Tuesday, July 24, 2007
The Securities and Exchange Commission today settled securities fraud charges against the operators of an Internet-based Ponzi scheme that raised $41.9 million in just four months from more than 20,000 investors worldwide. The SEC alleged that from Feb. 22, 2006, through May 21, 2006, four defendants operated a Web site — Phoenixsurf.com — that offered investors a 120% return in just eight days on investments ranging from $8 to $6,000 in a purported "traffic exchange program."
The Commission's complaint alleges that under the purported program, to receive the promised return, investors had to purchase advertising and view at least 15 web pages of advertising per day during the eight-day period. Although the defendants represented that they would pay the promised returns with funds received from investors and other "businesses/programs within the NME/Phoenix network," they operated Phoenixsurf.com primarily as a pure Ponzi scheme — using for the most part only new investor funds to pay the promised returns to existing investors. The complaint alleges that the defendants paid investors $36.7 million, almost all of which came from advertising purchases from new investments in the scheme.