FILED
                                                                     United States Court of Appeals
                                      PUBLISH                                Tenth Circuit

                      UNITED STATES COURT OF APPEALS                       January 24, 2019

                                                                         Elisabeth A. Shumaker
                            FOR THE TENTH CIRCUIT                            Clerk of Court
                        _________________________________

 SECURITIES AND EXCHANGE
 COMMISSION,

       Plaintiff - Appellee,

 v.                                                          No. 17-4059

 CHARLES D. SCOVILLE,

       Defendant - Appellant,

 and

 TRAFFIC MONSOON, LLC,

      Defendant.
 ____________________________

 PEGGY HUNT,

       Receiver - Amicus Curiae.
                      _________________________________

                     Appeal from the United States District Court
                               for the District of Utah
                           (D.C. No. 2:16-CV-00832-JNP)
                       _________________________________

D. Loren Washburn (Micah S. Echols and Tom W. Stewart, Marquis Aurbach Coffing,
Las Vegas, Nevada, with him on the briefs), Smith Correll, LLP, Salt Lake City, Utah for
Defendants-Appellants.

William K. Shirey (Robert B. Stebbins, General Counsel, Michael A. Conley, Solicitor,
with him on the briefs), Counsel to the Solicitor, Securities and Exchange Commission,
Washington, D.C., for Plaintiff-Appellee.
Peggy Hunt, Michael F. Thomson, and John J. Weist, Dorsey & Whitney LLP, filed a
brief for Receiver-Amicus Curiae Peggy Hunt, in support of Plaintiff-Appellee.
                       _________________________________

Before BRISCOE, EBEL, and HARTZ, Circuit Judges.
                   _________________________________

EBEL, Circuit Judge.
                        _________________________________

       This case involves an alleged worldwide Ponzi scheme and the antifraud

provisions of the federal Securities Act of 1933 and the Securities Exchange Act of

1934. Defendant Charles Scoville operated an internet traffic exchange business

through his Utah company, Defendant Traffic Monsoon, LLC. The Securities and

Exchange Commission (“SEC”) initiated this civil enforcement action, alleging

Defendants were instead operating an unlawful online Ponzi scheme involving the

fraudulent sale of securities. In this interlocutory appeal, Scoville challenges several

preliminary orders the district court issued at the outset of this still ongoing

enforcement action, including orders freezing Defendants’ assets, appointing a

receiver, and preliminarily enjoining Defendants from continuing to operate their

business.

       In upholding these preliminary rulings, we conclude first that the antifraud

provisions of the federal securities laws reach Traffic Monsoon’s sales to customers

outside the United States because, applying the conduct-and-effects test added to the

federal securities laws by the 2010 Dodd-Frank Act, Traffic Monsoon undertook

significant conduct in the United States to make those sales to persons abroad. We

further conclude that Traffic Monsoon’s Adpacks (bundled internet advertising

                                            2
services that allowed a purchaser to share in some of Traffic Monsoon’s revenue)

qualified as investment contracts, which are securities regulated under the 1933 and

1934 securities acts. We further conclude that the SEC has asserted sufficient

evidence to make it likely that the SEC will be able to prove that Defendants were

operating a fraudulent scheme—a Ponzi scheme—selling Adpacks and that scheme

violated the antifraud statutes invoked in this litigation. Having jurisdiction under 28

U.S.C. § 1292(a)(1) and (2), we, therefore, AFFIRM the district court’s challenged

preliminary orders.

                                    I. BACKGROUND

         The parties have very different versions of Traffic Monsoon’s business model.

According to the SEC, Traffic Monsoon was operating a Ponzi scheme; that is, a

fraudulent scheme in which the business pays returns to its investors that are

financed, not by the success of the business, but instead with money acquired from

later investors. See S.E.C. v. Thompson, 

, 1154 n.3 (10th Cir. 2013);

Okla. Dep’t of Sec. ex rel. Faught v. Wilcox, 

, 1173 n.2 (10th Cir.

2012).

         Scoville claims, instead, that Traffic Monsoon is a legitimate internet traffic

exchange offering internet advertising services. Such a business is based on the fact

that internet search engines such as Google use algorithms that rank more frequently

visited websites higher than less frequently visited websites. In light of this, website

traffic exchange businesses sell visits to a purchaser’s website in order to make that



                                              3
website look more popular than it really is. Scoville operated several other website

traffic exchanges before starting Traffic Monsoon in September 2014.

      Scoville is the sole member, manager and registered agent of Traffic Monsoon,

a Utah limited liability company. Scoville is also Traffic Monsoon’s sole employee,

running the business from his Utah apartment. The company contracts with a

Russian computer programmer and several call centers hired to respond to telephone

inquiries from Traffic Monsoon’s customers.

      Scoville operated Traffic Monsoon through a website,

www.trafficmonsoon.com, which was housed on servers physically located in the

United States. Someone wanting to do business with Traffic Monsoon first had to

become a member by going to the website and creating an account. The member

could then purchase through the website several different advertising services. For

example, for $5, a member could purchase twenty clicks on the member’s online

advertisement, and for $5.95 a member could purchase 1,000 visits to his website.

      Alternatively, instead of purchasing these services “ala carte,” a member could

purchase an Adpack for $50. A single Adpack entitled a member to receive 1,000

visits to his website and twenty clicks on his internet ad (a $10.95 value), plus the

opportunity to share in Traffic Monsoon’s revenue up to a maximum amount of $55.

An Adpack purchaser qualified to share in Traffic Monsoon’s revenue for each day

that the purchaser clicked on ten (later fifty1) internet ads for other Traffic Monsoon


1
  For most of the time Traffic Monsoon was operating, Adpack purchasers only had
to click on ten ads each day to qualify for revenue sharing. In the last month of its
                                           4
members’ websites and remained on the ad’s landing page for five seconds. In this

way, Scoville gave Adpack purchasers an incentive to provide some of the

advertising traffic that Traffic Monsoon was selling to its members.

      Traffic Monsoon made it easy for members to complete their daily qualifying

advertising clicks. When an Adpack purchaser logged onto his account, Traffic

Monsoon would present rotating ads on which the member could click.

      The [member] is required to view each banner ad for only 5 seconds,
      and a counter appears that counts down the 5 seconds for [the member].
      At the end of that time the [member] must click on an image that
      appears, to verify that he is human, and then the next banner ad appears
      automatically. The act of completing the 50 clicks takes the [member]
      4.1 minutes per day.

(Aplt. App. at 18-19 ¶ 31 (bracketed material added).)

      Each day that the Adpack purchaser completed the requisite number of clicks,

the purchaser qualified to share in Traffic Monsoon’s revenue earned during the

preceding twenty-four hours. Ninety-nine percent of Adpack purchasers qualified to

share in at least some of Traffic Monsoon’s revenue. But “neither the website nor

any other publicly available source of information informed the members how Traffic

Monsoon split the revenue between itself and qualified Adpack holders.” (Id. 2068

¶ 14.) Furthermore, because Traffic Monsoon “kept no accounting records[,] . . .

there are no readily available documents that describe precisely how the money was

distributed.” (Id. 2067 ¶ 13.) Typically an Adpack purchaser would earn $1 in



operation, however, Traffic Monsoon increased this requirement to fifty clicks per
day.
                                          5
shared revenue for each day that he made the requisite number of qualifying clicks.

