The Montreal marketing company AdCenter announced to its subcontractors that it was permanently closing its doors a few months after the Décrypteurs revealed that it was the cornerstone of a rampant online scam network. on the web for a decade.

After careful consideration, we have decided to discontinue the AdCenter brand permanently. We would like to thank everyone who has contributed to the success of AdCenter over 10 wonderful years , we can read in an email sent to the company’s contractors, commonly known as affiliates .

Our investigation revealed that these affiliates were driving web traffic to Barbadian company Hyuna International’s streaming sites by flooding the web with misleading advertisements.

These advertisements suggested to Internet users that they could listen to the latest from Hollywood and live sporting events, or read popular e-books for free by signing up for a free trial. A free trial that required their credit card information and could quickly turn into a subscription that costs over $60 per month, while the promised content wasn’t delivered.

This scheme allowed Hyuna International to generate tens of millions of dollars. And if Hyuna and AdCenter appeared to be independent companies, we were able to determine that they are in fact both linked to the same man: the wealthy Montrealer Philip Keezer.

While AdCenter officially condemned its affiliates’ misleading advertising, our investigation showed that it was aware of it, that it implicitly encouraged it and that it was even at the heart of Hyuna International’s business model.

A lawyer representing Action Media, one of Mr. Keezer’s companies that is part of this network, called the allegations contained in the Decryptors investigation published in June false, misleading and downright defamatory . The company has not commented on the allegations, but said it vigorously denies them . Mr. Keezer did not respond to our interview requests.

The lawyer also believes that the information contained in this article is false, misleading and downright defamatory . The company, however, did not wish to comment on them, and said it denies any inappropriate behavior .

The announcement that AdCenter would cease operations comes more than a month after the company told its affiliates it was suspending them, which at the time cast doubt on its future.

A simple name change?

A new affiliate marketing service whose website borrows aesthetic codes from that of AdCenter was launched in mid-August: CrystAds. Several former AdCenter affiliates claim on social media that it is the same company, and that AdCenter is back . A Facebook page for the business was created on August 13 and the website went live on August 6.

In the week of August 16, the old section of the AdCenter site where affiliates could log into their accounts featured the CrystAds name and logo. Additionally, an email address and password that we used to create an AdCenter account still work with CrystAds and provide access to the site.

It is unclear whether CrystAds is active at this time. Our team was unable to find any advertisements associated with the company. No company in the name of CrystAds has been registered in the Quebec business register.

The parent company targeted by the Canadian tax authorities

Furthermore, the parent company of AdCenter, also based in Montreal, was imposed a penalty by the Canadian tax authorities for more than $6.2 million, reveal documents filed with the Tax Court in July 2020 in the context of an appeal procedure against this decision.

The tax authorities believe that the company in question, 7503083 Canada inc., operating under the name JoMedia, underdeclared its income during the 2013 and 2014 financial years. It alleges in particular that the numbered company underbilled for services which it returned to the Barbadian company Hyuna International, even though the two companies were not dependent on each other.

JoMedia is the main shareholder of AdCenter and is also linked to Philip Keezer.

According to court documents, the tax authorities are demanding a readjustment of the Montreal company’s income totaling more than $62 million for the two years mentioned, in addition to the penalty. JoMedia appealed the decision in the summer of 2020 and refutes the IRS’ allegations. The Tax Court’s final decision has not yet been issued.

Two sides of the same coin

According to documents filed with the Tax Court, it was Hyuna who accumulated all of the income from the partnership with JoMedia in 2013 and 2014 by collecting subscription fees. The Montreal company carried out certain subcontracting activities on behalf of Hyuna, services that JoMedia billed it for.

The tax authorities allege that they were underinvoiced, with the effect of reducing the Montreal company’s revenues. He believes that JoMedia would have charged Hyuna International more for its services if there was no dependency between the two companies. In the tax world, this fair value for services rendered by related companies is known as the arm’s length transfer pricing principle.

In international matters, we want parties that are linked to each other to transact as if they were not linked to each other, and therefore to transact according to the principle of arm’s length , explains the principal researcher of the Research Chair in Taxation and in public finance from the University of Sherbrooke, Lyne Latulippe.

It’s a fiction that we create, because it would be too easy in a group that is linked to say: “I am taxed in a jurisdiction that imposes a high rate. I am going to sell [my services] to a subsidiary in a tax haven [which] will sell the property, and all the profit will be made in the subsidiary in a tax haven” , she illustrates.

In documents from the Tax Court, the tax authorities judge that a high proportion of the commercial activities of the group of companies linked to Mr. Keezer took place in Montreal. JoMedia claims to have sold all the resources needed to carry out business operations to Hyuna International in 2012 , for a price of US$7 million. According to the Montreal company, this includes technology, contracts, websites, licensed content, customer lists and their information, patents, registered trademarks, know-how , among others.

