SEC: 12DailyPro "Complete Ponzi" - Company Shut Down

The SEC has completely shut down 12DailyPro and frozen the assets of it's sole operator, Charis Johnson. It has debunked the myth that 12DP was anything more than a "complete ponzi" and there were absolutely no outside revenue streams.

SEC Halts “Paid Autosurf” Internet Ponzi Scheme that Raised Over $50 Million from 300,000 Investors Worldwide
FOR IMMEDIATE RELEASE
2006-26

Washington D.C., Feb.27, 2006 — The Securities and Exchange Commission today 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 SEC’s charges, the defendants, Charis Johnson, age 33, of Charlotte, N.C., and her companies, 12daily Pro and LifeClicks, LLC, 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.

According to the Commission’s complaint, which was filed last week in federal district court in Los Angeles, Calif., www.12dailypro.com 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 12daily Pro’s sale of membership units constituted the fraudulent and unregistered sale of securities under the federal securities laws. The Commission also today posted to its Web site an investor alert concerning autosurf programs. The alert can be viewed at www.sec.gov/investor/pubs/autosurf.htm.

Randall R. Lee, Regional Director of the Commission’s Pacific Regional Office, said, “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 Commission’s complaint, the 12daily Pro website, recently ranked as the 352nd most heavily trafficked website, solicited investors to become “upgraded members” by buying “units” for a “fee” of $6 per unit, with a maximum of 1,000 units. 12daily Pro 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 12daily Pro 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 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. The defendants falsely represented that upgraded members’ earnings “are financed not only [by] incoming member fees, but also with multiple income streams including advertising, and off-site investments.” In fact, at least 95% of 12daily Pro’s revenues have come from new investments in the form of membership fees from new or existing members. The other “multiple income streams” from advertising revenues or off-site investments touted by the defendants were either negligible or non-existent. In addition, undisclosed to investors, Johnson transferred more than $1.9 million in investor funds to her personal bank account since mid-2005.

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 12daily Pro and LifeClicks, LLC. The order is subject to approval by United States District Judge Nora M. Manella. Johnson and her companies consented to the order without admitting or denying the allegations in the complaint. The Commission’s complaint also seeks repayment of ill-gotten gains and civil money penalties; the amounts to be sought will be determined at a later date.

The Commission’s complaint alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act.

This matter was referred to the Commission in early February by several members of the public. Complaints and tips from the public are vital to the Commission’s mission to protect investors, and the Commission staff reviews each and every complaint it receives.

Taken from the SEC's Press Release

This action could effectively shut down the auto-surf industry entirely, as new companies should be weary that they are no longer under the radar and are not immune from action from government bodies. 12DailyPro, obviously being the largest auto-surf of it's kind, was effectively shut down when it's payment processor, StormPay, froze all of it's accounts after claiming that it was a ponzi and was being investigated by unnamed outside sources. After this, all the attention was focused on 12DP and it's operator, Charis Johnson, who has in the last two months, been hounded by reporters and it's own members trying to get to the bottom of what happened.

With this latest action by the SEC it is clear that 12DailyPro was, without question, a completely fraudulent program designed to steal members money and place it in the pockets of new members to keep the program running. The rest of the money was diverted to Charis Johnson's bank account to buy her a brand new house.

Auto-surfing, a new name for an old scheme called a Prime-Bank, has recently popped up online as a blockbuster way to make huge returns on investments in a short period of time. The North American Securities Administrators Association said that Prime Banks are one of the top 13 ways that investors are likely to be ripped off this year.

Prime Bank Schemes. These schemes often promise high-yield, tax-free returns that are said to result from “off-shore trades of bank debentures.” Investors are told that only very wealthy people can get the benefit of these programs but the promoter is able to make it available to the victim. Sometimes the victim is required to execute a “confidentiality agreement” in order to invest and is told not to consult an attorney, accountant or financial planner because they keep these programs for the “big boys” and will deny that they exist. There are no such programs, no such debentures and no such high-yield trades. These prime bank schemes are the securities equivalent of a purse snatch. Once the seller has your money, it’s gone “off shore” forever.

Now, with the SEC releasing a report condemning the autosurf industry, it is highly likely that most of these companies will shut down or go underground in an effort to once again stay off the radar.

While auto-surfing may sound easy and appealing — and risk-free — there can be a hitch. Some auto-surf programs require their surfers to pay to participate, although perhaps not initially. When you first sign up to auto-surf, the firm might assign a limited number of sites for you to visit and pay you accordingly. Once you’ve made a modest amount of money, the firm might encourage — or even require — you to purchase a “membership” so that you can maximize your earnings. The program will promise high — often double or triple digit — returns on your investment in the program, often within days or weeks of joining.

