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Tag: Paul Burks

  • Zeek’s Paul Burks Now In Federal Custody

    Paul Burks, the 70-year-old operator of the Zeek Rewards Ponzi scheme, now is listed as prisoner No. 29723-058 at FMC Lexington. The facility is an administrative security federal medical center with an adjacent minimum security satellite camp in Lexington, Ky.

    After being sentenced in February to more than 14 years, Burks was ordered to report to the facility no later than yesterday. He reportedly is suffering from significant medical issues.

    Burks has become the third and senior-most Zeek executive sent to jail. Dawn Wright-Olivares and Daniel Olivares earlier began serving respective terms of 7.5 years and two years.

    U.S. District Judge Max O. Cogburn Jr. of the Western District of North Carolina was the sentencing judge in all of the cases against the Zeek braintrust.

    Zeek’s operations were similar to the AdSurfDaily Ponzi scheme, which sent ASD President Andy Bowdoin to federal prison in 2012. Bowdoin, now 82, is scheduled to be released in February 2018. He is listed as a prisoner at Butner Medium FCI in Butner, N.C. The Butner prison also has a medical facility. Bowdoin, like Burks, had health issues prior to sentencing.

    Like ASD, Zeek was a Ponzi-board “program.”

    Troy Barnes, one of the principals of “The Achieve Community” (TAC) scam, was sentenced in April to 33 months in prison. TAC also was a Ponzi-board “program.”

    Barnes’ Achieve colleague Kristi Johnson was sentenced to 21 months.




  • BULLETIN: Paul Burks Of Zeek Rewards Sentenced To More Than 14 Years; Judge Comments On ‘Cheerleaders’

    3RD UPDATE 4:52 P.M. ET U.S.A. Paul Burks, the principal behind the $939 million Zeek Rewards Ponzi- and pyramid scheme broken up by the SEC and the U.S. Secret Service in August 2012, has been sentenced to 176 months in federal prison, the office of U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina said moments ago.

    U.S. District Judge Max Cogburn Jr. presided over sentencing court for Burks, 70.  Zeek was an MLM scam that created hundreds of thousands of victims globally.

    “But anyone could have seen what was going to occur outside himself and his (marketing) cheerleaders,” the judge said in court, according to the Winston-Salem Journal.

    In clawback lawsuits, Zeek receiver Kenneth D. Bell has triumphed over thousands of net winners in the scheme.

    When Burks was indicted in October 2014, the grand jury alleged that Burks and others offered a “bogus 125% return on investment” through a “sham internet-based penny auction company.”

    Bell earlier alleged that some of the winners he sued were “serial” participants in Zeek-like schemes to defraud. Among the clawback defendants were Todd Disner, a figure from the AdSurfDaily Ponzi scheme, and T. LeMont Silver, a promoter of multiple Ponzi schemes.

    “Programs” such as Zeek and ASD often try to sanitize themselves by calling themselves revenue-sharing schemes.

    Burks also was sentenced to make restitution in the amount of $244 million and to serve three years’ probation after his prison release. There are media accounts today that suggest Burks is in poor health.

    Though 176 months is a lengthy term, there has been speculation that Burks would receive an even longer term, given the enormous size of Zeek and the number of victims.

    Said Bell, the receiver, in a statement dated Feb. 13. “Judge Cogburn cited the need to balance the harm caused by Mr. Burks’ conduct against Mr. Burks’ extremely poor health and [the fact he is] 70 years of age.”

    From a statement today by prosecutors (italics added):

    At sentencing, Judge Cogburn stated that for the defendant’s scheme to work would have required a miracle on the order of the “loaves and fishes.” Judge Cogburn stated that a significant sentence was necessary to promote respect for the law, provide just punishment, and also deter others considering committing fraud. Judge Cogburn further noted that the scheme was “almost breathtaking” and emphasized that the defendant had time to stop it.

    Dawn Wright-Olivares and Daniel Olivares of Zeek also have been sentenced to prison.



