Psychology of Compliance & Due Diligence Law

Audri and Jim Lanford, who run scambusters.org, had a thoughtful comment on 12dailypro and autosurf programs in general.

"Why People Autosurf

The primary reason people autosurf is to earn cash or credits. Some autosurf sites require people to add their own money, which combines some kind of job (watching the ads) with a type of 'investment' or 'membership.'

The second reason people autosurf is to get traffic to their own websites. Some autosurf programs will show your website to other members in direct proportion to how many times you view other websites. For example, you might earn one credit to have your website shown for every two websites you view. Websites that are purely for traffic and require no monetary investment are called 'traffic exchange' programs and are not Ponzi scams." (my emphasis)

What would the point be of driving traffic to your site when you know that it is very likely that the "traffic" is just driving by with their windows blacked out? One word.

Technorati Tags: autosurf programs, reason people, traffic exchange, scambusters, ponzi scams, exchange programs, monetary investment, earn cash, thoughtful, proportion, combines, ads

Continue reading "Autosurf Programs" »

Posted by michael webster at 09:44 PM | Permalink | Comments (1) | TrackBacks (0)

This picture showing the relative importance of the 12dailypro.com website versus the importance of the sec.gov, the regulator's website for all US securities tells you all you really need to know about 12dailypro's due diligence. Interesting how the site had more reach at even the beginning of its ill fated life than the SEC's site - very interesting story here I am sure.

Posted by michael webster at 03:26 PM | Permalink | Comments (1) | TrackBacks (0)

Due Diligence should be thought of as checklist, or audit, or series of steps to verify facts about business opportunities for sale. Fraud can be avoided with by using serious due dilgence, or fraud can be courted using a parody of due diligence. As an example of the latter, I offer the following example:

There is a little outfit on the net purporting to perform due diligence on "program", high yield, autosurf, and like "programs". This forum, in September of 2005, announced their results of their "due dilgence" on 12daily Pro. The results are fascinating.

The announcement that 12daily Pro has passed OIC's first due diligence is here. The post runs for some 32 pages, as of March 8, 2006.

The actual due diligence is here. In effect, the gentlemen at OIC have determined someone answers the phone at 12daily Pro's landline, there are addresses on file from the whois directory, lifeclicks is an incorporated company, and there is some information on the net about Charis Johnson. Why is any of this at all convincing - given that on its face, the information is trivial?

Continue reading "Due Diligence and Parody of Reasoning II" »

Posted by michael webster at 01:48 PM | Permalink | Comments (1) | TrackBacks (0)

The receiver is developing a website "devoted to providing investors with information relating to the receivership". The order can be found on the website or here.

In an apparent nod to Ms. Johnson's professionalism, the SEC acknowledged that:

"that the defendants defrauded investors by operating 12daily Pro 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" (my emphasis)

Almost pure is good.

However, I can find no truth to the rumour that the website will pay to be included in the other legitimate autosurf programs. Nor can it be confirmed that none of the 12daily Pro autosurfers will be allowed to access the website since their contract with 12daily Pro specified and confirmed that "the 12daily Pro program was not an investment". More to come.

Posted by michael webster at 12:21 PM | Permalink | Comments (1) | TrackBacks (0)

Here is the court order that the SEC obtained recently against 12DailyPro, LIfeClicks and Charis Johnson, for updates on Ms. Johnson click here

The order is interesting. The Receiver is given the usual powers to wind-up the scheme, including the power to run the 12DailyPro website. But there doesn't seem to be a term in the order allowing the Receiver to "protect" the trademarks of 12DailyPro - in any successful Ponzi scheme, as it grows in popularity clones appear at the tail end of the scheme. But the Receiver may not have the requisite power to shut the clones down. The scheme may morph over the internet, roaches fleeing from the light.

In a related story, ABC is reporting that apparently 8000 individuals from Utah were involved with 12DailyPro. This is an angle worth following - how did these 8000 individuals know of eahc other? It is unlikely that they were simply surfing the web and found this autosurfer "program".

Posted by michael webster at 09:40 PM | Permalink | Comments (0) | TrackBacks (0)

The SEC's "alert" in my opinion is pointless, and in some cases will do more harm than good. Business opportunities frauds will use the alert as "proof" the that SEC has said that autosurf programs are legal. This will become common knowledge around net: "first there were bad programs, but now the SEC regulates autosurf programs and they are all legal."

It is also pointless in its generality. Here is the SEC's advice:

* If it sounds too good to be true, it probably is. Compare promised yields with current returns on well-known stock indexes. Any investment opportunity that claims you'll get substantially more could be highly risky --- and that means you might lose money.

* Check out the company before you invest. Contact the secretary of state where the company is incorporated to find out whether the company is a corporation in good standing. Also call your state securities regulator to see whether the company, its officers, or the promoters of the opportunity have a history of complaints or fraud. If a supposedly upright business lists only a P.O. box, you'll want to do a lot of work before sending your money!

* Steer Clear of Testimonials. Watch out if the company's promotional materials, contain "testimonials" from supposedly satisfied customers, especially if all the "testimonials" are full of praise.

* "Guaranteed returns" aren't. Every investment carries some degree of risk, and the level of risk typically correlates with the return you can expect to receive. Low risk generally means low yields, and high yields typically involve high risk. If your money is perfectly safe, you'll most likely get a low return. High returns represent potential rewards for folks who are willing to take big risks. Most fraudsters spend a lot of time trying to convince investors that extremely high returns are "guaranteed" or "can't miss." Don't believe it.

As academic philosophers like to say, everything the SEC says which is true doesn't matter, and what does matter the SEC is wrong about.