The line you’ll hear is that the more you click, the more you collect. But the reality is that any scheme that requires you to pay to participate — and promises handsome rewards in no time at all for little to no effort on your part — bears many of the hallmarks of a “Ponzi” or pyramid scheme. These schemes look deceptively legitimate because the fraudsters behind them typically use money coming in from new recruits to pay off early stage investors. But eventually the pyramid will collapse when it gets too big. It’s simply not possible to “rob-Peter-to-pay-Paul" forever.

UPDATE 2/28:

Charis Johnson has started a new blog [which has now been removed] after claiming that the 12DP site was seized by the SEC and she can no longer post there. She has posted the following message on her blog in response to the recent press release from the SEC:

To those watching for a comment from me on the 12dp forum regarding today's SEC press release and the cooresponding filing, there will be none there.

The website is to now be under the control of the SEC and thus I am unable to post anything on the site without approval.

I hope to have my attorneys agree to the release of a statement within the next day or so which will clarify our position, dispel the inaccuracies in the filing and explain why we reached an agreement with the SEC that was in the best interest of members, despite such inaccuracies.

Keep in mind that the SEC never interviewed us, never talked with us, never examined our data, never looked at our bank accounts, and never examined our books before placing this filing. All information came from outside sources, primarily StormPay and an ex-convict seeking media exposure.

Before reaching the agreement, my attorneys provided documentation to the SEC in the form of bank records and EMO records showing the funds withrawn from StormPay were utilized for business purposes, with more than 70% used to fund LifeClicks' EMO account. They were also provided documentation that showed that StormPay does not have a merchant account option and that when you add a bank account to your SP account, their terms state that the name of th bank account must match the individual name on the StormPay account. We were following the StormPay TOS. The SEC omitted these things in the press release, I would assume because it would weaken their case for the original filing.

Regardless, we are and will continue cooperating with the SEC in whatever way they require of us.

I seriously doubt that the SEC did not view her bank accounts, and how could she know this information? The SEC could easily look into her personal accounts and determine her earnings based on information released by the bank under court order and from IRS filings. Never the less, if the SEC filing has it's desired effects, members should hope to be expecting refunds in the near future.

UPDATE 2/28 10PM:

The SEC has released more information on the litigation action against Charis Johnson and 12DailyPro today.

U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19579 / February 27, 2006
SECURITIES AND EXCHANGE COMMISSION v. CHARIS JOHNSON, LIFECLICKS, LLC, and 12DAILY PRO, Civil Action No. CV 06-01018 NM (PLAx) (C.D. Cal.)
SEC HALTS “PAID AUTOSURF” INTERNET PONZI SCHEME THAT RAISED OVER $50 MILLION FROM 300,000 INVESTORS WORLDWIDE

The Securities and Exchange Commission (“Commission”) today 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.

According to the Commission’s complaint, which was filed last week in federal district court in Los Angeles, California, www.12dailypro.com 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 12daily Pro’s sale of membership units constituted the fraudulent and unregistered sale of securities under the federal securities laws.

According to the Commission’s complaint, the 12daily Pro website, recently ranked as the 352nd most heavily trafficked website, solicited investors to become “upgraded members” by buying “units” for a “fee” of $6 per unit, with a maximum of 1,000 units. 12daily Pro 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 12daily Pro 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 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. The defendants falsely represented that upgraded members’ earnings “are financed not only [by] incoming member fees, but also with multiple income streams including advertising, and off-site investments.” In fact, at least 95% of 12daily Pro’s revenues have come from new investments in the form of membership fees from new or existing members. The other “multiple income streams” from advertising revenues or off-site investments touted by the defendants were either negligible or non-existent. In addition, undisclosed to investors, Johnson transferred more than $1.9 million in investor funds to her personal bank account since mid-2005.

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 12daily Pro and LifeClicks, LLC. The order is subject to approval by United States District Judge Nora M. Manella. Johnson and her companies consented to the order without admitting or denying the allegations in the complaint. The Commission’s complaint also seeks repayment of ill-gotten gains and civil money penalties; the amounts to be sought will be determined at a later date.

The Commission’s complaint alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and the securities registration provisions of Sections 5(a) and 5(c) of the Securities Act.

This matter was referred to the Commission in early February by several members of the public. Complaints and tips from the public are vital to the Commission’s mission to protect investors, and the Commission staff reviews each and every complaint it receives.

Originally posted here. View the entire court document here. (PDF)

SEC shuts down Ponzi scheme that raised $50 million - Feb. 27, 2006