SEC alleges Ponzi scheme based on "rewards" points
* North Carolina creator of website settles with SEC
* Judge freezes $225 mln assets to protect investors
By Jonathan Stempel and Basil Katz
Aug 17 (Reuters) - The U.S. Securities and Exchange Commission said it shut down a $600 million online Ponzi scheme on the verge of collapse and won a court ordered emergency asset freeze to protect some of the more than 1 million investors it had attracted.
ZeekRewards.com, created in January 2011 by Paul Burks and touted as a "private, invitation only, affiliate advertising division" of penny auction website Zeekler.com, promised investors up to 50 percent of "daily net profits" through a system based on rewards points, the SEC said.
The regulator said this created a false impression of "extreme" profitability, when in reality 98 percent of revenue and so-called net profits paid to earlier investors came from newer investors.
U.S. District Judge Graham Mullen in Charlotte, North Carolina issued an emergency freeze on Friday on the $225 million of investor funds that ZeekRewards still holds at 15 U.S. and non-U.S. financial institutions, and which were at "imminent" risk, court records show.
The SEC said Burks, 65, lives in Lexington, North Carolina, and is the sole owner of co-defendant Rex Venture Group LLC, which controls ZeekRewards and Zeekler.
Burks agreed to settle without admitting wrongdoing and agreed to cooperate with a court-appointed receiver, the SEC said.
Noell Tin, one of the lawyers for the defendants, declined to comment.
According to the SEC, ZeekRewards took in $162 million last month while investor cash payouts totaled $160 million.
It said that, if more customers chose to receive cash payouts rather than reinvest to boost rewards points, ZeekRewards' cash outflows would eventually exceed total revenue.
"ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing," Stephen Cohen, an associate SEC enforcement director, said in a statement.
"The obligations to investors drastically exceed the company's cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors."
The U.S. Securities and Exchange Commission has filed fraud charges and an emergency asset freeze against Rex Venture Group, the Lexington-based business that operates Zeek Rewards and penny auction site Zeekler.com.
In a press release issued late Friday afternoon, the SEC called the company a $600 million Ponzi scheme on the verge of collapse, alleging that company revenues were soon to dip below its cash payouts to its customers and that the company’s chief executive officer, Paul Burks, siphoned off millions of investor funds to family members.
Rex Venture Group has more than one million users throughout the world. It unexpectedly closed its headquarters Thursday afternoon, leaving hundreds of thousands of its online users spinning in speculation and confusion, many wondering if the company was closed for good. Some of the users, who claim they are Zeek Rewards affiliates from countries like Australia, Iraq, Ecuador, Malaysia and Brazil, said they have bought in for anywhere from $1,000 to $10,000 in the company.
It became clear government agencies were eyeing both Zeekler.com and Zeek Rewards in recent weeks, when the Attorney General’s office confirmed it had received dozens of complaints and inquiries about the company.
The company allegedly offered users the ability to purchase securities in the form of investment contracts. Those securities were not registered with the SEC, as required under federal securities laws, according to the SEC’s complaint filed in federal court in Charlotte.
The case is SEC v. Rex Venture Group LLC, U.S. District Court, Western District of North Carolina, No. 12-00519.
In the program, Zeek Rewards affiliates purchased “penny bids” to be used on the company’s penny auction website, Zeekler.com. For giving away their bids to new customers, affiliates earned “Profit Points” that could earn them up to 50 percent of the company’s daily net profits.
The SEC alleges that Zeek Rewards fraudulently conveyed a false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. According to the filed complaint, most of Zeek Rewards’ daily payouts to investors were comprised of funds received from new investors, in what the SEC called “classic Ponzi scheme fashion.”
“The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement, in a press release Friday. “Zeek Rewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor.”
The SEC said it took emergency action to halt a scheme that was allegedly teetering on the verge of collapse, according to a press release.
Last month, Zeek Rewards brought in about $162 million while its total investor cash payouts were about $160 million, according to the SEC’s complaint. If customers had continued to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, Zeek Rewards’ cash outflows would eventually exceed its total revenue.
