U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19579 / February 27, 2006
SECURITIES AND EXCHANGE COMMISSION v. CHARIS JOHNSON, LIFECLICKS, LLC, and 12DAILY PRO, Civil Action No. CV 06-01018 NM (PLAx) (C.D. Cal.)
SEC HALTS “PAID AUTOSURF” INTERNET PONZI SCHEME THAT RAISED OVER $50 MILLION FROM 300,000 INVESTORS WORLDWIDE
The Securities and Exchange Commission (“Commission”) today announced the filing of securities fraud charges against the operators of www.12dailypro.com, a “paid autosurf program” that in fact was a massive Ponzi scheme which raised more than $50 million from over 300,000 investors worldwide by offering a 44% return on investment in just 12 days. As a result of the Commission’s charges, the defendants, Charis Johnson, age 33, of Charlotte, N.C., and her companies, 12daily Pro and LifeClicks, LLC (“LifeClicks”), ceased their solicitation of investors and agreed to a freeze of all their assets and the appointment of a receiver who will take control of the companies’ operations.
According to the Commission’s complaint, which was filed last week in federal district court in Los Angeles, California, www.12dailypro.com claimed to be a paid autosurf program a form of online advertising program that purportedly generates advertising revenue by automatically rotating advertised websites into a viewer’s Internet browser. Advertisers purportedly pay “hosts,” which in turn pay their members to view the rotated websites. The Commission’s complaint alleges that 12daily Pro’s sale of membership units constituted the fraudulent and unregistered sale of securities under the federal securities laws.
According to the Commission’s complaint, the 12daily Pro website, recently ranked as the 352nd most heavily trafficked website, solicited investors to become “upgraded members” by buying “units” for a “fee” of $6 per unit, with a maximum of 1,000 units. 12daily Pro promised to pay each upgraded member 12% of his or her membership fee per day for 12 days. At the end of 12 days, the member purportedly would have earned a total of 144% of his or her original membership fee, 44% of which would be profit on the membership fee. To receive the promised payment, a member purportedly must view at least 12 web pages per day during the 12 day period. The amount of returns that 12daily Pro would pay its members, however, was in fact dependent solely on the amount of each member’s investment, not on the amount of website-viewing or any other services rendered.
The Commission alleges that the defendants defrauded investors by operating 12daily Pro as almost a pure Ponzi scheme using new investor monies to pay the promised returns to existing investors in violation of the federal securities laws. The defendants falsely represented that upgraded members’ earnings “are financed not only [by] incoming member fees, but also with multiple income streams including advertising, and off-site investments.” In fact, at least 95% of 12daily Pro’s revenues have come from new investments in the form of membership fees from new or existing members. The other “multiple income streams” from advertising revenues or off-site investments touted by the defendants were either negligible or non-existent. In addition, undisclosed to investors, Johnson transferred more than $1.9 million in investor funds to her personal bank account since mid-2005.
Johnson and her companies have consented to the entry of a court order that permanently enjoins them from future violations of the antifraud provisions of the federal securities laws, imposes a freeze on their assets, prohibits the destruction of documents, and appoints Thomas F. Lennon as permanent receiver over the assets of 12daily Pro and LifeClicks, LLC. The order is subject to approval by United States District Judge Nora M. Manella. Johnson and her companies consented to the order without admitting or denying the allegations in the complaint. The Commission’s complaint also seeks repayment of ill-gotten gains and civil money penalties; the amounts to be sought will be determined at a later date.
The Commission’s complaint alleges that the defendants violated 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.
This matter was referred to the Commission in early February by several members of the public. Complaints and tips from the public are vital to the Commission’s mission to protect investors, and the Commission staff reviews each and every complaint it receives.