PUBLISH
UNITED STATES COURT OF APPEALS
FOR THE TENTH CIRCUIT

________________ _________________ SECURITIES AND EXCHANGE COMMISSION, Plaintiff - Appellee,

v. CHARLES D. SCOVILLE, Defendant - Appellant, and TRAFFIC MONSOON, LLC, Defendant.

_____________ _______________ PEGGY HUNT, Receiver - Ami cus Curiae. No. 17-4059

________________ _________________ 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. Ec hols 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. Ste bbins, General Counsel, Michael A. Conley, Solicitor, with him on the briefs), Couns el to the Solicitor, Securities and Exchange Commission, Washington, D.C., for Plaintiff-Appellee. FILED United States Court of Appeals Tenth Circuit 

### January 24, 2019
Elisabeth A. Shumaker Clerk of Court2 Peggy Hunt, Michael F. Thomson, and John J. Weist, Dorsey & Whi tney LLP, filed a brief for Receiver-Amicus Curiae P eggy Hunt, in support of Plai ntiff-Appellee.

________________ _________________ Before BRISCOE , EBEL , and HARTZ , Circuit Judges.

________________ _________________ EBEL , Circuit Judge.

________________ _________________ This case involves an alleged wo rldwide Ponzi scheme and the an tifraud provisions of the federal Securi ties Act of 1933 and the Securi ties Exchange Act of 1934. Defendant Charles Scovill e operated an internet traffic exchange business through his Utah company, Defe ndant Traffic Monsoon, LLC. The Securities and Exchange Commission (“SEC”) init iated this civil enforcement ac tion, alleging Defendants were instead operati ng an unlawful online Ponzi sche me involving the fraudulent sale of securities. In this interlocutory appeal, S coville challenges several preliminary orders the district court issued at the outset of t his still ongoing enforcement action, including orde rs freezing Defendants’ asset s, appointing a receiver, and preliminarily enj oining Defendants from continuin g to operate their business. In upholding these preliminary rulings, we conclude first that the antifraud provisions of the federal securiti es laws reach Traffic Monsoon ’s sales to customers outside the United States becau se, applying the conduct-and-eff ects test added to the federal securities laws by the 2010 Dodd-Frank Act, Traffic Mon soon undertook significant conduct in the Unite d States to make those sales to persons abroad. We further conclude that Traffic M onsoon’s Adpacks (bundled intern et advertising3 services that allowed a purchaserto share in some of Traffic M onsoon’s revenue) qualified as investment contracts , which are securities regulat ed under the 1933 and 1934 securities acts. We further conclude that the SEC has ass erted sufficient evidence to make it likely that t he SEC will be able to prove t hat Defendants were operating a fraudulent scheme—a P onzi scheme—selling Adpacks an d that scheme violated the antifraud statutes i nvoked in this litigation. Ha ving 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 v ersions of Traffic Monsoon’s b usiness model. According to the SEC, Traffic M onsoon was operating a Ponzi sch eme; that is, a fraudulent scheme in which the bus iness pays returns to its inv estors that are financed, not by the success of t he business, but instead with money acquired from later investors. See S.E.C. v. T hompson, 732 F.3d 1151, 1154 n .3 (10th Cir. 2013); Okla. Dep’t of Sec. ex rel. Fa ught v. Wilcox, 691 F.3d 1171, 11 73 n.2 (10th Cir. 2012). Scoville claims, instead, that Tr affic Monsoon is a legitimate internet traffic exchange offering internet advert ising services. Such a busine ss is based on the fact that internet search engines su ch as Google use algorithms that rank more frequently visited websites higher than les s frequently visited websites. In light of this, website traffic exchange businesses sell visits to a purchaser’s websit e in order to make that4 website look more popular than it really is. Scoville operated several other website traffic exchanges before starti ng Traffic Monsoon in September 2014. Scoville is the sole member, man ager and registered agent of Tr affic Monsoon, a Utah limited liability compa ny. Scoville is also Traffic Mon soon’s sole employee, running the business from his Ut ah apartment. The company cont racts with a Russian computer programmer and several call centers hired to r espond to telephone inquiries from Traffic M onsoon’s customers. Scoville operated Traffic M onsoon through a website, www.trafficmonsoon.com , which was housed on server s physically located in the United States. Someone wanting to do business with Traffic Mon soon 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 adver tising services. For example, for $5, a member could purchase twenty clicks on the m ember’s online advertisement, and for $5.95 a member could purchase 1,000 visi ts to his website. Alternatively, instead of purchas ing these services “ala carte, ” a member could purchase an Adpack for $50. A si ngle 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 maxim um amount of $55. An Adpack purchaser qualified to s hare in Traffic Monsoon’s rev enue for each day that the purchaser click ed on ten (later fifty 1 ) internet ads for other Traffic Monsoon

1 For most of the time Traffic Monsoon was operating, Adpack pur chasers only had to click on ten ads each day t o qualify for revenue sharing. I n the last month of its5 members’ websites and remained on the ad’s landing page for fiv e seconds. In this way, Scoville gave Adpack purchas ers an incentive to provide so me of the advertising traffic that Traffic Monsoon was sell ing to its mem bers. Traffic Monsoon made it easy formembers to complete their dail y qualifying advertising clicks. When an A dpack purchaser logged onto his a ccount, Traffic Monsoon would present rotating ads on which the member could cl ick. The [member] is required to vie w each banner ad for only 5 seco nds, and a counter appears that count s down the 5 seconds for [the m ember]. At the end of that time the [me mber] must click on an image tha t appears, to verify that he is human, and then the next banner a d appears automatically. The act of completing the 50 clicks takes the [ member] 4.1 minutes per day. (Aplt. App. at 18-19 ¶ 31 (br acketed material added).) Each day that the Adpack purchas er completed the requisite numb er of clicks, the purchaser qualified to shar e in Traffic Monsoon’s revenue e arned during the preceding twenty-four hours. Nin ety-nine percent of Adpack pur chasers qualified to share in at least some of Traffic Monsoon’s revenue. But “neit her the website nor any other publicly available s ource of information informed the members how Traffic Monsoon split the revenue between itself and qualified Adpack h olders.” (Id. 2068 ¶ 14.) Furthermore, because Tra ffic Monsoon “kept no accountin g records[,] . . . there are no readily available doc uments that describe precisel y how the money was distributed.” (Id. 2067 ¶ 13.) T ypically an Adpack purchaser would earn $1 in

