Following an almost two year wait, earlier today a decision on Charles Scoville’s Traffic Monsoon Ponzi appeal was published.

In a decision that positively nobody could have predicted, the Tenth Circuit appeals court has denied the Traffic Monsoon appeal.

Way back in March a District Court ruling saw
Traffic Monsoon certified as an illegal Ponzi scheme
.

Charles Scoville, owner and operator of the scam,
filed an appeal
the following month.

Key rehashed arguments Scoville raised in his appeal were
addressed by three circuit judges
as follows.

Traffic Monsoon mostly scammed investors outside of the US, so the SEC has no jurisdiction

Charles Scoville argued that because Traffic Monsoon solicited approximately 90% of investment from outside of the US, that the SEC had no jurisdiction.

The court rejected this argument on the basis of a ‘
conduct-and-effects test added to the federal securities laws by the 2010 Dodd-Frank Act
‘.

When applied, the test outcome is that while ‘
adpacks were especially popular in poorer countries, including Bangladesh, Venezuela, and Morocco
‘,

Traffic Monsoon undertook significant conduct in the United States to make those sales to persons abroad.

Congress has clearly indicated, through the 2010 Dodd-Frank Act amendments to the securities laws, that the antifraud provisions apply when either significant steps are taken in the United States to further a violation of those antifraud provisions or conduct outside the United States has a foreseeable substantial effect within the United States.

Because Scoville engaged in conduct within the United States that has been shown likely to have violated the securities laws, we conclude the antifraud provisions reach Traffic Monsoon’s sale of Adpacks outside the United States.

Strike one.

Traffic Monsoon’s AdPacks aren’t securities

The court rejected this argument and concluded that

Traffic Monsoon’s Adpacks (bundled internet advertising  services that allowed a purchaser to share in some of Traffic Monsoon’s revenue) qualified as investment contracts, which are securities regulated under the 1933 and 1934 securities acts.

This is in line with an
SEC directive from mid 2016
, which confirmed you can’t legitimize a Ponzi scheme by adding adpacks to it.

Strike two.

Traffic Monsoon wasn’t a Ponzi scheme

Based on evidence submitted by the SEC, the court concluded that

The SEC presented sufficient evidence that Defendants were likely operating a fraudulent scheme—a Ponzi scheme—and likely doing so with the required scienter.

It (is) likely that the SEC will be able to prove that Defendants were operating a fraudulent scheme—a Ponzi scheme—selling Adpacks and that scheme violated the antifraud statutes invoked in this litigation.

Strike three, you’re out.

With the appeals court upholding the District Court’s preliminary injunction hearing, the Traffic Monsoon Ponzi case will resume where it left off.

For victims of the scheme the most important development

🤖 Quick Answer

What was the outcome of Charles Scoville's Traffic Monsoon appeal?
The Tenth Circuit appeals court denied Charles Scoville's appeal against the March District Court ruling that certified Traffic Monsoon as an illegal Ponzi scheme. Three circuit judges reviewed key arguments presented by Scoville and ultimately upheld the original decision regarding the fraudulent investment operation.

Why did Scoville argue the SEC lacked jurisdiction over Traffic Monsoon?
Scoville contended that because Traffic Monsoon solicited approximately 90% of its investments from outside the United States, the Securities and Exchange Commission possessed no jurisdictional authority to regulate or prosecute the scheme under U.S. securities laws.

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