Ilgamos audit made by KEVIN THOMPSON - Conclusion- ILGAMOS MODEL PONZI SCHEME !

ILGAMOS - LEGAL REPORT by KEVIN THOMPSON the best MLM lowyer.

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*Kevin Thompson                                                                                                                                                                      Direct Dial: (615) 465-­6001 

 kevin@thompsonburton.com

December 15, 2015

 Ilgamos

 Viktor Havasy

 Re: Legal Review of Ilgamos Business Model

 Please allow this letter to serve as the legal review of the Ilgamos business model (“Ilgamos”). In short, it’s my opinion that Ilgamos has some serious challenges to achieve legal compliance. In and of itself, an MLM business is high risk. Given the leveraged nature of a business’ compensation plan and the number of new participants that quickly join the ranks of a new enterprise, it’s difficult to monitor and regulate field behaviors. On top of this ever-present complexity, Ilgamos has added two additional layers with the ILcoin and Gold. In June of 2014, the SEC warned against Ponzi schemes as they relate to virtual currencies (as I will discuss in greater detail below).

 In the matter of EmGoldex Team USA

- ILGAMOS COPY THIS PONZI MODEL FOR GOLD

 In 2014, the Massachusetts Secretary of State filed civil fraud charges against EmGoldex, alleging

 the fraudulent offer and sale of unregistered securities in a pyramid scheme.

EmGoldex was an internet-based store specializing in the buying and selling of “investment gold
bars.” In order to participate in the purchase of gold, one had to register with the Company, place
an order for a set of gold bars, and make a down payment.	Upon  submitting  a prepayment,
participants received a coupon with an activation code. Upon entering the activation code, the
participant was thereby placed into the EmGoldex genealogy. In order to advance in rank, a
participant was tasked with recruiting two new participants. The Massachusetts Secretary of State
alleged that participants received payouts with minimal effort and no required sale of an actual
product. “Any sale of investment gold bars is ancillary to the EmGoldex program.” The Secretary
went on to allege that the coupons and memberships of participants were nothing more than an
investment contract acting as an unregistered security.

Bottom Line

Sales to customers are critical for the vitality of any company seeking to thrive in the network marketing industry. In order to prove that the products are truly marketable, it’s vital for companies to demonstrate some type of market demand from nonparticipants. Without external sales, the product will be viewed as a mere token item designed to conceal an illegal money transfer. This fear of a “money transfer” is a legitimate concern. The best analogy to explain a regulator’s concern with a token product is to analyze a hypothetical business that sells $1,000 ounces of lemonade. Sure, people will buy the lemonade under the influence of a compensation plan, fully expecting to make their money back eventually if they recruit enough people. Regardless if there’s a return policy, this program will obviously be seen as a money transfer game because the product lacks legitimate market value. In order for a transaction to be commissionable, the item needs to have relevancy for customers as well as distributors. This is the proof regulators want to see.

 Furthermore, a network marketing company with gold as its product is a bad idea. Traditional network marketing companies (Amway, Avon,  NuSkin)  offer unique and proprietary   products

 with creative stories and robust margins to support a sales force. Gold is a commodity; thus, it’s not  entirely  unique  and  it’s  certainly not proprietary.           This  is  why  the  majority  of network

 marketing companies that have focused on gold as their core product have failed (EmGoldex, Gold

 Unlimited, etc.).

 Ilgamos Business Model

 The Ilgamos business model intermixes an opportunity to buy and sell gold with a digital currency

 trading platform based upon Ilgamos’ very own ILCoin.