  • Zeek Receiver Solicits Victim Letters For Feb. 13 Sentencing Of Paul Burks

    Paul Burks will be sentenced Feb. 13 for his criminal role in Zeek Rewards, and the court-appointed receiver is soliciting letters from victims of the combined Ponzi- and pyramid scheme that affected hundreds of thousands of people.

    Zeek gathered hundreds of millions of dollars in a massive fraud scheme broken up by the SEC and the U.S. Secret Service in 2012.

    From receiver Kenneth D. Bell in an announcement dated Jan 19, 2017  (italics added):

    Victims of these offenses are entitled to be heard at sentencing. If a victim would like to have a letter describing the impact that ZeekRewards had on them submitted to the Court please send an email to HearingLetter@zeekrewardsreceivership.com. In particular, the Court would like to hear about any of the below circumstances:

    • Becoming insolvent;
    • Filing for bankruptcy under the Bankruptcy Code;
    • Suffering substantial loss of a retirement, education, or other savings or investment fund;
    • Making substantial changes to his or her employment, such as postponing his or her retirement plans;
    • Making substantial changes to his or her living arrangements, such as relocating to a less expensive home; and
    • Suffering substantial harm to his or her ability to obtain credit.

    I will be attending the hearings on behalf of all ZeekRewards victims and will present your letters to the Court.

    Bell also is special master of the criminal case against Burks.

    Burks, then 67, was indicted in 2014 on charges of wire and mail fraud, wire- and mail-fraud conspiracy and tax-fraud conspiracy. He was convicted by a jury in July 2016 at age 69 on all charges and potentially faces decades in federal prison.

    Two of Burks’ former Zeek colleagues — Dawn Wright-Olivares and her stepson Daniel Olivares — previously pleaded guilty and now are listed as federal prisoners.




  • Zeek Figures Wright-Olivares, Olivares Listed As Federal Prisoners

    Dawn Wright-Olivares

    The landing spots for two key Zeek Rewards figures now are known. Former Zeek COO Dawn Wright-Olivares is listed as inmate 29336-058 at FMC Carswell in Fort Worth, Texas. The facility is a Federal Medical Center for female offenders and has an adjacent minimum security satellite camp, according to the Federal Bureau of Prisons website.

    Daniel C. Olivares, the stepson of Wright-Olivares and the former senior technology officer at Zeek, is listed as inmate 29335-058 at CI Taft, a contracted correctional institution operated by a private corporation in Taft, Calif., according to the BOP website.

    Wright-Olivares and Olivares were sentenced in September 2016 by U.S. District Judge Max O. Cogburn Jr. of the Western District of North Carolina. Both defendants had agreements with prosecutors and pleaded guilty in February 2014.

    Cogburn imposed a term of seven and a half years on Wright-Olivares. Olivares was sentenced to two years. Each defendant pleaded guilty to investment-fraud conspiracy, with Wright-Olivares also pleading guilty to tax-fraud conspiracy.

    The Winston-Salem Journal is reporting this morning that Zeek operator Paul Burks tentatively is scheduled to be sentenced Feb. 13.

    Zeek was one of the largest combined Ponzi- and pyramid schemes in U.S. history.

    Wright-Olivares and Olivares were not immediately sentenced to prison after their guilty pleas. Their situation was not unique, and some defendants are given time to report after their formal sentencing.




  • Zeek Receiver Establishes Victims’ Email Address In Advance Of Sentencing Next Month For Dawn Wright-Olivares and Daniel Olivares

    Dawn Wright-Olivares, former Zeek COO.
    Dawn Wright-Olivares, former Zeek COO.

    2ND UPDATE 12:53 P.M. EDT U.S.A. With sentence court set next month for Zeek Rewards’ figures Dawn Wright-Olivares and Daniel Olivares, Zeek receiver Kenneth D. Bell has established an email address for victims who wish to tell their story to the court.

    “Victims of these offenses are entitled to be heard at sentencing,” Bell wrote in an Aug. 29 announcement on the receivership website. “If a victim would like to have a letter describing the impact that ZeekRewards had on them submitted to the Court please send an email to HearingLetter@zeekrewardsreceivership.com. I will be attending the hearings on behalf of all ZeekRewards victims and will present your letters to the Court.”

