URGENT >> BULLETIN >> MOVING: SEC Calls Zhunrize MLM Company Worldwide ‘Pyramid Scheme’ That Gathered More Than $100 Million

breakingnews72URGENT >> BULLETIN >> MOVING: (8th Update 6:56 p.m. EDT U.S.A.) The SEC has gone to federal court in the Northern District of Georgia, alleging that the Atlanta-based “Zhunrize” MLM program is a pyramid scheme that operates globally and has gathered $105 million from 77,000 investors.

The Zhunrize “program” has been charged with fraud. It is at least the third MLM targeted by the SEC since March. The agency filed charges against WCM777 in March. In April, it filed charges against TelexFree.

Zhunrize CEO Jeff Pan, 52, of Suwanee, Ga., also has been charged with fraud, the SEC said. A federal judge has issued an asset-freeze order.

All three of the MLM schemes operated online and allegedly affected tens and tens of thousands of people.

Zhunrize has been operating since 2012, the same year the SEC took down the Zeek Rewards MLM scheme, alleging a fraud that had gathered hundreds of millions of dollars.

From a statement by the SEC on the Zhunrize case (italics added):

According to the Commission’s complaint, Zhunrize purports to be a legitimate multi-level marketing business by which members purchase online stores and then sell merchandise through them, while earning commissions on products purchased by their customers and through store sales to other members and hosting fees paid by those members. In fact, the company is operating as a pyramid scheme because its commission structure is based on the continual recruitment of new members, with the most lucrative returns dependent on the downline recruitment of other members through store sales irrespective of any product sales. To date, the company has taken in approximately $105 million from approximately 77,000 investors since 2012.

The Commission’s complaint further alleges that in its promotional materials, Zhunrize touts the ability to earn commissions from the sale of products, both through the owner’s store and through downstream owners’ stores. For example, a Zhunrize promotional video differentiates Zhunrize from other on-line multi-level marketing plans, claiming that Zhunrize has “sustainability.” According to the video, the Zhunrize “model will sustain itself because we will have millions more customers than distributors.” Later, the narrator in the video claims “we have the Vendor Relationships, the Logistics, the Payment Gateways to reach millions of new customers each month.”

The Commission’s complaint also alleges that Zhunrize does not disclose, however, that to date substantially all of its revenue has comes from the sale of memberships (referred to as stores) and the corresponding monthly internet hosting fees associated with operating those stores, rather than the sale of products. Indeed, both Pan and a Zhunrize vice-president testified that the company currently derives 80-90% of its revenue from selling online stores and the monthly internet hosting fees for them, as opposed to actual products from these stores. Thus, contrary to the representations to potential investors, Zhunrize is actually a fraudulent pyramid scheme.

Like other MLM schemes before it, Zhunrize appears to have traded on the names of famous companies outside the MLM realm. The PP Blog today, for instance, observed a promo for Zhunrize in Spanish that referenced an “online store” known as “ZHunCity” and dropped the names of Ebay, Amazon, Wal-Mart, Target and Best Buy.

It is common for fraud schemes to drop the names of famous companies as a means of sanitizing the purported MLM ‘opportunities.” Offering materials for WCM 777, which allegedly gathered tens of millions of dollars, dropped the names of hundreds of famous brands while also dropping the names of famous businesspeople and famous politicians.

WCM appears to have taken in on the order of $80 million, according to court records in the case. The Massachusetts Securities Division has alleged that TelexFree may have gathered more than $1.2 billion in a little better than two years.  WCM77 made its $80 million haul in about one year.

TelexFree and WCM both engaged in affinity fraud by targeting specific population groups, according to court filings. There may be promos for Zhunrize in languages other than Spanish and English. The PP Blog observed a Zhunrize promo today that was simply labeled “Brazil,” which may mean Portuguese-speaking populations were targeted.

That was the case with both WCM777 and TelexFree.