 Beginning with the access to gold, Ilgamos’ services are free and only require a package purchase within the first fourteen days of registration. Beyond the package purchase requirement within

 fourteen days, a participant has to purchase a 15 € Partner Pack every 28 days in order to remain

 In regards to the cryptocurrency aspect of the business, the gas that runs the ILCoin engine is Optional Purchas Rights (or “OPRs”). OPRs are redeemed in exchange for mining resources to unearth ILCoins. The more OPRs a person has, the more ILCoins he or she can mine. OPRs are offered in varying amounts to all partners who purchase Basic, Medium, Business, or Smart Packs. Additionally, OPRs are derived from 30% of all bonuses and commissions a participant earns. However, there are a few limitations with the use of OPRs: OPRs received from pack   purchases

 are escrowed (locked) for sixty (60) days; OPRs acquired as part of the 30% of commissions and

 bonuses are locked for thirty (30) days.

 Legal Analysis

 Unfortunately, I wish I had better news: As I will explain in greater detail below, the Ilgamos

 business  as  it operates today appears to unequivocally act as a Pyramid scheme. Furthermore,  I

 have  legitimate  concerns   surrounding   the   ILCoin/OPR   aspect   of   the  business.     Those elements  trigger  a real

 possibility that the business could be considered a Ponzi scheme.

 I.       Legal Challenges with the MLM Model

 PROBLEM 1: NO RETAIL OPPORTUNITY/NATURE OF THE PRODUCT

 On paper, the Ilgamos services appear to represent a simple transfer of money between

 participants (money transfer scheme). In purchasing a pack, a participant makes a down payment on future gold purchases.  There’s a good chance a regulator would view the resulting

 commissions from the down payment as an inappropriate reward unrelated to a product sale.

 The down payment, by itself, will unlikely be viewed as a product sale.  It’s a promise to

 purchase products at a future date.

 The network marketing model is designed for introducing unique products and services into the

 marketplace.  Because they’re unique, the products commonly carry significant margins to cover

 a generous pay plan to a sales force. As stated earlier, in order to avoid pyramid allegations, companies in the industry need to demonstrate some modicum of retail sales.  Without an

 opportunity for external / retail sales, leaders must focus exclusively on recruiting. Regulators have concluded that models contingent on constant recruitment must fail.  While this point is

 debatable, it remains the rule.  As I already stated, gold is a commodity.  If there are margins, the

 margins are small.

 PROBLEM 2: COMBINING ADMIN FEE WITH PRODUCT SALE

In the network marketing industry, it’s imperative that the purchase of inventory always remain optional. There can be no requirement for the new distributor to buy inventory as a condition to their participation. As evidenced by Burnlounge, it’s important to pay commissions on product volume and not from the sale of business centers.

As further proof of regulators disdain for mandatory product purchases, in the FTC’s case against Jewelway in 1997, the court’s order said:

Jewelway is prohibited from requiring a person to make a product purchase in order to become a participant in the program or to receive a particular level of compensation in the plan. In addition, statements suggesting that it would be beneficial to make a purchase in order to participate in the program are prohibited;

With Ilgamos, a one-time €15 administration fee applies the first time a pack is purchased. Essentially, people obtain and activate a position in the genealogy at the same time they’re buying the service. When this happens, there is no clear distinction between participants and non- participants. As stated above, it’s important to create a distinction between customers (people outside your program) and participants (those looking to derive income by selling your service).

As discussed below, the product can be ACCESS to the Ilgamos gold accumulation service. If users derive value from paying a fee (annual or monthly) in exchange for favorable prices, the fee (access to the service) can be viewed as a legitimate product IF there’s legitimate interest from non-participants.

 PROBLEM 3: DIFFERENT INCOME OPPORTUNITIES

There’s no law on the books with respect to the legality of offering additional compensation based on a point of entry or a monthly order. With Ilgamos, members are eligible for larger commissions simply by nature of their choice at enrollment.