    Sentencing is set for 9:30 a.m. on Sept. 13, Bell wrote.

    Wright-Olivares and Olivares pleaded guilty in February 2014 to the criminal charges against them. Zeek operator Paul Burks was found guilty on criminal charges last month. No sentencing date has been announced for him.

    Under the terms of her plea agreement, Wright-Olivares faces a maximum of 10 years for investment-fraud conspiracy and tax-fraud conspiracy. Olivares face a maximum of five years for investment-fraud conspiracy.

    Bell wrote that “the Court would like to hear about any of the below circumstances”:

    • Becoming insolvent;
    • Filing for bankruptcy under the Bankruptcy Code;
    • Suffering substantial loss of a retirement, education, or other savings or investment fund;
    • Making substantial changes to his or her employment, such as postponing his or her retirement plans;
    • Making substantial changes to his or her living arrangements, such as relocating to a less expensive home; and
    • Suffering substantial harm to his or her ability to obtain credit.

    Burks potentially faces 65 years in federal prison.




  • REPORT: SEC Moves Against ‘TrafficMonsoon,’ Calls It A Ponzi

    trafficmonsoonlogoThe SEC has filed a lawsuit against the Traffic Monsoon “program” and called it a Ponzi scheme that had gathered $207 million, the Salt Lake Tribune is reporting.

    The assets of Traffic Monsoon and alleged operator Charles Scoville have been frozen, the newspaper reports.

    On June 1, the PP Blog reported that Payza — a payment processor under fire from the court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case brought by the SEC in 2012 — bragged about its attendance at a Traffic Monsoon event in May.

    Zeek’s Paul Burks was found guilty last week of multiple felonies for his operation of Zeek, a purported auction “program.”

    Traffic Monsoon, which may be a whack-a-mole scheme, is a purported “advertising “program” similar to the AdSurfDaily Ponzi scheme and other scams, including Banners Broker.

    The SEC warned about whack-a-mole schemes in March.

    More as the situation develops . . .




  • EDITORIAL: With Conviction Of Zeek’s Burks, Another Senior MLMer Faces Prospect Of Decades In Prison

    paulburkszeekUPDATED 4:31 P.M. EDT U.S.A. Zeek Rewards was always inexcusably horrid, fueled by serial willful blindness and the sort of practiced disingenuousness that props up so many MLM “programs.” In dollar volume, Zeek ended up being more than seven times larger than the $119 million AdSurfDaily MLM Ponzi scheme that put ASD operator Andy Bowdoin in federal prison for six and a half years. By this measuring stick, Zeek’s Paul Burks could be staring at 45 or more years.

    As things stand, Burks, 69, faces a maximum of 65 years. He was convicted July 21 of mail fraud, wire fraud, conspiracy to commit both and tax-fraud conspiracy. The jury reportedly returned the verdict in less than three hours.

    Bowdoin, 77 when he accepted a plea deal before trial in 2012, received the maximum term of 78 months under the deal after earlier facing decades in prison. He pleaded guilty to a single count of wire fraud and acknowledged ASD was a Ponzi scheme and that the “program” never had operated lawfully from its 2006 inception. Other charges that could have led to a longer term were not pursued.

    Burks did not have a plea deal. The $939 million dollar volume of the Zeek scam will not be the sole measuring stick considered by U.S. District Judge Max O. Cogburn Jr. when Burks’ sentencing date comes around. Even so, 45 years is not out of the question, given the terms imposed on other Ponzi schemers. Scott Rothstein, for example, received 50 years for a $1.2 billion scam.

    Rothstein reportedly cooperated with the government after his convictions with the hope of receiving a sentencing reduction. Whether Burks will have a similar option or be able to argue successfully for mitigation is unknown.

    What is known is that even 20 years for Burks, nearing his 70th birthday, is a virtual life sentence. Like Rothstein, he has some serious thinking to do.

    Zeek was a tragedy for many, many investors lured in by promises of enormous returns. Can there be any doubt it’s also a personal tragedy for Burks and his family, given what the Zeeker-in-chief now faces?