That meant that in approximately fifty-five days an Adpack purchaser could reach the

maximum $55 return, recouping the $50 the member originally paid for the Adpack

plus earning an additional $5 (a 10% return over the fifty-five days). When an

Adpack purchaser reached the maximum $55 limit in revenue sharing, that member

could either use that money to purchase another $50 Adpack, or he could withdraw

some or all of his money.

      A member could buy as many $50 Adpacks as he wanted; some members

owned hundreds or even thousands of Adpacks. Significantly, no matter how many

Adpacks a member purchased, the member could qualify to share in Traffic

Monsoon’s revenue on all of those Adpacks through a single four-minute session

clicking on other members’ ads. So, for example, if a member bought 100 Adpacks

for $5,000 and spent just four minutes a day for fifty-five days clicking on other

Traffic Monsoon members’ ads, the Adpack purchaser would earn back the original

$5,000 he paid for all 100 Adpacks plus an additional 10% return of $500. If a

member consistently rolled over his Adpacks every fifty-five days, instead of cashing

out, he would earn a 66% annual return on his original $50 purchase and in a year he

would have 166 Adpacks. In three years, he could earn “$25,080—over five times

the initial [$5,000] investment.” (Id. 2073-74 ¶ 30.)

      A second way a Traffic Monsoon member could earn money was to recruit

other members. The recruiting member would earn a 10% commission on every

advertising service the recruited member purchased. This included Adpacks the

                                           6
recruit purchased, both with new money and by rolling over earnings from prior

Adpacks. The district court noted that “for all $50 Adpacks that were purchased by a

referred member, Traffic Monsoon typically deposited $60 worth of credits in

member accounts: $55 into the purchasing member’s account over a 55-day period

(so long as the member qualified [to share revenue]) and $5 into the referring

member’s account.” (Id. 2068-69 ¶ 17.)

      The district court found that, while “[s]ome individuals initially purchased

Adpacks principally as a way to promote their online businesses[,] . . . for many

members, the profits that could be reaped from the Adpacks themselves quickly

eclipsed this motive.” (Id. 2071 ¶ 23.) “Indeed, many members have not received or

used the web visits and banner clicks purchased in the Adpack” (id. 2072 ¶ 24),

because Traffic Monsoon only delivered about 10% of the clicks and website visits it

sold as part of the Adpacks.

      Before buying an Adpack, the member had to agree with Traffic Monson that

the Adpack was not an “investment” and that Traffic Monsoon’s “past performance

does not guarantee [the purchaser] the same result in the future.” (Id. 2069 ¶ 18

(internal quotation marks omitted).) Traffic Monsoon’s website also included a

lengthy explanation to its members as to why it was not operating a Ponzi scheme.

The website further stated that the revenue Traffic Monsoon shared with its

qualifying members was earned from the sale of all of its services, and not just

Adpacks. But the website did not explain that Adpacks actually made up more than



                                           7
98% of Traffic Monsoon’s sales. In fact, Traffic Monsoon misrepresented that its

other advertising services were more popular than Adpacks.

      Adpacks became enormously popular. Between October 2014 and July 2016,

when the SEC initiated this civil enforcement action, members paid Traffic Monsoon

$173 million in new money to purchase 3.4 million Adpacks and purchased

approximately 14 million additional Adpacks—for $700 million—by rolling over

money earned from earlier Adpacks. During this same time period, members paid

only $2.9 million for all other Traffic Monsoon advertising services. Of the total

amount of $175.9 million in cash Traffic Monsoon took in over this period, it

distributed approximately $88 million to its members, “leaving a difference of $87.4

million between what has been paid in by members and what they have taken out.”

(Id. 2074 ¶ 32.)

      Ninety percent of Adpacks were purchased by people who live outside the

United States. Adpacks were especially popular in poorer countries, including

Bangladesh, Venezuela, and Morocco.

      “A large majority of the financial transactions the members completed with

Traffic Monsoon—both payments made to Traffic Monsoon and withdrawals from

the member’s [sic] account—were conducted through PayPal.” (Id. 2066 ¶ 6.) In

January 2016, because “PayPal became concerned about the enormous growth in the

volume of transactions between Traffic Monsoon and its members,” PayPal “froze

Traffic Monsoon’s account.” (Id. 2074 ¶ 33.) Traffic Monsoon then began using

other electronic payment processors. The PayPal freeze lasted until July 11, 2016.

                                          8
The SEC brought this enforcement action two weeks later. During those interim two

weeks, Scoville withdrew $23 million from Traffic Monsoon’s PayPal accounts, in

increments of $100,000, which is the maximum withdrawal PayPal allows at one

time. Scoville tried to withdraw another $10 million, but PayPal reversed those

transactions.

         “The receiver currently has between $50-$60 million in frozen Traffic

Monsoon assets” (id. 2075 ¶ 37), and “[t]he current combined account balance of

Traffic Monsoon members is $34.2 million” (id. 2075 ¶ 36). But members “typically

had relatively little money in their account because the members would continually

reinvest it by purchasing new Adpacks.” (Id. 2072 ¶ 27.) “If the outstanding

Adpacks currently owned by Traffic Monsoon members had matured, the [members’]

account balance would” have increased from $34 million to $278.1 million.” (Id.

2075 ¶ 36.)

                       II. THIS SEC ENFORCEMENT ACTION

         The SEC initiated this civil enforcement action on July 26, 2016, invoking the

district court’s jurisdiction under 15 U.S.C. §§ 77t, 77v, 78u, and 78aa. Relevant to

this appeal, the SEC contends that Defendants violated § 17(a)(1) and (a)(3) of the

Securities Act of 1933, which prohibit fraud or deception in the offer or sale of

securities,2 and § 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-


2
    Section 17(a) provides, in relevant part:

         (a) Use of interstate commerce for purpose of fraud or deceit

                                                9
5(a) and (c), which prohibit fraud or deception “in connection with the purchase or

sale of any security.”3 As relief, the SEC seeks to enjoin Defendants permanently


         It shall be unlawful for any person in the offer or sale of any securities
         . . . by the use of any means or instruments of transportation or
         communication in interstate commerce or by use of the mails, directly or
         indirectly

                (1) to employ any device, scheme, or artifice to defraud, or

                      ....

                (3) to engage in any transaction, practice, or course of
                business which operates or would operate as a fraud or
                deceit upon the purchaser.

15 U.S.C. § 77q(a)(1), (3).
3
    Section 10 provides, in relevant part:

         It shall be unlawful for any person, directly or indirectly, by the use of
         any means or instrumentality of interstate commerce or of the mails, or
         of any facility of any national securities exchange—

                      ....

                (b) To use or employ, in connection with the purchase or
                sale of any security registered on a national securities
                exchange or any security not so registered, . . . any
                manipulative or deceptive device or contrivance in
                contravention of such rules and regulations as the
                Commission may prescribe as necessary or appropriate in
                the public interest or for the protection of investors.

15 U.S.C. § 78j(b). The SEC promulgated its Rule 10b-5 under § 10(b)’s authority.
See Janus Capital Grp., Inc. v. First Derivative Traders, 

, 141-42 (2011).
Relevant here, Rule 10b-5 provides:

         It shall be unlawful for any person, directly or indirectly, by the use of
         any means or instrumentality of interstate commerce, or of the mails or
         of any facility of any national securities exchange,
                                             10
from engaging in this scheme, to impose civil penalties, and to disgorge all

Defendants’ “ill-gotten gains” (Aplt. App. 32).

