In a lawsuit filed in July, the SEC alleged that the company was a Ponzi scheme because revenues from new purchases were used to pay current AdPack holders what they were owed.
Scoville registered Traffic Monsoon in Utah in 2014, used his apartment in Murray as corporate headquarters and operated with computer servers in Atlanta and Los Angeles that carried out the transactions. He was the only employee.
That means Traffic Monsoon was a U.S. operation that falls under federal securities fraud laws, SEC attorney Daniel Wadley argued Wednesday. But he leaned heavily on an argument that the transactions at issue actually took place in the servers themselves and that fact gave the SEC jurisdiction to ask the judge to issue a preliminary injunction that would continue a freeze on the company's operations.
That prompted skeptical questions from Parrish, who wondered whether that line of reasoning would just prompt businesses like Scoville's to simply move their servers offshore.
"If that's your argument I think we just gave Mr. Scoville license to go out next week and put servers" outside the U.S., Parrish said.
She said the area of the law was unsettled and twice invited an appeal on that question to the 10th Circuit Court of Appeals in Denver that could provide clear guidance on the issue.
Wadley admitted the issue inhabited a gray area of the law but said that in a case like the Traffic Monsoon lawsuit the best answer to where the transactions actually took place might be in the servers.
"In this case, the servers themselves were the company," Wadley said.
But Scoville's attorney, Loren Washburn, set up a scenario where Scoville was at a conference in Birmingham, England, and helped a participant access the company's website and make a purchase.
"Under the SEC's arguments today, that sale took place in Georgia or California," he said. "That makes no sense at all."
Washburn argued for dissolving the court-appointed receivership that took over Traffic Monsoon and its $50 million to $60 million in cash sitting in its accounts.
The company operated like many other Internet companies called traffic exchanges where web site ad clicks are traded by participants in order to drive traffic, he said.
Washburn disputed the SEC contention that Traffic Monsoon was a Ponzi scheme, a type of fraud that depends on monies from new investors to pay returns to current investors until the operation collapses when it can't meet its accumulated obligations.
Returns were not paid out unless the company generated revenues, Washburn said.
But Wadley argued that for Traffic Monsoon those revenues came from new customers and that the company was insolvent and couldn't meet its obligations.
Parrish took the matter under advisement for a later ruling.