The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge
Defendant Thomas A. Bowdoin, Jr., moves to dismiss the criminal indictment against him due to alleged statutory vagueness defining the alleged crime and because his company, AdSurfDaily, Inc. ("ASD"), did not deal in "investment contract" securities, as defined in SEC v. W.H. Howey Co., 328 U.S. 293 (1946). Because the motion is without merit, it will be denied.
The Indictment charges Mr. Bowdoin with engaging in the unlawful sale of unregistered securities and the use of fraud and material misrepresentations over interstate wire communications, in the commission of: (1) Wire Fraud, 18 U.S.C. § 1343; (2) Securities Fraud, 15 U.S.C. §§ 78j(b) and 78ff; (3) Aiding and Abetting and Causing An Act to Be Done, 18 U.S.C. § 2; and (4) the Unlawful Sale of Unregistered Securities, 15 U.S.C. §§ 77e(a)(2) and 77x. Indictment [Dkt. #3].
In earlier civil forfeiture litigation, ASD described itself as a multi-level marketing company that offered online advertising. United States v. 8 Gilcrease Lane, Civ. No. 08-1345 (RMC), Emergency Mot. for Return of Seized Funds [Dkt. # 7] at 12. It operated over the Internet (thereby engaging in transmissions by wire) at www.asdcashgenerator.com and through a related company, La Fuente Dinero, at www.lafuentedinero.com. According to these sites, ASD advertisers/members could earn large profits by (1) paying fees to advertise their own webpages, (2) earning rebates by surfing other advertisers' webpages on the ASD "rotator," and (3) earning commissions by recruiting more advertisers to do the same. See id., Compl. [Dkt. #1] ¶ 15. ASD promoted its advertising program by offering advertisers a rebate of up to 125% on their advertising costs. The Government alleged that ASD did not sell any products or services sufficient to generate the income stream needed to support the rebates and commissions that it promised to pay its advertisers. Id. ¶ 17.
ASD sold "ad packages," whereby an advertiser's webpage appeared on a "rotator" for view by other advertisers. ASD paid its advertisers a rebate to view a minimum number of websites each day, thereby insuring that prospects would be viewing each site. In other words, ASD sold "ad packages" to advertisers and paid the advertisers to look at the webpages of other ASD advertisers. ASD also paid its advertisers commissions on personal sales of ad packages for referring other advertisers to ASD and, if they became "members" by paying a monthly fee, ASD paid higher commissions to the referring "member" on personal sales as well as referral commissions on second level sales, i.e., sales by a person whom the member had referred.
The Indictment alleges that Mr. Bowdoin perpetrated a scheme to defraud the members of ASD. Specifically, it alleges that Mr. Bowdoin solicited prospective customers to ASD based upon, among other things, his promise to use their funds to operate what was represented to be a profitable Internet advertising company capable of providing high returns on the funds they paid to ASD. Over the course of two years, Mr. Bowdoin is alleged to have made numerous misrepresentations and omissions in order to raise funds including: claiming to be operating a legitimate Internet advertising company; asserting that ASD had independent revenue to pay members the returns promised; representing that Mr. Bowdoin's only run-in with law enforcement consisted of a traffic ticket, when he had been convicted already of criminal securities violations; representing that the revenue methodology and numbers ASD published in support of its payouts were true and accurate, when ASD was really managing its revenue to ensure that it only paid out about one percent (1%) of a member's investment each weekday and one-half a percent (.5%) on the weekends; representing that ASD was not required to register with the United States Securities and Exchange Commission (SEC); and representing that Mr. Bowdoin was operating ASD in a far different manner than that which he followed. Indictment ¶ 28.
In moving to dismiss the Indictment, Mr. Bowdoin argues:
1. Counts One through Seven of the Indictment, as well as the criminal forfeiture . . . must be dismissed because the statute defining what constitutes a [SEC] regulated "security" is unconstitutionally vague as applied to [Mr.] Bowdoin, and therefore violates the Defendant's due process rights under the Fifth Amendment.
2. The statute defining what are SEC-regulated securities is void for vagueness as applied to [Mr.] Bowdoin because it fails to provide adequate notice of the proscribed conduct, and it lends itself to arbitrary and discriminatory enforcement.
3. Alternately [sic], Counts One through Seven of the Indictment, as well as the criminal forfeiture . . . must be dismissed because the ad-surf business model employed by AdSurfDaily, Inc. and [Mr.] Bowdoin's related businesses, as alleged in the indictment, cannot constitute an SEC-regulated "investment contract" security as defined under the three-prong test established by the Howey . . . .
Def.'s Mot. to Dismiss [Dkt. # 19] ¶¶ 6--8.
A motion to dismiss an indictment challenges the adequacy of an Indictment on its face. Thus, the indictment must be viewed as a whole and the allegations must be accepted as true at this stage of the proceedings. Boyce Motor Lines v. United States, 342 U.S. 337, 343 n.16 (1952); United States v. Ferris, 807 F.2d 269, 271 (1st Cir. 1986); United States v. Morgan Drive Away, Inc., Crim. No. 697-73, 1974 WL 830, *1 (D.D.C. Jan. 24, 1974). The question, then, is whether the allegations, if proven, would be sufficient to permit a jury to find that the crimes charged were committed. United States v. Sampson, 371 U.S. 75, 76 (1962).
Mr. Bowdoin argues that the phrase "investment contract" is an "amorphous descriptor utilized by prosecutors to characterize a bewildering variety of transactions as 'securities;'" that the "shifting nature of this vague descriptor" is "often only resolved by judicial analysis at trial;" and that he faces a loss of liberty and property "at this Court's potential ad hoc determination that the ad-surf business model is a regulated 'investment contract' - a determination never ...