Burks duped members into believing that payouts averaging about 1.5 percent a day were legitimate, the SEC alleged.
Zeek’s business model was similar to AdSurfDaily, which the U.S. Secret Service and federal prosecutors described as a $119 million Ponzi scheme operating from Florida. The Secret Service raided ASD in 2008.
The Zeek scam created hundreds of thousands of victims, according to Bell. In April, he warned winners of ill-gotten gains that the time for court action is drawing closer.
From a Jon Simmons’ pitch for Guaranteed50kIn30Days.
After the Profitable Sunrise intercontinental affinity-fraud and pyramid-scheme aimed at Christians, Rev. Jon Simmons has cast his net with a 5X5 matrix “program” known as “Guaranteed50kIn30days” and is fishing for a “team,” a source tells the PP Blog.
“Turn your $50 [into] a MILLION Dollars!” Simmons trawled.
Simmons was a Profitable Sunrise colleague of Nanci Jo Frazer and NJF Global Group. Frazer and two of her purported ministries were charged with fraud earlier this month in Ohio. Simmons was not charged. Profitable Sunrise may have scammed tens of millions of dollars in a cross-border fraud, the SEC said in April. Frazer and team may have driven $30 million to the scam, Ohio authorities said.
“What would you do with $50,800?” Simmons queried his audience about Guaranteed50kIn30days in an email, according to the source. “Or better yet, what would you do with a MILLION $$!”
Precisely what was “guaranteed” about getting $50,000 in a month wasn’t made clear in the pitch, which references a web entity known as PrivateMillionairesClub.com.
“Membership by Invitation Only,” the site says.
Schemes pushed by self-identified Christians that trade on claims of being private and exclusive have generated headlines in recent months. Profitable Sunrise was such a scheme. Zeek Rewards, which the SEC described in August 2012 as a $600 million Ponzi- and pyramid scheme, advertised itself as “private, invitation-only,” the agency said in court filings.
Guaranteed50kIn30days says it’s located in Nebraska as part of B & B Communications Inc. and is associated with entities known as B & B Communications Philippines Inc. and B & B Communications Hong Kong Limited. Web properties, according to the company, also include BandBOnlineAds.com and 2x2SuccessTeam.com, with BandBeBookStore.com, ShowMeTheFreebies.com, BandBSuccessClub.com, FilipinoSavingsClub.com and FilipinoSavingsClub.net also in the fold.
Frazer’s Profitable Sunrise team also targeted prospects in faraway lands. One of those lands — New Zealand — referenced Frazer’s group in a March 2013 warning about Profitable Sunrise. Ohio authorities have said they’d linked Frazer to “ProfitClicking,” a “program” that became the subject of actions in Italy and the Philippines.
According to the information provided by the source, a July 16 Guaranteed50kIn30days email from Simmons began, “Jon Simmons here. This is WAY BETTER THAN SGR!”
SGR appears to be a reference to a “program” known as “ShareGiveReceive.” Online promos for SGR position it as “A Ministry/Business . . . not operating like a regular business” and “A World Wide Community Of People Working For The Benefit Of All MAN Kind.”
Guaranteed50kIn30days, however, apparently blows SGR away — in Simmons’ view.
“This is Best program to come along in decades,” he told his email audience about Guaranteed50kIn30days. “We are talking real daily step by step training. A 30-day video training course that anyone can follow to be successful. True duplicating process.”
Another part of the pitch reads, “Get paid weekly every Wednesday by check, or have it loaded onto your Payoneer card. Go Quick! We just officially launched last Monday, July 1, 2013! Amazing earnings in 1 week!!!”
In the email, prospects were provided a link to a heart-tugging video featuring B&B co-founders Steve Borgman and Brian Barnhouse riding in an automobile and reflecting on their days spent living in rural poverty in Nebraska. Those painful days now are over, according to the video: Both men now are well-equipped on the vehicle front. Borgman owns “the biggest house in Gage County,” and Barnhouse resides in a home with a scenic river view.
