U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20205 / July 24, 2007
SEC v. Phoenixsurf.com, New Millenium Enterpreneurs, LLC, Jonathan W. Mikula, and Gabriel J. Frankewich, Civil Action No. CV 07-4765 JSL (PLAx) (C.D. Cal.)
SEC Charges Operators of Phoenixsurf Website With Conducting a Massive Internet Ponzi Scheme
The Securities and Exchange Commission today filed securities fraud charges against the operators of an Internet-based Ponzi scheme that raised $41.9 million in just four months from over 20,000 investors worldwide.
The Commission's action, filed in U.S. District Court in Los Angeles, alleges that from Feb. 22, 2006, through May 21, 2006, four defendants operated a website — Phoenixsurf.com — that offered investors a 120% return in just 8 days on investments ranging from $8 to $6,000 in a purported "traffic exchange program."
The Commission's complaint against Jonathan W. Mikula, age 21, of Athens, Ga., Gabriel J. Frankewich, age 29, of Byron, Ga., New Millenium Enterpreneurs, LLC, and Phoenixsurf.com. 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 8 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.
To settle the Commission's charges, the defendants consented, without admitting or denying the allegations in the complaint, to a judgment permanently enjoining them from future violations of 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. The judgment also ordered the defendants to pay disgorgement and prejudgment interest — for Mikula, a total of $106,671.08; Frankewich, a total of $96,345.79, and Phoenixsurf.com and New Millenium Entrepeneurs, LLC in amounts to be determined. Payment of the disgorgement and prejudgment interest by Mikula and Frankewich was waived and civil penalties were not assessed against them based on their sworn financial statements and other documents submitted to the Commission.