United States District Court, D. Utah
MEMORANDUM DECISION AND ORDER GRANTING A PRELIMINARY
INJUNCTION AND DENYING THE DEFENDANTS' MOTION TO SET
ASIDE THE RECEIVERSHIP
N. Parrish United States District Court Judge
related motions are before the court. First, the SEC has
moved for a preliminary injunction that continues the
receivership and asset freeze put into place by the TRO
entered by the court. Second, defendants Traffic Monsoon, LLC
and Charles Scoville (collectively, Traffic Monsoon) have
moved to set aside the receivership. [Docket 33]. The court
GRANTS the SEC's request for a preliminary injunction and
DENIES the defendants' motion to set aside the
26, 2016, the SEC moved for a TRO freezing the assets of Mr.
Scoville and Traffic Monsoon and appointing a receiver for
these assets. The court granted the TRO, appointed Peggy Hunt
as the receiver for Mr. Scoville's and Traffic
Monsoon's assets, and set a preliminary injunction
hearing. Traffic Monsoon subsequently moved to set aside the
court held evidentiary hearings on the SEC's request for
a preliminary injunction and Traffic Monsoon's motion to
set aside the receivership on November 1, 2016 and November
3, 2016. The parties presented legal argument on November 30,
1. On September 29, 2014, Mr. Scoville registered Traffic
Monsoon with the State of Utah as a limited liability
company. Hearing Transcript (“Tr.”) 29-32; Ex. 1,
tab 1. Organizational documents filed with the State of Utah
identify Mr. Scoville as Traffic Monsoon's sole member,
manager and registered agent. The documents list his Murray,
Utah, apartment as Traffic Monsoon's corporate address.
Ex. 1, tab 1.
2. Traffic Monsoon was operated by Mr. Scoville through a
website with the address www.trafficmonsoon.com. Tr. 12; Ex.
1 ¶ 8. The website prominently identified Traffic
Monsoon as a “revenue sharing advertising
company.” Docket 64-2, p. 2.
3. Traffic Monsoon operated as a web traffic exchange that
sold several different products designed to deliver
“clicks” or “visits” to the websites
of its customers. Tr. 12-17. The exclusive method of
purchasing these services was through the website. Tr. 12,
4. These purchased visits are of value to website owners
because they make the website appear more popular than it
actually is. Because search engines such as Google employ
algorithms that prioritize more frequently visited websites
over less frequently visited websites, these paid visits
tended to result in a higher ranking on a search engine
5. Individuals who wished to purchase services from Traffic
Monsoon would create an account and became
“members” of the Traffic Monsoon website.
6. A large majority of the financial transactions the members
completed with Traffic Monsoon-both payments made to Traffic
Monsoon and withdrawals from the member's account-were
conducted through PayPal. Tr. 19, 54.
7. Traffic Monsoon sold 1, 000 website visits for $5.95 and
20 clicks on a member's banner ad for $5.00. Tr. 17-18,
8. Traffic Monsoon's most popular product by a large
margin, however, was the Banner AdPack (AdPack). AdPacks,
which could be purchased for $50, bundled 1, 000 website
visits and 20 clicks to the member's banner ad. What set
this product apart (and justified the additional cost for
identical services that could be purchase à la carte
for just $10.95) is that the AdPack permitted the purchaser
to share in the revenues of Traffic Monsoon by receiving
credits in the member's account up to a maximum amount of
$55 per AdPack.
9. To qualify for this AdPack revenue sharing, the member had
to click on a number of websites each day. The number of
required clicks increased over time, but the member was
ultimately obligated to click on 50 ads and remain on each
website for five seconds. This took the member a little over
four minutes per day. The member's obligation to click on
50 ads for five seconds each did not scale with the number of
AdPacks purchased. Whether the member owned 1 or 1, 000
AdPacks, he or she was obligated to click on only 50 ads per
day and remain on the website to which the member was
directed for five seconds each in order to participate in
10. 99% of AdPack buyers qualified for some portion of
revenue sharing after their purchase of an AdPack. Tr.
260-61; Ex. 5.