Here, the key question is “motive.” Due to the fear of loss, it can be argued that people are buying the larger bundles solely because of the financial incentives. As referenced above, the main metric regulators use when assessing value is customer revenue. If people detached from the income opportunity are paying for the product, it’s indicative of value. If the only people buying are the reps, it’s a problem. In SEC vs. Glenn Turner, the closest case on point, Glenn Turner was shut down for selling unregistered securities (investment contracts, discussed in more detail in the Security section below). In his business, individuals had 4 packages to choose from (A through D). People that purchased package “A” could only earn commissions when they sold an “A” package. People that purchased B could earn income from the sale of “A” and “B” packages. Etc. There was a financial incentive to spend the extra money to purchase the “D” package. The Court said, “It is apparent from the record that what is sold is not of the usual type of products. Rather, the purchaser is really buying the possibility of deriving money from the sale of the plans by [Glenn Turner’s distributors].” Again, it all boils down to “motive.”

 With the current structure, it can be easily argued that people choose to buy more because they want to qualify for higher commissions or larger bonuses, i.e., the purchase of a smart pack nets a participant a 10% infinity bonus whereas the purchase of a medium pack only results in a 5%

 bonus.  The ability to buy more in order to qualify for higher commission was also present in  the

 BurnLounge model and led to significant trouble.

 PROBLEM 4: SECURITIES (THE BIG ONE)

 As the Shavers case made clear, the SEC will consider crypto-currencies packaged in an investment vehicle to act as a security and thereby induce securities regulations. Understand, a crypto-currency on its own is not security; however, it becomes one if its presented to the marketplace in a certain way. Remember, an investment contract is any scheme involving (1) an investment of money, (2) in a common enterprise, (3) with the expectation that profits will be derived from the efforts of the promoter or a third party.

 And finally, the third and final element: the expectation that profits will be derived from the efforts of a promoter or third party. Within the Ilgamos marketing materials, ILCoins are presented with an “outstanding profit outlook.” Additionally, market timing is heavily emphasized so as to suggest that participants should get in on the ground floor in order to earn the greatest return. Finally, Ilgamos uses phrases like “price increase” and “growth potential.” All of these statements act as advertisements and create an expectation of profits solely through the efforts of a third party (in this instance, Ilgamos and its effective price management). With “mining and distribution under exclusive Ilgamos control,” Ilgamos acts as a third party promoter and thereby fulfills all the

 elements of a security or “investment contract” analysis by allowing its participants to utilize OPRs

 as a ticket into Ilgamos’ digital mining platform.

 II.       Legal Challenges Surrounding Ponzi Concerns

 Upon inspection, your company appears to be a well constructed Ponzi scheme. Please understand, I’m not passing judgment as I do not believe it was your intent to engage in any sort of fraud or

deceit. After our phone conversation, I truly believe your passion surrounding cryptocurrency comes from a good place. However, regulators don’t care about intentions as much as they do alleviating illegal market practices. Once again invoking some of the signs of a Ponzi scheme mentioned by the SEC, Ilgamos and its ILCoin appear to fit the bill in a variety of ways:

 Overly Consistent Returns: It was implied in our conversation and throughout your marketing material that as the network grows, the value of the ILCoins and OPRs will increase. The reality is that without natural market forces, there is no way to predict or determine the true value of your

 ILCoins. Right now, it’s a closed market in which the company is dictating the value based on the

 inflow of cash and participants.

 Normally, alt-coins values fluctuate wildly based on psychology and market forces between buyers

 and sellers. With Ilgamos, you essentially control everything and even advertise as much with your

 expression of “Effective Price Management.”

 Promises of High Returns: In our conversation, you expressed your desire to reinforce to potential participants the current speculative value and nature behind the ILCoin. While informing people of the speculative nature is obviously better than promising a very specific rate of return, it

 nonetheless does nothing to prevent people from joining because of mistaken beliefs on   passive

 returns.

 As I’ve mentioned previously within this review, you need to be careful with mentioning market timing. Endorsing any sort of “Get in Early” narrative in which people are encouraged to get in on the ground floor sends the wrong message. You are essentially professing as fact that Ilgamos partners who mine ILCoins will benefit from price increases. While you may believe this is simply your way of expressing belief in the ILCoin and the success of the Ilgamos business, regulators would perceive this as promising a higher return on one’s investment.

