Last July the SEC shut down Traffic Monsoon on the basis it was a Ponzi scheme.

Rather than admit he’d stolen millions of dollars through Ponzi fraud and settle, Scoville vowed to
defend the case
. This saw all manner of
nonsensical defenses
raised.

With the TRO set to expire, in November a preliminary injunction hearing was held.

It’s been a long five month wait, but Judge Parrish today confirmed Traffic Monsoon was a Ponzi scheme and granted the SEC’s preliminary injunction.

Judge Parrish’s ruling in essence demolishes Traffic Monsoon and Charles Scoville’s pro-Ponzi defense arguments one by one.

I’ve reproduced her decisions with respect to core arguments raised below, with a conclusion following at the end of the article.

The SEC has no jurisdiction over Traffic Monsoon

The first defense Traffic Monsoon raised was that because most of its affiliates lived outside the US, the SEC had no jurisdiction.

The Supreme Court case Morrison v. Nat’l Australia Bank Ltd. was cited by Traffic Monsoon to support its argument.

Upon examination of the outcome of the Morrison case, Judge Parrish observed

the Court determined that “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States.”

Traffic Monsoon had also tried to argue that the Morrison decision overrode the Dodd-Frank Wall Street Reform and Consumer Protection Act (which gives the SEC and court jurisdiction in this case), but this was rejected by the court.

Even if some of the securities transactions at issue in this case are deemed to be foreign transactions, the conduct and effects test has been satisfied in this case.

The conduct and effects test (used in the Morrison case) confirms the court has jurisdiction with respect to the SEC’s legal action against Traffic Monsoon.

Traffic Monsoon sold all of the AdPacks over the internet to both foreign and domestic purchasers.

In all of these transactions,
the seller of these securities, a Utah LLC, incurred irrevocable liability in the United States to deliver this security.

Thus, all of the transactions satisfy the domestic transaction test under Morrison and Absolute Activist.

So there goes the “our investors are outside of the US, so the SEC can’t touch us” argument.

Traffic Monsoon’s AdPacks weren’t securities

In its defense, Traffic Monsoon argued it wasn’t a Ponzi scheme, AdPacks weren’t securities and that the SEC wouldn’t be able to prove as much.

Here’s how Judge Parrish saw Traffic Monsoon affiliates depositing $50 for an AdPack on the promise of an advertised $55 ROI.

The central characteristic of a Ponzi scheme is that returns are not based upon any underlying business activity.

Instead, money from new investors is used to pay earlier investors.

Under this definition, Traffic Monsoon operated as a Ponzi scheme.

When a member purchased a $50 AdPack, the member obtained a right to share Traffic Monsoon’s “revenue” up to $55.

🤖 Quick Answer

What was Traffic Monsoon and what legal action was taken against it?
Traffic Monsoon was an online platform shut down by the SEC in July for operating as a Ponzi scheme. The company's owner, Charles Scoville, initially contested the charges rather than settling, leading to a preliminary injunction hearing in November where Judge Parrish confirmed the Ponzi scheme allegations and granted the SEC's injunction request.

What defense strategy did Charles Scoville employ in court?
Scoville raised multiple nonsensical defenses against SEC allegations of stealing millions through Ponzi fraud. These arguments were systematically dismantled by Judge Parrish during the preliminary injunction hearing, with the judge addressing each core defense point individually in her ruling.

What was the outcome of the preliminary injunction hearing?
Judge Parrish ruled in favor of the SEC, confirming Traffic Monsoon operated

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