The video was filmed in the region of Wymore, Neb., which has a population of 1,656, according to a road sign shown in the video. (Despite the newfound financial success of the duo, the mournful background music in the video seems more appropriate for a funeral dirge).
Simmons, according to his email pitch, also can provide help with getting “leads” for Guaranteed50kIn30days.
“Do you need help recruiting?” he asks. “I found a solution! Ask me about a great lead system I found for only $25 (one-time, NOT monthly)! Get your 5 for $50K easily! You can also use this Lead Scraper for ANY business. Imagine… No more having to talk to friends and family!!”
URGENT >> BULLETIN >> MOVING: (3RD UPDATE 8:44 P.M. EDT U.S.A.) Senior U.S. District Judge Graham C. Mullen has denied a motion by alleged winners in Zeek Rewards to intervene in the SEC’s Ponzi-scheme case and to dissolve the receivership.
In December 2012, alleged Zeek “winners” Trudy Gilmond and Kellie King asked Mullen for permission to intervene in the case and to end the court-appointed receivership, arguing that Zeek did not sell securities as defined under federal law.
Mullen today denied the motion on both fronts.
Kenneth D. Bell is the receiver. He opposed the Gilmond/King motion. So did the SEC, which described Zeek in August 2012 as a $600 million Ponzi- and pyramid fraud selling unregistered securities through Rex Venture Group LLC in North Carolina.
Gilmond may have more than $1.364 million at risk in a clawback lawsuit. King potentially faces a claim from Bell for more than $205,180, according to court filings.
“Gilmond and King seek to improperly interfere with a settled SEC enforcement action against defendants Rex Venture Group and Paul Burks to deny the Receiver the ability, as directed by the Court, to marshal the estate’s assets for the benefit of all aggrieved ZeekRewards investors,” the SEC argued in January. “The Motion to Intervene is a transparent attempt to obtain prospective relief in an improper forum with respect to clawback litigation the Receiver has yet to initiate.”
For his part, Bell said Gilmond and King were engaging in “delaying tactics.”
Gilmond and King are represented by Ira Lee Sorkin, Bernard Madoff’s defense attorney.
“The issue Gilmond and King seek to litigate — whether the ZeekRewards program was an ‘investment contract’ or ‘security’ — has been resolved for the purposes of this settled SEC enforcement action,” the SEC argued in January. “As a result, Proposed Intervenors assert no ‘claim or defense that shares with the main action a common question of law or fact.’ Thus, there is no basis for intervention.
“Finally,” the SEC continued, “Proposed Intervenors provide no factual or legal support for their request to dissolve the receivership in this matter. Therefore, the Motion to Intervene should be denied in its entirety.”
Mullen did just that today.
Zeek operator Paul R. Burks consented to a judgment in the SEC case in August 2012.
HourlyRevShare, another in a long list of incongruous HYIP Ponzi-board “programs” pushed by serial huckster “Ken Russo” (also known as “DRdave”), reportedly has collapsed after taking a second bite of the Ponzi apple (purportedly as HRS II) after the original iteration collapsed. Other recent “programs” pushed by “Ken Russo” include Zeek Rewards and Profitable Sunrise, both of which cratered after regulatory actions in the United States.
“Ken Russo” also pushed Felmina Alliance, which became the subject of an Investor Alert in Canada; AdSurfDaily, a $119 million Ponzi scheme that put operator Andy Bowdoin in federal prison in Florida; MPB Today, a scheme that led to racketeering charges being filed in Florida against operator Gary Calhoun; Club Asteria, a scheme that falsely planted the seeds it was endorsed by actor Will Smith and the American Red Cross while also trading on the name of slain human-rights champion Mahatma Gandhi; a scheme known as Gold Nugget Invest that cratered in at least two forms; JSS Tripler/JustBeenPaid, a multiple-name scheme purportedly operated by Frederick Mann that promised a return of 730 percent a year and has encountered regulatory actions in Italy and the Philippines; knockoff scams known variously as JSSTripler 2 and Compound 150 purportedly operated by “Dave” between purported bouts with Dengue Fever; and Wealth4AllTeam, a “program” that experienced business halts and relaunches with new names, at one time claiming it was impervious to U.S. regulators at the state and federal level while incongruously claiming disputes would be settled under California law.
