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Online Autosurf Scams Use Legal Businesses

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Comment The Post Below...

Greetings,

Caution: Beware of "autosurf" sites that promise to pay 
investors for viewing a few online advertisements. They are 
just out to get your money...Read today's article to learn 
more about this!
  
Best,
Mandi

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SoHo News & Tips Blog

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Online 'Autosurf' Scams Use Legal Businesses 
By MARK MAREMONT
Staff Reporter of The Wall Street Journal. 

On Monday, the Securities and Exchange Commission 
issued a warning to the public: Beware of "paid 
autosurf" Web sites.

Such sites, most of them of recent origin, promise 
to pay investors for viewing a few online advert-
isements. A "member" goes to the site and clicks 
on an automatic surfer that visits a series of ads, 
after which the viewer is rewarded with monetary 
credit.

There are dozens of such sites, some of which are 
legitimate businesses. But the SEC said that others, 
especially those promising to pay members huge 
profits, can be scams.

Yet the scams wouldn't be possible without the help 
of larger, well-established Internet businesses, 
raising the question of whether these companies are 
-- wittingly or unwittingly -- playing a role in 
the growing scourge of Internet-based frauds.

Yesterday, for example, at least one suspect auto-
surf site displayed a "PayPal Verified" logo, 
meaning users could pay and receive funds using 
the popular PayPal online payment service owned by 
eBay Inc. And over on eBay's Internet auction site, 
sellers were advertising inexpensive software 
templates that would allow buyers to easily set up 
their own autosurf sites -- which could be used to 
scam money out of the unwary.

A PayPal spokeswoman says the Web site in question 
conforms to its policies, but she adds that PayPal 
is taking a closer look at autosurf sites in light 
of the SEC's warning. An eBay spokesman says that 
the company is reviewing the autosurf postings but 
adds that eBay likely would take no action if the 
software also has legitimate uses.

The SEC warning was prompted by the recent collapse 
of one of the biggest paid autosurf sites, 
12DailyPro.com, which promised members a 44% 
profit in just 12 days -- a return that the SEC 
said amounted to more than 1,300% annually. Members 
could join 12DailyPro at no charge but got paid 
only if they "upgraded" to a paid membership and 
signed on to view ads 12 days in a row. Some 
investors put in as much as $6,000 every 12 days.

The agency last week moved to freeze funds 
controlled by the Charlotte, N.C., company that 
operated 12DailyPro, saying it had defrauded more 
than 300,000 people of more than $50 million. The 
agency said 12DailyPro claimed it generated reven-
ue in part from advertisers willing to pay its 
members to view their online ads. In reality, the 
SEC charged, at least 95% of revenue came from 
fees paid by other members, making the site "almost 
a pure Ponzi scheme."

Named for Charles Ponzi, an Italian immigrant to 
the U.S. who gained notoriety early in the 20th 
century, a Ponzi scheme promises huge returns to 
investors but pays them with money from subsequent 
investors rather than from revenue generated by 
business. "Paid autosurf programs have become an 
enormous industry on the Internet," Randall R. Lee, 
the head of the SEC's Pacific region, said in a 
statement. "When these schemes depend on attracting 
new members in order to pay returns to current 
members, they are destined to collapse."

Charis Johnson, who operated 12DailyPro, previous-
ly has defended the site as legitimate but last 
week agreed to the SEC's asset-freeze proposal 
without admitting or denying the allegations. The 
SEC charged that Ms. Johnson transferred $1.9 
million to her personal bank account since mid-
2005. Ms. Johnson's attorney, Noell Tin, yesterday 
said he and his client are looking forward to the 
SEC process, which he said would lead to money 
being returned to members and declined to comment 
further.

A key part of 12DailyPro's operation relied on a 
small PayPal rival, StormPay Inc. of Clarksville, 
Tenn. Payments to and from the Web site were made 
via StormPay and a couple of other small online 
payment processors.

Continued below....