       At the time the SEC initiated this enforcement action, it obtained ex parte three

preliminary orders from the district court 1) freezing Defendants’ assets;

2) appointing a receiver over those assets and over Defendants’ business; and

3) entering a temporary restraining order (“TRO”) prohibiting Defendants from

continuing to operate their business. After an adversarial evidentiary hearing, the

district court made the TRO a preliminary injunction and denied Defendants’ motion

to set aside the receivership. It is these two rulings that are at issue in this

interlocutory appeal.

       We grant the receiver’s motion to appear on appeal as an amicus. The receiver

asserts that, although the notice of appeal named both Scoville and Traffic Monsoon

as appellants, the receiver has not authorized Traffic Monsoon’s appeal.



              (a) To employ any device, scheme, or artifice to defraud,
              [or]

                     ....

              (c) To engage in any act, practice, or course of business
              which operates or would operate as a fraud or deceit upon
              any person,

       in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5. Because “Rule 10b-5 . . . is coextensive with the coverage of
§ 10(b),” we will refer primarily to § 10(b). S.E.C. v. Smart, 

, 856 n.7
(10th Cir. 2012) (internal quotation marks omitted).

                                            11
Furthermore, the attorney who filed the notice of appeal informed the district court

that, while he represented Scoville, the attorney did not represent Traffic Monsoon

because the company was in receivership. For these reasons, Traffic Monsoon is not

a proper party to this appeal. Nevertheless, the district court recently authorized

Scoville “to appeal and advance arguments on behalf of Traffic Monsoon in th[is]

appeal.” (Doc. 120.)4 Consequently, our rulings on this appeal similarly apply to

Traffic Monsoon.

                            III. STANDARD OF REVIEW

      This court reviews the district court’s order appointing a receiver, and refusing

to set aside that order, for an abuse of discretion. See DeTar Distrib. Co. v. Tri-State

Motor Transit Co., 

, 252 (10th Cir. 1967). See generally SEC v. Vescor

Capital Corp., 

, 1194, 1198 (10th Cir. 2010) (recognizing, in SEC civil

action, district court’s equitable power to appoint a receiver and the court’s “broad

powers and wide discretion to determine relief in an equity receivership” (internal

quotation marks, alteration omitted)).

      We also review the district court’s decision to grant a preliminary injunction

for an abuse of discretion. See McDonnell v. City & Cty. of Denver, 

,

1252 (10th Cir. 2018). “A district court abuses its discretion when it commits an

error of law or relies upon a clearly erroneous factual finding.” 

marks omitted).


4
 We GRANT Scoville’s motion to supplement the record with the district court’s
amended order.
                                           12
              A movant is not entitled to a preliminary injunction unless he can
      show: (1) he is likely to succeed on the merits of his claim; (2) he will
      suffer irreparable harm if the injunction is denied; (3) his threatened
      injury outweighs the harm the grant of the injunction will cause the
      opposing party; and (4) if issued, the injunction will not adversely affect
      the public interest. Because the grant of a preliminary injunction is “an
      extraordinary remedy,” the movant must make a “clear showing” that he
      is entitled to the injunction. Winter v. Nat. Res. Def. Council, Inc., 

, 22 . . . (2008). Further, the movant must meet a heightened burden
      if he seeks a preliminary injunction, like the one [at issue here], that will
      alter the status quo. When “seeking such an injunction [the movant] must
      make a strong showing both with regard to the likelihood of success on
      the merits and with regard to the balance of the harms.” O Centro Espirita
      Beneficiente Uniao Do Vegetal v. Ashcroft, 

, 976 (10th Cir.
      2004) (en banc) [(per curiam)].

(citations omitted) (bracketed material added).5 On

appeal, Scoville focuses only on whether the SEC has made a sufficient showing of

the likelihood of its success on its antifraud claims.




                                   IV. DISCUSSION

      Scoville challenges both the preliminary injunction and the receivership

primarily on three grounds. First, he contends that the antifraud provisions of the

federal securities acts do not apply to offers to sell, and sales of, Adpacks to Traffic

Monsoon members located outside the United States. The extraterritorial reach of a



5
  The district court required the SEC in this case to make this heightened showing
because the preliminary injunction at issue here did more than maintain the status
quo, it also required Traffic Monsoon affirmatively to provide the receiver with any
information she deemed necessary. We accept that same analysis for purposes of this
appeal.
                                           13
federal statute is a matter of congressional intent and Congress has clearly indicated,

through the 2010 Dodd-Frank Act amendments to the securities laws, that the

antifraud provisions apply when either significant steps are taken in the United States

to further a violation of those antifraud provisions or conduct outside the United

States has a foreseeable substantial effect within the United States. Because Scoville

engaged in conduct within the United States that has been shown likely to have

violated the securities laws, we conclude the antifraud provisions reach Traffic

Monsoon’s sale of Adpacks outside the United States.

      Second, Scoville argues that Adpacks are not “securities” and so are not

subject to federal securities laws. We reject that argument because Adpacks meet the

three-part test for investment contracts, which qualify as securities regulated by

federal law.

      Lastly, Scoville contends that the SEC has failed to show it is likely to succeed

in proving the elements of its antifraud claims and, in particular, cannot show that

Defendants engaged in a fraudulent securities scheme with the requisite scienter. We

reject those arguments because the SEC presented sufficient evidence that

Defendants were likely operating a fraudulent scheme—a Ponzi scheme—and likely

doing so with the required scienter. For these reasons, explained in greater detail

below, and because we conclude the remainder of Scoville’s arguments lack merit,

we affirm the district court’s rulings entering a preliminary injunction and refusing to

set aside the receivership.



                                          14
A. The antifraud provisions reach Traffic Monsoon’s sales of, or offers to sell,
Adpacks to purchasers located outside the United States

       Scoville first asserts that the antifraud provisions of the federal securities acts

do not reach Traffic Monsoon’s sales of, or offers to sell, Adpacks to people living

outside the United States. That amounts to 90% of Traffic Monsoon’s Adpack sales.

       1. Congress has provided that the antifraud provisions apply
       extraterritorially when significant steps are taken in the United States to
       further a violation or conduct occurring outside the United States has a
       foreseeable substantial effect within the United States

       Whether a federal statute applies to conduct outside the United States is a

question of congressional intent. See Morrison v. Nat’l Australia Bank Ltd., 

, 255 (2010). There is a presumption that Congress intends a statute to apply

only within the United States, see 

has “affirmatively and

unmistakably” indicated that the statute should apply extraterritorially, RJR Nabisco,

Inc. v. European Cmty., 

, 2100 (2016). “When a statute gives no

clear indication of an extraterritorial application, it has none.” 

.

       “Th[e] [Supreme] Court has established a two-step framework for deciding

questions of extraterritoriality.” WesternGeco LLC. v. ION Geophysical Corp., 

, 2136 (2018). “The first step asks ‘whether the presumption against

extraterritoriality has been rebutted.’” 

).

“If the presumption against extraterritoriality has not been rebutted, the second step

of our framework asks ‘whether the case involves a domestic application of the



                                            15
statute.’” 

