MOBE Update: Suitepay Escapes With Over $1.6 Million In Victims Money
In the Receiver’s Initial Report about the MOBE scam, we find out that he has recovered over $8 million to date, and is expect to recover another $6.3 million later on. We also find out that Suitepay a California-based payment processor has escaped with over $1.6 Million In MOBE money. The Receiver is investigating the matter, and may choose to file a criminal complaint.
This initial report has a lot of excellent details about the scam and what is being done to recover money for its victims. I have provided a link to the full report below. Here are some highlights:
NATURE OF THE BUSINESS
The Receivership Entities, which were controlled (mostly) by the Defendant Matthew Lloyd McPhee, a/k/a Matt Lloyd, operated a business education program which they styled “My Online Business Education,” or MOBE. The Defendants operated their business online, and accordingly marketed their business to consumers located everywhere in the world. The Defendants claimed that they knew, and would reveal, a 21-step system that would show consumers how to easily start and operate an online business that would generate significant income for them, without consumers needing to obtain or create any product to sell. When consumers visited the Defendants’ websites they were directed to a registration page for the 21-step system, which was offered for $49. The 21-step system was a series of online video productions offering vague teases about “funnels that have paid out millions and millions of dollars in commissions to people just like you who went through this training,” plus promises to reveal the secret method for generating substantial online income in subsequent videos. However, little substantive marketing or other useful information was provided in these videos; instead, the videos were commercials, narrated by the Defendant McPhee (an Australian national), designed to entice consumers to purchase additional MOBE memberships. The subsequent memberships were the
- “Silver Masterclass,” which cost $2,497 (on top of the $49 initial registration fee, plus a $27 monthly subscription fee). Members of the Silver Masterclass were, supposedly, entitled to a sales commission of 50 percent when they sold a Silver Masterclass membershipto another consumer. However, the information revealed in return for the $2,497 payment did not permit most consumers to actually begin a successful online business. Instead, Silver Masterclass members were encouraged to proceed to the next level, which was the
- “Gold Masterclass,” which cost $4,997 (on top of the $49 initial registration fee and the $2,497 Silver Masterclass fee, plus a $64 monthly subscription fee). Gold Masterclass members were entitled to a 50 percent commission when they sold a Silver or Gold Masterclass membership to another consumer, but again, the “how to’s” of online marketing and sales were sparse. Instead, Defendants encouraged members of the Gold Masterclass to upgrade to higher levels because at the “Gold” level consumers were entitled to commissions only on sales to the Silver or Gold Masterclass, not higher levels. The next level up was the
- “Titanium Mastermind,” which cost $9,997 (on top of the $49 initial registration fee, the $2,497 Silver Masterclass fee and the $4,997 Gold Masterclass fee, plus a $121 monthly subscription fee). Again, the focus of Titanium Mastermind members was to sell Silver, Gold or Titanium memberships, for which Titanium members were promised a 50 percent commission. However, a significant, if not the primary, objective of the Titanium Mastermind program was to encourage consumers to invest in the next level, which was the
- “Platinum Mastermind,” which cost $16,997 (on top of the $49 initial registration fee, the $2,497 Silver Masterclass fee, the $4,997 Gold Masterclass fee, and the $9,997 Titanium Mastermind fee, plus a $198 monthly subscription fee). The Defendants pitched the benefit of the Platinum Mastermind program as entitling members to earn a 50 percent commission for selling a Silver, Gold, Titanium or Platinum membership to other consumers. Defendants’ main objective, however, was to encourage Platinum Mastermind members to upgrade to the
- “Diamond Mastermind,” which cost $29,997 (on top of the $49 initial registration fee, the $2,497 Silver Masterclass fee, the $4,997 Gold Masterclass fee, the $9,997 Titanium Mastermind fee and the $16,997 Platinum Mastermind fee, plus a $295 monthly subscription fee). Diamond Mastermind members were entitled to a 50 percent commission for selling Silver, Gold, Titanium, Platinum or Diamond memberships to other consumers. At all levels, consumers were told that the “secret” to earning money under the MOBE program was to lure other consumers into the program and earn commissions when new consumers purchased the same MOBE memberships.
