SEC Shuts Down 'Paid Autosurf' Ponzi Scheme

by Glen Shapiro, LawAndTax-News.com, New York

02 March 2006

The US Securities and Exchange Commission on Monday announced the filing of securities fraud charges against the operators of www.12dailypro.com, a “paid autosurf program” that in fact was a massive Ponzi scheme which raised more than $50 million from over 300,000 investors worldwide, by offering a 44% return on investment in just 12 days.

According to the Commission’s complaint, which was filed last week in federal district court in Los Angeles, 12dailypro claimed to be a paid autosurf program — a form of online advertising program that purportedly generates advertising revenue by automatically rotating advertised websites into a viewer’s Internet browser.

Advertisers purportedly pay “hosts,” which in turn pay their members to view the rotated websites. The Commission’s complaint alleges that 12dailypro’s sale of membership units constituted the fraudulent and unregistered sale of securities under the federal securities laws.

Randall R. Lee, Regional Director of the Commission’s Pacific Regional Office, explained that:

“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 SEC, the 12dailypro website solicited investors to become “upgraded members” by buying “units” for a “fee” of $6 per unit, with a maximum of 1,000 units. 12dailypro 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 12dailypro 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 12dailypro 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.

Johnson and her companies have consented to the entry of a court order that permanently enjoins them from future violations of the antifraud provisions of the federal securities laws, imposes a freeze on their assets, prohibits the destruction of documents, and appoints Thomas F. Lennon as permanent receiver over the assets of 12dailypro and LifeClicks, LLC. However, she has neither admitted nor denied the SEC's allegations.

The order is subject to approval by United States District Judge Nora M. Manella.

The Commission is also seeking repayment of ill-gotten gains and unspecified civil penalties.

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