 Difficulty in Receiving Payments: The SEC matter-of-factly states, “Be suspicious if you . . . have difficulty cashing out your investment.” Ilgamos employs a few different measures that appear to be two-fold in function: first, by making perfunctory withdrawals difficult; and second, ensuring there isn’t a run on the bank and cash stays within the system. There’s the fact that OPRs are held in escrow for thirty and sixty days, depending on if they originate from commission or pack purchases; the idea that while 100% of new OPRS are convertible only 50% are tradable, thereby preventing a person from cashing out all at one time; the 30% of all commission and

 bonuses being credited as OPRs to a partner’s account suggests a re-investment tool that keeps

 cash within the system.

 deteriorate rapidly. Thus, the explanation for the need to have auto-investment policies and limited

 withdrawal options in place. Zeek Rewards, Cyber Kids, Zhunrize and TelexFree all had auto-

 invest policies and were eventually shut down as Ponzi schemes.

 Secretive Strategies: The SEC says, “Avoid investments you don’t understand for which you can’t get complete information.” With Ilgamos, it remains unclear how valuation will be determined or when it will be determined. In our phone conversation, you made a series of conditional statements when talking about the potential of OPRs and ILCoins: “. . . if business is coming in and we are growing, if we have merchants supporting the backing of the coin value, etc.” that make the ILCoin opportunity too speculative and unknown. I’m in the practice of trying to advise and protect clients against the possibility of any regulatory scrutiny, whether impending or far off into the future after the achievement of great growth and success. There’s just too many unknowns and too much control by Ilgamos over its digital currency mining platform. The   SEC

 has  and  will  continue  to  target  cryptocurrency  models  as  an  area  of  needed  oversight and

 regulation.

PROPOSALS:

 Moving forward, the Ilgamos business model has to emphasize and be built upon the following foundation: access to discounted gold. As it stands now, the access to gold is ancillary to to the crypto-currency aspect of the business. You told me on the phone that you believe OPRs will serve as the marketing tool, when in actuality the inverse is true: the gold will merely serve to attract people interested in alt-coins. I can guarantee you that as your business grows in size, data will reflect that participants buy the gold accumulation programs (or “packs”) for the right to participate in the mining of ILCoins as opposed to the right to purchase discounted gold. Regulators will see

 how your business operates in practice and argue no intrinsic value exists behind the current Ilgamos product. In the future, the access to gold must reflect intrinsic value that is driven by retail sales.

However, if you remain steadfast in the decision to carry on this aspect of the business, it would be prudent of you to make the following modifications:

·       Eliminate the auto-investing and withdrawal options. Allow participants to withdraw 100% of their commissions at any time.

·       Open the market. The sooner this is done, the better. The longer the market remains closed and in the exclusive control of Ilgamos, the greater the skepticism will be (rightfully so) surrounding the scheme’s legality. There needs to be opportunities for people to mine for ILCoin that are unaffiliated with Ilgamos.

Income Disclosures

If your business can successful adapt to the above proposed suggestions, I will need to prepare some income disclosures for you in the future. Whenever you make an earnings claim, whether express or implied, an income disclosure needs to be present. An earnings claim occurs when you talk about the financial potential i.e. earn $10,000 if you do XYZ, be able to by a car if you build this business right, etc. If Ilgamos is aggressive with income disclosure forms, it’ll make for a great insurance policy. Also, we need to create disclosures where participants/ customers acknowledge that the Ilgamos alt-coin might lose all of its value. It needs to be clear that there are zero guarantees when making these purchases.

 Conclusion

 With gold as the lynchpin, I’m not sure Ilgamos has a shot at viability and legitimacy. In its current

 form, the model is illegal and could possibly lead to criminal exposure. I’m available for discussion

 about this memo at a time of your convenience.

Sincerely,

Kevin P. Thompson Thompson Burton