11. Traffic Monsoon members also were entitled to a 10%
commission on all products- including AdPacks-that were
purchased by individuals whom the member referred to Traffic
Monsoon. Tr. 301-02. This 10% commission was paid on all
future purchases made by the referred member, including when
the referred member rolled over revenues from existing
AdPacks to purchase new AdPacks. Tr. 20-21.
12. Mr. Scoville stated in emails to the SEC that he
allocated the $50 purchase price of an AdPack as follows: 10%
was deposited in the referring member's account, 4.5% was
retained by Traffic Monsoon, 1.5% went to Traffic
Monsoon's programmer in Russia, and the remaining 84%
either was distributed to other AdPack holders who had
qualified in the past 24 hours or was placed in a reserve
fund. Ex. 110. The amount placed in the reserve fund for
future sharing was used to even out fluctuations in the
amount of money flowing into the member accounts. Ex. 110. In
other words, out of the $50 purchase price, the referring
member received $5, Traffic Monsoon and its programmer
received $6, and the remaining $39 was either shared with
other qualified AdPack holders or placed in a reserve fund
for future distribution.
13. Mr. Scoville kept no accounting records for Traffic
Monsoon. Ex. 1, tab 6. So there are no readily available
documents that describe precisely how the money was
distributed. After the receiver in this case conducted a
preliminary investigation of how Traffic Monsoon distributed
the money it received, she expressed some doubt as to whether
the funds were distributed in the exact manner that Mr.
Scoville described. Tr. 25-26. Rather, it appeared that the
money coming into Traffic Monsoon was simply pooled together
and then paid out as needed. Id.
14. At any rate, neither the website nor any other publicly
available source of information informed the members how
Traffic Monsoon split revenue between itself and qualified
AdPack holders. So long as Traffic Monsoon shared some
undefined portion of the revenue coming into the company with
qualified AdPack holders and paid out a 10% commission, Mr.
Scoville was free to distribute the money however he wished.
15. AdPack purchasers typically received about $1 per day in
revenue sharing per AdPack purchased. Tr. 296. These revenue
sharing payments would appear as credits in the member's
Traffic Monsoon account. The member could then use these
credits to purchase additional AdPacks or to purchase Traffic
Monsoon's other services. The member could also convert
these credits into real currency by performing an electronic
transfer to a bank account.
16. If the owner of an AdPack consistently performed his or
her daily obligation to click on 50 ads, the owner would
typically recoup the original $50 payment, plus an additional
$5 in profit in about 55 days. If the member continually
purchased a new AdPack after the previous AdPack matured, he
or she could reap an impressive 66% annual return on the $50
investment. The member could earn even more money by
convincing others to buy AdPacks.
17. Thus, for all $50 AdPacks that were purchased by a
referred member, Traffic Monsoon typically deposited $60
worth of credits in member accounts: $55 into the purchasing
member's account over a 55-day period (so long as the
member qualified) and $5 into the referring member's
18. When a customer purchased an AdPack, he or she agreed to
be bound by several terms and conditions. Some of these terms
and conditions are as follows:
a. “TrafficMonsoon registered as a limited liability
company and not a bank nor a security firm. A purchase of
advertising service with us is not considered a deposit, nor
investment.” Docket 64-2, p. 44.
b. “You agree to recognize TrafficMonsoon as a true
advertising company which shares its revenues, and not as any
form of investment of any kind.” Docket 64-2, p. 44.
c. “The information, communications and / or any
materials TrafficMonsoon contains are for educational
purposes, and is [sic] not to be regarded as solicitation for
investments in any jurisdiction which deems a non-public
offers or solicitations [sic] unlawful, nor to any person
whom it will be unlawful to make such an offer and / or
solicitation.” Docket 64-2, p. 45.
d. “You agree that our past performance does not
guarantee you the same result in the future.” Docket
64-2, p. 44.
19. The Traffic Monsoon website also makes a number of
representations regarding its services. Some of those
representations are as follows:
a. “Only 1 of the services we offer includes a revenue
sharing position. We do not sell ‘shares.' We only
sell advertising services. It's from the sales of all our
services that we share revenues. When our members purchase a
service from TrafficMonsoon, the revenues from that purchase
are held by the company. Then, you can qualify to receive
share [sic] of the profits! Naturally there is cost
associated with providing services. Each service provided
generates a profit margin. We share those profits with you! .