Additionally, the Defendants hosted seminars and live events (which the Defendants called “Home Business Summits,” “Supercharge Summits” and “Mastermind Summits”) at resort facilities located throughout the world, including Orlando, Seattle, Los Angeles, Las Vegas, Dallas, Chicago, Vancouver, London, Costa Rica, Panama, Sydney (Australia), Kuala Lumpur (Malaysia), Bangkok (Thailand) and Fiji. The Defendant Whitney organized most of these events, and he served as a keynote speaker for many of them. “Home Business Summits” were available to entry-level members (i.e. those who had paid only the $49 initial registration fee), and involved MOBE speakers pitching the Silver and Gold memberships. The cost to attend a “Home Business Summit” was $500, plus travel and hotel costs. The “Supercharge Summits,” which were available to the relatively-low “Silver” and “Gold” MOBE members, involved the Defendants’ speakers making marketing pitches to persuade consumers to upgrade their memberships to the higher “Titanium,” “Platinum” or “Diamond” levels. The cost for the “Supercharge Summits,” which was open to Silver and Gold members, was between $500 and $800, plus travel and hotel costs. “Mastermind Summits” supposedly were available to the higher-level MOBE members (i.e. the Titanium, Platinum and Diamond members) to provide networking opportunities and learn from other MOBE members, but in reality these conferences were marketing opportunities for the Defendants to “upsell” additional MOBE products, including private mentorships with the Defendants McPhee or Whitney, or another high-level MOBE “mentor.” Mastermind Summits cost between $3,500 (for Titanium Mastermind Summits) to $7,000 (for Diamond Mastermind Summits), plus travel costs.
The Defendant Whitney pioneered an “add-on” product called private mentorships. A MOBE consultant (frequently Whitney himself) would provide either group training or inhome mentorships to MOBE members, for prices ranging from $10,000 to $100,000. Whitney claimed that through these mentorships consumers would truly learn internet marketing; amazingly, Whitney testified that the 21-step program was essentially useless to consumers. Whitney himself never went through the entire 21-step process.
While many consumers had sufficient resources to pay the initial $49 registration fee, or even the fees for the Silver and Gold Masterclasses, not nearly as many had the ability to pay for the Titanium, Platinum or Diamond level memberships. For these consumers, MOBE could, and did, arrange for third-party financing by helping consumers obtain new credit cards with sufficient credit limits to pay the membership fees. This placed consumers in debt to credit card and finance companies; the Receiver has communicated with consumers who claim to owe $60,000 or more to finance or credit card companies, including Seed Capital, a California company controlled by Anthony Mendrano.
EVALUATING THE BUSINESS PRACTICES
The Receiver evaluated the Defendants’ business practices in light of the FTC’s complaint and the Court’s TRO. This involved reviewing the voluminous materials filed herein by the FTC, reviewing the online content on MOBE’s websites and social media pages, watching over a dozen online videos, reviewing non-MOBE blogposts concerning MOBE, and speaking with various MOBE affiliates by e-mail and telephone. From this review, the Receiver was satisfied that the Defendants utilized misleading statements to induce consumers to invest in the MOBE program. The program itself is a multilevel marketing (“MLM”) program, with the principal characteristic being for MOBE affiliates to recruit new MOBE affiliates to purchase MOBE memberships. There is no underlying “product” being sold apart from a process to encourage new consumers to sign up and recruit additional new consumers to sign up.