Among other things, the lead pitchman for HourlyRevShare on the MoneyMakerGroup Ponzi forum claimed that the “program” offered “Daily guaranteed Payouts.” The promoter also claimed (italics added):
“Earn 4.5% to 6.5% daily for 20 days.”
“Earn 135% to 195% on your shares.”
“Earn 0.18 to 0.29 every hour.”
On April 9, 2013, less than a month after the Profitable Sunrise HYIP scheme collapsed amid SEC allegations a ghost might have been at the wheel, Ken Russo (as “DRdave”) claimed on TalkGold that he’d just received a payment of $4,850 from HourlyRevShare, which was using a Gmail email address. Critics of HourlyRevShare claim the “program” is linked to individuals known as Analie or Anelie Steinway and Dr. Leiven Van Neste.
Whether these individuals actually exist remains an open question.
“Ken Russo” also has been leading cheers for a “program” known as NEOMutual, yet-another Ponzi-board darling. NEOMutual is being pushed alongside a “program” bizarrely known as “CashCropCycler.”
UPDATED 6:23 P.M. EDT (U.S.A.) There are at least three reports in Brazilian media today that say TelexFree has blocked members’ access to their back offices.
A company attorney said the blockages were necessary because hackers had attempted an intrusion, according to reports in Portuguese translated to English by Google Translate.
Here is a link to one of the reports, with the corresponding Google translation. (Please note that Google translations often are imperfect, may appear stilted and may lack subtleties of language.)
Narratives about hackings often accompany HYIP schemes. The AdSurfDaily Ponzi scheme in the United States once claimed it could not make payments because hackers had stolen $1 million. ASD President Andy Bowdoin never reported the alleged hacking bids to police, federal prosecutors said.
In 2012, reports surfaced that the JSS Tripler/JustBeenPaid scheme that purported to pay 730 percent a year (precompounding) had been targeted by hackers. There also were reports in 2012 that accounts at Zeek Rewards (1.5 percent a day) had been hacked and that at least one individual had presented a bogus financial instrument to Zeek.
TelexFree pitchwoman Faith Sloan reported this (see italicized paragraph below) in a Blog post titled “TelexFREE Update: July 15, 2013 with Steve Labriola” that was referenced July 16 in a reader comment at BehindMLM.com.
“There were an increase in number of cashouts last Tuesday which caused the women in the office to get a huge increase in their workload. They will continue pushing out money to our bank accounts Today and Tomorrow. So be patient. He emphasized that this has absolutely nothing to do with Brazil.”
Even as reports surfaced that TelexFree had blocked members’ access to their back offices as a safeguard against hackers, the “opportunity” says a California extravaganza is still set for July 26 and 27.
TelexFree has been under investigation in Brazil for weeks and appears to have been blocked by a court order in the state of Acre from making payments to members in Brazil. Now, some affiliates appear to be questioning whether the denial of access to their back offices means that data is being destroyed or records about money owed to affiliates by TelexFree are being changed.
The circumstance at least suggests that TelexFree continued to make payments to Americans and has been hit with a flood of cashout requests by U.S.-based affiliates concerned about the government actions in Brazil. Put another way, TelexFree could be facing an American run on its bank accounts.
Some HYIP schemes have been known to block redemption requests to fend off a bank run, but the precise circumstance TelexFree is facing is unclear. Hackings can and do occur.
Some TelexFree affiliates have claimed the “program” was using Bank of America and TD Bank in the United States to gather funds. That may have changed in April 2013 at least with respect to Bank of America, when TelexFree affiliate reports quoting Labriola surfaced that TelexFree was “pulling out of Bank of America.”
No reason was given for TelexFree’s purported decision to leave Bank of America. In May 2012, the Zeek Rewards “program” reported mysteriously that it was ending its relationship with two banks. About three months later, the SEC accused Zeek of conducting a $600 million Ponzi and pyramid scheme from North Carolina.
