SEC Shuts Down Penny Auction Site Zeekler As A $600 Million Ponzi Scheme

In a move that sent shock waves through the Multi Level Marketing Industry, the Security and Exchange Commission (SEC) shut down Zeekler.Com and its affiliate website, ZeekRewards, on Friday, August 17, 2012. The SEC claimed the company was a $600 million Ponzi scheme, built on a pyramid that paid older affiliates from the revenues of new affiliates.

ZeekRewards had over one million active affiliates, all of whom have been unable to access their funds since the company was ordered to take down its websites late Thursday night. Affiliates will have to depend on the Federal government to recover their funds at a yet unspecified date.

The SEC said the case involved more than $600 million in assets, with nearly $375 million paid to affiliates and $225 million in funds currently held in 15 foreign and domestic banks. All remaining company assets have been frozen by the SEC.

Zeekler is owned by Paul R. Burks, operating under the name of Rex Venture Group located in Lexington, North Carolina. The SEC alleged that Mr. Burks, 65, misappropriated several million dollars of company funds, some of which he is accused of giving to his family members.

Since the first signs of problems surfaced on Thursday night with the shutdown of the company websites, Paul Burks has been unavailable for comment. A guard posted outside of Burks’ Lexington home told local papers that there have been several death threats against Mr. Burks, and there is concern for his safety. Burks has been advised by his lawyers not to discuss the case.

Events moved quickly, and, just hours after seizing the company, the SEC disclosed that Mr. Burks reached a settlement with the agency. Under the terms of the agreement, Burks will give up control of the company, co-operate with a court appointed receiver, and pay a four million dollar penalty. By accepting the agreement, Burks will settle the fraud charges pending against him without any declaration of guilt or innocence.

“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.”

In addition to operating an active Penny Auction website, ZeekRewards allowed affiliates to participate in a revenue sharing plan. The company gave affiliates up to half of its revenues on a daily basis, using a points system based on how many free bids an affiliate gave away to new users of Zeekler’s Penny Auction website. Many recipients of free bids would eventually purchase more bids with cash, and the affiliates shared in the proceeds of those purchases. Each affiliate’s share was determined by the number of points they had accumulated since joining ZeekRewards.

According to Zeekler, affiliates were encouraged to invite friends and associates to participate in the program as long as the invitation was made on a personal basis and no promises of earnings were made. All new affiliates were explicitly warned that they were not making an investment or purchasing securities, and they were required to receive written copies of all documentation and agreements.

The company claimed to have strict guidelines that kept it in compliance with SEC and Federal Trade Commission regulations. According to the company, an affiliate could not participate in the revenue sharing plan until they completed a training program designed by a lawyer, and anyone who violated the federal guidelines was terminated immediately.

It is the revenue sharing plan that is at the heart of the SEC complaint against the company. The SEC addressed their concerns directly in the press release dated August 17, 2012:

“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.”

Many Zeekler affiliates are incensed by the Federal government’s shutdown of the company. They are not angry at Zeekler, but they feel that the SEC is attacking Paul Burks for being too profitable too quickly.

The Inquisitr spoke directly with a highly successful affiliate in the ZeekRewards program, who has asked to remain anonymous due to the investigation. He was quite outspoken in his frustration with the federal government, saying:

“The closing of Zeek Rewards by the SEC… telling everyone that we were investors… and they wanted to protect us. WHO PROTECTS US FROM THE GOVERNMENT! The SEC called it a $600 Million Ponzi Scheme? The SEC said it has frozen the roughly $225 million in “investor” funds that remain in the company’s bank accounts. So far, the agency said, ZeekRewards has paid out some $375 million to “investors”. The Government is the one talking about investment, not us, not Zeek. No one at Zeekler, or any legitimate affiliate ever referred to the affiliate program as an investment. Protect us from what, from who!!!!? Zeek only has done good all around. And the funds paid out and the funds in the bank don’t reflect a Ponzi Scheme.”

“Who benefits from this from this Government travesty… The only winners in this are the attorneys and the government. We all know they need money and they don’t want us to make any. What’s more to say. I’ve been lied to many more times by the government then by private business including Zeek!”

“Mr. Paul Burks and his management team were doing everything that had to be done in order to be in “compliance” and were trying to look out for the affiliates. I believe that it was never Mr. Paul Burks intention to deceive anyone, and he never admitted doing anything wrong, fighting the government always results with the government being the big winner. I feel they take pleasure finding companies that make too much money too fast, seize the funds and do not care who it affects.”

Many other affiliates of ZeekRewards have also been quite supportive of the company. They have, by and large, expressed faith in the honesty of Mr. Burks as well as in the stability and strength of the company. They are extremely disappointed about being shut out of what they felt was an excellent business opportunity.

The opinion of several respected authorities on internet marketing is that this is just the tip of the iceberg. They feel the closing of Zeekler and ZeekRewards is just the beginning of a major federal crackdown with the goal of putting an end to Penny Auctions high on the government’s list of priorities. Then they shrug their shoulders and say, “Well, no one can win a fight with the Feds, so of course, Zeekler had to close its doors.”

What do you think? Have you ever been involved in an internet based business, and, if so, did you make or lose money? In view of the ongoing pressure on small business, do you agree with the comments that the federal government is hostile to entrepreneurs and wants to discourage people from building an independent business?

Update 11:00 pm CST:

The Office of the Attorney General of the State of North Carolina has posted the telephone number — (919) 716-6046 — to take inquiries from “concerned Zeek Rewards affiliates or Zeekler.com retail customers.” The number has been going to voice mail since Friday afternoon. The caller is then informed by a recording that the voice mail box is full, and the call is disconnected.