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8 Responses to “URGENT >> BULLETIN >> MOVING: SEC Calls Zhunrize MLM Company Worldwide ‘Pyramid Scheme’ That Gathered More Than $100 Million”

  1. Quick note: Courthouse News Service has the SEC’s Zhunrize complaint. There’s a link to it in the lower-right corner of this story:

    http://www.courthousenews.com/2014/09/23/71668.htm

    Patrick

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  2. From the SEC complaint:

    ___________________________________

    20. Defendants solicit investors through webinars and in-person presentations. Defendants have conducted seminars in most of the major cities in the United States. Pan also has traveled to China and Korea to solicit investors.

    21. Much of Defendants’ solicitations come through on-line webinars and
    videos released through You-Tube. These videos include references to written documentation, including the commission structures and charts referenced in the Complaint.

    ___________________________________

    The SEC also referenced YouTube videos in the WCM777 and TelexFree cases. Regulators have been warning for years about scams that use social media to proliferate.

    Zrunrize, Zeek and TelexFree also had webinars and road shows.

    Patrick

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  3. Quick note: BehindMLM.com had a review of Zhunrize in late December of 2013.

    An apparent defender came to the thread, dropped a bunch of names and claimed Zhunrize was “SEC cleared unlike wcm777.”

    Similar claims of SEC clearance or approval were made by TelexFree promoters. The Zeek promoters, of course, claimed a perceived lack of action by the SEC/FTC against that program meant that Zeek had passed muster.

    Fact is, none of the “programs” had passed muster — as the SEC complaints against all of them demonstrate.

    The script varies only by degree:

    http://behindmlm.com/companies/zhunrize-review-a-3000-e-commerce-platform/

    Patrick

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  4. Quick note: TelexFree declared bankruptcy on April 14, 2014.

    On that very day, as the Blog reported, we observed a pitch from a Zhunrizer trying to lure in TelexFree members.

    Here is part of the pitch:

    ________________________________________________

    “. . . don’t wait since TelexFREE filed bankruptcy, they will all need a new investment and income. We welcome all of you with open arms . . .”

    There was a link to YouTube videos.

    http://patrickpretty.com/2014/04/14/urgent-bulletin-moving-telexfree-says-it-has-filed-for-bankruptcy-ugandas-central-bank-issues-fraud-warning/comment-page-1/#comment-78314

    Patrick

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  5. On the Zhunrize story, what do you have to say now Mr Patrick Pretty????
    So typical of American journalism and indeed American politics and everything else for that matter, “guilty until proven innocent”, funny, I thought it was supposed to be the other way around.

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  6. Gerard Harrington: On the Zhunrize story, what do you have to say now Mr Patrick Pretty????

    You seem to be implying that Zhunrize has scored some sort of win. If so, please provide an authoritative source.

    Oh. You might want to see this:

    http://www.prnewswire.com/news-releases/andrews–springer-llc-investigates-zhunrize-inc-and-ceo-jeff-pan-for-potential-securities-fraud-278219151.html

    Patrick

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  7. Can someone please clarify what is going on? I hear Zhunrize reps saying they are “back in business” yet i don’t see anything from the SEC that states they were cleared. What gives??

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  8. Paul Hicks: Can someone please clarify what is going on? I hear Zhunrize reps saying they are “back in business” yet i don’t see anything from the SEC that states they were cleared. What gives??

    The court approved an asset freeze and a TRO against Zhunrize, according to this Oct. 28 litigation release from the SEC:

    Source: http://www.sec.gov/litigation/litreleases/2014/lr23120.htm

    Speaking in general and not specifically about Zhunrize, it’s not unusual for affiliates of “programs” to declare wins of some sort while cases are still being litigated.

    Even now, some of the TelexFree affiliates are declaring wins. Before that, the Zeekers declared wins. And before Zeek, the ASDers declared wins.

    The narrative surrounding both ASD and Zeek was the government secretly knew no Ponzi/pyramid scheme existed but was clinging to the cases in order to save face. One ASDer claimed the government secretly plowed the $80 million seized in the ASD case into a secret fund in Europe from which it promptly fetched a return of $1 billion and used the money to fund black ops.

    One ASDer called for a “militia” to be formed to storm Washington with guns.

    Memory Lane:

    http://patrickpretty.com/2009/06/07/news-and-notes-surfs-up-poster-calls-for-militia-to-rise-against-government-bizadsplash-urges-members-not-to-contact-mastercard-vendors/

    Patrick

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