Published on:

SEC Shuts Down Online Ponzi Scheme

The Securities and Exchange Commission (SEC) has filed charges of fraud against the online marketer behind Regulators have also issued an order to freeze the assets of Rex Venture Group in hopes of preserving as much of investors’ assets as possible.

Piggy%20Bank%20Pyramid%2016349205.jpgAccording to the SEC, Paul Burks was running an online version of the classic Ponzi scheme in which unsuspecting people invest money and are paid fake returns out of money taken from later investors. These schemes are often wildly successful because the early investors rave about the fat checks they receive from what they believe are investments, encouraging new investors to join in order to get in on what appears to be a lucrative investment opportunity. However, because there are no real investments and therefore no real revenues, Ponzi schemes eventually implode, leaving the most recent investors with nothing to show for their money.

According to the federal complaint, Burks extracted $600 million from over a million investors in under two years. ZeekRewards gave customers the option to earn rewards points that could be reinvested or converted to cash. Court filings reveal that the scheme has reached the verge of collapse, with investors requesting around $160 million in payouts last year even though the site only received approximately $162 million in so-called investments during the same period. If that trend had been allowed to continue, the company could have run out of money at any time and been unable to pay its customers as promised

As of the date of filing, the SEC says that ZeekRewards has paid nearly $400 million in so-called dividends and has about $225 million of investors’ money, which has now been frozen by the court. According to Clifton Jolley, which represents Rex Venture Group, Burks does not admit or deny the SEC’s claims, but he has agreed to pay $4 million in penalties and hand over control of all the business’ assets. The court will then appoint a receiver to return what money is left to the investors.

The complaint also indicates that the action by the SEC comes too late to prevent Burks from diverting $11 million from the money invested by ZeekRewards customers into his own pockets and approximately $1 Million to family members. The website is no longer in operation and has been removed.

The SEC is working hard to crack down on Ponzi and/or Pyramid schemes. Earlier this month the SEC brought fraud charges against a former college football coach alleging an $80 Million Ponzi scheme and filed fraud charges and an emergency asset freeze against a Denver company and its two principals in a $15 Million plus Ponzi scheme involving approximately 120 investors.

Charles Ponzi’s legacy lives on!

Sylvester, Oppenheim & Linde represents businesses and their owners in most types of litigation. If your business has a legal problem, contact Richard Oppenheim directly for a prompt, no charge initial consultation. You may use the contact form in the left column or call 818-461-8500.