Prosecutors Take Down Alleged Online Scam

Ad Surf Daily billed itself as an online advertising service relying on Web video to spread the word. Feds call it a Ponzi scheme

by Catherine Holahan

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.

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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.

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