). If either step is satisfied,

the statute applies to the challenged conduct. See 

can resolve at step one the question of the extraterritorial reach of the

antifraud provisions because it is clear that Congress “affirmatively and

unmistakably” directed that those provisions apply extraterritorially in an

enforcement action. Through the 2010 Dodd-Frank Act, Congress amended both the

1933 and 1934 securities acts to state:

              The district courts of the United States and the United States courts
       of any Territory shall have jurisdiction of an action or proceeding brought
       or instituted by the Commission or the United States alleging a violation
       of section 77q(a) of this title [Section 17(a) of the 1933 Securities Act]
       involving—

              (1) conduct within the United States that constitutes
              significant steps in furtherance of the violation, even if the
              securities transaction occurs outside the United States and
              involves only foreign investors; or

              (2) conduct occurring outside the United States that has a
              foreseeable substantial effect within the United States.

15 U.S.C. § 77v(c) (bracketed material added); see also 

(amended 1934

Securities Exchange Act providing federal district courts with “jurisdiction of an

action or proceeding brought or instituted by the [SEC] or the United States alleging a

violation of the antifraud provisions of this chapter involving--(1) conduct within the

United States that constitutes significant steps in furtherance of the violation, even if the

securities transaction occurs outside the United States and involves only foreign

investors; or (2) conduct occurring outside the United States that has a foreseeable

substantial effect within the United States”).

                                              16
      Scoville argues that, while Dodd-Frank amended these jurisdictional

provisions of the securities acts, Congress has not expressly stated that the antifraud

provisions of those securities acts apply extraterritorially. We reject that argument in

light of the specific context in which Congress enacted the 2010 jurisdictional

amendments as part of the Dodd-Frank Act. See 

(stating,

in determining whether a statute applies extraterritorially, that “[a]ssuredly context

can be consulted”); see also RJR 

; Kiobel v. Royal Dutch

Petroleum Co., 

, 119 (2013) (looking to “historical background against

which the [statute at issue there] was enacted” to determine whether presumption

against extraterritorial application had been rebutted).

      Historically, Congress, in originally enacting the federal securities acts in 1933

and 1934, did not address the extraterritorial reach of the antifraud provisions of

those statutes. See 

(addressing specifically § 10(b)).

Notwithstanding that fact, courts of appeals for over forty years applied the antifraud

provisions of those acts extraterritorially when “wrongful conduct occurred in the

United States” or when conduct outside the United States had a “substantial effect in

the United States or upon United States citizens.” 

(internal quotation

marks omitted); see also 

This became known as the conduct-and-

effects test. 

see also 

The courts of appeals treated

application of the conduct-and-effects test to decide when the federal securities acts

applied extraterritorially as a matter of subject-matter jurisdiction. 

257-60.

                                           17
      In 2006, in a completely different context (a Title VII employment case), the

Supreme Court addressed the difference between matters that implicate a federal

court’s subject-matter jurisdiction and matters that go, instead, to proving an element

of a claim. See Arbaugh v. Y&H Corp., 

, 503 (2006). Distinguishing

between the two issues also turns on congressional intent. 

In Arbaugh,

the Supreme Court held that the statutory provision restricting application of Title

VII only to employers with fifteen or more employees was not a jurisdictional

prerequisite but instead went to the merits of a Title VII 

, 515-

16. The Court reached that conclusion because Congress placed this fifteen-

employee requirement, not in the statute’s jurisdictional provision, but instead in the

definitions section of the statute, 

“when Congress does not rank a

statutory limitation on coverage as jurisdictional, courts should treat the restriction as

nonjurisdictional in character,” 

      Returning to the specific question at issue here, the extraterritorial reach of the

antifraud provisions of the federal securities laws, the Second Circuit, in 2008,

applied a conduct-and-effects test to such a securities case in Morrison v. National

Australian Bank Ltd. to determine the district court’s subject-matter jurisdiction. 

, 170-71 (2d Cir. 2008). In doing so, however, the Second Circuit noted that

Congress, in enacting the securities laws, had never addressed the extraterritorial

reach of their antifraud provisions and “urge[d] that this significant omission receive

the appropriate attention of Congress . . . .” 

& n.4. The Supreme Court



                                           18
granted certiorari to review the Second Circuit’s Morrison decision. See 

(Nov. 30, 2009).

      In the meantime, Congress accepted the Second Circuit’s invitation and, in

October 2009, amendments to the federal securities acts were proposed that would

eventually become § 929P(b) of the Dodd-Frank Act; those amendments added the

extraterritorial language now found in 15 U.S.C. §§ 77v(c) and 78aa(b), quoted

previously in this opinion, see supra p. 16.

      The Supreme Court, however, decided Morrison before Congress finalized

those amendments. The specific question presented to the Supreme Court in

Morrison was whether § 10(b), the antifraud provision of the 1934 Act, applied to

purchases by Australians on the Australian stock exchange of shares in the National

Bank of 

. The Australian purchasers brought suit in the

United States under American securities laws, alleging that the Australian Bank’s

stock lost value after the Bank bought an American mortgage servicing company

whose owners had misrepresented the value of that company to the Australian Bank.

      In Morrison, the Supreme Court, relying on the Arbaugh line of cases, first

held, contrary to decades of circuit-level authority, that the question of whether

federal securities laws applied extraterritorially was not a matter of subject-matter

jurisdiction, but instead went to the merits of the claim. 

(“[T]o ask

what conduct § 10(b) reaches is to ask what conduct § 10(b) prohibits, which is a



                                           19
merits question. Subject-matter jurisdiction, by contrast, refers to a tribunal’s power

to hear a case.” (internal quotation marks omitted)).

       Second, Morrison held that, because Congress, in originally enacting § 10(b),

did not address whether that provision applied extraterritorially, § 10(b) did not apply

outside the United States. 

Morrison, therefore, concluded that the courts

of appeals were wrong to apply their conduct-and-effects tests to determine when

§ 10(b) applied outside the United States because § 10(b) simply did not apply

extraterritorially. 

Instead, focusing on the language of § 10(b), the

Court held that that antifraud provision only applied domestically; that is, to fraud

only “in connection with the purchase or sale of a security listed on an American

stock exchange, and the purchase or sale of any other security in the United States.”6

       The Supreme Court issued Morrison on June 24, 2010. At that time, the

proposed Dodd-Frank Act was before a joint congressional committee tasked with

ironing out differences in the House and Senate versions of that bill. One such

difference was that the House had included what eventually became § 929P(b),

addressing as a jurisdictional matter the extraterritorial application of the antifraud


6
  Morrison addressed § 10(b) of the 1934 Act, which makes it unlawful to use fraud
“in connection with the purchase or sale of any security.” 

(quoting 15 U.S.C. § 78j(b)). The 1933 Act, instead, makes it unlawful to use fraud
in selling, or offering to sell, a security. See 15 U.S.C. § 77q(a)(1), (3). But
Morrison noted that “[t]he same focus on domestic transactions is evident in the
Securities Act of 1933, enacted by the same Congress as the [1934] Exchange Act,
and forming part of the comprehensive regulation of securities 

(citation omitted).
                                           20
provisions, while the Senate had removed that proposed amendment. The day that

the Supreme Court issued Morrison was the final day that the joint committee

considered the proposed Dodd-Frank Act. See SEC v. Gruss, 

,

664 (S.D. N.Y. 2012). The committee published the final version of the bill several

days later, and it included § 929P(b). The Dodd-Frank Act was enacted into law on

July 21, 2010, less than a month after Morrison.