. . As long as you are qualified, each sharing position you
receive with your AdPack Combo purchase will continue to
share in revenue up to $55.00. Reaching this maximum is not
guaranteed, or affixed to any time frame. It's completely
reliant upon sales of services, and you being
qualified.” Docket 64-2, p. 19.
b. “Is TrafficMonsoon a hyip, Ponzi, pyramid scheme, or
illegal? What is a Ponzi? ponzis [sic] are investment schemes
which offer interest payments. they [sic] pay interest from
new investor principle deposits. If you add together the
interest earned total and principle total, there would be a
debit balance created. Sufficient funds would not be
available to pay people their principles and interest. . . .
Why is Traffic Monsoon not a Ponzi? Traffic Monsoon only
offers ad services. Nothing else is for sale than ad service.
There is no investment plan offered. Yes, you can qualify to
share in the sales revenue generated when services are sold
by actively viewing other people's websites, but this is
not interest. . . . New sales of advertising service generate
new earnings. That's not a ponzi. . . . In conclusion,
when looking at pure definitions, Traffic Monsoon is not a
ponzi . . . .” Docket 64-2, p. 31.
c. “[W]e cannot guarantee the amount you'll receive
per day, but as long as you are qualified to receive share
[sic] in site revenues, you'll continue to receive of
revenues [sic] on each sharing position up to $55. This also
means we do not guarantee reaching $55, because earnings from
revenue sharing is completely dependent upon the sale of ad
services, and also dependent upon you meeting the
qualification to receive of revenues [sic] . . . .”
Docket 64-2, p. 36.
20. Despite these disclaimers, the Traffic Monsoon website
also promoted the AdPacks as a way to make money:
“There are really 4 opportunities to earn with traffic
monsoon [including revenue sharing through AdPacks]. . . .
Each one can be your main focus, or all of them. Naturally,
the more you utilize all 4 of these ways to earn money, the
more you'll earn.” Docket 64-2, p. 33.
21. By a large margin, AdPacks were Traffic Monsoon's
most popular product. The sale of AdPacks constituted over
98% of all Traffic Monsoon revenue. Tr. 17, 274. Thus, over
98% of the revenue sharing distributed to qualified AdPack
owners came from the sale of other AdPacks. The Traffic
Monsoon website did not inform members that almost all of the
revenue that was shared with qualified AdPack owners was
generated by the sale of new AdPacks.
22. Approximately 90% of the Traffic Monsoon members who
purchased AdPacks reside outside of the United States and
presumably purchased the AdPacks while located in their home
countries. Complaint at ¶ 66.
23. Some individuals initially purchased AdPacks principally
as a way to promote their online businesses. But for many
members, the profits that could be reaped from the AdPacks
themselves quickly eclipsed this motive. Tr. 180-86.
24. Traffic Monsoon member correspondence with the receiver
evidences that Traffic Monsoon customers' primary
motivation in purchasing AdPacks was to earn the $5 return on
each AdPack, not to receive the advertising services that
were available for only $10.95 if purchased separately from
the AdPack. Tr. 74-76, 84-85. Indeed, many members have not
received or used the web visits and banner clicks purchased
in the AdPack. Tr. 181-186. A number of members indicated
that they had invested their “life savings” or
“savings” by purchasing AdPacks. Ex. 3, p. 7 &
25. By Traffic Monsoon's own description, it has
delivered only 1.6 billion website visits out of the 17.5
billion that have been purchased by Traffic Monsoon members.
Tr. 82-84. In other words, it has delivered only 10% of the
web traffic purchased by members through the sale of AdPacks.
It would cost Traffic Monsoon tens of millions of dollars to
acquire and deliver the billions of web visits it owes to its
26. Many individuals began to purchase or accumulate hundreds
or even thousands of AdPacks. Tr. 23; Exs. 11, 12.
27. Members typically did not cash out an AdPack when it
matured. Instead, they rolled over the money deposited in
their accounts by purchasing another AdPack. Tr. 20. In order
to maximize their returns, members purchased dozens or
hundreds of AdPacks. They would then use the revenue from the
existing AdPacks to purchase new AdPacks as soon as they had
enough money in their account to do so. Thus, members that
owned hundreds of AdPacks, which could return thousands of
dollars in shared revenues, typically had relatively little
money in their account because the members would continually
reinvest it by purchasing new AdPacks. Ex. 10.
