ZeekRewards.com, Rex Venture Group Ponzi Scheme Shut Down
Paul Burks of Lexington, N.C. and his company Rex Venture Group have raised $600 million from more than one million Internet customers nationwide and overseas through the website ZeekRewards.com since January 2011, according to SEC allegations.
The SEC recently announced fraud charges and an emergency asset freeze to halt the Ponzi scheme on the verge of collapse. The emergency action assures that victims can recoup more of their money and potentially avoid devastating losses.
Customers were allegedly offered several ways to earn money through the ZeekRewards program, two of which involved purchasing securities in the form of investment contracts, according to the SEC’s complaint filed in federal court in Charlotte, N.C. 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 receiver.
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.
Fort Lauderdale Securities Litigation Attorney and FINRA Arbitrator
Contact Fort Lauderdale securities litigation attorney Howard N. Kahn, Esq. if you or someone you know has a securities or broker dispute. In addition to being an experienced securities litigation attorney, Mr. Kahn also serves as a FINRA arbitrator for individual investors, brokers, and brokerage firms. You can reach him at 954-321-0176 or online.
