UPDATED 6:36 P.M. EDT (U.S.A.) To hear some folks in HYIP Ponzi Land tell it, “opportunities” can avoid the long arm of the law by preemptively prohibiting affiliates from using certain words — “investment” and “security,” for two examples. Regardless, court records show that hucksters who played linguistic games to mask their fraud schemes confronted investigators who neatly exposed their wink-nod wordplay.
The following is from a transcript of a May 2007 U.S. Secret Service recording in which undercover agents posing as prospects were talking to Gregory McKnight of Legisi inside Legisi’s office in Michigan. McKnight and Legisi later were implicated in a $72 million Ponzi scheme that in part was promoted on the MoneyMakerGroup forum:
McKnight: ” . . . it is not an investment.”
Agent 1: “Okay.”
McKnight: “I hope you have any idea — if you have any inkling of an idea that it is an investment, then you should really . . .”
Agent 1: “I’m sorry.”
McKnight: “This is a loan to my corporation.”
Agent 1: “Okay.”
“Agent 2: “What’s the difference?”
McKnight: “The difference is — if I am selling investments and I am not registered with the SEC, I am going to prison.”
Agent 2: “Oh.”
Outcome: McKnight, adjudicated liable civilly in a case brought by the SEC and ordered to pay millions of dollars in restitution and penalties, is scheduled to be sentenced on a criminal charge of wire fraud on Sept. 11. The U.S. Secret Service brought the criminal case.
The following is from Paragraph 43 of the August 2008 complaint for forfeiture that targeted tens of millions of dollars in bank accounts tied to the AdSurfDaily Ponzi scheme, which gathered at least $110 million. ASD also was promoted on the Ponzi boards (italics added):
“The [undercover agent] asked her about investing with ASD. She immediately said, ‘Don’t call it investing, you know what I mean, we can get in trouble if we say that, we have to be careful.”
Outcome: A federal judge ordered the civil forfeiture of more than $80 million, including the forfeiture of more than $65.8 million in ASD President Andy Bowdoin’s personal bank accounts and more than $14 million in bank accounts linked to Golden Panda Ad Builder, another autosurf. The U.S. Secret Service brought the civil case.
The following is from the November 2010 criminal indictment against Bowdoin. The prosecution quoted from an email from Bowdoin in which the ASD patriarch himself laid out the wink-nod nature of the 1-percent-a-day ASD program and explained his bid to skirt securities laws by coming up with naming conventions to keep the government at bay (italics added):
“[L]et’s don’t (sic) use the words investment and returns. Instead, lets (sic) use ad sales and surfing commissions. The Attorney Generals in the U.S. don’t like for us to use these words in our program.”
Outcome: Bowdoin, currently jailed amid allegations he pushed other fraud schemes after the seizure and after his arrest and posting of bond, is scheduled to be sentenced on a criminal charge of wire fraud on Aug. 29. The criminal charge was brought after an investigation by the U.S. Secret Service.
And what about AdViewGlobal (AVG), the alleged 1-percent-a-day knockoff of ASD that prosecutors now say they’ve linked to Bowdoin? From the PP Blog’s April 27, 2009, report about the AVG forum warning members not to call AVG an investment program (italics added):
A Mod at an AdViewGlobal forum set up by Mods and members of AdSurfDaily has warned AVG members not to refer to their purchases as “investments.”
Rather, the Mod said, AVG members purchase “advertising” and are not “investing” or “investors.”
Posts that used the terminology of investments would be deleted, the Mod warned.
AVG members currently are stressing a so-called “80-20″ strategy as a means of keeping the program viable for the long-term.
Analysts, however, point out that the “80-20″ plans — taking out 20 percent in cash and letting 80 percent ride with the companies — are just another way to keep cash within ready reach of autosurf Ponzi schemes to sustain the deception.
There is not a single, documented case in the history of autosurf prosecutions in which the use of the word “advertising” to describe what the government views as an “investment” program involving the sale of unregistered securities has succeeded as a means of fending off a prosecution.
In other words, the government has made it plain that you can’t avoid prosecution by using other terminology to describe an investment program.
Regardless, many surf companies continue to insist that the use of the word “advertising” as a replacment for “investing” somehow insulates surfs from prosecution.
Outcome: Unknown. The AVG forum mysteriously disappeared, as did AVG itself. In April 2012, federal prosecutors announced in court filings that they’d linked Bowdoin to AVG.
Virtually all of the material quoted above has been a matter of record for at least three years. In the case of Legisi, it has been a matter of record for more than four years.
Wordplay, though, still is in play among “programs” that purport to pay members outsized percentages that correspond to annualized returns in the hundreds of percent per year. In the past 24 hours on the MoneyMakerGroup forum, for example, these posts (below) appeared in the context of the Zeek Rewards “program.” The first post used the word “investment.” Perhaps ignorant of history (or maybe not), the poster quickly followed up in the second post by saying the use of “investment” was a mistake and that what really was meant was that he or she had purchased “Bids.”
It was hard not to hear the echoes of ASD and AVG members doing largely the same thing summers ago, sometimes after being scolded by the purported forum masters.