    Why Burks ever would choose to pursue Zeek after what happened at ASD remains an open question. The frauds were remarkably similar. Bowdoin went to jail for an MLM scam when he was 77. The ASD case practically screamed, “Don’t do this!”

    “This massive scam is one of the largest in breadth and scope ever prosecuted by this office,” U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina said about Zeek.

    Another problem for Burks is that North Carolina, a U.S. banking center, can be downright unfriendly to Ponzi schemers. Keith Franklin Simmons was sentenced to 50 years for his $40 million “Black Diamond” scheme, a scheme much smaller than Zeek. Although that sentence later was reduced on appeal to 40 years, four decades is hardly a bargain — and Zeek had something else in common with Black Diamond in addition to operating in the same federal district in the same state.

    Indeed, with both Zeek and Black Diamond, the Feds pursued actions against banks that allegedly were asleep at the wheel. Ponzi schemes put economic security at risk.

    Burks had to know that Zeek was going to cause his world to crumble. He’d been an MLMer for years, he knew about the ASD case, Bernard Madoff, Rothstein, Ponzi pain in general throughout society and bizarre happenings in his own company.

    Why he moved forward is a sort of maximum imponderable. Why so many in the trade followed him after ASD is an even more disturbing question.

    Zeek’s wing of MLM, which also includes ASD, TelexFree, WCM777 and others, has harmed millions and millions of people. It is a vast wasteland of wink-nod disingenuousness and racketeering. The cross-border nature of these schemes is truly frightening.

    Kenneth D. Bell, the court-appointed receiver for Zeek, is pursuing class-action litigation involving more than 9,000 alleged Zeek winners. It is known that some of the winners also participated in ASD. These winners were at the scene of two crimes. Some of them were at the scene of more than two.

    This is a major problem for MLM, whether the trade acknowledges it or not. Recruits were told Zeek couldn’t be a Ponzi scheme because MLM lawyers were involved.

    And they were told that Zeek was on the up-and-up because it issued 1099 tax forms. These longstanding MLM myths have been shattered in both criminal and civil prosecutions.

    With respect to Burks’ sentencing, the government’s recommendation is not yet known. Lengthy sentences for senior-citizen Ponzi schemers, however, are hardly unprecedented. Madoff, in his seventies, received 150 years.

    Richard Piccoli, 83, received 20 years for a scheme far smaller than Zeek in dollar volume and number of victims. Piccoli advertised in Catholic publications, and is believed to have caused about $25 million in losses to about 250 people.

    Zeek advertised online and in MLM publications, creating hundreds of millions of dollars in losses while creating hundreds of thousands of victims.

    NOTE: Our thanks to the ASD Updates Blog.

     

     

  • BURKS TRIAL: Government Has Rested, Docket Says

    Prosecutors have rested their case against Paul Burks of Zeek Rewards, according to the July 13 court docket.

    Lawyers for Burks asked for an acquittal, but U.S. District Judge Max O. Cogburn Jr. denied the motion.

    It appears Burks now will proceed with his defense.

    The trial got under way July 5. Burks, 69, is charged with wire fraud, mail fraud, conspiracy to commit both and tax-fraud conspiracy.

    Details of the trial to date have been sketchy. Local news outlets in the Charlotte area have not been reporting on a daily basis.

    NOTE: Our thanks to the ASD Updates Blog.




  • ZEEK: Key Figures — And Paul Burks’ Defense

    EDITOR’S NOTE: Prosecutors and Paul Burks are clashing over expert witnesses and the admissibility of certain evidence. The article below reproduces the anticipated core of Burks’ trial defense, as advanced by his lawyers. This article is not intended to be all-encompassing. Prosecutors, of course, have an altogether different take. They have posted the indictment against Burks here.

    paulburkszeekUPDATED 10 A.M. EDT JULY 5 U.S.A. The Ponzi-related criminal trial of Paul Burks of Zeek Rewards is scheduled to begin tomorrow (July 5) in federal court in Charlotte, N.C. Burks is 69. He is charged with wire fraud, mail fraud, conspiracy to commit both and tax-fraud conspiracy. Prosecutors say he fabricated numbers, sent bogus tax forms and duped Zeek members into believing he was at the helm of an enormously profitable enterprise.