operation, however, Traffic Mons oon increased this requirement to fifty clicks per day.6 shared revenue for each day that he made the requisite number o f qualifying clicks. That meant that in approximately fifty-five days an Adpack purc haser could reach the maximum $55 return, recouping th e $50 the member originally pai d for the Adpack plus earning an additional $5 (a 10% return over the fifty-five days). When an Adpack purchaser reached the m aximum $55 limit in revenue shari ng, 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 membe rs owned hundreds or even thousands of Adpacks. Significantly, no matter how many Adpacks a member purch ased, the member coul d qualify to share i n Traffic
Monsoon’s revenue on all of those Adpacks through a single four -minute session clicking on other members’ ads. S o, for example, if a member b ought 100 Adpacks for $5,000 and spent just four mi nutes a day for fifty-five day s clicking on other Traffic Monsoon members’ ads, t he Adpack purchaser would earn b ack the original $5,000 he paid for a ll 100 Adpacks plus an additional 10% retur n of $500. If a member consistently rolled over hi s Adpacks every fifty-five da ys, instead of cashing out, he would earn a 66% annual re turn on his original $50 purc hase and in a year he would have 166 Adpacks. In thr ee years, he could earn “$25,080 —over five times the initial [$5,000] investme nt.” (Id. 2073-74 ¶ 30.) A second way a Traffic Monsoon me mber could earn money was to r ecruit other members. The recruiting member would earn a 10% commissi on on every advertising service the recruite d member purchased. This inclu ded Adpacks the7 recruit purchased, both with n ew money and by rolling over earn ings from prior Adpacks. The district court not ed that “for all $50 Adpacks th at were purchased by a referred member, Traffic Monso on typically deposited $60 worth of credits in member accounts: $55 into the pur chasing member’s account over a 55-day period (so long as the member qualified [to share revenue]) and $5 int o the referring member’s account.” (Id. 2068-69 ¶ 17.) The district court found that, wh ile “[s]ome individuals initia lly purchased Adpacks principally as a way to p romote their online businesses [,] . . . for many members, the profits that could be reaped from the Adpacks them selves quickly eclipsed this motive.” (Id. 2071 ¶ 23.) “Indeed, many members have not received or used the web visits and banner c licks purchased in the Adpack” (id. 2072 ¶ 24), because Traffic Monsoon only deliv ered about 10% of the clicks and website visits it sold as part of the Adpacks. Before buying an Adpack, the mem ber had to agree with Traffic M onson that the Adpack was not an “investment ” and that Traffic Monsoon’s “ past performance does not guarantee [the purchaser ] the same result in the futur e.” (Id. 2069 ¶ 18 (internal quotation marks omitte d).) Traffic Monsoon’s website also included a lengthy explanation to its members as to why it was not operati ng a Ponzi scheme. The website further stated that t he revenue Traffic Monsoon sha red with its qualifying members was earned fro m the sale of all of its servi ces, and not just Adpacks. But the website did n ot explain that Adpacks actually made up more than8 98% of Traffic Monsoon’s sales . In fact, Traffic Monsoon misre presented that its other advertising services wer e more popular than Adpacks. Adpacks became enormously popul ar. Between October 2014 and Ju ly 2016, when the SEC initiated this civ il enforcement action, members p aid Traffic Monsoon $173 million in new money to purch ase 3.4 million Adpacks and p urchased approximately 14 million additi onal Adpacks—for $700 million—by rolling over money earned from earlier Adpack s. During this same time perio d, members paid only $2.9 million for all other Traffic Monsoon advertising ser vices. Of the total amount of $175.9 million in cash Traffic Monsoon took in over t his period, it distributed approximately $88 m illion to its members, “leaving a difference of $87.4 million between what has been pai d in by members and what they have taken out.” (Id. 2074 ¶ 32.) Ninety percent of Adpacks were purchased by people who live out side the United States. Adpacks were esp ecially popular in poorer count ries, including Bangladesh, Venezuela, and Morocco. “A large majority of the financia l transactions the members com pleted with Traffic Monsoon—both payments mad e to Traffic Monsoon and withd rawals from the member’s [sic] account—were conducted through PayPal.” (Id . 2066 ¶ 6.) In January 2016, because “PayPal b ecame concerned about the enormo us growth in the volume of transactions between T raffic Monsoon and its members, ” PayPal “froze Traffic Monsoon’s account.” (Id . 2074 ¶ 33.) Traffic Monsoon then began using other electronic payment proces sors. The PayPal freeze lasted until July 11, 2016.9 The SEC brought this enforcement action two weeks later. Durin g those interim two weeks, Scoville withdrew $23 milli on from Traffic Monsoon’s Pay Pal accounts, in increments of $100,000, which is the maximum withdrawal PayPal allows at one time. Scoville tried to withdraw another $10 million, but PayP al reversed those transactions. “The receiver current ly has between $50-$6 0 million in frozen T raffic Monsoon assets” (id. 2075 ¶ 37) , and “[t]he current combined ac count balance of Traffic Monsoon members is $34.2 million” (id. 2075 ¶ 36). But members “typically had relatively little money in their account because the member s would continually reinvest it by purchasing new A dpacks.” (Id. 2072 ¶ 27.) “If the outstanding Adpacks currently owned by Traf fic Monsoon members had matured, the [members’] account balance would” have incr eased from $34 million to $278. 1 million.” (Id. 2075 ¶ 36.)
II. THIS SEC ENFORCEMENT ACTION The SEC initiated this civil enfo rcement action on July 26, 201 6, invoking the district court’s jurisdiction under 15 U.S.C. §§ 77t, 77v, 78u, and 78aa. Relevant to this appeal, the SEC contends tha t Defendants violated § 17(a)( 1) and (a)(3) of the Securities Act of 1933, which p rohibit fraud or deception in th e offer or sale of securities, 2 and § 10(b) of the Securities E xchange Act of 1934 and SEC Rul e 10b-

2 Section 17(a) provide s, in relevant part: (a) Use of interstate commerce fo r purpose of fraud or deceit10 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 en join Defendants permanently

It shall be unlawful for any person in the offer or sale of any securities . . . by the use of any means or i nstruments of transportation or communication in interstate comm erce or by use of the mails, di rectly or indirectly (1) to employ any device, schem e, 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 m ails, or of any facility of any nati onal 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 de vice or contrivance in contravention of such rule s 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 promu lgated its Rule 10b-5 under § 10(b)’s authority. See Janus Capital Grp., Inc. v. Fi rst Derivative Traders, 564 U .S. 135, 141-42 (2011). Relevant here, Rul e 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 nati onal securities exchange,11 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 th is enforcement action, it obtai ned ex parte three preliminary orders from the dist rict court 1) freezing Defendan ts’ assets; 2) appointing a receiver over t hose assets and over Defendants’ business; and 3) entering a temporary restrain ing order (“TRO”) prohibiting D efendants from continuing to operate their busin ess. After an adversarial evi dentiary hearing, the district court made the TRO a p reliminary injunction and denied Defendants’ motion to set aside the receivership. It is these two rulings that ar e 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 noti ce of appeal named both Scoville and Traffic Monsoon as appellants, the receiver has not authorized Traffic Monsoon’ s appeal.