Continue reading "12Daily Investigation V and the SEC Warning" »

Posted by michael webster at 07:36 AM | Permalink | Comments (0) | TrackBacks (0)

The SEC 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. As a result of the Commission's charges, the defendants, Charis Johnson, age 33, of Charlotte, N.C., and her companies, 12daily Pro and LifeClicks, LLC ("LifeClicks"), ceased their solicitation of investors and agreed to a freeze of all their assets and the appointment of a receiver who will take control of the companies' operations.

The SEC's complaint can be read here. In their complaint, the SEC alleges that 12Daily Pro has "raised" over $50 million from over 300,000 "investors" worldwide.

Why is it that there remain shrill defenders of this scheme? Are the defenders the big time winners, small winners, or big time losers?

Continue reading "12DailyPro Investigation IV" »

Posted by michael webster at 04:01 PM | Permalink | Comments (1) | TrackBacks (0)

A review of the 12DailyPro search results for "12DailyPro Investigation" is revealing.

Many people appear to be angry with Stormpay, whom it is said contributed to 12DailyPro's inability to pay out its members. Some individuals claim that Stormpay is bankrupt.

I do not know whether this is factual or not, but it is worthwhile to recall what Mr. Ponzi's banking arrangements were in the early 1900's. His company, Securities Exchange, a delightful bit of ironic foreshadowing, took and deposited its "investors" funds at three or four local banks. The local American banks at the time often faced credit runs.

Here is a highly simplified examaple: If a Bank's deposits are $100, and it has a reserve of $10, then it can lend up to $90 - generally for long term and less liquid loans, which provide the Bank with more interest than they have to pay out on the $100. A credit run occurs when people believe, rightly or wrongly, that the Bank is not solvent. The bank's creditors, ie those who have bank accounts, start demanding their money back. The Bank can pay them by using its reserves, but if the demand is too great, the Bank will have to liquidate its loans to obtain cash. If it has to liquidate too many of its assets quickly, then like any firesale the price the Bank gets may be less than $100. The account holders sense this desperation and demand even more money, quicker.

What has a Bank run got to do with a Ponzi Scheme?

Continue reading "12DailyPro Investigation III" »

Posted by michael webster at 11:35 AM | Permalink | Comments (0) | TrackBacks (0)

The Arizona Republic has an interesting story on 12DailyPro. The author writes about the defenders of 12DailyPro and observes that

in the center of it all are lots of investors who are doggedly defending 12DailyPro. I've read their comments on both the company's online forum and other Web sites. They're either early investors who made money and want to make more, or they're sure that first payout is just around the corner. All they need is those stupid investigators to get out of the way and the media to stop its negative reporting.

Are these defenders really just greedy for another payout?

Continue reading "12DailyPro Investigation - Part II" »

Posted by michael webster at 07:57 PM | Permalink | Comments (0) | TrackBacks (0)

One of the more interesting facets of fraud is how the promoters of business opportunities appear to use the language of economic rationality in justifying their fraud or scam. The explanations are either completely convoluted or a parody of reason.

Consider this example regarding 12dailypro, an autosurf program being investigated by the FBI.

Let's say a company called ABCD Investments (a make believe company) wants to get more traffic to their web site. They contact an autosurf company such as 12 Daily Pro and pay them money to increase their web traffic. ABCD Investments believes that a certain percentage of people visiting their web site will buy what they are selling. So they are willing to pay to get potential buyers to their site.

In exchange for this payment 12 Daily Pro turns around and pays internet users like you and me to view ABCD Investments' web site for a few seconds. This way ABCD Investments gets the traffic they want while the web site surfers like you and me get paid to view their web site.

There are thousands of companies that will pay to get additional traffic to their sites. Auto surf companies such as 12 Daily Pro have thousands of web sites that they are supposed to get traffic for and thousands of people that they pay to view those sites. Web surfers just like you can "auto surf" those web sites for just a few minutes a day with the possibility of making a huge return on their investment.

What is wrong with this reasoning, such as it is?

Continue reading "Fraud - Parody of Reasoning" »

Posted by michael webster at 04:43 PM | Permalink | Comments (0) | TrackBacks (0)

One law-enforcement official involved in the probe said "a significant number of people" likely lost millions of dollars in the aggregate. The site recently claimed it had 300,000 members from around the world, some putting in $6,000 at a time. The Web site of 12dailyPro still was operating as of yesterday.

Based in Charlotte, N.C., 12dailyPro is run by a woman named Charis Johnson, who managed the site through a North Carolina-registered company she also operated called LifeClicks LLC.

In a statement issued yesterday through her attorney, Ms. Johnson blamed a commercial dispute with StormPay for the unavailability of funds owed to 12dailyPro members. Ms. Johnson said StormPay demanded it be the exclusive provider of payment services for 12dailyPro, then soon after froze the accounts and funds after "falsely accusing us of misrepresenting our business model."

She said 12dailyPro had never missed a payment to members until the problems with StormPay arose. LifeClick's lawyers are "evaluating our legal options," she said, adding that the company is "cooperating fully with all investigations."

StormPay officials said they cut off payments after being alerted to possible fraud at 12dailyPro. In a recent interview, StormPay Chief Executive Steve Girsky said, "We have done nothing wrong." Asked if he believed 12dailyPro was a legitimate operation, he said his company initially had no reason to question it, but "upon further investigation we had a hard time making these returns work."

Today the FBI officially announced its investigation.

A story which we will watch with interest. To follow this story, please click here

Posted by michael webster at 03:54 PM | Permalink | Comments (0) | TrackBacks (0)