    If convicted of the charges, Burks potentially could face decades in prison — effectively a life sentence.

    His defense is led by Noell P. Tin, C. Melissa Owen and Jacob H. Sussman of Tin Fulton Walker & Owen of Charlotte. The firm has carded some notable wins for clients.

    The office of U.S. Attorney Jill Westmoreland Rose is handling the prosecution. Among those on the prosecution team are Jenny Grus Sugar and Corey Ellis, both Assistant U.S. Attorneys. The judge’s calendar also shows Assistant U.S. Attorney Benjamin Bain-Creed as a member of the prosecution team.

    Rose is well-known as the lead prosecutor in the classified-leaks case against Gen. David Petraeus, who pleaded guilty. Some Zeekers bizarrely have tried to portray the Tin Fulton firm as country bumpkins. Here we’ll point out that Sussman, one of Burks’ lawyers, was on the Petraeus defense team. The general was sentenced to probation.

    U.S. District Judge Max O. Cogburn Jr. is presiding over the Burks’ case. He has presided over other Ponzi cases. The judge complimented the Burks’ defense team last year.

    What follows are snippets from June 28 trial brief by the Burks defense team (italics added/light editing performed):

    **________________________**

    INTRODUCTION The defense anticipates presenting lay and expert testimony, and numerous exhibits, in support of a defense that goes to the heart of the charges against Mr. Burks. The defense will dispute, among other things: (1) that Mr. Burks made material misrepresentations regarding the ZeekRewards program; (2) that Mr. Burks’ company, Rex Ventures Group, had no books and records; (3) that ZeekRewards was a Ponzi or pyramid scheme; and (4) that Mr. Burks ever intended to mislead ZeekRewards affiliates.

    STATEMENT OF ANTICIPATED FACTS Mr. Burks was previously the owner of Rex Ventures Group (“RVG”), a single member L.L.C. that began in 1997. During the time frame alleged in the indictment, RVG was comprised of two divisions: (1) Zeekler, a penny auction website; and (2) ZeekRewards, a multilevel marketing program RVG conceived and promoted as the marketing arm of Zeekler. RVG’s product was bids which were sold in the form of retail bids for the Zeekler penny auction or VIP sample bids for ZeekRewards affiliates.

    Affiliates who purchased sample bids gave them away to promote the Zeekler penny auction, which in turn entitled the affiliates to participate in RVG’s Retail Profit Pool.

    A. Paying what he promised. As set out on the ZeekRewards website, affiliates who met certain qualifying criteria (e.g., paying a subscription fee, giving away sample bids, and placing ads to promote the Zeekler penny auction) were promised up to 50 percent of RVG’s net daily profits. Evidence at trial will show the company performed as promised. From January 1, 2011, when the program began, until August 16, 2012, when the doors closed, RVG took in $938.8 million in cash from affiliates and auction customers.

    During the same period RVG paid $499.5 million . . .  to affiliates in cash as the RPP Award. In other words, RVG made good on the core of its promise by paying out 53.2 percent of its revenues to affiliates. The government has repeatedly asserted, and will continue to assert, that Mr. Burks kept no books or records. Acceptance of this argument will require the jury to find that RVG’s SQL database contained no records.

    In fact, the SQL database contained terabytes of data consisting of approximately 589 tables with hundreds of millions of rows. The SQL database was accessed daily by Mr. Burks, the company’s technology personnel, as well as over 2 million ZeekRewards affiliates who relied on it to keep contemporaneous track of their accounts. Through the SQL database affiliates accessed their respective back-offices to monitor their VIP Point balances, to place ads, to select the percentage of RPP Award they wanted as VIP bid repurchases versus cash award, to check their available cash balances, to request cash payments, and so on.

    Similarly, the SQL database was at all times available to Mr. Burks and provided him the information he needed to run RVG, including the information he needed to determine each day’s Retail Profit Pool percentage.