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StormPay officials didn't return calls seeking 
comment. The company has previously said it 
voluntarily froze funds related to 12DailyPro 
about a month ago after being alerted that the Web 
site may have been part of a fraud. Although the 
SEC said the amount originally frozen was about 
$50 million, with additional sums already having 
been paid out to members, the total involved in 
the alleged scheme likely was significantly great-
er.

Instead of being angry with 12DailyPro, many 
investors in the site have turned their ire on 
StormPay. "They basically just froze my money, 
that I felt I was entitled to," says Mike Bromell, 
of Austin, Texas, who started investing in 
12DailyPro in December. "It's just like if I wired 
you money via Western Union, and Western Union 
decided to keep it."

PayPal, the dominant force in the online-payment 
industry, says under its "acceptable use policy" 
it won't do business with illegal pyramid schemes 
and "Get Rich Quick" schemes "where the claims of 
profit or returns on investment are unrealistic 
or unsupported." It also bans transactions related 
to online pornography and several years ago stop-
ped doing business with online gambling sites, 
after reaching a settlement with New York Attorney 
General Eliot Spitzer.

But PayPal is listed as a payment-processing 
option on a number of autosurf sites. One, 
NetInvestAutoSurf.com, promises "members" a return 
of 1% per day on fees they give the site, and 
displays a yellow "PayPal Verified" logo. Another, 
123eTraffic.com, says on its home page: "Get paid 
up to $3,100 Monthly -- no selling, no marketing, 
just surfing! 123eTraffic has to be the fastest, 
easiest way to make money on the Internet." Email 
messages directed yesterday to the operators of 
both sites went unanswered.

Amanda Pires, a PayPal spokeswoman, says both Web 
sites are "within the bounds of our policies." Ms. 
Pires says the sites don't have characteristics of 
typical pyramid schemes -- they allow free member-
ship, and members don't make most of their money 
by referring other members to the site. As for the 
"PayPay Verified" logo, Ms. Pires says it "means 
not much," except that PayPal has confirmed that 
the customer is linked to a real bank account.

Still, she says, these are "a new type of business 
we are just starting to see on the Web. We are 
monitoring these businesses very closely to ensure 
there are no violations with our existing policies, 
and to ensure there are no issues reported to us 
by our customers."

Robert L. FitzPatrick, who wrote a book about 
pyramid schemes, "False Profits," reviewed several 
autosurf Web sites accepted by PayPal and says 
they are "thinly disguised Ponzi schemes." PayPal, 
he adds, is "trying to narrowly define a pyramid 
scheme because PayPal makes money every time there 
is a transaction."

Tucker Ronzetti, a Coral Gables, Fla., attorney 
who has represented investors in class-action 
suits related to Ponzi schemes, says third parties, 
such as payment processors, could be held liable 
under state laws for "aiding and abetting" an 
Internet fraud. But, he says, such cases are rare 
and difficult to prove, because the third party 
must have "actual knowledge" of the fraud.

"On the one hand," he says, "you've got to applaud 
PayPal for trying to monitor this. It's a legiti-
mate problem, and innocent people are being 
victimized. On the other hand, if they're looking 
at the definition of a pyramid or Ponzi scheme in 
too strict or picayune a fashion, they may be 
allowing these schemes to flourish."

Many sites similar to 12DailyPro continue to 
operate. They come and go: One Web site offering 
advice about online investment programs lists more 
than 2,200 sites that have become defunct. One 
reason for the proliferation of copycat sites may 
be the easy-to-use software templates, or "scripts," 
that allow anybody to instantly set up an autosurf 
Web site with built-in links to online payment 
processors.

Hani Durzy, an eBay spokesman, says the company 
prohibits the sale of products directly related to 
fraud. But he notes that the SEC itself said that 
autosurf programs can be legitimate, and unless 
the software templates specifically are marketed 
as allowing Ponzi schemes or the like, eBay 
probably would allow them.


So what did you think about this issue? Drop me a line and let 
me know at mandi@gophercentral.com 

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