The MLM business model, of itself, is not necessarily fraudulent or misleading. For example, Avon, Mary Kay Cosmetics and Amway, to name a few, all utilize an MLM business model, where members are encouraged to recruit others to become members. The difference, however, is that Avon, Mary Kay and Amway sell health, beauty and home care products. MOBE, on the other hand, purported to sell an educational product designed to teach consumers how to sell MOBE memberships to other consumers through websites and social media pages, but the “educational product” was designed principally to encourage existing MOBE affiliates to pay more money to MOBE to reach higher MOBE levels. Save for a small handful of individuals, such as the Defendant Whitney, MOBE affiliates did not earn enough to cover their investments, despite being promised that they would do so.
The TRO directs the Receiver to “[s]uspend business operations of the Receivership entities if in the business judgment of the Receiver such operations cannot be continued legally and profitably.”. For the business to operate “legally,” it cannot mislead consumers, or make false or misleading statements to consumers. However, MOBE’s statements to consumers were misleading. For example, on one of its 431 websites MOBE stated that it would show consumers how a “poisoned, braindamaged man … RAKES IN A 6-FIGURE INCOME FROM HOME … and how you can too, GUARANTEED.” MOBE solicited consumers based on promises that they would make “substantial income,” that MOBE would teach them “everything they need to know to become multi-millionaires,” and that with the “right marketing system” consumers would “realistically generate $100,000 in the first year online.” These statements, and many others similar in nature, are false or misleading, and are designed to allow MOBE to get “in” with a consumer so that MOBE then can focus on upselling to the Silver, Gold, Titanium, Platinum and Diamond levels.
The cost of the MOBE program caused significant damage to consumers. As noted, consumers were pushed to invest all the way up to the Diamond Mastermind level, which cost over $64,000 excluding monthly maintenance fees or add-ons such as seminars. Few consumers had that much money available, and so MOBE arranged for consumers to obtain third-party financing. But, because virtually no consumers were able to make the MOBE system work sufficiently to earn back their initial investments, most were left with significant debts.
The Receiver also is troubled that MOBE’s coaches lacked any special experience or expertise that would make them qualified to teach consumers “how to rake in a 6-figure income …. GUARANTEED” or “everything they need to know to become multimillionaires.” According to consumers with whom the Receiver has communicated, coaches directed consumers to review online videos and gave them “homework” to complete, to prove that they had actually watched the videos. Coaches would give MOBE affiliates pep talks to encourage them to stay with the program and purchase higher membership levels, but actual substantive knowledge concerning internet marketing techniques and tactics were not part of the curricula. Instead, coaches, like speakers at seminars, encouraged consumers to purchase higher-level MOBE memberships. According to Whitney, this created tensions between coaches and speakers, as they would disagree about which was entitled to commissions on sales to consumers.
One consumer wrote the following:
I think it is actually possible to make money at MOBE if you can check off ALL of the following boxes: 1) You joined MOBE when it started back around 2011 or soon thereafter AND 2) you were already a millionaire [and] could invest $60k without any financial risk to you in the event you lost it AND 3) you already had about 10 years of internet marketing experience AND 4) out of that 10 years you already had some level of moderate to high-level success in internet marketing. But even then, success for you would ALSO mean that you were only successful because hard-working people lost their money to you.
Not only that, if you are truly a part of this MOBE, it’s not about providing anything of real, actual value. It’s about getting other people to sign up and give over their money. It’s a true pyramid/ponzi/get-rich scheme.
The Receiver also has grave concerns about MOBE’s refund policy. Despite the bold, conspicuous promises of a “money-back guarantee,” in fact refunds were extremely difficult to obtain. The conditions for obtaining a refund included, at times, a requirement that the consumer operate the MOBE system for 12 months without making any sales. Further, despite the initial promises, the membership form signed by consumers and given to them after they paid states that purchases are non-refundable.
