URGENT >> BULLETIN >> MOVING: Montana Fines ‘Funky Shark,’ Purported Upstart ‘Penny Auction’ Program; Operator Agrees to Pay $834,000 After Issuance Of Order

URGENT >> BULLETIN >> MOVING: (UPDATED AT 12:49 P.M. ET U.S.A. TO DELETE EARLIER REFERENCE TO ‘CEASE AND DESIST’ ORDER AND TO PROVIDE LINK TO CONSENT AGREEMENT AND FINAL ORDER.)

An upstart “penny auction” company known as “Funky Shark” effectively has been shut down after the state of Montana named it in an order and its alleged operator agreed to pay a $40,000 fine and to repay $834,000 to investors, the office of the Montana Commissioner of Securities and Insurance Monica J. Lindeen said this morning.

Montana authorities identified Scott Wacker of Bozeman as Funky Shark’s operator, alleging that he and Funky Shark sold investment opportunities illegally.

In September — after the shutdown by the SEC of the purported Zeek “penny auction” program — “Wacker began recruiting investors for his penny-auction website, FunkyShark.com,” Lindeen’s office said. “By the end of October, Wacker had raised over $1 million from investors across the world.”

In a claim apt to cause unease among HYIP operators, Lindeen’s office said Wacker’s bank filed a “suspicious activity report.” Such reports typically are filed when a bank begins to suspect something untoward is occurring in a customer’s account.

“The flurry of transactions in Wacker’s personal and business accounts led his bank to file a suspicious activity report, which was referred to Lindeen’s office,” Montana authorities said. “After reviewing the report, investigators suspected Funky Shark was a pyramid scheme and requested a restraining order to prevent additional investors from getting involved.”

Wacker cooperated with Montana authorities and “posted a notice on Funky Shark’s website explaining that its investment program ‘may violate certain securities laws in the United States,'” Lindeen’s office said.

Authorities described Funky Shark as a program teetering on collapse shortly after its launch.

“In the two months it operated, Funky Shark paid nearly $378,000 in commissions to participants who recruited new members,” Lindeen’s office said. “Those commission payments left Funky Shark unable to repay all of its participants in full, so Wacker agreed to pay $270,000 out-of-pocket to make investors whole.”

Lindeen said Funky Shark investors were lucky.

“Mr. Wacker stepped up to the plate and repaid his investors,” she said. “Often when we handle these types of cases, there’s simply no money left to repay participants. But for a number of reasons, this case is unique. Mr. Wacker didn’t understand what he was getting into, and he has expressed his commitment to setting things right.”

Some HYIPs are selling “founder’s memberships” to fill the coffers with cash prior to the “launch” of a “program.” That was the case with Funky Shark, Lindeen’s office said.

“According to the Funky Shark website, members who pay a $24.95 fee can join a ‘rewards program’ and earn ‘passive income’ from new members they recruit,” Lindeen’s office said on Nov. 2. “For a non-refundable, $1,000 investment, members become ‘founders’ and get a share of each day’s auction profits and a bonus for every new founder they recruit.”

Authorities noted that “[n]either Wacker nor Funky Shark were licensed to offer securities in Montana.”

Here is the consent order.