      Morrison, then, contrary to forty years of circuit-level law, held that the

question of the extraterritorial reach of § 10(b) did not implicate a court’s subject-

matter jurisdiction; instead, other provisions of the securities acts gave district courts

subject-matter jurisdiction to hear SEC enforcement actions 

(citing 15 U.S.C. § 78aa). But Congress, in the Dodd-Frank Act, amended

only the jurisdictional sections of the securities laws to indicate that the antifraud

provisions applied extraterritorially when a version of the conduct-and-effects test is

met. The Dodd-Frank Act did not make any explicit revisions to the substantive

antifraud provisions themselves. See generally U.S. SEC v. Chicago Convention

Ctr., LLC, 

, 910 (N.D. Ill. 2013) (recognizing that “the plain

language of the Section 929P(b) seems purely jurisdictional—particularly in light of

its placement in the jurisdictional section of the Exchange Act—yet the

Congressional intent behind that provision supports the conclusion that the provision

is substantive”).

      Notwithstanding the placement of the Dodd-Frank amendments in the

jurisdictional provisions of the securities acts, given the context and historical

                                            21
background surrounding Congress’s enactment of those amendments, it is clear to us

that Congress undoubtedly intended that the substantive antifraud provisions should

apply extraterritorially when the statutory conduct-and-effects test is satisfied. We

agree, then, with the district court, which stated:

      Although courts generally presume that Congress is familiar with the
      precedents of the Supreme Court when it enacts legislation, the close
      proximity between the date when Morrison was issued and the date when
      the language of Dodd-Frank was finalized, greatly undermines this
      presumption. It strains credulity to assume that legislators read Morrison
      on the last day that they met to negotiate the final version of a massive
      850-page omnibus bill designed to overhaul large swaths of the United
      States financial regulations and consciously chose to enact Section
      929P(b) against the background of the fundamental shift in securities law
      brought about by Morrison. Given this timing, the more reasonable
      assumption is that Morrison was issued too late in the legislative process
      to reasonably permit Congress to react to it.

(Aplt. App. 2086-87.)

      This conclusion is bolstered by the title Congress gave this section of the

Dodd-Frank Act, “STRENGTHENING ENFORCEMENT BY THE COMMISSION.”

Dodd-Frank Wall Street Reform and Consumer Protection Act, PL 111-203 (July 21,

2010), 124 Stat 1376. See generally Almendarez-Torres v. United States, 

, 234 (1998) (“[T]he title of a statute and the heading of a section are tools

available for the resolution of a doubt about the meaning of a statute.”) (internal

quotation marks omitted)). In another section, § 929Y, the Dodd-Frank Act directed

the SEC to “solicit public comment and thereafter conduct a study to determine the

extent to which private rights of action under the antifraud provisions” of the 1934

Act “should be extended” extraterritorially. We agree with the district court that this


                                            22
suggests Congress believed it “had extended the SEC’s authority to bring an

[antifraud] enforcement action in Section 929P(b).” (Aplt. App. 2089 (emphasis

added).) Furthermore, several members of Congress, including § 929P’s drafter,

Representative Paul Kanjorski, stated that the purpose of that provision was to make

clear that the antifraud provisions apply extraterritorially in enforcement actions.

       For all of these reasons, then, we conclude that Congress has “affirmatively

and unmistakably” indicated that the antifraud provisions of the federal securities

acts apply extraterritorially when the statutory conduct-and-effects test is met.

       2. Because Dodd-Frank’s conduct-and-effects test is met here, the
       antifraud provisions apply to Defendants’ sales of, and offers to sell,
       Adpacks to customers located outside the United States

       Having determined that the antifraud provisions of the federal securities

acts can apply extraterritorially when the statutory conduct-and-effect test is

met, we now apply that test to Traffic Monsoon’s sales of, and offers to sell,

Adpacks to customers located outside the United States. The scope of that

extraterritorial application turns on congressional intent; that is, “on the limits

Congress has . . . imposed on the statute[s’] foreign application.” RJR

. Here, Congress limited the extraterritorial

application of the antifraud provisions in enforcement actions to

              (1) conduct within the United States that constitutes
              significant steps in furtherance of the violation, even if the
              securities transaction occurs outside the United States and
              involves only foreign investors; [and]

              (2) conduct occurring outside the United States that has a
              foreseeable substantial effect within the United States.

                                            23
15 U.S.C. § 77v(c); see also 

.

       We agree with the district court that Defendants’ “‘conduct within the United

States . . . constitute[d] significant steps in furtherance of the violation’ of Rule 10b-5

and Section 17(a). Mr. Scoville conceived and created Traffic Monsoon in the

United States. Through Traffic Monsoon, he created and promoted the Adpack

investments over the internet while residing in Utah.” (Aplt. App. 2091.) We add

that the servers housing the Traffic Monsoon website were physically located in the

United States. For these reasons, the district court correctly held that the antifraud

provisions of the federal securities acts encompass Defendants’ sales of, and offers to

sell, Adpacks to Traffic Monsoon members located outside the United States.

B. Adpacks are “securities”

       Scoville next contends that Adpacks are not “securities” and therefore

Defendants are not subject to federal securities laws. Like the district court, we

disagree.

       As an initial matter, Scoville argues that the question of whether Adpacks are

“securities” implicates federal courts’ subject-matter jurisdiction. We disagree, for

the same reasons the Supreme Court in Morrison held that whether the statute applied

extraterritorially was not a jurisdictional issue. 

, 253-54 & n.3

(distinguishing, in § 10(b) enforcement action, between provisions in federal

securities statutes giving district courts subject-matter jurisdiction—the power to hear

a case—from questions of what conduct § 10(b) reaches, “which is a merits


                                            24
question”). Instead, the question of whether Adpacks are “securities” is a merits

inquiry. See, e.g., Avenue Capital Mgmt. II, L.P. v. Schaden, 

, 880-81,

886 (10th Cir. 2016) (affirming dismissal of private claim under the 1934 Act for

failure to state a claim on which relief can be granted because plaintiffs failed to

show that the challenged transactions were “securities”).

      Answering that merits inquiry, we agree with the district court that Adpacks

qualify as securities regulated under the 1933 and 1934 acts. “Congress enacted the

Securities Acts in response to ‘serious abuses in a largely unregulated securities

market,’ and for the purpose of regulating ‘investments, in whatever form they are

made and by whatever name they are called.” SEC v. Shields, 

, 641

(10th Cir. 2014) (quoting Reves v. Ernst & Young, 

, 60–61 (1990)).

“Congress ‘painted with a broad brush’ in defining a ‘security’ in recognition of the

‘virtually limitless scope of human ingenuity, especially in the creation of “countless

and variable schemes devised by those who seek the use of the money of others on

the promise of profits. . . .”’” 

494 U.S at 60-61). Nevertheless,

“‘Congress, in enacting the securities laws, did not intend to provide a broad federal

remedy for all fraud.’” 

(quoting Marine Bank v. Weaver, 

,

556 (1982)).