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

. . . . (c) To engage in any act, practice, or course of business which operates or would opera te as a fraud or deceit upon any person, in connection with the purchas e or sale of any security. 17 C.F.R. § 240.10b-5. Because “ Rule 10b-5 . . . is coextensiv e with the coverage of § 10(b),” we will refer primaril y to § 10(b). S.E.C. v. Smart, 678 F.3d 850, 856 n.7 (10th Cir. 2012) (internal quotation marks omitted).12 Furthermore, the attorney who f iled the notice of appeal inform ed the district court that, while he represented Scovi lle, the attorney did not repre sent Traffic Monsoon because the company was in recei vership. For these reasons, Tr affic Monsoon is not a proper party to this appeal. N evertheless, the district cour t recently authorized Scoville “to appeal and advance ar guments 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 rece iver, and refusing to set aside that order, for an abuse of discretion. See DeTar Distrib. Co. v. Tri-State Motor Transit Co., 379 F.2d 244 , 252 (10th Cir. 1967). See gen erally SEC v. Vescor Capital Corp., 599 F.3d 1189, 1194 , 1198 (10th Ci r. 2010) (reco gnizing, in SEC civil action, district court’s equita ble power to appoint a receiver and the court’s “broad powers and wide discretion to det ermine relief in an equity rec eivership” (internal quotation marks, alteration omitted)). We also review the district cour t’s decision to grant a prelimi nary injunction for an abuse of discretion. See McDonnell v. City & Cty. of De nver, 878 F.3d 1247, 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 .” Id. (internal quotation marks omitted).

4 We GRANT Scoville’s motion to s upplement the record with the d istrict court’s amended order.13 A movant is not entitled to a p reliminary 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 th reatened injury outweighs the harm the grant of the injunction will caus e the opposing party; and (4) if iss ued, the injunction will not adve rsely affect the public interest. Because the g rant of a preliminary injunct ion is “an extraordinary remedy,” the movant must make a “clear showing” t hat he is entitled to the injunction. Win ter v. Nat. Res. Def. Council , Inc. , 555 U.S. 7, 22 . . . (2008). Further, the movant must meet a height ened burden if he seeks a preliminary injunc tion, like the one [at issue he re], that will alter the status quo. When “see king such an injunction [the mov ant] must make a strong showing both with r egard to the likelihood of suc cess on the merits and with regard to the balance of the harms.” O Cent ro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 976 (10th Cir. 2004) (en banc) [(per curiam)]. McDonnell, 878 F.3d at 1252 (cita tions omitted) (bracketed mate rial added). 5 On appeal, Scoville focuses only on w hether the SEC has made a suf ficient showing of the likelihood of its succes s on its antifraud claims.

IV. DISCUSSION Scoville challenges both the prelim inary injunction and the rec eivership primarily on three grounds. First , he contends that the antifr aud provisions of the federal securities acts do not a pply to offers to sell, and sal es of, Adpacks to Traffic Monsoon members located outside the United States. The extrate rritorial reach of a

5 The district court required the SEC in this case to make this heightened showing because the preliminary injuncti on at issue here did more than maintain the status quo, it also required Traffic M onsoon affirmatively to provide the receiver with any information she deem ed necessary. We accept that same analysis for purposes of this appeal.14 federal statute is a matter of congressional intent and Congres s has clearly indicated, through the 2010 Dodd-Fr ank Act amendments to the securities la ws, that the antifraud provisions apply when e ither significant steps are ta ken in the United States to further a violation of those antifraud provisions or conduct outside the United States has a foreseeable substan tial effect within the United S tates. Because Scoville engaged in conduct within the Un ited States that has been shown likely to have violated the securities laws, we conclude the antifraud provisi ons reach Traffic Monsoon’s sale of Adpacks out side the United States. Second, Scoville argues that Adp acks are not “securities” and s o are not subject to federal securities l aws. We reject that argument be cause Adpacks meet the three-part test for investment c ontracts, which qualify as secu rities 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 a ntifraud claims and, in particu lar, cannot show that Defendants engaged in a fraudulen t securities scheme with the r equisite scienter. We reject those arguments because the SEC presented sufficient evi dence that Defendants were likely operati ng a fraudulent scheme—a Ponzi sc heme—and likely doing so with the required scie nter. For these reasons, explai ned in greater detail below, and because we conclude t he remainder of Scoville’s argu ments lack merit, we affirm the district court’s ru lings entering a preliminary i njunction and refusing to set aside the receivership.15 A. The antifraud provisions reac h Traffic Monsoon’s sales of, o r offers to sell, Adpacks to purchasers located outside the United States Scoville first asserts that th e antifraud provisions of the fe deral securities acts do not reach Traffic Monsoon’s sales of, or offers to sell, Adp acks to people living outside the United States. That amounts to 90% of Traffic Mons oon’s Adpack sales. 1. Congress has provided that the antifraud provisions apply extraterritorially when significan t steps are taken in the Unit ed States to further a violation or conduct o ccurring outside the United Sta tes has a foreseeable substantial effect within the United States Whether a federal statute app lies to conduct outside the United States is a question of congressional intent. S ee Morrison v. Nat’l Austra lia Bank Ltd., 561 U.S. 247, 255 (2010). There is a presumption that Congress int ends a statute to apply only within the United States, s ee id., unless Congress has “af firmatively and unmistakably” indicated that the statute should apply extraterr itorially, RJR Nabisco, Inc. v. European Cmty., 136 S. C t. 2090, 2100 (2016). “When a statute gives no clear indication of an extrater ritorial application, it has non e.” Morrison, 561 U.S. at
255. “Th[e] [Supreme] Court has estab lished a two-step framework for deciding questions of extraterritoriality .” WesternGeco LLC. v. ION Geo physical Corp., 138 S. Ct. 2129, 2136 (2018). “The firs t step asks ‘whether the pr esumption against extraterritoriality h as been rebutted.’” Id. (quoting RJR Nabi sco, 136 S. Ct. at 2101). “If the presumption against extr aterritoriality has not been re butted, the second step of our framework asks ‘whether t he case involves a domestic app lication of the16 statute.’” Id. (quoting RJR Na bisco, 136 S. Ct. at 2101). If either step is satisfied, the statute applies to the c hallenged conduct. See id. Here, we can resolve at step one the question of the extraterri torial reach of the antifraud provisions because it is clear that Congress “affirma tively and unmistakably” directed that thos e provisions apply extraterrito rially 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 Unite d States and the United States courts of any Territory shall have juri sdiction of an action or procee ding brought or instituted by the Commission orthe United States alleging a violation of section 77q(a) of this title [Section 17(a) of the 1933 Secu rities Act] involving— (1) conduct within the Unite d 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 t he United States that has a foreseeable substantial effect within the United States. 15 U.S.C. § 77v(c) (bracketed mat erial added); see also id. § 7 8aa(b) (amended 1934 Securities Exchange Act providing federal district courts with “jurisdiction of an action or proceeding brought or i nstituted by the [SEC] or the United States alleging a violation of the antifraud prov isions of this chapter involving

