The Securities and Exchange Commission announced fraud charges and an emergency asset freeze to halt a $600 million Ponzi scheme on the verge of collapse. The emergency action assures that victims can recoup more of their money and potentially avoid devastating losses.
The SEC alleges that online marketer Paul Burks of Lexington, N.C. and his
company Rex Venture Group have raised money from more than one million Internet
customers nationwide and overseas through the website ZeekRewards.com, which
they began in January 2011.
According to the SEC’s complaint filed in federal court in Charlotte, N.C.,
customers were offered several ways to earn money through the ZeekRewards
program, two of which involved purchasing securities in the form of investment
contracts. These securities offerings were not registered with the SEC as
required under the federal securities laws.
The SEC alleges that investors were collectively promised up to 50 percent of
the company’s daily net profits through a profit sharing system in which they
accumulate rewards points that they can use for cash payouts. However, the
website fraudulently conveyed the false impression that the company was
extremely profitable when, in fact, the payouts to investors bore no relation to
the company’s net profits. Most of ZeekRewards’ total revenues and the “net
profits” paid to investors have been comprised of funds received from new
investors in 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. “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. In reality, their cash
was just going to the earlier investor.”
The SEC’s complaint alleges that the scheme is teetering on collapse with
investor funds at risk of dissipation without its emergency enforcement action.
Last month, ZeekRewards brought in approximately $162 million while total
investor cash payouts were approximately $160 million. If customers continue to
increasingly elect to receive cash payouts rather than reinvesting their money
to reach higher levels of rewards points, ZeekRewards’ cash outflows would
eventually exceed its total revenue.
Burks has agreed to settle the SEC’s charges against him without admitting or
denying the allegations, and agreed to cooperate with a court-appointed
According to the SEC’s complaint, ZeekRewards has paid out nearly $375
million to investors to date and holds approximately $225 million in investor
funds in 15 foreign and domestic financial institutions. Those funds will be
frozen under the emergency asset freeze granted by the court at the SEC’s
request. Meanwhile, Burks has personally siphoned several million dollars of
investors’ funds while operating Rex Venture and ZeekRewards, and he distributed
at least $1 million to family members. Burks has agreed to relinquish his
interest in the company and its assets plus pay a $4 million penalty.
Additionally, the court has appointed a receiver to collect, marshal, manage and
distribute remaining assets for return to harmed investors.
The SEC’s investigation was conducted by Brian M. Privor and Alfred C.
Tierney in the SEC’s Enforcement Division in Washington D.C. The SEC
acknowledges the assistance of the Quebec Autorite des Marches Financiers and
the Ontario Securities Commission.
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