    B. Bid sales were final. VIP sample bids were not, as the government suggests, “represented as functioning like shares of Zeekler stock.” . . .  To the contrary, before participating in ZeekRewards, affiliates were required to sign a statement acknowledging the following: Submitting this payment confirms that you understand you are purchasing VIP Bids to use as samples to give to potential retail customers. You also understand that this purchase is non-refundable and is not a “deposit” or “investment” and cannot be “withdrawn” later. You affirm that you have read and understand the ZeekRewards Policies and Procedure and agree to all of their terms. NO REFUNDS CAN BE MADE AFTER PAYMENT IS PROCESSED.

    Completed and submitted bid purchase forms, of which there are thousands in number, will be presented to the jury.

    C. Mr. Burks made changes to the program in good faith based on the advice of experts. During the life of the ZeekRewards program, Mr. Burks retained a number of experts to advise him on complying with the myriad of laws governing the multi-level marketing industry. Many of these experts (including accountants, attorneys, and others) had combined decades of experience in the industry and were regarded as leaders in their respective fields. Many programmatic changes the government will claim were “cosmetic” . . .  were initiated not by Mr. Burks, but by those he had hired to advise him on how to run ZeekRewards.

    Equally important, many of the changes Mr. Burks made did nothing to disguise how the ZeekRewards program operated. Some of these changes Mr. Burks made included the following:

    • Adding the requirement of giving away sample bids
    • Instituting compliance courses for affiliates
    • Upgrading the internal accounting system
    • Eliminating lead generation programs
    • Hiring a call center in Atlanta to respond to affiliate inquiries and complaints.

    The defense expects to call many of these experts as trial witnesses.

    D. Dealing with the challenges of explosive growth.

    Nobody could have foreseen how much the ZeekRewards program would grow in such a short period of time, approximately 18 months. As witness Kevin Walker has stated, the company “took off like a rocket ship.” Indeed, the growth in numbers of affiliates was staggering. As of December 31, 2011—12 months into the life of ZeekRewards—the program had 57,597 distinct active usernames. This figure increased to 208,601 by March 31, 2012 and 1.25 million by August 15, 2012.

    In terms of revenue, average daily revenue went from $5,905 in the first quarter of 2011 to $8,429,626 in the third quarter of 2012. By August 16, 2012, Zeekler.com was the 890th most visited website in the world and ZeekRewards.com ranked 130th globally.

    Growth of this magnitude was overwhelming. Despite Mr. Burks’ efforts to bring in additional personnel to address the problems that came with growth at this level, many of the problems RVG encountered—with banks, payment processors, and customer service—were attributable to growth at an unforeseeable rate.

    E. The issuance of Forms 1099 was based on sound legal advice—and was anything but evidence of “lulling.” Mr. Burks was advised that it was appropriate—indeed, necessary—to issue 1099s to affiliates. This created all manner of complaints and criticisms. The reality for affiliates that they would have to pay taxes for money earned through ZeekRewards, even if they had chosen to repurchase bids in lieu of a cash payment, was a difficult one for some to accept. But it was the law according to Howard Kaplan, a tax attorney who had previously worked for the IRS and who was retained to advise RVG.

    Mr. Kaplan’s advice was unambiguous. As he stated in an email, “I have also given this some thought and I concur that because of the way your plan is structured, there is constructive receipt because of the choice your affiliates have.” Mr. Kaplan repeated the same in conference calls with affiliates. Mr. Burks is not a tax attorney. He relied on the assurances of the people he paid and hired.

    NOTE: See the PP Blog’s Zeek Rewards Cloud Tag here.

    NOTE: Our thanks to the ASD Updates Blog.




  • URGENT >> BULLETIN >> MOVING: Zeek Receiver Moves For Summary Judgment Against Class-Action Clawback Defendants; Kenneth Bell Says Defense Expert Witness Has Found No Evidence That ‘Disproves That The Business As A Whole Operated As A Ponzi Scheme’

    Berkeley Research Group, an expert working for the defense in Zeek clawback litigation,has not been able to disprove the presence of a Ponzi scheme. Source: Screen shot of a Berkeley report to Senior U.S. District Judge Graham C. Mullen Jr. The report is dated May 26, 2016.
    Berkeley Research Group, an expert working for the defense in Zeek clawback litigation, has not been able to disprove the presence of a Ponzi scheme. Source: Screen shot of a Berkeley report to Senior U.S. District Judge Graham C. Mullen Jr. The report is dated May 26, 2016.