-- (1) conduct within the United States that constitutes si gnificant steps in furtherance of the violation, even if the securities transaction occurs out side the United States and inv olves only foreign investors; or (2) conduct occurring outside the Un ited States that has a foreseeable substantial effect within the United States”).17 Scoville argues that, while Dodd- Frank amended these jurisdict ional provisions of the securities act s, Congress has not expressly s tated 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 201 0 jurisdictional amendments as part of the Dodd -Frank Act. See Morrison, 561 U. S. at 265 (stating, in determining whether a statute applies extrater ritorially, th at “[a]ssuredly context can be consulted”); see also R JR Nabisco, 136 S. Ct. at 2102; K iobel v. Royal Dutch Petroleum Co., 569 U.S. 108, 119 ( 2013) (looking to “historical background against which the [statute at issue there] was enact ed” to determine wh ether presumption against extraterritorial applic ation had been rebutted). Historically, Congress, in origin ally enacting the federal secu rities acts in 1933 and 1934, did not add ress the extraterrito rial reach of the ant ifraud provisions of those statutes. See M orrison, 561 U.S. at 255 (addressing spec ifically § 10(b)). Notwithstanding that fact, courts of appeals for over forty yea rs applied the antifraud provisions of those acts extrate rritorially when “wrongful cond uct occurred in the United States” or when conduct out side the United States had a “substantial effect in the United States or upon United States citizens.” Id. at 257 (internal quotation marks omitted); see also id. a t 255-60. This became known as t he conduct-andeffects test. Id. at 259; see a lso id. at 257-59. The courts of appeals treated application of the conduct-and-e ffects test to decide when the federal securities acts applied extraterritorially as a matter of subject -matter jurisd iction. Id. at 253-54,
257-60.18 In 2006, in a completely differe nt context (a Title VII employm ent case), the Supreme Court addressed the diff erence between matters that imp licate a federal court’s subject-matter jurisdictio n and matters that go, instea d, to proving an element of a claim. See Arbaugh v. Y&H Corp., 546 U.S. 500, 503 (2006) . Distinguishing between the two issues also turns on congressiona l intent. Id. at 514-15. 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 clai m. 546 U.S. at 503, 515- 16. The Court reached that conc lusion because Congress placed this fifteenemployee requirement, not in the statute’s jurisdictional provi sion, but instead in the definitions section of the statu te, id. at 514-15; “when Congre ss does not rank a statutory limitation on coverage as jurisd ictional, courts shou ld treat the restriction as nonjurisdictional in c haracter,” id. at 516. Returning to the specific questio n at issue here, the extraterr itorial reach of the antifraud provisions of the federa l securities laws, the Second Circuit, in 2008, applied a conduct-and-effects te st to such a securities case in Morrison v. National Australian Bank Ltd. to determin e the district court’s subject- matter jurisdiction. 547 F.3d 167, 170-71 (2d Cir. 2008) . In doing so, however, the Sec ond Circuit noted that Congress, in enacting the securi ties laws, had ne ver addressed the extraterritorial reach of their antifraud provision s and “urge[d] that this sign ificant omission receive the appropriate attention of Congress . . . .” Id. at 170 & n. 4. The Supreme Court19 granted certiorari to review the Second Circuit’s Morrison deci sion. See 558 U.S. 1047 (Nov. 30, 2009). In the meantime, Congress accepte d the Second Circuit’s invitat ion and, in October 2009, amendments to the fe deral securities acts were pr oposed that would eventually become § 929P(b) of the Dodd-Frank Act; those amendm ents added the extraterritorial language now f ound in 15 U.S.C. §§ 77v(c) and 78aa(b), quoted previously in this opini on, see supra p. 16. The Supreme Court, however, deci ded Morrison before Congress fi nalized those amendments. The specific question presented to the Supre me Court in Morrison was whether § 10(b), th e antifraud provision of the 19 34 Act, applied to purchases by Australians on the Australian stock exchange of sh ares in the National Bank of Australia. 561 U.S. at 250-52. The Australian purchas ers brought suit in the United States under American s ecurities laws, alleging that the Australian Bank’s stock lost value after the Bank bought an American mortgage ser vicing company whose owners had misrepresented the value of that company to th e Australian Bank. Id. at 251-53. In Morrison, the Supreme Court , relying on the Arbaugh line of cases, first held, contrary to decades of cir cuit-level authority, that the question of whether federal securities laws applied ex traterritorially was not a ma tter of subject-matter jurisdiction, but instead went to the merits of the claim. Id. at 253-54 (“[T]o ask what conduct § 10(b) reaches is to ask what conduct § 10(b) pro hibits, which is a20 merits question. Subject-matter jurisdiction, by contrast, ref ers to a tribunal’s power to hear a case.” (internal quot ation marks omitted)). Second, Morrison held that, bec ause Congress, in originally ena cting § 10(b), did not address whether that pr ovision applied extraterritorial ly, § 10(b) did not apply outside the United States. Id. a t 255. Morrison, therefore, c oncluded that the courts of appeals were wrong to apply th eir conduct-and-effects tests to determine when § 10(b) applied outside the Unite d States because § 10(b) simpl y did not apply extraterritorially. Id. at 255-65. Instea d, focusing on the l anguage of § 10(b), the Court held that that antifraud provision only applied domestica lly; that is, to fraud only “in connection with the pur chase or sale of a security lis ted on an American stock exchange, and the purchase or sale of any other security in the United States.” 6
Id. at 273. The Supreme Court issued Morri son on June 24, 2010. At that ti me, the proposed Dodd-Frank Act was be fore a joint congressional commit tee tasked with ironing out differences in the H ouse and Senate versions of tha t bill. One such difference was that the House ha d included what eventually beca me § 929P(b), addressing as a jurisdictional matter the extraterritorial appl ication of the antifraud

