The Tenth Circuit Court of Appeals has denied Charles Scoville's appeal of a ruling that classified Traffic Monsoon as an illegal Ponzi scheme. This decision comes after a nearly two-year wait and upholds a March district court judgment. Scoville, the scheme's operator, had sought to overturn the earlier findings.

Scoville’s primary argument centered on the Securities and Exchange Commission's jurisdiction, claiming the agency lacked authority because Traffic Monsoon primarily attracted investors from outside the United States. He asserted that roughly 90% of investments originated overseas. The appeals court rejected this, citing the ‘conduct-and-effects test’ added to federal securities laws by the 2010 Dodd-Frank Act. This test allows for SEC jurisdiction when significant conduct occurs within the U.S. to further a securities law violation, or when conduct abroad has a foreseeable substantial effect within the U.S. The court found that Scoville engaged in conduct within the United States that likely violated securities laws, thereby bringing the sale of Adpacks to foreign persons under the antifraud provisions.

Another key argument from Scoville was that Traffic Monsoon's AdPacks did not qualify as securities. AdPacks were advertised as bundled internet advertising services that also allowed purchasers to share in the company's revenue. The court disagreed, concluding that these AdPacks constituted investment contracts, which are securities subject to regulation under the Securities Act of 1933 and the Securities Exchange Act of 1934. This aligns with an SEC directive from mid-2016, which stated that adding adpacks to a scheme does not legitimize it as a Ponzi operation.

Finally, Scoville contested the classification of Traffic Monsoon as a Ponzi scheme. The court, however, found that the SEC presented sufficient evidence demonstrating the likelihood that defendants were operating a fraudulent scheme, specifically a Ponzi scheme, with the necessary intent. The judges concluded that the SEC would likely be able to prove that the defendants operated a fraudulent scheme selling AdPacks, and that this scheme violated the antifraud statutes cited in the litigation.

With the appeals court affirming the district court’s preliminary injunction, the Traffic Monsoon Ponzi case will proceed. The SEC is continuing its efforts to recover funds for victims of the scheme.