    URGENT >> BULLETIN >> MOVING: (3RD UPDATE 6:11 P.M. EDT U.S.A.) On virtually the eve of the criminal trial of Paul Burks, receiver Kenneth D. Bell has asked the court presiding over a huge class-action lawsuit against 9,400 alleged Zeek “winners” for a finding the MLM program was a Ponzi scheme.

    Such a finding would mandate winners to return nearly $300 million. Bell contended that “[o]f the over $900 million that was paid in to Zeek, only approximately $10 million (1.1%) came from actual retail purchases.”

    Retail sales are crucial to the determination of whether an MLM program is legitimate. Bell contends Zeek, which offered a penny auction, was both a Ponzi scheme and a pyramid scheme. Zeek affiliates allegedly believed enormously profitable auctions made Zeek sustainable.

    “Two of the primary creators and operators of the ZeekRewards scheme have already admitted it was a Ponzi scheme and pleaded guilty to criminal conduct in connection with the scheme,” Bell argued to Senior U.S. District Judge Graham C. Mullen in a June 30 motion. “In sum, the evidence that ZeekRewards was a Ponzi scheme is overwhelming. Even the Defendant class’ expert has acknowledged finding no evidence that ‘disproves that the business as a whole operated as a Ponzi scheme.’

    “Because Zeek’s net winners ‘won’ (the victims’) money in an unlawful Ponzi scheme, under long settled law those winners are not permitted to keep their winnings and must return the fraudulently transferred funds back to the Receiver for distribution to Zeek’s victims,” Bell argued.

    At stake in the civil clawback case is more than $282 million allegedly paid to winners by Zeek. Berkeley Research Group is the expert for the defense. Bell used FTI Consulting Inc. as his expert.

    Burks’ criminal trial is scheduled to begin Tuesday (July 5).

    What kind of financial environment did Zeek create?

    According to FTI, only about 8 percent (75,000 usernames) were winners, while 90 percent (841,000 usernames) were losers. Meanwhile, only 0.3 percent (2,778 usernames) were net neutral, with only 1.6 percent (14,500 usernames) classified as auction bidders only.

    Bell sued 9,400 alleged winners who’d received more than $1,000 each. FTI asserted that the net losers lost more than $822 million and the net winners hauled away more than $282 million. The small number of auction bidders suggests that Zeekers by and large joined for the purported money-making venture.

    But Zeek, Bell alleged, was insolvent even while paying out large sums of money.

    Cocaine Allegation Made By Alleged Insider

    During a deposition conducted in April 2016 by an attorney for the receivership, alleged Zeek insider Darryle Douglas made a claim that former Zeek COO Dawn Wright-Olivares was a user of “crack cocaine” who was “asked to leave” Free Store Club, a Zeek predecessor, according to a partial transcript included in Bell’s June 30 motion.

    Wright-Olivares also is an alleged Zeek insider and one of two Zeek figures to plead guilty to Ponzi-related criminal charges. (The other is Daniel Olivares, her stepson.) Wright-Olivares and Olivares both are expected to testify against Burks at his criminal trial.

    Whether Burks intended to use the cocaine allegation against Wright-Olivares to impeach her credibility as a witness was not immediately clear. But Wright-Olivares and Olivares both lived with Douglas at one time in Lexington, N.C., according to the transcript.

    Zeek, as part of Rex Venture Group, was based in Lexington.

    While living in Lexington, a “separation” developed between Douglas and Wright-Olivares and a once-strong business relationship between Douglas and Burks became “fractured,” according to the transcript.

    “And that’s where our separation began,” Douglas said, according to the transcript. “Dawn was a crack cocaine user . . .  Dawn used cocaine and was asked to leave the company eventually . . . This was FreeStore Club. She left but came back with the idea for a penny auction, which no one had ever heard of. Because we had a fractured relationship, we created MyBidShack, they created Zeekler. Eventually Paul decided to get rid of MyBidShack and that the company would only go under Zeekler, which made our rift expand. It set up a war that we — that’s when I was no longer allowed to have access codes or key information from accessing the system . . .”