6 Morrison addressed § 10(b) of the 1934 Act, which makes it unl awful to use fraud “in connection with the purchas e or sale of any security.” Morrison, 561 U.S. at 262 (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. § 7 7q(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 [19 34] Exchange Act, and forming part of the compre hensive regulation of securities trading.” 561 U.S. at 268 (citation omitted).21 provisions, while the Senate had removed that proposed amendmen t. The day that the Supreme Court issued Morris on was the final day that the jo int committee considered the proposed Dodd-Fr ank Act. See SEC v. Gruss, 859 F. Supp. 2d 653, 664 (S.D. N.Y. 2012). The committ ee published the final versio n of the bill several days later, and it included § 9 29P(b). The Dodd-Frank Act was enacted into law on July 21, 2010, less than a month after Morrison. Morrison, then, contrary to fort y years of circuit-level law, h eld that the question of the extraterritorial reach of § 10(b) did not impli cate a court’s subjectmatter jurisdiction; instead, o ther provisions of the securitie s acts gave district courts subject-matter jurisdiction to h ear SEC enforcement actions gen erally. 561 U.S. at 254-55 (citing 15 U.S.C. § 78aa) . But Congress, in the Dodd-Fr ank Act, amended only the jurisdictional sections of the securiti es laws to indi cate that the antifraud provisions applied extraterritori ally when a version of the con duct-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. Chi cago Convention Ctr., LLC, 961 F. Supp. 2d 905 , 910 (N.D. Ill. 2013) (recognizi ng that “the plain language of the Section 929P(b) seems purely jurisdictional—par ticularly in light of its placement in the jurisdicti onal section of the Exchange Act—yet the Congressional intent behind that provision suppor ts the conclus ion that the provision is substantive”). Notwithstanding the placement of the Dodd-Frank amendments in t he jurisdictional provisions of the securities acts , given the con text and historical22 background surrounding Congress’ s enactment of t hose amendments , it is clear to us that Congress undoubtedly intende d that the substantive antifra ud provisions should apply extraterritorially when th e statutory conduct-and-effects test is satisfied. We agree, then, with the distr ict court, which stated: Although courts generally presume that Congress is familiar wit h the precedents of the Supreme Court when it enacts legislation, the close proximity between the date when M orrison was issued and the dat e when the language of Dodd-Frank was fi nalized, greatly undermines th is presumption. It strains credulity to assume that legislators r ead 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 a nd consciously chose to enact Sec tion 929P(b) against the background of the fundamental shift in secu rities law brought about by Morrison. Give n this timing, the more reasonable assumption is that Morrison was issued too late in the legislat ive process to reasonably permit Con gress to react to it. (Aplt. App. 2086-87.) This conclusion is bolstered by the title Congress gave this s ection of the Dodd-Frank Act, “STRENGTHENING EN FORCEMENT BY THE COMMISSION.” Dodd-Frank Wall Street Reform a nd Consumer Protection Act, PL 1 11-203 (July 21, 2010), 124 Stat 1376. See generally Almendarez-Torres v. Unite d States, 523 U.S. 224, 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 a nother section, § 929Y, the Dod d-Frank Act directed the SEC to “solicit public comme nt and thereafter conduct a stu dy to determine the extent to which private rights of action under the antifraud pr ovisions” of the 1934 Act “should be extende d” extraterritorially . We agree with the district court that this23 suggests Congress believed it “ha d extended the SEC’s authority to bring an [antifraud] enforcement action in Section 929P(b).” (Aplt. App . 2089 (emphasis added).) Furthermore, several m embers of Congress, including § 929P’s drafter, Representative Paul Kanjorski, s tated that the purpose of that provision was to make clear that the antifraud provision s 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 th e federal securities acts apply extraterritorially whe n the statutory conduct-and-ef fects test is met.
2. Because Dodd-Frank’s conduct-a nd-effects test is met here, t he antifraud provisions apply to Def endants’ sales of, and offers to sell, Adpacks to customers located outside the United States Having determined that the antif raud provisions of the federal securities acts can apply extraterritorially when the statutory conduct-an d-effect test is met, we now apply that test to T raffic Monsoon’s sales of, and offers to sell, Adpacks to customers l ocated outside the United States. The sc ope of that extraterritorial app lication turns on cong ressional intent; tha t is, “on the limits Congress has . . . imposed on the statute[s’] foreign applicati on.” RJR Nabisco, 136 S. Ct. at 2101. Her e, Congress limited the extrat erritorial application of the antifraud pr ovisions in enforcement actions to (1) conduct within the Unite d 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 t he United States that has a foreseeable substantial effect within the United States.24 15 U.S.C. § 77v(c); see also id. § 78aa(b). We agree with the district court that Defendants’ “‘conduct wit hin the United States . . . constitute[d] signifi cant 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 M onsoon, he created and promote d the Adpack investments over the internet wh ile residing in Utah.” (Aplt. App. 2091.) We add that the servers hous ing the Traffic Mons oon website were physi cally located in the United States. For these reasons , the district court correctly held that the antifraud provisions of the federal secur ities acts encompass Defendants’ sales of, and offers to sell, Adpacks to Traffic Monsoon members located outside the Un ited States. B. Adpacks are “securities” Scoville next contends that Adp acks are not “securities” and th erefore Defendants are not subject to fede ral securities laws. Like th e district court, we disagree. As an initial matter, Scoville ar gues that the question of whet her Adpacks are “securities” implicat es federal courts’ s ubject-matter jurisdic tion. We disagree, for the same reasons the Supreme Cour t in Morrison held that whethe r the statute applied extraterritorially was not a jurisdictiona l issue. See 561 U.S . at 251, 253-54 & n.3 (distinguishing, in § 10(b) enfor cement action, between provisi ons in federal securities statutes giving dist rict courts subject-matter juris diction—the power to hear a case—from questions of what c onduct § 10(b) reaches, “which i s a merits25 question”). Instead, the questi on of whether Adpacks are “secu rities” is a merits inquiry. See, e.g., Avenue Capital Mgmt. II, L.P. v. Schaden, 843 F.3d 876, 880-81, 886 (10th Cir. 2016) ( affirming dismissal of private claim unde r the 1934 Act for failure to state a claim on whic h relief can be granted because plaintiffs failed to show that the challenged trans actions were “secu rities”). 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 unr egulated securities market,’ and for the purpose of regulating ‘ investments, in whatever form they are made and by whatever name they a re called.” SEC v. Shields, 74 4 F.3d 633, 641 (10th Cir. 2014) (quoting Reves v. Ernst & Young, 494 U.S. 56, 60–61 (1990)). “Congress ‘painted with a broad brush’ in d efining a ‘security’ in recognition of the ‘virtually limitless scope of human ingenuity, especially in th e creation of “countless and variable schemes devised by those who seek the use of the m oney of others on the promise of pro fits. . . .”’” Id. (quoting Reves, 494 U.S a t 60-61). Nevertheless, “‘Congress, in enacting the secu rities laws, did not intend to provide a broad federal remedy for all fraud.’” Id. at 642 (quoting Marine Bank v. Wea ver, 455 U.S. 551, 556 (1982)).26 The 1933 Act defines “security” to include an “investment contr act,” 15 U.S.C. § 77b(a)(1), and that is wh at the district court determi ned an Adpack is. 7 Although the Act did not further define “investment contract,” the Supreme Court did in SEC v. W.J. Howey C o., 328 U.S. 293 (1946). In Howey, the o wner of a large Florida citrus grove sold sma ll pieces of the grove to the publ ic to help finance the grove’s further development. Id . at 294-95. The purchasers of these small parts of the grove were “for the most pa rt . . . non-residents of Florid a. They [we]re predominantly business and prof essional people who lack the kno wledge, skill and equipment necessary for the car e and cultivation of citrus tree s. They [we]re attracted by the expectation of substantial profits.” Id. at 2 96. Purchasers received the deed to the sma ll pieces of land they bought and the option to hire the seller or some other company to cultivate a nd market the fruit grown on t hat particular piece of land, with the net proceeds to be paid to the land purchaser . Id. at 295-96. Owners of 85% of the pieces of la nd sold hired the grove owner to cultivate and market their sections of the gr ove. Id. at 295. Howey held th at a purchaser’s “land sales contract, the warranty deed [he received] and the service contract together constitute[d] an ‘investment cont ract,’” id. at 297 (bracketed material added), defined as “a contract, transaction or s cheme whereby a person invests his money in a