The Receiver also has received complaints from MOBE consultants about not being paid commissions they felt they had earned. These fall into two categories: First, consultants who made sales shortly before the entry of the TRO, and second, consultants who made sales long before the entry of the TRO. The first category is the largest, and also the easiest to resolve, because the TRO creates a “bright line” concerning disbursements. The Receiver is not inclined to pay pre-receivership commissions, particularly when doing so will provide no tangible benefit to the receivership estates. Instead, the Receiver intends to create a pot of money to be distributed to consumers pro rata. The second category is more troubling. According to more than one consultant, McPhee and his CFO, Athar Roshan, would target consultants with whom they were unhappy, frequently for non-work-related reasons. If a consultant managed to make it onto this “list,” then Roshan would divert that consultant’s earned commissions to himself or to others with whom he was not unhappy. The Receiver is continuing to investigate these allegations.
For MOBE to operate “legally,” all of the foregoing problems would need to be corrected. MOBE would need to disclose prominently that it sells an “online education product” that is designed to teach consumers how to sell the very same “online education product” to other consumers, but that there is no other product. MOBE would need to prominently disclose that virtually all consumers who purchase the MOBE products lose significant amounts of money. MOBE’s focus, in its online videos, on happy consumers driving expensive cars and yachts would need to change, to include a prominent disclosure that most consumers lose money at the MOBE system. Sales scripts and materials would need to remove misrepresentations of expected earnings, and speakers would need to affirmatively disclose that most MOBE affiliates lose money (instead of representing that money is easy to make). MOBE’s efforts to upsell to higher levels would need to be changed so that consumers could clearly understand that the higher levels offer no additional significant training or experience. Coaches would need to have relevant online marketing experience, and the ability to communicate it to consumers; this would result in far fewer coaches. The refund policy would need to be revamped, to disclose that (i) refunds were not possible, or (ii) refunds were possible only under certain, specific conditions, or (iii) refunds were guaranteed, and then the policy would have to be followed (something that MOBE did not do). There are so many misrepresentations so imbedded in MOBE’s culture, the Receiver believes that it is impossible to correct them all, and that MOBE therefore cannot be operated “legally.” However, even if all MOBE somehow could be changed to eliminate all of the misrepresentations it makes to consumers, the Receiver believes that MOBE could not be operated “profitably,” because most consumers, armed with knowledge of how MOBE truly operated, would steer clear.
Finally, the Receiver acknowledges that he has received communications from consumers who are upset that MOBE has been shut down. These consumers argue that they should be allowed to continue to operate the MOBE program because, they maintain, they can make the program work. The Receiver disagrees with this sentiment and believes instead that the MOBE program cannot be operated “legally and profitably.” The MOBE program will not work for the vast majority of consumers. In the Receiver’s view, the only way that MOBE can operate “profitably” is by operating “illegally,” by making false representations concerning the business and the likelihood of success. The Court’s TRO, properly, does not permit this.
SECURING MOBE’S ESI
MOBE did not operate from any central office location, and maintained no central server. Instead, it utilized various web-based systems to create and store company records digitally. McPhee’s lawyers have advised that the accounting information is located in Kuala Lumpur, but that MOBE’s accounting staff has refused to cooperate because they have not been paid their wages or an employment termination fee that is customary in Kuala Lumpur. McPhee had the equivalent of approximately $20,000 cash in his possession in Kuala Lumpur, and the Receiver has authorized him to use a portion of those funds to pay MOBE’s accounting personnel to obtain the accounting information.
MOBE utilized a Customer Relationship Management (CRM) software program from a company called Ontraport. CRM software is designed to manage a company’s interaction with current and potential customers by utilizing data analysis about customers’ history with the company to improve business relationships. CRM programs compile data from multiple different communication channels, including company websites, telephone, e-mail communications, messaging/live chat, and social media. The Ontraport program was an operational program, designed principally to integrate and, to the extent possible, automate sale, marketing and customer support. Ontraport was extremely helpful and cooperative, providing administrative passwords and thus access to the entire MOBE database upon the Receiver’s request. The Receiver authorized the FTC’s computer forensics specialists to download the ESI contained within the Ontraport CRM program.18 Access to the data now is restricted to the FTC and the Receiver.