TelexFree lists the states of Nevada and Massachusetts as its bases of operation under the names TelexFree LLC and TelexFree Inc.
Some individuals associated with TelexFree appear also to have set up companies that use the TelexFree name. Records in California show entities with names such as ALL-IN TELEXFREE 247 LLC, LIVING-THE-DREAM TELEXFREE 247 LLC and RAIN-MAKER TELEXFREE 247 LLC. Records in Florida, meanwhile, show an entity known as TELEXFREE MARKETING INC.
Whether the United States has opened a probe into TelexFree’s activities is unknown.
Some TelexFree affiliates have claimed that a payment of $15,125 to TelexFree for the purchase of a “contract” results in an income of at least $1,100 a week for a year. TelexFree is one of several “programs” that have been targeted at victims of Profitable Sunrise, which the SEC described in April 2013 as a pyramid scheme that may have collected tens of millions of dollars.
A “program” with the bizarre name of “CashCropCycler” (Triple C) is being pushed on the Ponzi forums, amid claims it issues cashouts through offshore payment processors linked to fraud scheme after fraud scheme and gives enrollees $10 just for signing up. An earlier HYIP scam known as JSSTripler/JustBeenPaid that appears to have morphed into at least two other scams also advertised recruits would be paid $10 for enrolling in its “program,” which purported to pay 730 percent a year (precompounding).
Like a series of recent scams, CashCropCycler purports to be a “revenue sharing and advertising” program. It also claims it is using Skype and Gtalk for customer service. The lead pitchman for CashCropCycler on the MoneyMakeerGroup Ponzi forum appears to be “mmgcjm,” the lead pitchman for the alleged $600 million Zeek Rewards Ponzi scheme at the same forum.
Whether CashCropCycler borrowed part of the JSS/JBP fraud pitch wasn’t immediately clear. Also unclear is whether CashCropCycler’s unusual name was designed to be provocatively ambiguous or as a taunt of some sort. Could the unidentified Triple C operators be suggesting they are using the HYIP world to crowd-source the cultivation of marijuana, for instance? Other HYIP schemes — CashTanker, BotFly and Insectrio, for instance — may have been named to taunt regulators and demonstrate just how gullible investors can be.
CashCropCycler curiously discusses the Triple C alliteration in another context, saying “The name ‘Triple C’ came about in year 2012 when we gave all our personal earnings to support the Clarion Children’s Choir, that was the best experience for us as a team.”
The “program” purports to be operated by “three friends, Americans by naturalization and Swedish by birth; Benson, Dave and Anderson.”
CashCropCycler’s website defines the trio as “ordinary people who find delight in been [sic] able to help our same human species. It doesn’t matter what country you’re from, what race you belong or how educated you are; we only care to help people by building a network that ticks, and this is what we enjoy doing.”
Records suggest that one of the domain nameservers (ian.ns.cloudflare.com) linked to CashCropCycler has been used in spam campaigns for everything from malware to potentially fraudulent National Football League jerseys and potentially fraudulent designer purses purportedly from Louis Vuitton.
Meanwhile, the CashCropCycler Terms of Service includes the strange phrase “Agreements shall be interpreted under the laws” — without identifying a jurisdiction or set of laws used if disputes occur. The Terms also confoundingly assert that “A member is neither an employee nor an independent contractor of CASHCROPCYCLER,” even as CashCropCycler asserts elsewhere on its site that promoters can earn MLM-style commissions totaling 15 percent over three tiers.
By plowing $10 into the scheme, according to the CashCropCycler website, members will earn “186% in 60Days” [sic]. A sum of $50 purportedly fetches “129.60% in 25days” [sic]. Recruits should feel good about the “program” (apparently) because the “script was tested for 68days [sic] before this official launch.”
And members also are permitted to engage in “Member to Member Transfer[s]” from inside the CashCropCycler system “for a 2.50% fee,” according to the website. Beyond that, according to the site, members can pay an exchange “fee of 8.70%” should they wish to have their earnings paid through a processor other than the one through which they joined the “program.”