                                           25
      The 1933 Act defines “security” to include an “investment contract,” 15

U.S.C. § 77b(a)(1), and that is what the district court determined an Adpack is.7

Although the Act did not further define “investment contract,” the Supreme Court did

in SEC v. W.J. Howey Co., 

(1946). In Howey, the owner of a large

Florida citrus grove sold small pieces of the grove to the public to help finance the

grove’s further development. 

The purchasers of these small parts of

the grove were “for the most part . . . non-residents of Florida. They [we]re

predominantly business and professional people who lack the knowledge, skill and

equipment necessary for the care and cultivation of citrus trees. They [we]re

attracted by the expectation of substantial profits.” 

Purchasers received

the deed to the small pieces of land they bought and the option to hire the seller or

some other company to cultivate and market the fruit grown on that particular piece

of land, with the net proceeds to be paid to the land purchaser. 

Owners of 85% of the pieces of land sold hired the grove owner to cultivate and

market their sections of the grove. 

Howey held that a purchaser’s “land

sales contract, the warranty deed [he received] and the service contract together

constitute[d] an ‘investment contract,’” 

(bracketed material added), defined

as “a contract, transaction or scheme whereby a person invests his money in a




7
  Although the 1933 and 1934 Acts use “slightly different formulations” for defining
a “security,” the Supreme Court has, nevertheless treated those formulations “as
essentially identical in meaning.” SEC v. Edwards, 

, 393 (2004).
                                           26
common enterprise and is led to expect profits solely from the efforts of the promoter

or a third party.” 

see also 

-301.

      “[T]o distinguish an investment contract from other commercial dealings, the

Howey test has subsequently been broken down into three requirements: (1) an

investment, (2) in a common enterprise, (3) with a reasonable expectation of profits

to be derived from the entrepreneurial or managerial efforts of others.” 

n.7 (internal quotation marks omitted). In addressing the legal question

of whether some transaction qualifies as an “investment contract,” see 

, we disregard form over substance and focus on the “‘economic

realities underlying a transaction, and not on the name appended thereto.’” 

(quoting United Housing Found’n, Inc. v. Forman, 

, 849

(1975)). Here, Scoville contends—unsuccessfully—that the SEC failed to make an

adequate showing as to any of the three Howey requirements and, therefore, the

district court erred in treating Adpacks as “investment contracts” subject to federal

securities regulation.

      1. An Adpack qualifies as an investment

      An Adpack is an “investment.” Just as the citrus grove owner in Howey was

“offering something more than fee simple interests in land, something different from

a farm or orchard coupled with management 

, so, too,

Traffic Monsoon was offering its Adpack purchasers something more than just

advertising services. Adpacks also offered the purchaser an opportunity to share in

Traffic Monsoon’s revenue. Just as the land purchasers in Howey “had no desire to

                                           27
occupy the[ir] land or to develop it themselves” but were instead “attracted solely by

the prospects of a return on their investment,” 

so too the vast majority of

$50 Adpack purchasers bought Adpacks, not to receive the same advertising services

they could have bought ala carte for $10.95, but instead to have the opportunity to

share in Traffic Monsoon’s revenue and earn significant returns. We agree with the

district court that

       [t]he evidence clearly points to the fact that Traffic Monsoon’s explosive
       growth was driven by members purchasing and repurchasing Adpacks in
       order to obtain the incredible returns on their investment, not by intense
       demand for Traffic Monsoon’s [internet advertising] services. Indeed,
       many Adpack purchasers had no interest in the website visits Traffic
       Monsoon offered, and Traffic Monsoon only ever delivered a fraction of
       the clicks it promised to deliver. In short, the economic reality of the
       Adpack purchases is that they were investments.

(Aplt. App. 2103 (bracketed material added).)

       Neither the fact that a few Adpack purchasers testified that they bought

Adpacks for the advertising services, nor the fact that not every Adpack purchaser

qualified to share revenue (although almost all of them did), prevents us from

characterizing Adpacks as investments. See 

(holding, in

the context of § 10(b), that Court’s conclusion that land sales and service contracts

amounted to an “investment contract” was “unaffected by the fact that some

purchasers choose not to accept the full offer of an investment contract by declining

to enter into a service contract with the” citrus grove owner).




                                           28
      2. An Adpack involves a common enterprise

      An Adpack is an investment in “a common enterprise.” Just as the land

purchasers in Howey bought the opportunity “to share in the profits of a large citrus

fruit enterprise managed and partly owned by” the citrus grove 

, so Adpack purchasers bought the opportunity to share in revenue derived from

the sale of all of Traffic Monsoon’s advertising services. The revenue in which

Adpack purchasers could share, then, was generated from a common enterprise,

Traffic Monsoon’s sale of internet advertising services.

      3. An Adpack provides members with a reasonable expectation of profit
      derived from the entrepreneurial or management efforts of others

      Howey’s third requirement for an investment contract is that the investor “is

led to expect profits solely from the efforts of the promoter or a third 

; see also 

n.7 (applying this part of Howey’s

inquiry to require that the consumer have “a reasonable expectation of profits to be

derived from the entrepreneurial or managerial efforts of others” (internal quotation

marks omitted)).

      Scoville points out that, although the revenue Adpack purchasers share is

derived from Defendants’ efforts to sell Traffic Monsoon’s advertising services, the

returns Adpack purchasers earn are also the result of purchasers’ own efforts in

clicking on other members’ websites in order to qualify to share revenue. Although

the Supreme Court, in Howey, stated that the profits expected from an “investment

contract” should result “solely” from others’ 

, the Tenth


                                           29
Circuit has held that “[i]nvestments satisfy the third prong of the Howey test when

the efforts made by those other than the investor are the ones which affect

significantly the success or failure of the enterprise.” 

(internal quotation marks omitted); see also Crowley v. Montgomery Ward & Co.,

, 877 (10th Cir. 1975).

      That is the case here. Adpack purchasers expected Traffic Monsoon’s success

to turn “significantly” on the company’s efforts to sell its advertising services. See

generally Miller v. Cent. Chinchilla Grp., Inc., 

, 417 (8th Cir. 1974) (“In

determining whether the plaintiffs’ contributions were nominal or significant, the

issue is not what efforts, in fact, were required of them. Rather, it is what efforts the

plaintiffs were reasonably led to believe were required of them at the time they

entered into the contracts.”). Assuming Adpack purchasers expected to contribute to

some degree in the delivery of those services by clicking on other members’

websites, Adpack purchasers did not expect their own efforts to be significant. No

matter how many Adpacks a member owned, the member expected to qualify to share

revenue on all of his or her Adpacks by spending only four minutes a day clicking on

up to fifty ads. Moreover, there is evidence that receiving clicks on one’s website or

internet ad was not the motivation for the vast majority of Adpack purchasers;

earning a 10% return on their investment was.

      Scoville further argues that Adpacks cannot be “investment contracts” because

there was never a “guarantee” that qualified Adpack purchasers would receive a share

of Traffic Monsoon’s revenue because Traffic Monsoon’s obligation to share its

                                           30
revenue was contingent on there being revenue to share. But neither were the citrus

grove purchasers in Howey guaranteed a return on their investment in the citrus 

. So long as a transaction satisfies Howey’s test for an “investment

contract,” “it is immaterial whether the enterprise is speculative or non-speculative.”