7 Although the 1933 and 1934 Acts use “slightly different formul ations” for defining a “security,” the Supreme Court ha s, nevertheless treated those formulations “as essentially identical in meani ng.” SEC v. Edwards, 540 U.S. 38 9, 393 (2004).27 common enterprise and is led to expect profits s olely from the efforts of the promoter or a third party.” Id. at 298-99; see also id. at 297-301. “[T]o distinguish an investmentcontract from other commercial dealings, the Howey test has subsequently bee n broken down into three require ments: (1) an investment, (2) in a common enterp rise, (3) with a reasonable e xpectation of profits to be derived from the entreprene urial or managerial efforts of others.” Shields, 744 F.3d at 643 n.7 (internal quotati on marks omitted). In address ing the legal question of whether some transaction qua lifies as an “investment contrac t,” see Thompson, 732 F.3d at 1161, we disregard fo rm over substance and focus on the “‘economic realities underlying a transac tion, and not on the name appende d thereto.’” Shields, 744 F.3d at 643 (quoting United H ousing Found’n, Inc. v. Forman , 421 U.S. 837, 849 (1975)). Here, Scoville contends —unsuccessfully—that the SEC f ailed to make an adequate showing as to any of t he three Howey requirements and, therefore, the district court erred in treating Adpacks as “investment contrac ts” subject to federal securities regulation. 1. An Adpack qualifies as an investment An Adpack is an “investment.” J ust as the citrus grove owner i n Howey was “offering something more than f ee simple interests in land, som ething different from a farm or orchard coupled with m anagement services,” 328 U.S. a t 299, so, too, Traffic Monsoon was offering its Adpack purchasers something mo re than just advertising services. Adpacks also offered the purchaser an op portunity to share in Traffic Monsoon’s revenue. Just as the land purchasers in Howe y “had no desire to28 occupy the[ir] land or to devel op it themselves” but were inste ad “attracted solely by the prospects of a return on thei r investment,” id. At 300, so too the vast majority of $50 Adpack purchasers bought Adpack s, not to receive the same a dvertising services they could have bought ala cart e for $10.95, but i nstead to hav e the opportunity to share in Traffic Monsoon’s reve nue and earn significant returns . We agree with the district court that [t]he evidence cl early points to the fac t that Traffic Monsoon’ s explosive growth was driven by members pur chasing and repurchasing Adpack s in order to obtain the incredible r eturns on their investment, not by intense demand for Traffic Monsoon’s [int ernet advertising] services. Indeed, many Adpack purchasers had no int erest in the website visits Tr affic Monsoon offered, and Tr affic Monsoon only ever delivered a frac tion of the clicks it promised to deliv er. In short, the economic real ity of the Adpack purchases is that they were investments. (Aplt. App. 2103 (bracketed material added).) Neither the fact that a few Adpackpurchasers testified that th ey bought Adpacks for the advertising serv ices, nor the fact that not eve ry Adpack purchaser qualified to share revenue (alt hough almost all of them did), p revents us from characterizing Adpacks as invest ments. See Howey, 328 U.S. at 300-01 (holding, in the context of § 10(b), that Cour t’s conclusion that land sales and service contracts amounted to an “investment contr act” was “unaffected by the fac t that some purchasers choose not to accept th e full offer of an investment contract by declining to enter into a service contract with the” citrus grove owner).29 2. An Adpack involves a common enterprise An Adpack is an investment in “a common enterprise.” Just as the land purchasers in Howey bou ght the opportunity “to share in the pro fits of a large citrus fruit enterprise managed and par tly owned by” the citrus grove owners, 328 U.S. at 299, so Adpack purchasers bought the opportunity to share in re venue derived from the sale of all of Traffic Monsoo n’s advertising services. The revenue in which Adpack purchasers could share, t hen, was generated from a commo n enterprise, Traffic Monsoon’s sale of inte rnet advertising services. 3. An Adpack provides members wit h a reasonable expectation of profit derived from the entrepreneurial or management efforts of other s Howey’s third requirement for a n investment contract is that t he investor “is led to expect profits solely from the efforts of the promoter o r a third party.” 328 U.S. at 298-99; see also Shields , 744 F.3d at 643 n.7 (applying this part of Howey’s inquiry to require that the consum er have “a reasonable expecta tion of profits to be derived from the entrepreneurial or managerial e fforts of other s” (internal quotation marks omitted)). Scoville points out that, althou gh the revenue Adpack purchase rs share is derived from Defendants’ efforts to sell Traffic Monsoon’s adve rtising services, the returns Adpack purchas ers earn are also the result of purchaser s’ own efforts in clicking on other members’ webs ites in order to qualify to shar e revenue. Although the Supreme Court, in Howey, sta ted that the profits expected f rom an “investment contract” should result “solely” from others’ efforts, 328 U.S. at 301, the Tenth30 Circuit has held that “[i]nvestme nts 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 failu re of the enterprise.” Shiel ds, 744 F.3d at 645 (internal quotation marks omitte d); see also Crowley v. Montgom ery Ward & Co., 570 F.2d 875, 877 (10th Cir. 1975). That is the case here . Adpack purchasers expected Traffic Mons oon’s success to turn “significantly” on the co mpany’s efforts to sell its ad vertising services. See generally Miller v. Cent. Chinc hilla Grp., Inc., 494 F.2d 414, 417 (8th Cir. 1974) (“In determining whether the plainti ffs’ contributions were nominal or significant, the issue is not what efforts, in fa ct, were required of them. Rat her, it is what efforts the plaintiffs were reasonably led t o believe were required of them at the time they entered into the contracts.”). A ssuming Adpack purchasers expe cted to contribute to some degree in the delivery of those services by clicking on ot her members’ websites, Adpack purchasers did not expect their own efforts to be significant. No matter how many Adpacks a memberowned, the member expected to qualify to share revenue on all of his or her Ad packs by spending only four minu tes a day clicking on up to fifty ads. Moreover, there is evidence that receiving cl icks on one’s website or internet ad was not the motivati on for the vast majority of Adp ack purchasers; earning a 10% return on th eir investment was. Scoville further argues that Adp acks cannot be “investment cont racts” because there was never a “guarantee” t hat qualified Adpack purchasers would receive a share of Traffic Monsoon’s revenue becau se Traffic Monsoon’s obligati on to share its31 revenue was contingent on there being revenue to share. But ne ither were the citrus grove purchasers in Howey guara nteed a return on their investme nt in the citrus crop. 328 U.S. at 296. So long as a tr ansaction satisfies Howey’s te st for an “investment contract,” “it is immaterial whet her the enterprise is speculat ive or non-speculative.” Id. at 301. To qualify as an “inve stment contract,” the purcha ser just has to have a “reasonable expectation of pro fits.” Shields, 744 F.3d at 642 n.7, 643; see, e.g., Edwards, 540 U.S. at 395; see als o SEC v. Int’l Loan Network, I nc. 968 F.2d 1304, 1308 (D.C. Cir. 1992) (rejecting argument that investment progr am 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’” (quotin g Forman, 421 U.S. at 852)). T he evidence here supported Adpack purchasers’ reas onable expectation—based on th e representations made to them—of sharing Traffi c Monsoon’s revenue. Although Tr affic Monsoon’s website stated there was no guara ntee that there would always b e 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 purport ed shared revenue. 4. Conclusion: Adpacks qualif y as investment contracts For these reasons, then, the dis trict court did not err in conc luding that Adpacks meet Howey’s three-part test and, therefore, qualify as “investment contracts” and, thus, as securiti es subject to re gulation under the federal securities laws.32 C. It is likely that the SEC can prove that Defendants’ conduct violated the antifraud provisions of f ederal securities laws Scoville asserts that the distri ct court abused its discretion in determining that the SEC can likely establish that Defendants violated the antif raud statutes. Scoville takes aim at two requisite ele ments of Defendants’ liability. 1. Defendants were opera ting a Ponzi scheme The antifraud statutes apply to fraudulent schemes involving se curities. 8 The district court held that the SEC will likely succeed in proving that Defendants were involved in such a fraudulent sche me because Defendants were op erating a Ponzi scheme, which is “inherently decep tive because it generates a f alse appearance of profitability by using money from new investors to generate ret urns for earlier investors.” (Aplt. App. 2099 (c iting Mukamal v. Gen. Elec. Cap ital Corp. (In re Palm Beach Fin. Partners, L.P.) , 517 B.R. 310, 346 (Bankr. S.D. Fla. 2013)).) Scoville counters that the SEC cannot prove that Defendants wer e operating a Ponzi scheme. But there is str ong evidence that that is exactl y what Defendants were doing.

