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SEC Slams “Paid Autosurf” Ponzi Scheme
John Stith
Staff Writer
2006-03-01
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The Securities and Exchange Commission (SEC) filed charges against Charis Johnson, 33, of Charlotte, N.C. and her companies, 12dailypro and LifeClicks, LLC. According the SEC statement, the scheme took in 300,000 global investors and netted more than $50 million after promising a 44% return on the investment.
 | | SEC Files Charges |  |
The SEC filed the complaint last week in federal district court in Los Angeles. The company, 12dailypro, sold itself as an autosurf program. The company claimed investors would get 44% returns inside of 12 days. The system, as they presented it, would generate advertising revenue by automatically rotating advertised websites into a viewer's browser. The advertisers would pay host who then pay members to view the rotated websites.
The SEC charges come in because they claim 12dailypro's sale of membership units "constituted the fraudulent and unregistered sale of securities under the federal securities laws." Essentially, they were using new investor money to pay old investors' payments.
Randall R. Lee, Regional Director of the Commission's Pacific Regional Office, said, "Paid autosurf programs have become an enormous industry on the Internet. When these schemes depend on attracting new members in order to pay returns to current members, they are destined to collapse. The promise of guaranteed, double-digit returns in a matter of days should raise a red flag. We urge the public to be aware that paid memberships in these schemes may be a form of investment, and to exercise extreme caution before investing in any get rich quick scheme."
According to the Commission's complaint, the 12daily Pro website, recently ranked as the 352nd most heavily trafficked website, solicited investors to become "upgraded members" by buying "units" for a "fee" of $6 per unit, with a maximum of 1,000 units. 12daily Pro promised to pay each upgraded member 12% of his or her membership fee per day for 12 days.
At the end of 12 days, the member purportedly would have earned a total of 144% of his or her original membership fee, 44% of which would be profit on the membership fee. To receive the promised payment, a member purportedly must view at least 12 web pages per day during the 12-day period. The amount of returns that 12daily Pro would pay its members, however, was in fact dependent solely on the amount of each member's investment, not on the amount of website-viewing or any other services rendered.
The Commission alleges that the defendants defrauded investors by operating 12daily Pro as almost a pure Ponzi scheme - using new investor monies to pay the promised returns to existing investors - in violation of the federal securities laws. The defendants falsely represented that upgraded members' earnings "are financed not only [by] incoming member fees, but also with multiple income streams including advertising, and off-site investments."
In fact, at least 95% of 12daily Pro's revenues have come from new investments in the form of membership fees from new or existing members. The other "multiple income streams" from advertising revenues or off-site investments touted by the defendants were either negligible or non-existent. In addition, undisclosed to investors, Johnson transferred more than $1.9 million in investor funds to her personal bank account since mid-2005.
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About the Author:
John is a staff writer for SecurityProNews covering cyber security.
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