MOBE also utilized Google Drive, which is a file storage and synchronization service developed and offered by Google. MOBE utilized the Google drive to store files on cloud servers. Additionally, each MOBE consultant was given a MOBE e-mail account that was hosted on the Google Drive. The Google Drive contained information about each particular MOBE consultant. Bill Futreal was MOBE’s systems administrator. When he learned of the lawsuit he immediately shut off access to the MOBE Google Drive. The Receiver ultimately was able to contact Futreal, who willingly turned over passwords. The Google Drive, and the ESI contained therein, remains under the Receiver’s control.19 No other parties have access.
MOBE utilized the services of the Maschoff Brennan law firm for legal matters in the United States. Maschoff Brennan represented MOBE in a lawsuit against Digital Altitude, and also in connection with other matters. The Receiver requested that Maschoff Brennan provide records showing its representation of MOBE, but the firm has ignored the Receiver’s requests. The Receiver may choose to initiate contempt proceedings if Maschoff Brennan does not comply with is requests.
As noted above, MOBE charged consumers hefty fees for memberships. Payments were accepted in several forms, including cash, cashier’s checks, wire transfers and credit cards, with the latter representing the most common payment method. The Receiver has recovered the following:
1. Bank Accounts.
Since his appointment, the Receiver recovered the following amounts from bank accounts in the names of one or more of the Receivership Defendants:
DATE BANK AMOUNT
06/25/2018 Wells Fargo $ 55,980.34
07/13/2018 Bank of America 803,375.99
07/23/2018 Credicorp Bank (Panama) 335,475.00
08/02/2018 UOB (Malaysia) 231,022.35
The Receiver is continuing to work toward collecting additional funds from MOBE’s banks and financial institutions
2. Credit Card Reserves.
The Receivership Entities maintained credit card processing accounts. Many of these accounts were opened by the Defendant Zanghi, on behalf of one or more of the Receivership Entities, based on application materials that were, to say the least, misleading. For example, Zanghi disclosed to one payment processor, Qualpay, that MOBE estimated that annual credit card transactions would be approximately $200,000; instead, monthly credit card transactions in some of the Qualpay accounts exceeded $4 million.
When a customer purchased any of MOBE’s “products” and paid with a credit card MOBE, as the “merchant,” would seek authorization from the customer’s credit card issuer (the “issuing bank”). This authorization request, and the subsequent capture of the charge, is handled by credit card processing companies. If approved, the funds were paid by the issuing bank and deposited into a merchant account maintained for the benefit of MOBE with an “acquiring bank” or “merchant bank.”
Money held in a merchant account is owned by the merchant (in this case, MOBE), and can be withdrawn by the merchant. However, if a customer successfully challenges a credit card payment posted to his or her credit card, then the merchant bank is obligated to refund the amount of the charge to the customer. The merchant bank then must seek reimbursement from the merchant. To protect itself in high risk industries (such as those in which MOBE operated), a merchant bank may choose to establish a “reserve account.” This account typically is funded with a portion of the merchant’s funds collected in the merchant account, with the amount of the reserve being determined based on the history of chargeback activity for the particular merchant. The merchant bank claims an interest in the reserve account to secure the merchant’s obligation to reimburse the merchant bank for any chargebacks it pays.
With significant legal support, the Receiver asserted that credit card reserves are “Assets” of the receivership estate that must be delivered to the Receiver. Almost all credit card processors and merchant banks agreed with the Receiver’s position and delivered credit card reserves to the Receiver.
