Last week, the US Attorney for the District of Columbia filed suit against an autosurf program running in Florida called ASD Cash Generator. The Florida attorney general followed suit soon after, effectively putting the business out of business. Immediately, so called “members” cried out that the evil government shut down a legitimate, paying program, that hadn’t hurt anyone and was indeed helping thousands achieve financial independence. Nothing could be farther from the truth, shutting this scam down saved many people from eventually losing their contributions and will minimize the losses of the current customers. Autosurfs are a very weak attempt to make a simple ponzi scheme look like there is some value created, so called “advertising” although the ads run are not legitimate as advertising, and the “rebates” are, from a legal point of view, unregistered securities.
Die hard members are being encouraged by others to write letters to the authorities, telling them how much they have increased their business by advertising on the site, when, in fact, and the Secret Service documented this before moving in to raid ASD, said advertising was mostly for members to get new members to join under them, (ASD offered generous referral commissions) and less than 5% of the ads were for legitimate businesses. Secret Service agents called several of those, and according to court documents, even those few “real businesses” admitted that they were not counting on any increased sales, but the rebates were the underlying reason for their ad buys. Members who attempt to get their testimonials entered into the official record should use caution, it’s possible that somewhere down the line, in either civil or criminal proceedings, that they may have to back up those statements, showing records to prove what they have said, which I would think would be unlikely. The simple fact that ASD offered to “rebate” more than the initial cost of the “ad credits” makes it an unsustainable business and the law will regard the rebate structure as a classic ponzi, which of course it is. One promoter engaged me in a very lengthy explanation of how “ASD only paid out 50% per day so how could it be a ponzi?” Well, let’s look at that.
The marketers of ASD used this sleight of hand to confuse the hapless members, at first glance, that does make some sense, right? “We take in $10,000, we keep $5000, and we profit share the other $5000 minus some administrative expense”. Now, let’s look at it from an accounting point of view, which is more accurate. When a program takes in $10,000 in a day, with the promise of paying out 125% eventually, it creates a liability of $12,500. It keeps the same $5000. So, from the $10,000 it took in, it OWES its members $12,500, its stockholders $5000. Even assuming it pays its expenses from the “profit” it kept, the $5,000, that’s still $17,500 it needs to come up with to pay the bills. No matter what percentage a day it uses to pay expenses and members, the cold hard fact is it needs $17,500 out of the $10,000 it took in. Unless it has some business plan that produces this kind of return (and as a hint, no business in history has ever produced this kind of return for an extended period) it goes more into insolvency with every dollar it takes in, because even with no profit for itself, every dollar it receives costs it $1.25, and that’s not a good business model in anyone’s book.
Just because the money goes out at a slower rate than it comes in at 1% per day, they of course have 100 days before they’re sending you money that wasn’t what you sent them to begin with, does not make it a sustainable business. During the growth of a ponzi scheme it always looks great and everyone is getting paid, but the list of what is owed just gets bigger every dollar they take. That’s how a ponzi works. In this case, the US Attorney seized $53 million, but a quick look at the accounts shows that the members, in total, if they were to each get their 25% payout, were owed over $300 million. So even if the government just gave back all the money, no one would be anywhere near even.
So, where did the money go? A good chunk went to early members, you know, the ones who bragged in online investment forums how much they were making on this can’t miss, no risk scheme, got most of it. That was the only real advertising involved in the whole scheme, the “I got paid” cheerleaders are, unlike the ads on the rotator, very effective advertising. These guys spent as much time recruiting as surfing and for them it paid off, or at least they think so. More on that later…..
