AdSurfDaily has failed to show it's a legitimate business and not an illegal Ponzi scheme, a federal judge ruled this week.
As a result, the North Florida Internet company will not get access to seized cash it says it needs to survive.
AdSurfDaily, which is at the center of what authorities describe as one of the biggest financial scams in Florida history, went to court to seek release of $2-million so it could operate under a court-approved monitoring plan.
The company also argued that federal prosecutors had not shown that AdSurfDaily's assets were derived from illegal practices.
In a 23-page ruling filed Wednesday, U.S. District Judge Rosemary M. Collyer denied the company's motion to release the funds. She also denied a motion to dismiss a wire fraud lawsuit the Justice Department filed in August to seize company assets.
Referring to the company by its initials, Collyer wrote the company "has not demonstrated sufficiently that ASD is a legitimate business. Thus, the court cannot release the funds to be used by the company in its current form."
Company founder Andy Bowdoin, 74, could not be reached for comment Thursday, but is "extremely disappointed," said one of his attorneys, Jonathan Goodman of Miami.
"It's fair to say that this is bad news for the company and its loyal members and its employees and for anybody and everybody who was interested in taking advantage of this quite unique advertising opportunity," Goodman said.
He said he will discuss whether to appeal with his client.
Bowdoin, who lives in Quincy, about 25 miles northwest of Tallahassee, founded AdSurfDaily in a former flower shop in 2006.
On the Web and at huge rallies, including events in Tampa and in Miami, AdSurfDaily attracted about 100,000 customers who authorities say put more than $100-million into the company.
Here's how AdSurfDaily worked: Members could pay to put their Web pages into a rotation of advertising sites viewed by other members. The cost: $1 per view.
Members also could earn cash rebates by viewing up to 24 other members' Web sites for 15 seconds each day. And they could earn commissions for bringing in new members. In promotional materials, the company told members they could earn 125 percent of the money they spent on ads.
But in August, federal and state authorities sued the company, saying its business plan amounted to an illegal pyramid scheme that was doomed to collapse. Agents raided the former flower shop and seized $93.5-million in assets, including real estate Bowdoin had purchased in Florida and South Carolina.
Collyer held a two-day hearing on AdSurfDaily's motions on Sept. 30 and Oct. 1 in Washington, D.C., where the Justice Department filed the wire fraud lawsuit. During the hearing, the company presented four witnesses, including an attorney offered as an expert on multi-level marketing companies and an AdSurfDaily member named Robert Grayson.
Goodman said he thought the company's witnesses did a "masterful job" explaining the business model, and noted that an expert witness testified that it was legitimate and not a Ponzi scheme. During the hearing, 40 or 50 AdSurfDaily members from around the country attended the hearing to show their support for the company.
In her ruling, Collyer concluded that AdSurfDaily promised members a return on the money they paid the company in order to get them to put money into the company.
The judge said the company's expert was "defensive on his client's behalf rather than neutral in his expertise." She also noted that the satisfied AdSurfDaily member acknowledged in his testimony that the company's revenue growth could not be sustained.
"When its phenomenal growth spurt stops, even Mr. Grayson can see that ASD will collapse upon itself," she wrote. "The court finds that ASD has failed to rebut the government's allegation that it fulfills the first element of a Ponzi scheme."
She also concluded AdSurfDaily resembles classic Ponzi schemes because it offers no legitimate product or service sufficient to sustain the promised payouts and depends on a continuing flow of new participants to pay early participants.
"The record strongly suggests that absent continuous membership growth, ASD has no means to generate the returns that it represents it will pay those who join its program," she concluded. "It thus failed to demonstrate, on this record, that the ASD business model constitutes a legitimate business."
AdSurfDaily members had mixed reactions to Collyer's ruling.
"Andy (Bowdoin) has hurt a lot of people," said Bob Guenther, 61, of Dallas, who said he thinks the company is a scam.
In recent months, Guenther has worked to persuade the government to return the seized money to those who lost it if it prevails in the case.
He cautioned against reading too much into one ruling at this stage in the case.
"Just because they denied the motion, it doesn't mean Andy's lost; it doesn't mean the government's won."
But on a message board that supports the company, users posted messages like "how can this happen????" and "Terrible that everything is denied. System is the true criminal."
AdSurfDaily member George Shears said the company helped him attract buyers for a weight loss product he sold online.
"I had really good results, basically," said Shears, 73, a retired psychologist who lives in Cotton, Minn. "I thought that the overall business model was such that, over time, it was likely to be very self-sustaining. I didn't then and don't now regard it as a Ponzi scheme."
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In a separate court case, a former AdSurfDaily customer Wednesday sued Bowdoin, several associates and Bank of America in federal court in North Florida.
The plaintiff is Natures Discount, a company that is based in Aventura and sells vitamins and other dietary supplements. It paid AdSurfDaily $7,500 for advertising a store it runs in Miami, plus 15 more locations in the Caribbean.
The company's lawsuit incorporates many of the claims that federal prosecutors have made about AdSurfDaily and accused Bowdoin and other company executives of racketeering.
It also contends that Bank of America, where Bowdoin had 10 accounts as the sole proprietor of AdSurfDaily, lent credibility to the company.
"The affiliation between Bank of America and the ASD scheme as reflected on deposit forms provided by ASD greatly increased the apparently legitimacy of ASD to prospective members," according to Natures Discount's 49-page lawsuit. "Members have made deposits at Bank of America using a pre-printed form from ASD that Bank of America accepted. Members have identified this affiliation between Bank of America and ASD as a factor in deciding to make payments to ASD."
The suit said a proper investigation of AdSurfDaily by the bank "would have set off alarm bells" over Bowdoin's guilty plea to securities violations in Alabama and the huge amounts of money that were flowing into its accounts.
It also contended that Visa had declined charges for purchases of ads as "suspicious" and said members could not use PayPal to buy ads from the company.
Goodman and Bank of America spokeswoman Shirley Norton both declined to comment on the suit because they had not had a chance to review it.
Attorneys for Natures Discount seek to have the suit made a class action case on behalf of other AdSurfDaily members who lost money they paid the company.
Richard Danielson can be reached at Danielson@sptimes.com or (813) 269-5311.