SEC Calls Online Advertisements known as “Ad Packs” an Illegal Ponzi Scheme
If you are soliciting investors to purchase online advertisements known as “Ad Packs” the SEC might deem them securities and prosecute you for legal violations.
The Securities and Exchange Commission recently warned investors to beware of online “paid-to-click” scams that promise an easy payday by merely purchasing a membership or an advertising product up front and then clicking on a certain number of online ads each day, especially if high returns are offered for buying advertising products or clicking on online ads. These offerings of unregistered investment contracts constitute an illegal Ponzi scheme.
In September of 2017, the Securities and Exchange Commission brought a law suit against Fort Marketing Group LLC, and others. According to the Complaint, Defendants raised about $38 million from more than 150,000 investors in the United States and abroad. Roughly 99% of the revenues generated by Defendants’ businesses came exclusively from other investors’ funds. Defendants operated at least three separate online businesses which purported to provide legitimate advertising services.
Through their websites, Defendants offered the sale of certain investments referred to as “guaranteed plans,” “advertising packs,” “shares,” “Ad Packs,” and “Ad Credit Packs” (collectively Ad Packs). Defendants solicited investors to purchase Ad Packs through these websites and promotional videos linked directly from the websites. These materials promoted Defendants’ businesses as successful online advertising and marketing companies.
The businesses had virtually no other revenue from any other source. The monies raised from investors were used to make payments to other investors and for the Defendants’ personal expenses.
The Complaint alleges that in order to purchase an Ad Pack, each prospective investor was required to pay a membership fee. The websites claimed to pay referral fees back to members who recruited new members as well as referral fees for the recruitment efforts of their recruits, with fees promised for such downstream recruitment as far as 14 levels of separation from the initial investor. Each website promised monthly income as high as $10,000 per month for such downstream recruitment. The businesses purportedly offered to host a website for each member to create an online market and sell products of their choosing. The businesses claimed to manage the advertising space on each such website.
The consequences for this kind of offering are usually severe. The Commission is seeking a permanent restraining order against Defendants from further offerings and sales. It also required the Defendants to disgorge all ill-gotten gains, including prejudgment interest, and directing them to pay civil monetary penalties. To ensure compliance, the Commission also requested the court to freeze all of the Defendants assets.
Because these kinds of offerings constitute securities, there are three major violations involved: (1) a failure to file a registration statement with the Securities and Exchange Commission; (2) offering these securities through any medium of interstate commerce; (3) making untrue statements about the investment, or omitting material facts which are necessary for an investor to make a fully informed decision about whether to make such an investment.
Call the Bradshaw Law Group to help you restructure your advertising and online marketing program to ensure compliance so that you don’t accidentally become a Ponzi scheme.