8 More precisely, § 17(a)(1) prohi bits “any device, scheme, or a rtifice to defraud” in “the offer or sale of any secur ities.” 15 U.S.C. § 77q(a)(1). Section 17(a)(3) also applies to “the offe r or sale of any secu rities,” 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.” Id. § 77q(a)(3). Section 10(b) addresses the use of “any manipulative or deceptiv e device or contrivance” “in co nnection with the purchase or sale of any security .” Id. § 78j(b). SEC Rule 10b -5(a) and (c) apply “in connection with the purchase orsale of any security,” and proh ibit using “any device, scheme, or artifice to defraud,” and “engag[ing] in any act, pr actice, or course of business which operates or woul d operate as a fraud or deceit u pon any person.” 17 C.F.R. § 240.10b-5(a), (c).33 The Tenth Circuit has offered se veral different definitions of a Ponzi scheme, but the district court captured the gist of those definitions i n noting that “the central characteristic of a Ponzi scheme i s that returns are not based upon any underlying business activity. Instead, money from new investors is used t o pay earlier investors.” (Aplt. App. 2097.) See Thompson, 732 F.3d at 1154 n.3; Wilcox, 691 F.3d at 1173 n.2. In addition, i n a Ponzi scheme often the “mo ney contributed by later investors generates artifi cially high dividends for the o riginal investors, whose example attracts even larger i nvestments.” Wilcox, 691 F.3d at 1173 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 pu rchasers, and even $60 if the purchaser had been r ecruited by another Traffic Mons oon member. Traffic Monsoon paid these amounts from sales of new Adpacks; there was essentially no other business activity generati ng the revenue Traffic Monsoon was sharing with qualifying Adpack purchasers. Fu rthermore, Traffic Monsoon mis represented to its Adpack purchasers that the reve nue it was sharing came from sal es of all of Traffic Monsoon’s other advertising serv ices, which Traffic Monsoon fal sely indicated were more popular than its Adpacks. T hus, the record evidence would support finding that Defendants were offering the po ssibility of high rates of retur n on qualifying Adpacks and paying those returns using money from later Adpack sales. In light of this evidence, it was likely t he SEC will be able to show that Defendants were34 operating a Ponzi scheme and thus , be able to prove that Defend ants used fraud or deception to sell, or offe r to sell, Adpacks. Scoville’s arguments to the cont rary are unavailing. For examp le, although he reasserts his argument that Tra ffic Monsoon was only selling ad vertising services, as previously discussed, the vast ma jority of Adpack purchasers we re not seeking to buy internet advertising services but were, instead, seeking a sign ificant return on their $50-per-Adpack investment. More over, Defendants may still be o perating a Ponzi scheme even if they have “some legitimate business operations.” Gillman v. Geis (In re Twin Peaks Fin. Servs., Inc. ), 516 B.R. 651, 655 (Bankr. D. Utah 2014); see also Miller v. Wulf, 84 F. Supp. 3d 1266, 1272 & n.45 (D. Utah 2015)

. Neither does Scoville’s asserti on—that before an Adpack purchas er could share in Traffic Monsoon’s reve nue, he had to qualify by clicki ng on other members’ websites for four minutes on a gi ven day and then there had to be revenue Traffic Monsoon generated in the prece ding twenty-four hours—prevent th e district court’s determination that Defendants were running a Ponzi scheme. Eve n though Defendants disclosed these requi site conditions for an Adpack p urchaser to share in Traffic Monsoon’s revenue, there is evidence that Defendants de ceived purchasers by telling them that the revenue to be shared was generated by Tra ffic Monsoon’s other35 advertising services that were m ore popular than Adpacks. Inst ead, essentially all of the revenue to be shared was ge nerated by the sale of additiona l Adpacks. 9 Lastly, Scoville argues that Def endants did not expressly limit returns on Adpacks only to the original pur chasers. And he contends that none of its members had ever suffered a loss. But t he 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. W e disagree. Sections 10(b) and 17(a)(1) requi re proof that Defendants acted with the “intent to deceive, manipulate, or defraud.” Aaron v. SEC, 446 U.S. 680, 686 & n.5, 695-97 (1980) (quoting Ernst & Ernst v. Hochfelder, 425 U.S 185 , 194 & n.12 (1976)). (No scienter is require d under § 17(a)(3). See Aaron , 446 U.S. at 695-96.) The district court correctly hel d that this scienter is likely established in this case by the fact that Defendants were operating a Ponzi scheme, which a gain is “inherently deceptive because it ge nerates a false appearance of profitabil ity by using money from new investors to generate returns for earlier investors.” (Aplt. App. 2099 (citing In re Palm Beach Fin . Partners, 517 B.R. at 346).). 10

9 In light of this crucial decepti on, we reject, at this point i n the case, Scoville’s assertion that Defendants were not operating a Ponzi scheme bec ause “Traffic Monsoon has fully disclosed ever ything to its members.” (Aplt. Br. 52.)