Nevertheless, the tax authorities judge that, even if these resources were sold to Hyuna, the key functions of the commercial activity were carried out by JoMedia in 2013 and 2014, and that the Montreal company assumed and carried out the functions at the heart of the business model of this group of companies.

In its response to JoMedia’s notice of appeal, the tax authorities point out that for the years 2013 and 2014, the sixty employees of Hyuna International in Barbados were mainly responsible for customer service, while the Canadian team of JoMedia, which had between 83 and 109 employees, then handled a long list of specialized tasks, including web development and operations analysis. He concluded that at the time Hyuna did not have the personnel necessary to perform key functions relevant to the success of the company or the development of new products .

JoMedia also rejects the IRS’s interpretation of its business model, alleging that it overstated its business activities. JoMedia also argues that many of these were in fact carried out by third parties and that the technical aspects it handled for streaming platforms were limited given the simplicity of the websites .

According to Lyne Latulippe, the arrangement between JoMedia and Hyuna International was certainly undertaken to pay less taxes. I don’t see any other reason than that. But is it abusive? It’s very difficult to decide on that , she said.

A tax adjustment of $62 million

The IRS conducted a reassessment of JoMedia’s reported revenues for the years 2013 and 2014 in December 2019. According to the documents, JoMedia reported revenues of $5.9 million in 2013 and $12.3 million in 2014, but the tax authorities judge that these should be increased by $19.5 million and $43.2 million respectively.

The tax authorities further believe that JoMedia did not make a reasonable effort to determine an arm’s length transfer price and that the Montreal company did not produce complete or accurate documentation allowing the transfer price or the transfer price to be determined. allocation of profits between the two entities.

For this reason, the IRS ordered JoMedia to pay a penalty of $1.9 million and $4.3 million for those tax years, respectively.

In its appeal, JoMedia claims to have billed its services between $70 and $79.57 per hour, which is within the range of rates that would have been charged if [JoMedia] and Hyuna International were dealing at arm’s length. , we can read.

Moreover, while JoMedia acknowledges that, for the years in question, all of its revenues came from its services billed to Hyuna, it argues that most of its activities were devoted to other projects having no connection with its partnership with Hyuna, notably the development of the Playster multimedia platform.

According to documents filed with the Government of Canada, Hyuna International previously owned the Playster trademark. In addition, the web analysis tool DomainTools shows that the Playster site was registered by Hyuna International in October 2013. JoMedia claims to have spent $50 million on this project.

The lawyers representing JoMedia in this matter did not respond to our request for an interview. Neither the Canada Revenue Agency nor the lawyers representing the Crown wanted to comment on the file.

Annual revenues of $85 million and more

In the documents filed with the Tax Court, the company acknowledges certain elements revealed by the Décrypteurs investigation that it had not wished to comment on, in particular that Philip Keezer was, during the years in question at least, both President and CEO of JoMedia and a significant shareholder of Hyuna International, and that he was responsible for the overall management of Hyuna.

JoMedia also recognizes that subscription billing was carried out by companies with no employees, set up to minimize the risks associated with chargebacks , i.e. the request to cancel a payment from the credit card company. The Decryptors ‘ investigation revealed that the empire linked to Mr. Keezer used structures that could be described as shell companies to prevent complaints and requests for reimbursement or chargebacks from ending up in the same place, which which had the effect of blurring the lines and allowing the network to go unnoticed.

JoMedia also acknowledges that Hyuna International generated revenues of US$68.7 million (CAD$85 million) in 2013 and US$93.9 million (CAD$116.3 million) in 2014.

In late June, the Barbados Today newspaper reported that the Barbados International Trade Unit had launched an investigation into the revelations in the Decrypters report.  (New window). Barbados Minister of International Affairs and Industry Ronald Toppin, however, told the daily that in the absence of a conviction abroad, the Barbadian authorities have little recourse, except that of banning the company from country.

Minister Toppin also told Barbados Today that Hyuna International was yet to renew its foreign exchange permit, necessary to continue its operations in the Caribbean island, as of the end of June. The company also let its membership in the Barbados International Business Association (BIBA) expire, the association’s director confirmed to Décrypteurs .

It could not be determined whether Hyuna is still operating in Barbados. Minister Toppin declined our requests for an interview and his ministry would not confirm whether the company had renewed its foreign currency permit. We respect the confidentiality of our license holders , explained a spokesperson by email.

A number associated with Hyuna’s call center was still operating at the time of publication and was sending to an automated messaging system.