Of course, there is the $53 million, which is interesting to me, see, it seems that ASD was a little behind on payments. They obviously had the cash to make a few payments, which they need to do as long as they want the new money to keep coming in. It is possible that Andy was building a little nest egg to disappear, the end was near and he had to know it. I don’t think it’s that simple, though. ASD had just hosted a large conference, I’m sure the bulk of the seized funds were just collected and honestly they hadn’t quite got it all counted yet, many forum posts of people looking to see their “numbers on a screen” to show up were seen in the days leading up to the raids. Another rally was coming up so I’m sure they were planning to make a few payments before another big payday in Tulsa. Who knows, it’s really not important except to say that there was nowhere near enough to pay what the members were owed, nor even to refund them with no “rebates”. Quite a few millions were just flat out stolen and that’s the relevant fact. But that’s all standard “Autosurf, “HYIP”, ponzi scam procedure. Pay them like clockwork as long as today’s receipts are more than yesterdays, then fade into the anonymity of the internet, and find a non-extraditable country with nice beaches so you can laugh at the suckers while you plot the next scam. What I really intend to explore here is the evolution of the approach being taken by law enforcement in this case and in the last year in general.
The first thing that struck me about this case when I read about it was the venue. ASD operates in Florida and is incorporated in Nevada, but the US Attorney brought this case in the District of Columbia, where by simple demographics seems a strange place to bring it. Simple numbers would seem to indicate that comparatively few residents of Washington would be victims, the initial complaints the government received were not in D.C. , in fact they first heard about this case in Florida where ASD operates. So why is this case going to be tried in the nation’s capitol? The only reason for this is the government is going to make a statement with this case, no more fooling around with receivers and trying to put the pieces back together, this time they’re going to go after the owners, the promoters, the participants, everyone. The first clue is the absence of a receiver. In the past, action has been brought by the SEC who initially filed for an injunction, part of which was the appointment of a receiver to take over the company and begin a forensic analysis of the records and eventually refunding members to the extent that funds were available to do so.
In this case, though few have noticed the distinction, the Secret Service is the moving party and they seized the funds. The mandate of the Secret Service is not to protect investors or the public; it is to protect the currency. No one is pointing this out yet, but that’s important. What it means is that the money and Andy’s two homes now belong to the US Treasury and there isn’t even much in the way of legal process for anyone to recover it. There’s not going to be any big refund here, the money has been forfeit to the Government and the only way to get it back is to prove in a court that it WAS NOT derived in criminal conduct, which is not going to happen. As bad as that news is to the people who haven’t made a profit, it gets even worse for the early participants who are net winners so far.
Every dollar paid out, including the initial investment of participants being returned to them, is also subject to forfeit and you can count on them coming after it, not because it’s a lot of money (somewhere in the neighborhood of $20 million by one estimate) but for the deterrent value that this is going to cause. The intention of the prosecution here is to send a clear message that being in anyway involved in internet fraud, HYIPs, Autosurfs etc…. is going to cost the members, promoters, operators, all of them.
Don’t be surprised to see the admins of the major rating sites prosecuted by the time this is over, and we haven’t even started thinking of the second wave of civil suits. Don’t be comforted by the promoters saying “this is just a civil suit, no criminal charges are pending” or such soothing statements. The civil injunction is much easier to get, it stops the crime, and it also provides the authorities a very convenient way to dig deep inside a criminal enterprise and collect solid evidence for the criminal trial. Once they have the computers, they have all they need to keep themselves busy for as long and as deep as they want to go.
This is the next step of the evolution of prosecuting these crimes. A year ago they went after another program, CEP, and tried to make an example of it by having a court appointed receiver take the corporate entity into bankruptcy and suing those in profit under the doctrine of avoidable payments. At least one of the investigators in that case was astounded to see the same members being sued for their unlawful gains actively and publicly participating in another online scheme. This blatant attempt to answer one wrong with another is partly behind the new strategy we see here, no one gets anything back, and everyone gets hurt. And I for one think it’s about time.
I think it’s clear that this raid marks a new paradigm in how law enforcement sees the need to have one good case that everyone will point to as the example. No more will crooks be able to try some convoluted argument that you’re not investing, you’re buying advertising. The intent here is to have a precedent (and thus the venue of the Washington D.C. where the appeal route is more direct and in reality if not theory is more of a national precedent) that however they twist the so called “Terms of Service” and insist it’s not a security or an investment, that a scam is a scam and all the rest is just a non enforceable string of legal gobbledygook that won’t make a scam legit no matter how many times they try. Even by HYIP standards, this one is going to be ugly, and they intend it to be ugly, so that people will hopefully get the message this time.
Greggory Evans volunteers without pay to educate the public and prevent online fraud.