Some purported exchange services were among the casualties of the Liberty Reserve money-laundering action in the United States in May. Federal prosecutors in New York said that the now-shuttered Liberty Reserve payment processor was facilitating any number of fraud schemes while helping criminals launder billions of dollars.
Even though CashCropCycler members purportedly are neither employees nor independent contractors of the “program,” they nevertheless are encouraged to (italics added/no edits made):
“Promote via banner/text advertisements on other advertising websites that you are a member of.
“Be active on the forums, including MoneyMakerGroup, TalkGold, DreamTeamMoney and Investment-Tracker .
“Including a link to CashCropCycler in your signature in forums.
“Traffic exchanges/Safe lists.
“Social media.
“Word of mouth.”
At least four ads that appear to highlight other HYIP schemes appear near the bottom of the CashCropCycler landing page. One of the ads is for “NeoMutual,” which uses a tagline of “we are crowdfunding.”
Some critics of crowd funding have voiced concerns that easing regulations on certain types of startup companies before appropriate safeguards are in place could lead to egregious marketplace abuses.
Ads for what appear to be HYIP schemes are displayed on the website of CashCropCycler. A purported opportunity known as NEO Mutual purports to be a “crowd funding” company through which members can use payment processors such as Perfect Money, SolidTrustPay and EgoPay that have been linked to multiple fraud schemes. NEOMutual also purportedly does business with bitcoins and PexPay — all while employing a “bank transfer” option. NEOMutual purports to have “Junior,” “Senior” and “Executive” plans that pay daily interest rates of 1.4 percent, 1.6 percent and 1.9 on sums between $20 and $250,000. NEO Mutual says it is located at Revolution Tower in Panama City, Panama. Like the “Profitable Sunrise” scheme, NEO Mutual purports to be in the bridge-loan business. In April 2013, the SEC called Profitable Sunrise a scam that may have gathered millions of dollars while using a “mail drop” and offshore bank accounts.
In this evidence exhibit given to a federal judge prior to the Legisi asset freeze in 2008, a Legisi prospect writes the name “Money Maker Group.com” in longhand. State and federal probes into Legisi were under way long before members knew — and undercover agents were part of the probe.
EDITOR’S NOTE: As the PP Blog reported Wednesday, HYIP Ponzi-scheme pitchman Matthew John Gagnon has been sentenced to five years in federal prison. On Thursday, the SEC released the statement reproduced below. Here’s hoping it will be the shot heard around the HYIP Ponzi World.
Still pushing HYIPs on your websites and social-media sites, in your emails and on the Ponzi boards? Still pushing them after the Legisi, AdSurfDaily, Zeek Rewards and Profitable Sunrise debacles? Is someone like “Ken Russo” or “10bucksup” or “strosdegos” enlisting you to enter Ponzi World?
Are you listening to Faith Sloan, when she shows you an investment-earnings calculator and plants the seed that the TelexFree action in Brazil is a yawner because it was brought in a “small” state that’s “literally in the middle of the jungle” — all while she further risks offending one-fifth of the world’s population by advising you not to engage in a “panic-like-Chinese-fire-drill” over your legitimate TelexFree concerns?
If you are turning a blind eye to all the incongruities of HYIP Ponzi Land, you may have the chance to be the next Matt Gagnon, meaning the next several years of your life will be consumed by court actions. First, you’ll watch your “program” get sued by the SEC. After that, you’ll get sued by the SEC and a court-appointed receiver. On top of those unpleasantries, you’ll be called a threat to the investing public in newspaper stories across the land, then charged criminally, and then sent to jail for years you’ll never get back while being ordered to pay back either the money you stole or the money you helped someone else steal.
A final note: More than FIVE years after the SEC filed the first of the Legisi-related fraud charges in May 2008, Legisi victims continue to visit the PP Blog for updates on the various Legisi-related actions, including the multiple actions against Gagnon. Scams may fall out of the headlines for a while — but the fleeced masses never forget them. For posterity, the PP Blog has inserted a section of a Legisi evidence exhibit into the SEC’s statement. It may be the strangest Terms of Service you’ve ever read.
