Feds allege N.C. firm ran $600M Ponzi scheme

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(AP) RALEIGH, N.C. - Federal securities regulators have filed fraud charges and an emergency order to freeze the assets of a North Carolina company officials say operated a $600 million Ponzi scheme that is on the verge of collapse.

The action by the Securities and Exchange Commission Friday is intended to help investors recoup money and avoid devastating losses.

Online marketer Paul Burks of Lexington, N.C., is accused in a federal complaint of raising money from more than 1 million customers through ZeekRewards.com, a website in operation less than two years.

Burks could not immediately be reached for comment Friday and the website has been taken down.

Clifton Jolley, a Texas-based communications consultant representing the website's parent company, Rex Venture Group, said Burks had agreed to settle the SEC charges but that he has neither admitted nor denied the allegations against him. Jolley said Burks will cooperate with federal officials and a court-appointed receiver.

ZeekRewards customers were offered several ways to earn money through the site, including buying unregistered investment contracts that promised a share the company's profits through rewards points that could be traded for cash payouts.

However, federal investigators say claims the company was extremely profitable were false and that money from new investors was paid to the older investors as in a classic Ponzi scheme.

"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 of the SEC's enforcement division. "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, filed in U.S. District Court in Charlotte on Friday, alleged the scheme is teetering on collapse. Federal investigators said ZeekRewards brought in approximately $162 million last month while paying out about $160 million. If customers continue to increasingly elect to receive cash payouts rather than reinvesting their money, ZeekRewards' cash outflows would exceed its total revenue, according to the complaint.

All told, ZeekRewards paid out nearly $375 million to investors and holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions, according to federal officials.

Those funds will be frozen under order of a federal judge.

Meanwhile, officials said 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.

As part of his agreement with the SEC, Burks is to relinquish his control over the company and its assets, as well as pay a $4 million penalty. A court-appointed receiver will distribute remaining assets to harmed investors.

[celiab]

In answer to all these vitriolic comments, I'd like to say that THERE WAS NO INVESTMENT!!!! This is a private business as was plainly stated every time any transaction occurred. As a private business, customers purchased a product...BIDS. This is no different from Amway, Avon or any other privately run business. All affiliates were paid...NOT FROM MONEY FROM OTHER AFFILIATES...from the daily proceeds from Zeekler Penny Auctions which is very lucrative. If a business owner chooses to take money out of his business, unless the laws have changed, that is called PROFIT from running a business and is the business owner's decision to use it as he/she deems appropriate. All of the Zeek Associates that I know were paid daily a percentage of the day's earnings from the Zeekler Penny Auctions for posting advertisements for Zeek and were extremely happy. This is a witch hunt, and I am appalled that this business which allowed people who were out of work to become legally employed taxpayers is being prosecuted by our government which is supposedly in place to help and protect us. They had (supposedly) 8 complaints out of a million employees. These 8 people probably did not post a daily ad as required, or had some problem receiving payment from one of the 3 ewallets contracted by Zeek. The company added 400,00 new affiliates in the last few months; so, obviously was very successful but under a strain to manage the rapid growth. I and all my friends and associates have been paid daily without exception as long as the Zeek company rules were followed.

[DVCal]

Please read the SEC report. If they were being paid from the profits of the Auction, then were is money they took in from affiliates. They took in 600 million dollars, but only 225 million remain. Please educate yourself, because you clearly lack a basic understanding of mathematics, finance, and commonsense.

[ludvig1-2009]

There the federal government goes again shutting down another successful private sector business that was built entirely by the entrepreneur with no government help.

[rayward73446]

Another crook that should go to jail for stealing from people. Simple as that. A Ponzi scheme is not a business. It's fraud.

[matt6052]

"obligations to investors drastically exceed the company's cash on hand"

Should be liabilities far exceeded assets. Liabilities normally exceed cash on hand.

[formerlyluvnut]

by Brandonwdsman August 18, 2012 7:25 PM EDT
IF i was a betting man id bet u was a yankie couse everybody knows yankes are smartalliks
------------------------------------
Brandon, If I were a betting man I'd bet you were from N Carolina because everybody knows Y'all can't spell! YOU made my point. LAWD HAVE MURCY.

[dunracin]

Great he stole $11,000 from me and many others, ruined the dreams of hundreds of people, skimmed over $11 million in a year to himself and family and this louzy bastard has to only pay $4 million? What an injustice to all of us who trusted this SOB! I'd like to have 10 minutes alone with him.

[jtdev1]

most likely you he claimed great returns on your 11K and you let your greed take over.

Shame on you...

[jmn122736]

At the risk of sounding pessimistic. This sounds like another con artist stealing $1000 and paying a $1 fine.

I would assume he will be voting for Romney as he obviously will not be convicted of a felony before November 6.

Hopefully he will eventually be convicted. Actually Though, the charges will most likely be dropped in a plea bargain as usual.

[formerlyluvnut]

Never, EVER, trust anyone from N Carolina; if you ever find one with any smarts at all then they are a swindler for sure.

[RunsWithWolves]

luvnut,
That is the dumbest comment I have ever seen on the internet.

[Brandonwdsman]

IF i was a betting man id bet u was a yankie couse everybody knows yankes are smartalliks

[myopinionpal]

If something sounds too good to be true, it probably is.