The financial accounts of controversial autosurf company 12daily Pro - which promises a 44 percent return on money at the end of 12 days - were frozen Wednesday evening, Feb. 1, 2006, spawning rumors of a federal investigation and the inability of an affiliate company to repay funds.

StormPay, 12daily Pro's payment processor (similar to PayPal), alleged outside authorities were investigating the matter, while 12daily Pro said StormPay was broaching its business contract and might not have sufficient money available.

"Hundreds of thousands of people are really concerned," said 12daily Pro user Lee Nelson of Tampa, Fla., who said he had $12,000 tied up in the enterprise.

A Daily Universe article published Tuesday stated 12daily Pro was a ponzi scheme based out of Singapore, incorrectly attributing the claim to the company's Web site. That claim was made in an e-mail from a 12daily Pro member to a BYU student. 12daily Pro's administrator, Charis Johnson, issued a statement Friday distancing the company from this and other non-official stances.

"A group of 12daily Pro members who are students at a Utah university have created and have been promoting a Web site to fellow students, that falsely claims we are [an] investment opportunity," Johnson's statement read. "These students have also been given the impression that we are a pyramid scheme of sorts."

The initial Daily Universe article also ran with a headline and photo caption that said the company was illegal, but the legality of the operation - and its categorization as a ponzi, pyramid or any other scheme - is unclear.

In ponzi schemes, investment is not tied to a product or service, but comes primarily from an expanding base of new investors. Those at the top of the pyramid are repaid by "investments" made by those at the bottom.

However, according to 12dailyPro.com, there are several sources of revenue. "Member upgrade earnings are financed by multiple income streams including advertising and off-site investments," the Web site said.

12daily Pro members sign up online and put money in an account - from $6 to $6,000. Then, every day for 12 days, they log in and run a program that automatically surfs through several Web sites, spending 25 seconds on each. At the end of 12 days, the user is done and is promised 44 percent returns on the initial amount contributed.

The Web sites that are viewed have been posted by 12daily Pro's other members, Nelson said. Therefore, ad revenue generated by autosurfing directly benefits site owners, who are mostly 12daily Pro members.

"It's kind of a legitimate idea with an unethical twist," said one Marriott School graduate student, who asked his name not be used for fear he would be expelled. "We're all paying each other to view each other's Web sites. We all just pass money around. I'm getting other people to view my ad and we're paying each other to do it."

Many of the sites that come up are also sites directing people to join 12daily Pro. Several BYU students involved ran such sites to recruit users. Members receive a 12 percent commission on users referred by them, but only to one level.

Nelson said he has heard that 12daily Pro receives income from automated currency arbitrage, which he says lines up buyers with sellers and makes digital transactions between markets around the world. Nelson also said money comes from real estate.

"Another thing they do is flip houses," Nelson said. "In North Carolina they bought a whole block and held it for six days. They dumped millions into outside cosmetic work and made a killing."

Still, many are skeptical.

"The details are definitely sketchy if you can't go to the Web site and figure out what they do and how they make money," said Mark Zimbelman, a BYU professor of accounting who teaches a graduate class on fraud prevention and detection. "It's only a matter of time before it's going to come tumbling down."

The Daily Universe conducted an investigation into 10-month-old 12dailyPro, but found no concrete product or service that would account for claimed returns. 12daily Pro and StormPay have been unresponsive to messages asking them for comment.

While many users, including students, have defended their involvement in the service - which they say is legal, if not completely ethical - others have expressed skepticism about a service that yields returns, when annualized, of an incredible 5.6 million percent.

BEHIND 12daily Pro

The question "What happens if 12daily Pro goes out of business?" is answered in the FAQ page of 12daily Pro's Web site with the following:

"We anticipate a long and lucrative life for 12dailyPro.com. However, if there comes a time when we feel it necessary to change our rates or to close our business completely, we promise to give you as much notice as we possibly can. We will also do everything we can to pay out all outstanding balances should that occur."

There is one complaint against 12daily Pro on file with the attorney general of North Carolina. Walter Slayter, of Crossett, Ark., filed a complaint Jan. 26, saying 12daily Pro owes him $12,000 from an account closed Dec. 10, 2005. Slayter claims 12daily Pro will not answer phone messages, e-mails or faxes. Slayter's report says the money came from a credit card and retirement savings and that E-gold was the payment processor he used.

12daily Pro no longer accepts E-gold payments. A BusinessWeek article from Jan. 9 found E-Gold was the common denominator in online child pornography, money laundering and identity theft.

StormPay has also had complaints. Its file with the Better Business Bureau states the company has an "unsatisfactory business performance record" for "failure to inform and follow up with customers when it suspends accounts, failure to release funds in a timely manner and failure to resolve complaints directly with company management."

The bureau received 49 complaints in 2005 for the Tennessee-based company. StormPay and TymGlobal, Inc. (under common ownership) were issued an order to cease and desist by the Tennessee Securities Division of the Department of Commerce and Insurance in August 2003.

The order states TymGlobal operated a pyramid and/or ponzi scheme. It also faulted TymGlobal and StormPay for having not registered its securities offerings and supposed status as a broker-dealer or investment adviser with the division as it was required to.

The parent company of 12daily Pro, Lifeclicks LLC, was registered on Sept. 7, 2005 in North Carolina, months after 12daily Pro was started. An LLC is a limited liability corporation that shields private owners from lawsuits. The listed administrator is Brett A. Hubbard and the listed organizer is Kevin Wessell.

Hubbard and Wessell formed 18 companies in North Carolina besides Lifeclicks, in lated 2004 or 2005. Most of which are also LLCs. Some are custom home enterprises, some are landscaping businesses and one is a funeral home. The business address listed for Lifeclicks is an apartment in Charlotte, N.C.

FROZEN FUNDS

StormPay sent an e-mail Friday to users whose accounts were frozen, stating: "It has recently been brought to the attention of StormPay Inc. that the current rash of new Auto-Surf and Paid-to-Read accounts are not operating in the traditional manner. Further investigation by both StormPay and other outside investigational organizations/law enforcement agencies have drawn early conclusions that these types of programs are nothing more than well hidden 'ponzi' or 'pyramid' schemes."

12daily Pro administrator Charis Johnson also issued statements about StormPay's actions, saying it were not living up to their business agreement.

"It seems that StormPay may not have in their bank account enough funds to cover the withdrawal we requested and thus could possibly be using the account suspension as a smoke-screen," Johnson said in an e-mail. "[The] company ... has found one excuse after another [not] to pay us a large deposit we requested weeks ago."

(For comments, e-mail Julie Espinosa at julieespinosa@byu.net)

Copyright Brigham Young University 6 Feb 2006