** ______________________________________ **
U.S. SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 22749 / July 11, 2013 Securities and Exchange Commission v. Matthew J. Gagnon, Civil Action No. 10-cv-11891 (E.D. Mich.)
Serial Fraudster Matthew J. Gagnon Sentenced to Five Years in Prison
The Securities and Exchange Commission announced that on July 9, 2013, the Honorable Mark A. Goldsmith of the United States District Court for the Eastern District of Michigan sentenced Matthew J. Gagnon to five years of incarceration followed by three years of supervised release and ordered Gagnon to pay over $4.4 million in restitution to his victims. Gagnon, 45, of Portland, Oregon, pleaded guilty to one count of criminal securities fraud for promoting a securities offering without fully disclosing the amount of his compensation in connection with his promotion of the $72 million Legisi Ponzi scheme in 2006 and 2007, in violation of Section 17(b) of the Securities Act of 1933.
The criminal charges arose out of the same facts that were the subject of a civil injunctive action that the Commission filed against Gagnon on May 11, 2010. The Commission’s complaint alleged that since 1997, Gagnon had billed himself as an Internet business opportunity expert and his website as “the world’s first and largest opportunity review website.” According to the SEC’s complaint, 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, which raised a total of approximately $72 million from over 3,000 investors by promising returns of upwards of 15% a month. The complaint also alleged that 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 complaint 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. According to the complaint, Gagnon received a net of approximately $3.8 million in Legisi investor funds from McKnight for his participation in the scheme.
The SEC’s complaint further alleged that beginning in August 2007, Gagnon fraudulently offered and sold securities representing interests in a new company that purportedly was to develop resort properties. The complaint alleged that Gagnon, among other things, 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. Gagnon took in at least $361,865 from 21 investors.
The SEC’s complaint also alleged that in April 2009, Gagnon began promoting a fraudulent offering of interests in a purported Forex trading venture. 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 he had had no basis for making them because Gagnon never reviewed his friend’s trading records before promoting the offering, which would have shown over $150,000 in losses over the previous nine months.
The SEC’s complaint charged Gagnon with violating Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint sought preliminary and permanent injunctions, disgorgement, and civil penalties from Gagnon. On May 24, 2010, the SEC obtained an emergency order freezing Gagnon’s assets and other preliminary relief. Subsequently, on August 6, 2010, the Court granted an order of preliminary injunction against Gagnon pursuant to his consent. On March 22, 2012, the Court granted the SEC’s motion for summary judgment and entered a final judgment against Gagnon. The Court found that Gagnon violated the registration, anti-fraud, and anti-touting provisions of the federal securities laws. The Court’s final judgment against Gagnon permanently enjoined him from future violations of Sections 5(a), 5(c), 17(a) and 17(b) of the Securities Act of 1933 and Sections 10(b) and 15(a)(1) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordered Gagnon to pay $3,613,259 in disgorgement, $488,570.47 in prejudgment interest, and a $100,000 civil penalty.
On May 2, 2012, the SEC instituted related administrative proceedings against Gagnon to determine what, if any, remedial action was appropriate and in the public interest. On July 31, 2012, the SEC issued an Order Making Findings and Imposing Sanctions by Default barring Gagnon from association with any broker or dealer.
For further information regarding this case, see Litigation Releases No. 21532 (May 25, 2010), and 22310 (March 27, 2012).
URGENT >> BULLETIN >> MOVING: Legisi HYIP Ponzi-scheme pitchman Matthew John Gagnon has been sentenced to 60 months in federal prison, ordered to pay $4.4 million in restitution and further ordered to serve three years’ supervised probation after his prison release, the office of U.S. Attorney Barbara L. McQuade of the Eastern District of Michigan said.
Legisi, a $72 million Ponzi scheme pushed on fraud forums such as TalkGold and MoneyMakerGroup, was operated by Gregory N. McKnight, who faces sentencing in August. Gagnon’s five-year sentence was the maximum under a plea agreement with prosecutors, who’ve recommended McKnight serve 15 years.