10 Scoville incorrectly asserts tha t the district court never add ressed Defendants’ scienter.36 D. Traffic Monsoon’s revenue gen erated from the sale of its oth er advertising services is properly subject to the district court’s preliminar y orders Lastly, Scoville asserts that, “ [a]t a minimum, the Court shou ld order the District Court to release the [ currently frozen] Traffic Monsoo n funds that are admittedly outside the scope of any of the SEC’s claims.” (Apl t. Br. 53 (bracketed material added).) Scoville refer s to the approximately $3 mill ion that Traffic Monsoon earned from September 201 4 through July 2016 from the s ale of its internet advertising services other than Adpacks. But it is not clear, as Scoville asserts, that these other sales are “outside t he scope of any of the SEC’s cl aims.” Id. The revenue to be shared with qualif ying Adpack purchasers was gene rated from the sale of all of Traffic Monsoon’s a dvertising services. Further, Tra ffic Monsoon had no accounting records; its revenue a pparently was pooled together and Adpack purchasers were paid from that p ool. In light of this evidence , Scoville has not shown that the district court a bused its discretion in prelimin arily freezing all of Traffic Monsoon’s funds and placi ng them in the receivership. 11
V. CONCLUSION For the foregoing reasons, we AFFI RM in all respects the distri ct court’s challenged preliminary decisions i n this civil enforcement acti on. Although early in

11 The issue of whether Scoville should personally be liable unde r the antifraud provisions has not been adequately raised before us, nor adequa tely preserved below. Accordingly, we decline to address that issue.37 this civil enforcemen t action, the SEC has established the like lihood that it will succeed on its antifraud clai ms against Defendants. 12

12 Once our mandate has issued, th e Court will direct the parties to address the status of the related appeal, No. 18-4038.17-4059 , SEC v. Traffic Monsoon LLC BRISCOE , J., concurring. I concur in the judgment. I agree with the majority that AdPack s are “securities” within the meaning of the 1933 and 1934 securities acts, Maj. O p. 24–31, that Scoville did not adequately preserve th e personal liability issue, id. at 35 n.11, and that the SEC is likely to prove that the Defenda nts’ conduct violated the antif raud provisions of the securities acts and their accomp anying regulations, id. at 31–3 5. I am not persuaded, however, as the majority appears to assume, that the AdPack sal es at issue were foreign sales outside of the United Stat es. Absent that assumption ther e would be no need to address in this case whether the antifraud provisions of the se curities acts apply extraterritorially. I write separ ately 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., 561 U.S. 247 (2010), Tr affic Monsoon sold AdPacks in the United States. T herefore, the securities acts an d their accompanying regulations cover the Defendants’ domestic activity even if a l arge 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 extraterri toriality. WesternGeco LLC v. ION Geophysical Corp., 138 S. Ct. 2129, 2136 (2018). We have discretion to begin the a nalysis at step one or two, id. at 2136–37, and if either ste p is satisfied then the statut e applies to the challenged conduct, see id. at 2136. I would r esolve this case at step two

.2 “Under the second step of [the] fra mework, we must identify the statute’s focus,” WesternGeco, 138 S. Ct. at 2137 (citing RJR Nabisco, Inc. v. European Cmty., 136 S. Ct. 2090, 2101 (2016)) (internal qu otation marks omitted), and the Supreme Court has clarified that “the focus of the Exchange Act is . . . upon pur chases and sales of securities in the United States,” Morrison , 561 U.S. at 266 . Morrison prov ides the test for liability under § 10(b). As Morrison explai ns, based on the text of § 10( b), 1 we ask “whether the purchase or sale [of the security ] [wa]s made in the United Sta tes, or involve[d] a security listed on a domestic exchange.” 561 U.S. at 269–70 (emphasis ad ded). Since AdPacks were not listed on a domestic exc hange, we must decide if eithe r the “purchase[s]” or the “sale[s]” were “made in the United States.” The Second, Third, andNinth Circuits have adopted the “irrevoc able liability” test to determine where a security “ sale” or “purchase” occurs under Morrison and § 10(b). See Absolute Activist Value Mast er Fund Ltd. v. Ficeto, 677 F.3 d 60, 67 (2d Cir. 2012) (“[W]e hold that transactions i nvolving securities that are not traded on a domestic exchange are domestic if irrevocable liability is incurred or t itle passes within the United States.”); see also Stoyas v. T oshiba Corp., 896 F.3d 933, 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 secur ities exchange or any security no t so registered . . . any manipulative or deceptive device or contrivance in co ntravention of such rules and regulations as the Commission may prescribe as n ecessary or appropriate in the p ublic interest or for the protection of inv estors. 15 U.S.C. § 78j(b) (emphasis added).3 cert. filed, (U.S. Oct. 17, 2018 ) (No. 18-486); United States v . Georgiou, 777 F.3d. 125, 137 (3d Cir. 2015). As the Second Circuit ha s explained, a dome stic transaction occurs when “the purchaser incur[s] i rrevocable liability within the U nited States to take and pay for a security, or [when] the sel ler incur[s] irrevocable liabi lity within the United States to deliver a security.” Absolute Ac tivist, 677 F.3d at 68. While “ irrevocable liability” may appear to turn on contract princ iples and “the location of the securities transactions at issue,” see id. at 70 (emphasis added), the Second Circuit late r clarified that “territoriality under Morrison concerns where, p hysically, the purchaser or sel ler committed him or herself, not where, as a matter o f law, a contract is said to h ave been executed.” United States v. Vilar, 729 F.3d 62, 77 n.11 (2d Cir. 2013) (citing Mo rrison, 561 U.S. at 268). It appears, then, that the irrevo cable liability test is a fact in tensive inquiry to determine whether a “sale” or “purchase” of “any security not so register ed” occurred in the United
States. In this case, Traffic Monsoon was based in the United States an d operated out of the United States when selling its securities. As found by the district court, Scoville registered Traffic Monsoon withthe State of Utah as a limited liability company. Scoville filed organizational documents w ith the State of Utah which ide ntified Scoville as Traffic Monsoon’s sole member, manager, and registered agent. Scoville listed his apartment’s address in Murray, Utah, as Tra ffic Monsoon’s corporate address . Traffic Monsoon sold AdPacks via the internet, and th e record further demonstrates that Traffic Monsoon made its sales through computer servers based solely in the United S tates. Under any common sense reading of Morrison and § 10(b), Traffic Monsoon made sev eral securities sales in4 the United States. That many AdPack buyers were abroad when the y purchased the securities over the internet does not alter this conclusion. Ne ither does Scoville’s argument that he was in the Un ited Kingdom for a period while T raffic Monsoon sold AdPacks since Traffic Monsoon ex ecuted 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 an y transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchas er.” 15 U.S.C. § 77q(a)(1), (3) (emphasis added). Under the s ame reasoning illustrated abov e, Traffic Monsoon made “sale[s]” or “offer[s]” of “secur ities” in the United States wi thin the meaning of § 17(a). Accordingly, I would a ffirm because, as explained by the distri ct court, the SEC sufficiently established that the Defendants sold securities inthe United States in violation of the securities act s and their accompanying regulat ions.