WASHINGTON (Reuters) - U.S. regulators last week charged the owner of 12dailypro.com and her two companies with fraud for running a $50 million Ponzi scheme, according to a statement released on Monday.
The U.S. Securities and Exchange Commission alleged that Charis Johnson, 33, raised more than $50 million from more than 300,000 investors by convincing visitors to the Web site that they could earn a 44 percent return on their investments in 12 days by looking at Internet advertisements.
The scheme, which the SEC calls "paid auto-surf," required users to buy $6 "units" -- up to a maximum of 1,000 units -- and to view advertisements from what were described as paying advertisers.
While investors were led to believe that their returns would be generated by advertising revenue, payments were made almost entirely from cash generated by other unit buyers in a classic Ponzi scheme, the SEC alleged.
Johnson and her companies, 12daily Pro and LifeClicks LLC, agreed to settle the charges without admitting or denying guilt.
As part of the settlement, Johnson and her companies agreed to stop seeking further investors, to freeze assets and to accept a court appointed receiver over corporate assets.
The commission is also seeking the repayment of ill-gotten gains and further fines. The complaint alleged that Johnson transferred about $1.9 million to her own accounts.
According to Johnson's attorney, Noell Tin, a Clarksville, Tennessee, credit card payment processor called StormPay.com "is holding about $50 million of 12dailypro.com's money."
"That's where the money is to get folks repaid," Tin said, adding that "they (StormPay.com) are definitely going to be giving it to the receiver."
Follow the money
According to a February 7 Better Business Bureau of Middle Tennessee statement, however, StormPay.com "generated more complaints to the BBB than any other Middle Tennessee or Southern Kentucky business" in the first six weeks of 2006.
The consumer protection group said it sought the assistance of federal authorities after receiving 18,926 inquiries checking on the reliability of StormPay.com in the 7 days prior to February 7.
The majority of complaints filed with bureau were related to "auto-surfing" programs, the BBB statement said.
According to Tin, 12daily Pro and Johnson are completely independent of one another.
Calls to StormPay.com's headquarters were unanswered.
The SEC also declined to comment.
Asked if the $50 million he believes StormPay.com is holding is enough to cover investor losses, Tin said, "I don't know. What I do know is that there is a substantial sum of money sitting there."
As for the $1.9 million Johnson allegedly moved to her accounts, Tin says his client has already returned $1.4 million to 12dailypro.com members.
The SEC also released a general warning on paid auto-surf schemes on Monday at http://www.sec.gov/investor/pubs/autosurf.htm.
12dailypro.com was the 352nd most highly visited site on the Internet, according to the SEC.