Prosecutors Take Down Alleged Online Scam
Sonny Pham, 50, may have dismissed Ad Surf Daily (ASD) as just another online get-rich-quick scheme—if he hadn't seen the Web videos. YouTube had dozens. Some featured company founder, 74-year-old Thomas "Andy" Bowdoin, describing in a folksy twang how his "business opportunity" had helped thousands generate "excellent" profits. In others, self-identified ASD members insisted that the company paid them thousands each month to surf the Web. "There was a video of Andy and his attorney," says Pham. "It is a real business."
Convinced, Pham says he put $2,000 in an ASD account. In 30 days, he had more than doubled his money—at least on paper. Pham never withdrew the funds. Now, he may never get the chance.
On Aug. 5, federal investigators raided ASD's Quincy (Fla.) office and the Bowdoin home, and filed a civil complaint against the company. The U.S. Attorney's office in Washington, D.C., alleges in the suit that ASD defrauded more than 100,000 people with promises of online riches. Prosecutors, who seized more than $53 million in ASD assets from Bank of America (BAC), had been alerted to the alleged scam by numerous complaints, including many from children whose parents had been enticed by ASD's online promotional material. "They called it an advertising company," says William Cowden, chief of the asset forfeiture unit for the District of Columbia U.S. Attorney. "Ad Surf Daily was a Ponzi [scheme]."
Online Video Helped the Pitch
In the complaint, prosecutors contend that Ad Surf Daily, which operated out of a flower shop in Quincy, had no legitimate business model. Instead, the company relied on new investors to pay old investors—the definition of a Ponzi or "pyramid" scheme (BusinessWeek, 8/27/01). "Schemes that depend on a growing base of new participants to support payments to prior participants are also commonly referred to as pyramids," the complaint says. "The Internet is increasingly used as a vehicle to promote each of these types of frauds."
Scammers have long exploited the Web's reach and anonymity to make money. In 2007, more than $239 million was lost to Internet fraud, up 21% from the prior year, according to the Federal Bureau of Investigation's Internet Crime Center. The increase came despite increased efforts from law enforcement to crack down on scams and educate the public about common schemes, such as the e-mails purportedly from displaced Nigerian royalty.
The ASD case may help explain why such efforts have proven unsuccessful in reducing fraud: New Internet technologies can be used to make any proposition, legitimate or not, appear to be more convincing. ASD used online videos to become one of the most successful companies at drawing in participants. Government officials believe that ASD raked in more than $100 million with its seemingly sincere YouTube videos (BusinessWeek.com, 8/5/08) and podcasts, broadcasting the new business opportunities in the online advertising market.
Presented as a Google-Like Service
ASD members used that new Web technology over the weekend to calm clients who found their bank accounts frozen. "I'm sure somebody complained that ASD stole their money," said one company representative, identified as Charlie Perkins, in a recorded call to members posted on ASD member boards. "Those of us that know, that have been at Ad Surf Daily for the last few months, know that is absolutely not the case… It is standard operating procedure of the U.S. Attorney General's Office to come in and seize the accounts." Calls to ASD's main offices, the Bowdoin's home in Quincy, and representatives purporting to be ASD attorneys were not returned.
In an answering-machine message left on ASD's main corporate line, Bowdoin cautioned customers not to panic. "We have some of the best legal minds in the nation working to resolve our issues so we can return to normal operations," said Bowdoin. "Until it is resolved, keep the faith. If God be for us, who can be against us?"
ASD presented itself as an online advertising service akin to the search giant Google (GOOG). But there are significant differences. ASD required people to pay up-front fees to participate in its business, according to the federal complaint. After that, participants could make money by viewing online ads and by persuading other people to participate in ASD's activities.
According to videos promoting ASD and online fliers, participants were told they could make significant profits by submitting a Web site to ASD's advertising service and agreeing to view at least a dozen other ASD Web sites each day for 15 seconds apiece. The cost of "advertising" a site with ASD ranged from $10 to $100,000, or roughly $1 for each ASD member the company guaranteed would see the site.
Attracted by Rebates
For most users, the real allure of ASD wasn't the guaranteed traffic, but the large rebates ASD promised users on their advertising investment, according to the complaint. Pham says users were promised at least 1% returns on their investment per day for viewing others' sites. They also received percentage-based referral fees for bringing in additional users to the service, which varied depending on the amount of their investment, according to the complaint.
Many ASD participants' Web sites appear to be little more than advertisements for ASD and affiliate sites. In fact, in one ASD promotional video, a talking frog tells would-be participants that the Web site is simply a "legal requirement" and that ASD will help users build a Web site, for free, if they don't actually have an online business.
There have been similar online efforts in the past. In 2006, the Securities & Exchange Commission shut down Charlotte (N.C.) company 12DailyPro (BusinessWeek.com, 2/27/06) for defrauding 300,000 people in an allegedly similar fashion. However, ASD is different because early investors who did make money used online videos, blogs, and other Web tools to evangelize about the program and refer others. In some cases, users blasted those who criticized the program as "jealous" and "liars," insisting that the company had to be real because they had received real checks.
"If People See You…They May Trust You"
Pham was so pleased with his paper profits that he created a YouTube video promoting ASD. He enrolled three Web sites in the program, all advertising similar pay for Web surfing sites affiliated with ASD. Though he viewed dozens of sites each day, he never purchased anything. However, he didn't find that worrisome since he had heard from a friend whom he met through another online business that the friend had purchased a colon cleanse treatment from an ASD advertiser site. Pham figured that, by creating a video, he was helping to spread the wealth, as well as increasing his own referral fees. "I am learning about Web 2.0 marketing," he says. "If people see you and that you are a real person, they may trust you and join the business."
ASD officials are now trying to prove that at least some users had legitimate businesses to advertise. In a recording posted on ASD discussion boards, an ASD member asked that users who sold or purchased items through the service e-mail the Attorney General's office. "I have been on my knees to the Lord asking him what should prevail," said the female spokeswoman, identified as founder Bowdoin's daughter. "Any of you that have had results from your advertising or have sold goods and services from your advertising, would you be so kind as to send an e-mail showing it… that will help our legal team document that this is an advertising program."
The courts may ultimately decide whether ASD had anything to do with advertising at all. They'll also decide whether Pham and others get their money back, or if the government keeps the seized funds. Though Pham hopes to be paid, he has resigned himself to losing the money. "I would just write it up as a bad investment," he says. "You take chances, and this is a chance that I took."
With Brian Grow in Atlanta