Gagnon pushed Legisi and other fraud schemes through Mazu.com, the SEC said in 2010. The name of MoneyMakerGroup appears in evidence exhibits in the Legisi Ponzi case.
Gagnon will be permitted to self-report to prison, prosecutors said.
The Legisi case — perhaps particularly events involving Gagnon — has been closely watched because it shows that MLM-style HYIP pitchmen can be held accountable criminally for pushing scams. The SEC called Gagnon a threat to the investing public, describing him as a serial fraud pitchman who lacked licenses to sell securities and pushed the unregistered securities of multiple fraud schemes.
In civil charges announced yesterday in Ohio, prosecutors effectively made the same claims against promoters of the alleged Profitable Sunrise pyramid scheme. Included among them was Nanci Jo Frazer, who allegedly also promoted the $119 million AdSurfDaily Ponzi scheme and the $600 million Zeek Rewards Ponzi- and pyramid scheme.
The Legisi case began as an undercover probe by state securities regulators in Michigan and the U.S. Secret Service.
Legisi’s Terms of Service sought to make members affirm they were not an “informant, nor associated with any informant” of the IRS, FBI, CIA and the SEC, among other agencies, according to documents filed in federal court.
Current scams such as Profit Clicking have published similar terms, which read like an invitation to join an international financial conspiracy. Ohio prosecutors said they believed Frazer also pushed ProfitClicking, in addition to Zeek, ASD and Profitable Sunrise.
McKnight, prosecutors have said, tried to sanitize Legisi by calling it a “loan” program and engaging in semantic obfuscation. Any number of HYIP scams have employed similar linguistic sleight-of-hand, with ProfitClicking bizarrely arguing that neither itself nor affiliates can be held accountable.
Gagnon argued in court that he’d been duped by McKnight, but a federal judge didn’t buy it.
“On or about July 14, 2008, [an undercover agent] opened an ‘upgraded member’ account with [AdSurfDaily]. ASD directs new members either to mail a money order or cashier’s check to its Florida office, or to deposit a certified check, money order or cash at ‘your nearest branch of Bank of America,’ directly into ASD’s BOA account and, thereafter, to fax a copy of the deposit receipt along with their membership number to ASD. On its website, ASD provides its BOA account number as [XXX.] Another [undercover agent] made a direct deposit to ASD’S BOA account by delivering a check to a BOA branch in downtown Orlando, Florida. Thereafter, [an undercover agent] faxed a copy of the deposit receipt via facsimile to ASD’s headquarters in Quincy, Florida.” — AdSurfDaily Ponzi scheme forfeiture complaint, Aug. 8, 2008
It was 57 degrees in Alpharetta, Ga., when this screen shot was taken to instruct TelexFree participants on how to deposit money in a TelexFree account at Bank of America in Shrewsbury, Mass. The promoter appears also to have had an interest in Bidify, an “auction” site whose business model was reminiscent of the alleged $600 million Zeek Rewards Ponzi- and pyramid scheme. (Source: screen shot of section of a PDF instruction manual. Redactions/highlights by PP Blog.)
UPDATED 1:11P.M. EDT (U.S.A.) Information reviewed by the PP Blog shows that promoters of the TelexFree MLM scheme instructed their recruits to deposit money into a TelexFree Inc. account held at a branch office of Bank of America in Shrewsbury, Mass. The recruits then were advised to scan the deposit slip and email a copy to a TelexFree.com email address and optionally send a copy of the slip to an individual dubbed a TelexFree “team leader” who was using a Gmail email address from Google.
Recruits were told to photograph the slip using a cellphone or tablet computer before scanning it and submitting it via email, according to the instructions.
The TelexFree promoter using the Gmail address had to ability to “expedite” the process of crediting deposits in the recruits’ back offices at TelexFree, meaning recruits purportedly could start earning money from TelexFree faster because their deposits would be credited quicker, according to the instructions.
“Alternativey, you can contact your direct referrer, as several Promoters in our upline could also assist with direct deposits to their bank accounts and transfer funds to your registered account immediately,” the instructions note.
