Feds Seized a Fortune From #Resistance Icons Accused of Boosting Online ‘Ponzi Schemes’
Homeland Security investigator alleged ‘reasonable cause’ to believe Ed and Brian Krassenstein illegally hawked investment scams.
In late 2016, federal agents showed up at the Fort Myers, Florida, homes of brothers Brian and Edward Krassenstein, seizing computers and financial records, and hauling off “at least 20 to 30 bundles of stuff.”
At the time, the story was just a notable blip on local media’s crime blotter. But in the two years since, the Krassensteins have become more than a pair of local businessmen. They’re now prominent members of the online anti-Trump “resistance.”
According to the feds, the brothers also, until recently, ran websites that propped up fraudulent online financial scams. Law enforcement officials last year seized nearly half a million dollars from the brothers, money that prosecutors say was derived from wire fraud. The Krassensteins, who have not been charged with any crimes, maintain that they did nothing wrong or illegal.
The brothers remain extremely popular in corners of the anti-Trump left, having parlayed their vehement, often conspiratorial opposition to the president into social-media fame, with well over a million followers between them. They also run the standalone news websites Independent Reporter and Hill Reporter where, like Twitter, their brand of #Resistance—a label that they eschew, but which aptly fits their frequent calls for the impeachment and prosecution of the president—has galvanized Trump critics.
But it has also drawn the scrutiny and criticism of progressive activists who see the Krassensteins as opportunists distracting from a more productive message. While others have been accused of using the anti-Trump “resistance” to line their own pockets, the Krassensteins have a documented history of involvement with shady internet get-rich-quick schemes—a history that one federal financial investigator had reason to believe amounted to a criminal conspiracy.
“There’s a lot of money to be made,” says Nomiki Konst, a progressive activist and journalist, in building up the sorts of online followings enjoyed by the Krassenstein brothers. Konst, a former surrogate for Bernie Sanders’ 2016 presidential campaign and an investigative reporter for The Young Turks, told The Daily Beast that “a lot of people realized they can get a lot of airtime talking about impeaching Trump rather than talking about solutions that will help everyday Americans.”
Long before they took up the #Resistance mantle, the Krassensteins began hawking dubious investment advice—way back in 2003—on a pair of internet forums, selling ads to online money-making operations that included a number of apparent scams, including some run by people later convicted on charges ranging from fraud to capital murder.
According to prosecutors, the services the Krassensteins promoted on their websites duped thousands of “investors” into funding Ponzi scheme-type scams and even resulted in some downloading a virus that emptied their accounts on an anonymous online-payment platform used by the Krassensteins themselves, before it was shut down as part of a major federal money-laundering investigation.
The case received some national coverage after the Krassensteins’ home was raided, but the full extent of the case against them, and the details of their controversial business ventures, has not been previously reported.
The Krassensteins insist that they were victims of the ordeal. They claim they had no knowledge of the illegal activities of the companies to which they sold ads and that their right to sell such ads is protected by both the First Amendment and a federal law removing legal liability from online publishers. Their investment advisory sites, they say, were no different from ad platforms hosted by Google and other online advertising giants. In fact, they insist they were more consumer-friendly because, they say, they helped people avoid scams.
“The myth out there that ‘we promoted financial scams’ is false. We did not ‘promote’ anything,” Ed Krassenstein wrote in an email. “Our website was filled with warnings and notices about sending money to any website which anyone saw advertised on [their websites]... The entire purpose... was to help people find out which online business opportunities were legitimate and which were not.”
Federal prosecutors did not see it that way. In a civil asset forfeiture complaint filed last August, Homeland Security Special Agent Michael Adams wrote that the brothers were paid huge sums by online scammers engaged in illegal activities.
“There is reasonable cause,” the threshold of proof for federal asset forfeiture claims, “to believe that the Krassensteins would have known that these funds were criminally derived,” Adams claimed. “There is also reasonable cause to believe that... Brian and Edward Krassenstein have conspired to commit wire fraud.”
Adams’ investigation focused on two sites owned and operated by the brothers: TalkGold.com and MoneyMakerGroup.com. Both sites promoted schemes called high-yield investment programs (HYIP), which the Securities and Exchange Commission describes as “unregistered investments typically run by unlicensed individuals—and they are often frauds.”
HYIPs, Adams wrote in his complaint, “are typically operated as online Ponzi schemes, and are by nature fraudulent.“ They “often pay out apparent ‘returns’ or ‘dividends’ during the early stages of the scheme in order to create the appearance of legitimacy,” he wrote. His complaint identified five apparently fraudulent HYIPs advertised or promoted on the Krassensteins’ websites, but said those five only scratched the surface.
But Ed Krassenstein defended the practice in a brief interview Monday. “One hundred percent of [HYIPs] aren’t scams. I know of several that have been legitimate,” he told The Daily Beast. “The FBI’s definition is not that they’re all scams. It says a large amount are scams, and that is true.” In any case, he said, their forums couldn’t be held liable for any fraudulent schemes advertised there, since, he said, “freedom of speech protects advertisers.”