To qualify as an “investment contract,” the purchaser just has to have a

“reasonable expectation of profits.” 

n.7, 643; see, e.g.,

; see also SEC v. Int’l Loan Network, Inc. 

,

1308 (D.C. Cir. 1992) (rejecting argument that investment program could not be an

“investment contract” because no return was guaranteed; stating that “[v]ery few

investments ‘guarantee’ a return—all that Howey requires is a ‘reasonable

expectation of profits’” (quoting 

)). The evidence here

supported Adpack purchasers’ reasonable expectation—based on the representations

made to them—of sharing Traffic Monsoon’s revenue. Although Traffic Monsoon’s

website stated there was no guarantee that there would always be revenue for

qualifying members to share, it does not appear that there was ever a time, before the

PayPal freeze, when a qualifying member did not receive purported shared revenue.

        4. Conclusion: Adpacks qualify as investment contracts

        For these reasons, then, the district court did not err in concluding that

Adpacks meet Howey’s three-part test and, therefore, qualify as “investment

contracts” and, thus, as securities subject to regulation under the federal securities

laws.



                                            31
C. It is likely that the SEC can prove that Defendants’ conduct violated the
antifraud provisions of federal securities laws

         Scoville asserts that the district court abused its discretion in determining that

the SEC can likely establish that Defendants violated the antifraud statutes. Scoville

takes aim at two requisite elements of Defendants’ liability.

         1. Defendants were operating a Ponzi scheme

         The antifraud statutes apply to fraudulent schemes involving securities.8 The

district court held that the SEC will likely succeed in proving that Defendants were

involved in such a fraudulent scheme because Defendants were operating a Ponzi

scheme, which is “inherently deceptive because it generates a false appearance of

profitability by using money from new investors to generate returns for earlier

investors.” (Aplt. App. 2099 (citing Mukamal v. Gen. Elec. Capital Corp. (In re

Palm Beach Fin. Partners, L.P.), 

, 346 (Bankr. S.D. Fla. 2013)).)

         Scoville counters that the SEC cannot prove that Defendants were operating a

Ponzi scheme. But there is strong evidence that that is exactly what Defendants were

doing.


8
  More precisely, § 17(a)(1) prohibits “any device, scheme, or artifice to defraud” in
“the offer or sale of any securities.” 15 U.S.C. § 77q(a)(1). Section 17(a)(3) also
applies to “the offer or sale of any securities,” and prohibits “engag[ing] in any
transaction, practice, or course of business which operates or would operate as a
fraud or deceit upon the purchaser.” 

Section 10(b) addresses the use
of “any manipulative or deceptive device or contrivance” “in connection with the
purchase or sale of any security.” 

SEC Rule 10b-5(a) and (c) apply “in
connection with the purchase or sale of any security,” and prohibit using “any device,
scheme, or artifice to defraud,” and “engag[ing] in any act, practice, or course of
business which operates or would operate as a fraud or deceit upon any person.” 17
C.F.R. § 240.10b-5(a), (c).
                                              32
       The Tenth Circuit has offered several different definitions of a Ponzi scheme,

but the district court captured the gist of those definitions in noting that “the central

characteristic of a Ponzi scheme is that returns are not based upon any underlying

business activity. Instead, money from new investors is used to pay earlier

investors.” (Aplt. App. 2097.) See 

n.3; 

n.2. In addition, in a Ponzi scheme often the “money contributed by

later investors generates artificially high dividends for the original investors, whose

example attracts even larger investments.” 

n.2.

       The district court did not abuse its discretion in determining that the SEC is

likely to prove Defendants were operating a Ponzi scheme. For every $50 Adpack it

sold, Traffic Monsoon often had to pay out $55 to qualifying purchasers, and even

$60 if the purchaser had been recruited by another Traffic Monsoon member. Traffic

Monsoon paid these amounts from sales of new Adpacks; there was essentially no

other business activity generating the revenue Traffic Monsoon was sharing with

qualifying Adpack purchasers. Furthermore, Traffic Monsoon misrepresented to its

Adpack purchasers that the revenue it was sharing came from sales of all of Traffic

Monsoon’s other advertising services, which Traffic Monsoon falsely indicated were

more popular than its Adpacks. Thus, the record evidence would support finding that

Defendants were offering the possibility of high rates of return on qualifying

Adpacks and paying those returns using money from later Adpack sales. In light of

this evidence, it was likely the SEC will be able to show that Defendants were



                                            33
operating a Ponzi scheme and thus, be able to prove that Defendants used fraud or

deception to sell, or offer to sell, Adpacks.

      Scoville’s arguments to the contrary are unavailing. For example, although he

reasserts his argument that Traffic Monsoon was only selling advertising services, as

previously discussed, the vast majority of Adpack purchasers were not seeking to buy

internet advertising services but were, instead, seeking a significant return on their

$50-per-Adpack investment. Moreover, Defendants may still be operating a Ponzi

scheme even if they have “some legitimate business operations.” Gillman v. Geis (In

re Twin Peaks Fin. Servs., Inc.), 

, 655 (Bankr. D. Utah 2014); see also

Miller v. Wulf, 

, 1272 & n.45 (D. Utah 2015).

      Neither does Scoville’s assertion—that before an Adpack purchaser could

share in Traffic Monsoon’s revenue, he had to qualify by clicking on other members’

websites for four minutes on a given day and then there had to be revenue Traffic

Monsoon generated in the preceding twenty-four hours—prevent the district court’s

determination that Defendants were running a Ponzi scheme. Even though

Defendants disclosed these requisite conditions for an Adpack purchaser to share in

Traffic Monsoon’s revenue, there is evidence that Defendants deceived purchasers by

telling them that the revenue to be shared was generated by Traffic Monsoon’s other




                                            34
advertising services that were more popular than Adpacks. Instead, essentially all of

the revenue to be shared was generated by the sale of additional Adpacks.9

       Lastly, Scoville argues that Defendants did not expressly limit returns on

Adpacks only to the original purchasers. And he contends that none of its members

had ever suffered a loss. But the fact that this Ponzi scheme had not yet imploded

does not mean Defendants were not running a Ponzi scheme.

       2. Scienter

       In a related argument, Scoville next asserts that the SEC will not be able to

establish that Defendants acted with the requisite scienter. We disagree.

       Sections 10(b) and 17(a)(1) require proof that Defendants acted with the

“intent to deceive, manipulate, or defraud.” Aaron v. SEC, 

, 686 & n.5,

695-97 (1980) (quoting Ernst & Ernst v. Hochfelder, 425 U.S 185, 194 & n.12

(1976)). (No scienter is required under § 17(a)(3). See 

.)

The district court correctly held that this scienter is likely established in this case by

the fact that Defendants were operating a Ponzi scheme, which again is “inherently

deceptive because it generates a false appearance of profitability by using money

from new investors to generate returns for earlier investors.” (Aplt. App. 2099

(citing In re Palm Beach Fin. 