The instructions, which appeared in PDF form in January 2013, were circulated on the Internet. Among other things, the instructions suggest TelexFree has insiders who can speed the flow of money and potentially are collecting the private information of their recruits and potentially subjecting them to identity theft.
In the early part of the year, some TelexFree promoters worded online promos to suggest that the U.S. government had given the stamp of approval to TelexFree’s operations in the United States. The U.S. government does not issue such endorsements. It is somewhat common in the HYIP sphere for “programs” or promoters to plant the seed an “opportunity” has been approved by the government.
A TelexFree promo dated March 12, 2013, on Newswire.net, for example, claims that the “TelexFree business opportunity is open to entrepreneurs in Brazil and has recently opened up internationally including being authorized to operate in the United States.”
TelexFree is under investigation by multiple agencies in Brazil, amid pyramid-scheme and securities concerns. (See BehindMLM.com story dated today on the denial of a TelexFree appeal in Brazil.) Whether a U.S. investigation is under way is unknown.
What is known is that some affiliates in Brazil appear to believe incorrectly that the U.S. government has approved TelexFree’s operation.
And it’s also known that the deposit instructions provided to TelexFree recruits strongly resemble the instructions given recruits of the AdSurfDaily Ponzi scheme broken up by the U.S. Secret Service in 2008. The agency seized at least 10 bank accounts held by ASD President Andy Bowdoin at Bank of America and at least five other Bank of America accounts held by an ASD insider. Those 15 accounts ultimately proved to hold about $80 million.
At least one undercover agent followed ASD’s instructions to make a deposit at Bank of America and to fax the information to ASD, according to court filings in the ASD case. Federal prosecutors in the District of Columbia later applied successfully for warrants to seize the accounts, alleging that ASD was a Ponzi scheme using the U.S. banking system to sustain the scheme.
Bowdoin later pleaded guilty to wire fraud and was sentenced to 78 months in federal prison.
As appears to be the case in TelexFree, some ASD members also claimed an ability to speed the flow of money while perhaps making back-office exchanges with recruits. It is possible that ASD never knew its own real bottom line because of the back-office dealings of insiders and other sponsors, including promoters who instructed recruits to pay them directly instead of ASD.
Some TelexFree affiliates have claimed that a payment of $15,125 to TelexFree will create an income of at least $1,100 a week for a year. The instructions on how to deposit money in Bank of America and scan receipts also claim that TelexFree is using a credit-card processor known as ProPay.
Some TelexFree affiliates have claimed TelexFree also is banking with TD Bank. In those cases, affiliates are instructed to send money to TelexFree LLC — as opposed to sending it to TelexFree Inc., as was the case with the Bank of America instructions.
This set of instructions appeared in a promo for TelexFree dated Jan. 17, 2013. (Source: screen shot. Redactions/highlights by PP Blog.)
TelexFree Inc. uses a Massachusetts address; TelexFree LLC uses a Las Vegas address, according to public records. Why some promoters are instructing recruits to send money to the LLC version of the name at TD Bank while others are instructing that money be sent to the Inc. version at Bank of America is unclear.
Touted on the MoneyMakerGroup Ponzi forum by former Zeek Rewards pitchman “mmgcjm,” a bizarre “program” known as CashCropCycler appears to have tanked. Joining CashCropCycler in the recent HYIP DOA lineup was NEOMutual, a purported “crowdfunding” opportunity that claimed it used bitcoin and a series of offshore payment processors to provide daily interest rates of 1.4 percent, 1.6 percent and 1.9 on sums between $20 and $250,000.
An ad for NEOMutual once appeared on the landing page of the CashCropCycler website. NEO Mutual said it was located at Revolution Tower in Panama City, Panama. Like the “Profitable Sunrise” HYIP scheme, NEO Mutual purported to be in the bridge-loan business. In April 2013, the SEC called Profitable Sunrise a scam that may have gathered millions of dollars while using a “mail drop” in England and offshore bank accounts.
In July, the SEC issued an investor alert that warned about the dangers of potential investment scams involving virtual currencies promoted through the Internet.