On TalkGold and MoneyMakerGroup, moderators hosted discussions of various HYIP opportunities. Through paid ads and organic comment threads, users would be informed of various potential HYIP “investments.” Eventually, many of the HYIPs would stop paying out—as all Ponzi schemes do—and HYIP threads would begin racking up customer complaints into the thousands. The moderators would then move those HYIP threads into a separate section of the website marked “closed programs and scam warnings.”
Ed Krassenstein said TalkGold and MoneyMakerGroup, far from promoting such scams, actually rooted them out, and served an important consumer-advocacy function. Forum visitors “used [them] to investigate various HYIPs,” he said, “and we removed everything that were scams.”
Adams wrote in his complaint that the “scam warnings” section contained 13,638 threads as August 2017, when the complaint was filed. But he added that many apparent scams were never designated as such. “It is therefore likely that the number of HYIP threads containing scam complaints is significantly greater than 13,638,” Adams wrote.
Ed Krassenstein claimed their sites “never allowed ads to anything that was a scam.” But Adams identified a sampling of five apparent Ponzi schemes advertised as HYIPs on TalkGold. They included one, the Leopard Fund, run by a man who in 2012 was convicted on five counts of wire fraud and sentenced to seven years in prison. Another, CSMFinance, encouraged “investors” to download proprietary software. According to posts on TalkGold, the software was actually a virus that allowed CSMFinance operators to steal money from users’ accounts on the anonymous payment platform Liberty Reserve.
A number of Krassenstein sites offered users and advertisers the ability to make payments using Liberty Reserve. But the service was shut down in 2013 amid a federal investigation into its role in a multibillion-dollar money -laundering operation spanning 17 countries.
Asked whether the brothers felt any remorse, putting aside issues of legal culpability, for TalkGold users who were apparently scammed, Ed Krassenstein wrote, “There is no remorse to be felt. Our sites saved thousands of people money by providing a venue for users to warn others of scams.”
The Krassensteins’ promotion of HYIPs went far beyond the two sites central to the complaint. According to Adams, they also ran companies that offered server space for HYIP operators to host their own websites, email newsletters promoting various HYIP opportunities, and “monitoring” services to track HYIP performance.
The Krassensteins would often cross-promote their various properties, plugging the business savvy and investment performance of other sites with which they were involved. The practice, Adams wrote, was designed to create the illusion of a network of independent and thriving HYIP advisers.
“In reality,” he wrote, “the apparent community of HYIP sites was the product of a concerted effort by the Krassensteins, designed to ensure a continuous supply of new HYIP fraud victims and the continued enrichment of Brian Krassenstein, Edward Krassenstein, and their co-conspirators.”
Despite that detailed account of the illicit activity that allegedly enriched the Krassensteins, the federal government never charged either of the brothers with a crime, instead opting to simply go after what prosecutors alleged were their ill-gotten gains. The government eventually seized $450,000 from them.
In a post on one of their websites addressing the ordeal, the Krassensteins said prosecutors initially told them they could be held criminally liable for the conduct of their advertisers. They then pressed for their cooperation in an effort to take down the ringleaders of some of the larger online scams that had popped up in the forums over the years. The brothers declined. saying they feared they would be killed for cooperating with investigators.
“We did in fact sell banner ads to companies which ended up being scams,” they admitted. “What we didn’t do, however, is knowingly sell banner ads to companies which were scams.” Ed Krassenstein has since stated unequivocally that the brothers did not engage in any “questionable marketing schemes.”
Additional information about their run-in with federal authorities has percolated into public view this week, and the brothers have reiterated their blanket denials of any wrongdoing. “We’ve NEVER scammed a soul in our lives,” Brian Krassenstein wrote to his 431,000 Twitter followers on Sunday. “The thought disgusts us.”
What the Krassensteins undoubtedly do have is a knack for finding niche markets in internet-based business and commentary. Ed Krassenstein, the brother with the larger Twitter following, built up that following as a Justin Bieber fan account, before converting it to its current, eponymous iteration. One of the brothers took to a web forum in early 2017 to offer payment in bitcoin for Twitter accounts with more than 40,000 followers. They’ve also bought up hundreds of web domains and used similar forums to flip them.
The brothers maintain that their political advocacy is genuine, not simply their latest effort to capitalize on a potent internet trend. But they continue to say the same about their forays into HYIPs, multi-level marketing programs, and similar fraud-prone financial practices.
Adams, the DHS investigator, saw potentially illegal financial activity, but the brothers were never charged, let alone convicted, meaning no one has proved that anything they did was criminal. But that benefit of the doubt is not a courtesy the Krassensteins have extended to their political adversaries.
“BREAKING,” Ed Krassenstein tweeted last month. “President Trump’s lawyer Michael Cohen just invoked his Fifth Amendment right, basically admitting that he’s a criminal.”
—With reporting by Gideon Resnick