One of MOBE’s larger credit card processors was Allied Wallet. As of the commencement of the case, Allied Wallet reported that it held approximately $2.5 million in credit card reserves. However, Allied Wallet maintained that MOBE’s contract was not with Allied Wallet, Inc., a US corporation, but rather with an affiliate, Allied Wallet, Ltd., a UK company based in London. Allied Wallet initially claimed that the acquiring bank, Wirecard bank (a German bank) refused to recognize the TRO and was continuing to process chargeback requests. Recent media reports suggest that Allied Wallet and its founder, Ahmad Khawaja, “helped deploy sham websites and dummy companies to hide [dubious businesses’] tracks, even in cases where Allied Wallet’s own staff deemed the underlying business activities to be ‘very, very illegal.'” See Prominent Political Donor helps Pornographers, Payday Loan Debt Collectors and Offshore Gambling Operations, published by the Chicago Tribune on August 2, 2018. The Receiver engaged in extensive negotiations with Allied Wallet and ultimately agreed to a settlement under which Allied Wallet agreed to pay the Receive approximately $2.1 million of the $2.5 million in reserves. In making this deal, the Receiver weighed the costs and likelihood of success in pursuing litigation claims in Germany and the UK against the amount offered in settlement, and concluded that the best interests of the receivership estate would be served by agreeing to Allied Wallet’s proposal.
There are two credit card processing companies that refused to comply with the Receiver’s demand for turnover of credit card companies: Peoples Trust, a Canadian processor operating in British Columbia, and Qualpay, a California-based processor. Peoples Trust has ignored the Receiver’s demand, taking the position that it is not subject to the jurisdiction of this Court. The Receiver has engaged Canadian counsel to initiate legal proceedings.
Qualpay raised different issues. Qualpay initially reported to the Receiver that it was holding $7.4 million in credit card reserves, and it stated that it would not turn them over because, it said, the reserves were Qualpay’s property. Qualpay then filed an emergency motion to alter the Court’s TRO to provide that credit card reserves are not receivership property and therefore need not be turned over to the Receiver. It subsequently was joined by Synovus Bank, which serves as Qualpay’s merchant bank. Synovus filed its own motion to modify the TRO and took the position that it (not Qualpay or the Receiver) owned the reserve funds. On August 8, 2018, the Court entered its Order that denied the motions of Qualpay and Synovus and ordered them to turn over to the Receiver $6,314,342.09. The Court imposed a constructive trust over the funds, for the benefit of injured consumers, and directed the Receiver to hold those funds in a segregated bank account. The Court directed Qualpay and Synovus are to turn over the funds by August 16, 2018, and it denied Synovus’s motion to stay the ruling. Synovus has advised that it intends to appeal the Court’s ruling. The Receiver will oppose Synovus’s efforts, and also may seek to charge interest on the withheld reserves.
The Receiver also is investigating a potential claim against Suitepay, a California-based payment processor. Suitepay served as a payment processor and collected over $1.6 million in credit card receipts for MOBE. However, Suitepay has absconded with the money. The Receiver is investigating the matter, and may choose to file a criminal complaint. See Section VIII, infra. Finally, the Receiver continues to work toward recovering funds from other card processors and merchant banks.
– Source MOBE Receiver’s Initial Report
MOBE Scam Conclusion
Promoters of the MOBE scam have come to my site to make the claim that they could operate MOBE without being a scam. This is not the truth. Here is the response of the receiver to these people:
The MOBE program will not work for the vast majority of consumers.
- MOBE would need to disclose prominently that it sells an “online education product” that is designed to teach consumers how to sell the very same “online education product” to other consumers, but that there is no other product.
- MOBE would need to prominently disclose that virtually all consumers who purchase the MOBE products lose significant amounts of money.
- MOBE’s efforts to upsell to higher levels would need to be changed so that consumers could clearly understand that the higher levels offer no additional significant training or experience.
- The refund policy would need to be revamped, to disclose that (i) refunds were not possible, or (ii) refunds were possible only under certain, specific conditions, or (iii) refunds were guaranteed, and then the policy would have to be followed (something that MOBE did not do).
In the Receiver’s view, the only way that MOBE can operate “profitably” is by operating “illegally,” by making false representations concerning the business and the likelihood of success.