Ponzi Scheme Victims Say PayPal Knew User Was A Scammer

Image courtesy of André-Pierre du Plessis

Victims of a Ponzi scheme that raked in hundreds of millions of dollars allege that online payment system PayPal were aware of the scam operator’s past but turned a blind eye because the company was making so much money from these fraudulent transactions.

Traffic Monsoon, according to the Securities and Exchange Commission, claimed to be an advertising company that promised to pay people for clicking on banner ads. The scheme’s operator, Charles Scoville, and his team recruited nearly 162,000 investors from across the world, selling them ad-packs for $50, promising visits to their websites, clicks on banner ads, and a 10% return on their initial investment.

Problem is, alleges the SEC, Traffic Monsoon was structured as a Ponzi scheme, using the money from new investors to make payments to older investors. The SEC claimed that 99% of Traffic Monsoon’s revenue was derived from new investor funds, making claims that it was a successful advertising business merely an illusion.

In a separate class action lawsuit, filed last week in federal court in San Jose, CA, victims of the Traffic Monsoon scheme accuse PayPal of profiting off the scam, processing more than half of the $207 million in payments that Traffic Monsoon brought in during its two years of existence.

According to the complaint [PDF], PayPal allowed Scoville to continue using the site to collect money for his “specialized advertising and revenue sharing company,” despite the fact he had previously been linked to similar Ponzi-type frauds.

Plaintiffs claim that PayPal even suspended Scoville’s account in 2011 after allegations surfaced that he was operating six fraudulent pay-to-click businesses. After receiving complaints from customers and an unusual number of chargebacks, the lawsuit notes that PayPal froze the accounts and banned Scoville from using its services for those businesses.

In spite of this history, the lawsuit claims, PayPal allowed Scoville to open an account in 2014 for Traffic Monsoon, which was shut down by federal regulators in July 2016.

The plaintiffs contend that PayPal allowed Scoville to continue using the service to collect payments because it was able to profit through transaction fees each time a transfer was completed involving the operation.

“PayPal earned considerable fees from the funds it transferred for each of Traffic Monsoon’s ‘sales,’ which totaled approximately $134 million since Scoville opened the account in September 2014,” the lawsuit claims.

Additionally, the suit alleges that PayPal earned interest on the millions of dollars of investors’ funds that PayPal held in a Traffic Monsoon account, the balance of which reached $61 million at one point. The interest from this account was accruing to PayPal’s benefit, the suit claims.

The complaint alleges that PayPal also provided “substantial assistance” to Traffic Monsoon and Scoville by giving the operation a “false air of legitimacy that reasonably caused investors to believe that their transactions with Traffic Monsoon were legitimate and protected from fraud.”

In a statement to Courthouse News, PayPal denies the plaintiffs’ allegations.

“We believe these claims are false and look forward to refuting them,” says the company.