ZeeksRewards is the case that just keeps on giving. The multi-level pyramid and Ponzi scheme has generated two prior SEC enforcement actions. One involved the company, Rex Ventures Group, LLC, and its principal, Paul Burks. SEC v. Rex Venture Group, LLC, Case No. 3:12-cv-519 (D.N.C. Filed Aug. 17, 2012). There a receiver was appointed and Mr. Burks settled. A second action was brought against two other firm employees. SEC v. Wright-Olivares (W.D. N.C. Filed December 20, 2013). That action settled with the two employees consenting to injunctions based on the registration and antifraud provisions of the Securities Act and the payment of disgorgement and prejudgment interest that will be made in a parallel criminal action brought by the U.S. Attorney’s Office in the Western District of North Carolina.
The Commission has now instituted a third action. This case names as a defendant Trudy Gilmond, a field liaison for ZeeksRewards who operated Team Fired UP to solicit new investors. SEC v. Gilmond, Civil Action No. 3:15-cv-00591 (W.D.N.C. Filed December 4, 2015).
ZeeksRewards traces to 2010 when Paul Burks and others created Zeekler.com as a penny auction website. It offered items ranging from personal electronics to cash. The auctions required participants to pay a non-refundable fee to purchase and place incremental bids on merchandise sold through auction. While not that successful, Mr. Burks and his company, Rex Venture Group, LLC, and others launched ZeekRewards in January 2011.
The new program was a private, invitation only affiliate advertising division of Zeekler. It was a multi-level marketing program that offered subscription memberships to affiliates. Those recruited then brought in other new affiliates and purchased and gave away samples or sold packages of bids for the penny auction website.
Ms. Gilmond was a network marketer who participated in a number of multi-level marketing programs. She operated a full time business soliciting new affiliates and helping her recruits solicit others. No effort was made to determine the financial wherewithal to invest or the experience level of customers.
Over a period of about one and a half years, beginning in January 2011, the firm raised about $850 million through the offer and sale of securities through the Retail Profit Pool and the Matrix to approximately one million domestic and international investors.
Through what was called the Retail Profit Pool, affiliates were told the company would share up to 50% of the daily net profits. To become Qualified Affiliate investors were required to: 1) enroll in the monthly subscription plan and make the required payments which varied in amount but began at $10; 2) enroll new penny auction customers; 3) sell retail, or purchase and give away as samples, a minimum of ten Zeekler.com bids; and 4) place one free advertisement daily for Zeekler.com and submit proof to ZeekRewards. Qualified Affiliates had the option to receive their daily award as cash or additional Profit Points or a combination. By the time the operation was shut down Qualified Affiliates had almost 3 billion Profit Points.
ZeekRewards also employed the Matix. This acted like a pyramid scheme by rewarding investors for recruiting others to join the scheme.
In fact ZeeksRewards was as a fraudulent scheme. The average 1.5% daily dividend to Qualified Affiliates was selected to sustain the false impression that the business had returns of 125% every 90 days. Profits from the penny auctions were miniscule and the daily awards could only be supported by funds from others.
From her efforts Ms. Gilmond received $461,964 in Matrix commissions and $1,300,074 in daily dividend payments and bonuses based on her purchases and compounding payments in the Retail Profits Pool.
Although Zeeks Rewards paid out hundreds of millions of dollars, by July 2012 it had insufficient deposits to satisfy future awards. The scheme was thus nearing collapse by the time it was shut down in August 2012. The complaint alleges violations of Securities Act Sections 5(a), 5(c) and 17(a) and Exchange Act Section 15(a). The case is pending. See Lit. Rel. No. 23421 (December 8, 2015).