    The receiver’s motion, memo and exhibits are available at the receivership website.

    Also see “ANNOUNCEMENT FROM THE RECEIVER – July, 1, 2016” at the receivership site.




  • Grand Jury Was Meeting When Some Zeekers Waged Misinformation Campaign; Prosecutors Question Veracity Of Burks’ ‘Handwritten Notebooks’

    Paul Burks
    Paul Burks

    New filings by federal prosecutors in the criminal case against Zeek’s Paul Burks reveal that a grand-jury investigation was under way within days of the SEC’s Aug. 17, 2012, shutdown of the “program” and confirmation by the U.S. Secret Service that it also was investigating Zeek.

    Burks was subpoenaed by the grand jury on Aug. 24, 2012, and testified before the panel less than a month later, on Sept. 20, 2012, according to prosecutors. He ultimately was indicted by the grand jury in October 2014, more than two years after the August 2012 subpoena and his subsequent appearance the following month.

    Whether others within Zeek also had been subpoenaed or had knowledge of Burks’ appearance is unclear. What is known is that a group of Zeek members — during the same 2012 time period — embarked on a fundraising campaign while accusing the SEC of misleading a federal judge and admitting it had a weak case.

    One of the members of the group was Todd Disner, a former winner in the AdSurfDaily Ponzi scheme later identified as a major winner in the Zeek scheme. Zeek receiver Kenneth D. Bell has raised the issue of serial promoters moving from one fraud scheme to another.

    Bell specifically has referenced ASD. Federal prosecutors have, too.

    Given that ASD operator Andy Bowdoin is in federal prison for running a Ponzi scheme and Zeek’s “program” was similar to ASD in key ways, events at ASD could be problematic for Burks. How did Disner, for example, end up at Zeek?

    Despite knowing about ASD in 2011, Burks nevertheless moved forward with Zeek, prosecutors contend.

    The government is arguing that the ASD fraud put Burks on notice of his own fraud and that evidence pertaining to ASD should be admissible.

    Precisely what the government intends to introduce about ASD is unknown. But as part of his defense, Burks is asking U.S. District Judge Max O. Cogburn Jr. to exclude evidence about ASD.

    “This case is about Paul Burks, Rex Venture Group, Zeekler.com, and ZeekRewards.com,” Burks advised Cogburn in a June 28 trial brief. “It is not a referendum on direct selling or multi-level marketing programs. The trial of this case is not the time, or the place, for a jury to render a verdict on these types of companies or programs, which are perfectly legal yet regularly criticized.

    “It is also not about corporate malfeasance or wrongdoing by others, which is precisely what the Government seeks to convey to the jury by referencing ASD. Accordingly, the Government should be barred from any reference ASD, or any other entity whose conduct is completely irrelevant to the facts of this case. Even if there is some limited relevance to ASD (it is mentioned in government witness interviews), the Court should bar any mention of ASD since the limited probative value of such evidence is substantially outweighed by a danger of unfair prejudice, confusion, being grossly misleading, and inviting a trial-within-a-trial.”

    Burks’ trial on charges of wire fraud, mail fraud, conspiracy to commit both and conspiracy to commit tax fraud is scheduled to get under way July 5.

    We’re working on a story that will cover other elements of his defense.

    In a development yesterday, the government contended Burks withheld “purported” handwritten notebooks from the grand jury during his September 2012 appearance and didn’t turn them over until April 2016.

    Burks now wants to use the “unauthenticated” notebooks as a trial exhibit and as the basis for the opinions of expert witnesses he intends to call, prosecutors argued.

    “Defendant’s failure to produce these documents in response to the Grand Jury testimony, his testimony that he had produced all responsive documents, and the production of these Handwritten Notebooks on the eve of trial, without explanation, all raise serious concerns about the legitimacy of the Handwritten Notebooks,” prosecutors argued to Cogburn.

    NOTE: Thanks to the ASD Updates Blog.