).).10


9
 In light of this crucial deception, we reject, at this point in the case, Scoville’s
assertion that Defendants were not operating a Ponzi scheme because “Traffic
Monsoon has fully disclosed everything to its members.” (Aplt. Br. 52.)
10
  Scoville incorrectly asserts that the district court never addressed Defendants’
scienter.
                                            35
D. Traffic Monsoon’s revenue generated from the sale of its other advertising
services is properly subject to the district court’s preliminary orders

      Lastly, Scoville asserts that, “[a]t a minimum, the Court should order the

District Court to release the [currently frozen] Traffic Monsoon funds that are

admittedly outside the scope of any of the SEC’s claims.” (Aplt. Br. 53 (bracketed

material added).) Scoville refers to the approximately $3 million that Traffic

Monsoon earned from September 2014 through July 2016 from the sale of its internet

advertising services other than Adpacks. But it is not clear, as Scoville asserts, that

these other sales are “outside the scope of any of the SEC’s claims.” 

to be shared with qualifying Adpack purchasers was generated from the sale

of all of Traffic Monsoon’s advertising services. Further, Traffic Monsoon had no

accounting records; its revenue apparently was pooled together and Adpack

purchasers were paid from that pool. In light of this evidence, Scoville has not

shown that the district court abused its discretion in preliminarily freezing all of

Traffic Monsoon’s funds and placing them in the receivership.11

                                  V. CONCLUSION

      For the foregoing reasons, we AFFIRM in all respects the district court’s

challenged preliminary decisions in this civil enforcement action. Although early in




11
  The issue of whether Scoville should personally be liable under the antifraud
provisions has not been adequately raised before us, nor adequately preserved below.
Accordingly, we decline to address that issue.
                                           36
this civil enforcement action, the SEC has established the likelihood that it will

succeed on its antifraud claims against Defendants.12




12
  Once our mandate has issued, the Court will direct the parties to address the status
of the related appeal, No. 18-4038.
                                           37
17-4059, SEC v. Traffic Monsoon LLC
BRISCOE, J., concurring.

       I concur in the judgment. I agree with the majority that AdPacks are “securities”

within the meaning of the 1933 and 1934 securities acts, Maj. Op. 24–31, that Scoville

did not adequately preserve the personal liability issue, 

n.11, and that the SEC is

likely to prove that the Defendants’ conduct violated the antifraud provisions of the

securities acts and their accompanying regulations, 

I am not persuaded,

however, as the majority appears to assume, that the AdPack sales at issue were foreign

sales outside of the United States. Absent that assumption there would be no need to

address in this case whether the antifraud provisions of the securities acts apply

extraterritorially. I write separately to endorse the ruling of the district court, Aplt. App.

at 2091–94, and as also advanced by the SEC on appeal, Resp. Br. 52–57, that under

Morrison v. Nat’l Australian Bank Ltd., 

(2010), Traffic Monsoon sold

AdPacks in the United States. Therefore, the securities acts and their accompanying

regulations cover the Defendants’ domestic activity even if a large percentage of the

AdPack buyers purchased the securities while abroad.

       As explained by the majority, the Supreme Court has developed a two-step test to

determine questions of extraterritoriality. WesternGeco LLC v. ION Geophysical Corp.,

, 2136 (2018). We have discretion to begin the analysis at step one or two,

and if either step is satisfied then the statute applies to the challenged

conduct, see 

I would resolve this case at step two.
         “Under the second step of [the] framework, we must identify the statute’s focus,”

(citing RJR Nabisco, Inc. v. European Cmty., 

, 2101 (2016)) (internal quotation marks omitted), and the Supreme Court has

clarified that “the focus of the Exchange Act is . . . upon purchases and sales of securities

in the United States,” 

. Morrison provides the test for liability

under § 10(b). As Morrison explains, based on the text of § 10(b),1 we ask “whether the

purchase or sale [of the security] [wa]s made in the United States, or involve[d] a security

listed on a domestic 

–70 (emphasis added). Since AdPacks

were not listed on a domestic exchange, we must decide if either the “purchase[s]” or the

“sale[s]” were “made in the United States.”

         The Second, Third, and Ninth Circuits have adopted the “irrevocable liability” test

to determine where a security “sale” or “purchase” occurs under Morrison and § 10(b).

See Absolute Activist Value Master Fund Ltd. v. Ficeto, 

, 67 (2d Cir. 2012)

(“[W]e hold that transactions involving securities that are not traded on a domestic

exchange are domestic if irrevocable liability is incurred or title passes within the United

States.”); see also Stoyas v. Toshiba Corp., 

, 949 (9th Cir. 2018), petition for


1
    Section 10(b) makes it unlawful

         [t]o use or employ, in connection with the purchase or sale of any security
         registered on a national securities exchange or any security not so registered
         . . . any manipulative or deceptive device or contrivance in contravention of
         such rules and regulations as the Commission may prescribe as necessary or
         appropriate in the public interest or for the protection of investors.

15 U.S.C. § 78j(b) (emphasis added).

                                               2
cert. filed, (U.S. Oct. 17, 2018) (No. 18-486); United States v. Georgiou, 

,

137 (3d Cir. 2015). As the Second Circuit has explained, a domestic transaction occurs

when “the purchaser incur[s] irrevocable liability within the United States to take and pay

for a security, or [when] the seller incur[s] irrevocable liability within the United States to

deliver a security.” Absolute 

. While “irrevocable liability” may

appear to turn on contract principles and “the location of the securities transactions at

issue,” see 

(emphasis added), the Second Circuit later clarified that “territoriality

under Morrison concerns where, physically, the purchaser or seller committed him or

herself, not where, as a matter of law, a contract is said to have been executed.” United

States v. Vilar, 

, 77 n.11 (2d Cir. 2013) (citing 

). It

appears, then, that the irrevocable liability test is a fact intensive inquiry to determine

whether a “sale” or “purchase” of “any security not so registered” occurred in the United

States.

          In this case, Traffic Monsoon was based in the United States and operated out of

the United States when selling its securities. As found by the district court, Scoville

registered Traffic Monsoon with the State of Utah as a limited liability company. Scoville

filed organizational documents with the State of Utah which identified Scoville as Traffic

Monsoon’s sole member, manager, and registered agent. Scoville listed his apartment’s

address in Murray, Utah, as Traffic Monsoon’s corporate address. Traffic Monsoon sold

AdPacks via the internet, and the record further demonstrates that Traffic Monsoon made

its sales through computer servers based solely in the United States. Under any common

sense reading of Morrison and § 10(b), Traffic Monsoon made several securities sales in

                                               3
the United States. That many AdPack buyers were abroad when they purchased the

securities over the internet does not alter this conclusion. Neither does Scoville’s

argument that he was in the United Kingdom for a period while Traffic Monsoon sold

AdPacks since Traffic Monsoon executed all the AdPack sales in an automated manner in

the United States.

       The analysis under § 17(a) is similar. Section 17(a) makes it “unlawful for any

person in the offer or sale of any securities . . . to employ any device, scheme, or artifice

to defraud, or . . . to engage in any transaction, practice, or course of business which

operates or would operate as a fraud or deceit upon the purchaser.” 15 U.S.C. § 77q(a)(1),

(3) (emphasis added). Under the same reasoning illustrated above, Traffic Monsoon made

“sale[s]” or “offer[s]” of “securities” in the United States within the meaning of § 17(a).

       Accordingly, I would affirm because, as explained by the district court, the SEC

sufficiently established that the Defendants sold securities in the United States in

violation of the securities acts and their accompanying regulations.




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