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SEC Freezes $207 Million ‘Pure Ponzi Scheme’

SALT LAKE CITY (CN) — It took a Utah man just two years to bilk 162,000 people of $207 million in "a pure Ponzi scheme" that he pushed on YouTube and on his Traffic Monsoon website, but a judge froze his assets Tuesday, the SEC says.

The SEC sued Charles David Scoville, 36, of Murray, Utah and his company Traffic Monsoon LLC on Tuesday. He is its only member and controls it. U.S. District Judge Jill Parrish froze the defendants' assets the day the SEC filed suit.

Scoville launched Traffic Monsoon in October 2014. He calls it a "successful Internet advertising services company" that will "provide high quality ad services for affordable prices, and share revenues for a perfect winning combination that will lead to the ultimate success of our customers."

Scoville calls his company "a combination of an Internet traffic exchange, where users browse each others' websites, and a pay-per-click program, where users are paid to click on others' website banner ads. Defendants represent that its profit is derived from seven different highly desirable advertising products," the SEC says in the complaint.

But it's not: "In reality, Traffic Monsoon's advertising business is an illusion designed to obscure the fact that it is offering and selling a security in a pure Ponzi scheme. Over 99 percent of Traffic Monsoon's revenue comes from the sale of AdPacks. The company has virtually no other revenue from any other source. All payments to investors are made out of these funds," the complaint states.

AdPacks cost $50 each. "For this price, the investor receives 20 clicks to his banner ad, 1,000 visitors to his website from the traffic exchange, and the ability to share in Traffic Monsoon's profit," according to the complaint.

It's making money like crazy, the SEC says in the lawsuit:

"Since inception, defendants have taken in from investors approximately $207 million in sales of a product called the 'Banner AdPack' ('AdPack'). Over 162,000 investors throughout the world have invested in AdPacks. As of the beginning of 2016, Traffic Monsoon was taking in approximately $25 million in cash each month."

The services the company supposedly delivers, and the manner in which it allegedly does it, are rather bewilderingly explained in the SEC's 20-page lawsuit. Essentially, the SEC says the numbers don't add up.

"As of May 16, 2016, Traffic Monsoon had sold 15,225,689 AdPacks. For each such AdPack, however, it must deliver 1,000 visitors, amounting to 15 billion visitors total. As of July 24, 2016, however, the Traffic Monsoon website states that the company had 'delivered 1,618,996,340 visitors to our member's [sic] websites to date.' This is only about a tenth of what would be required by Scoville's own program. ...

"Traffic Monsoon cannot in fact deliver the numbers of visitors it has promised to AdPack purchasers."

In his YouTube ads and on his website, the SEC says, Scoville "goes out of his way to argue that the program does not involve a security or an investment," which indicates, to the SEC, that "Scoville is aware that the AdPacks could be considered an investment."

Initially he used PayPal to maintain what he calls a reserve fund, but PayPal froze the Traffic Monsoon account in February. The freeze expired July 11, however, and Scoville immediately began withdrawing money from PayPal, the SEC says.

"Since July 11, 2016, Scoville has made 256 withdrawal requests and withdrawn over $25 million. Scoville did attempt to withdraw an additional $10 million on July 21, 2016, but PayPal reversed those transactions," the complaint states.

As of July 21, the Traffic Monsoon account at PayPal had a balance of $23,316,843, according to the SEC.

Scoville did not respond to a request for comment via his website.

A post to the Traffic Monsoon Facebook page on Wednesday morning stated: "The SEC filed a lawsuit. We'll stand up against their claims in a court of law. Whatever is going on we'll get to the bottom of it."

Later Wednesday, the company announced "good news."

"I spoke with the SEC this evening, and they have been so kind and wonderful," the post stated. "They have recognized I have been very honest and open with them about everything, and they recognize my pure intentions behind this business. They know and can confirm that the reason I moved funds to my personal account previously to coming to the USA was to protect people's money from these fraudulent checks circulating."

That post, which was still on the Traffic Monsoon website Thursday morning, continued: "They feel we can work something out that allows Traffic Monsoon to move forward through restructuring. More discussions will follow, but I have expressed to them that I want to find through creativity working together with the SEC a way to make everyone happy, or at least say: 'oh, it's not that bad!'"

The SEC did not immediately respond to a request for comment via phone.

It seeks disgorgement, an injunction, and civil penalties for securities fraud. It also asks that Mary Margaret Hunt with Dorsey Whitney be appointed as a receiver.

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