28. If the members rolling over money in their accounts had
been referred by another member for the 10% commission, these
rollover transactions also generated commission payments to
the referring members. Tr. 20-21. Therefore, if the referred
member purchased a single AdPack for $50 and then rolled the
proceeds over into a new AdPack every 55 days, the referring
member would reap $30 in commissions in less than one year.
29. Enticed by these commission payments, Traffic Monsoon
members promoted the AdPacks to others. Several members
actively promoted the AdPacks online or through presentations
as a money making opportunity with slogans such as “If
You Can Click a Mouse. [sic] You Can Get Paid!!” Tr.
88-89, 210-11. Ex. 3, tab 19.
30. After making an initial investment to purchase multiple
AdPacks, a member could accumulate an ever-growing number of
AdPacks by purchasing additional AdPacks with the 10% profit
the member acquired over a 55-day period. For example, if a
member initially invested $5, 000 by purchasing 100 AdPacks
and only rolled over the principal amount in new AdPacks, the
member could purchase about 166 AdPacks at the end of one
year by reinvesting the principal and profit into new
AdPacks. If the same member continued this pattern of rolling
over the principal amount and investing the profit at the end
of the year, the member could purchase around 275 AdPacks at
the end of the second year and 456 AdPacks at the end of the
third. If the member then allowed these 456 AdPacks to
mature, he or she could accumulate $25, 080-over five times
the initial investment. If the member were able to convince
family or friends to make similar bulk purchases of AdPacks,
the member could reinvest the resulting 10% commission and
acquire even more AdPacks.
31. Between October 2014 and July 2016, Traffic Monsoon
members worldwide paid Traffic Monsoon $173 million in new
money to purchase 3.4 million AdPacks. Tr. 270-77; Ex. 6.
Traffic Monsoon members purchased approximately 14 million
additional AdPacks for $700 million during that same period
by rolling over their revenue-sharing payments into the
purchase of these new AdPacks. Id. During that same
period, Traffic Monsoon members paid approximately $2.9
million for all other Traffic Monsoon products combined.
32. Out of the $175.9 million total paid into Traffic Monsoon
by its members, approximately $88.4 million has been paid
back out to its members, leaving a difference of $87.4
million between what has been paid in by members and what
they have taken out. Tr. 278-81; Ex. 7.
33. In January, 2016, PayPal became concerned about the
enormous growth in the volume of transactions between Traffic
Monsoon and its members, and it froze Traffic Monsoon's
account. Tr. 26, 137.
34. The PayPal freeze significantly reduced the amount of
money that was flowing into Traffic Monsoon. Tr. 26. Traffic
Monsoon then began to transition to other electronic payment
processors such as Payza, Allied Wallet, and SolidTrustPay.
Tr. 27. With the introduction of these new payment
processors, AdPack transactions began to rise again. Tr. 27.
35. Traffic Monsoon's resurgence was halted on July 26,
2016, when this court froze its assets and appointed a
36. The current combined account balance of Traffic Monsoon
members is $34.2 million. Tr. 284-86; Ex. 7. If the
outstanding AdPacks currently owned by Traffic Monsoon
members had matured, the account balance would swell by an
additional $243.9 million, for a combined balance of $278.1
37. The receiver currently has between $50-$60 million in
frozen Traffic Monsoon assets. Tr. 110.
alleges in its complaint that Traffic Monsoon's sale of
AdPacks constituted an illegal Ponzi scheme that violated
Section 10(b) of the Securities Exchange Act of 1934
(Exchange Act) and Rule 10b-5(a) and (c) promulgated
thereunder. The SEC also alleges that Traffic Monsoon
violated Section 17(a)(1) and (3) of the Securities Act of
1933 (Securities Act).[Docket 2, ¶¶ 84-92].
10(b) of the Exchange Act makes it unlawful for a person to
“use or employ . . . any manipulative or deceptive
device or contrivance in contravention of such rules and
regulations as the Commission may prescribe.” 15 U.S.C.
§ 78j(b). Pursuant to this statutory grant of ...