* North Carolina creator of website settles with SEC
* Judge freezes $225 mln assets to protect investors
By Jonathan Stempel and Basil Katz
Aug 17 (Reuters) - The U.S. Securities and Exchange Commission said it shut down a $600 million online Ponzi scheme on the verge of collapse and won a court ordered emergency asset freeze to protect some of the more than 1 million investors it had attracted.
ZeekRewards.com, created in January 2011 by Paul Burks and touted as a "private, invitation only, affiliate advertising division" of penny auction website Zeekler.com, promised investors up to 50 percent of "daily net profits" through a system based on rewards points, the SEC said.
The regulator said this created a false impression of "extreme" profitability, when in reality 98 percent of revenue and so-called net profits paid to earlier investors came from newer investors.
U.S. District Judge Graham Mullen in Charlotte, North Carolina issued an emergency freeze on Friday on the $225 million of investor funds that ZeekRewards still holds at 15 U.S. and non-U.S. financial institutions, and which were at "imminent" risk, court records show.
The SEC said Burks, 65, lives in Lexington, North Carolina, and is the sole owner of co-defendant Rex Venture Group LLC, which controls ZeekRewards and Zeekler.
Burks agreed to settle without admitting wrongdoing and agreed to cooperate with a court-appointed receiver, the SEC said.
Noell Tin, one of the lawyers for the defendants, declined to comment.
According to the SEC, ZeekRewards took in $162 million last month while investor cash payouts totaled $160 million.
It said that, if more customers chose to receive cash payouts rather than reinvest to boost rewards points, ZeekRewards' cash outflows would eventually exceed total revenue.
"ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing," Stephen Cohen, an associate SEC enforcement director, said in a statement.
"The obligations to investors drastically exceed the company's cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors."
The U.S. Securities and Exchange Commission has filed fraud charges and an emergency asset freeze against Rex Venture Group, the Lexington-based business that operates Zeek Rewards and penny auction site Zeekler.com.
In a press release issued late Friday afternoon, the SEC called the company a $600 million Ponzi scheme on the verge of collapse, alleging that company revenues were soon to dip below its cash payouts to its customers and that the company’s chief executive officer, Paul Burks, siphoned off millions of investor funds to family members.
Rex Venture Group has more than one million users throughout the world. It unexpectedly closed its headquarters Thursday afternoon, leaving hundreds of thousands of its online users spinning in speculation and confusion, many wondering if the company was closed for good. Some of the users, who claim they are Zeek Rewards affiliates from countries like Australia, Iraq, Ecuador, Malaysia and Brazil, said they have bought in for anywhere from $1,000 to $10,000 in the company.
It became clear government agencies were eyeing both Zeekler.com and Zeek Rewards in recent weeks, when the Attorney General’s office confirmed it had received dozens of complaints and inquiries about the company.
The company allegedly offered users the ability to purchase securities in the form of investment contracts. Those securities were not registered with the SEC, as required under federal securities laws, according to the SEC’s complaint filed in federal court in Charlotte.
The case is SEC v. Rex Venture Group LLC, U.S. District Court, Western District of North Carolina, No. 12-00519.
In the program, Zeek Rewards affiliates purchased “penny bids” to be used on the company’s penny auction website, Zeekler.com. For giving away their bids to new customers, affiliates earned “Profit Points” that could earn them up to 50 percent of the company’s daily net profits.
The SEC alleges that Zeek Rewards fraudulently conveyed a false impression that the company was extremely profitable when, in fact, the payouts to investors bore no relation to the company’s net profits. According to the filed complaint, most of Zeek Rewards’ daily payouts to investors were comprised of funds received from new investors, in what the SEC called “classic Ponzi scheme fashion.”
“The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement, in a press release Friday. “Zeek Rewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor.”
The SEC said it took emergency action to halt a scheme that was allegedly teetering on the verge of collapse, according to a press release.
Last month, Zeek Rewards brought in about $162 million while its total investor cash payouts were about $160 million, according to the SEC’s complaint. If customers had continued to increasingly elect to receive cash payouts rather than reinvesting their money to reach higher levels of rewards points, Zeek Rewards’ cash outflows would eventually exceed its total revenue.
