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  • ‘Guaranteed50KIn30Days’ Was ‘Pyramid Promotion Scheme’: Nebraska Attorney General

    guaranteed50k“Guaranteed50KIn30Days” and associated programs were “pyramid promotion schemes” that depended on recruitment rather than product sales to “ultimate-user consumers,” investigators from the office of Nebraska Attorney General Doug Peterson said today.

    The PP Blog wrote about the schemes in July 2013 — in part because they were being pushed by affiliates who also pushed the Profitable Sunrise scam. Profitable Sunrise was aimed at Christians and caused massive, cross-border losses.

    From Peterson’s office (italics added):

    Today, Nebraska Attorney General Doug Peterson announced a settlement with Gage County based B & B Communications, Inc. and its principals, resolving an investigation which focused on the alleged operation of multiple pyramid schemes, through websites such as 2x2successteam.com, financialfitnessclub.com (formerly guaranteed50kin30days.com), ffcbridge.com, privatemillionairesclub.com, bandbonlineads.com (formerly onlineweathteam.com), and bandbsuccessclub.com.

    The settlement has three main components requiring B & B Communications, et al. to comply with multiple assurances regarding future conduct, make a payment of approximately $11,000 for consumer restitution to Nebraska consumers, and make a $15,000 payment to the State.  Consumers who qualify for restitution will be notified by the Attorney General’s Office in the near future. 

    Respondents included B & B Communications, Brian Barnhouse of Beatrice, Neb., and Steve Borgman of Whymore, Neb. Barnhouse and Borgman were B & B principals.

    Websites included 2X2SuccessTeam.com, FinancialFitnessClub.com (formerly Guaranteed50KIn30Days.com), FFCBridge.com, PrivateMillionairesClub.com, BAndBOnlineAds.com and BAndBSuccessClub.com.

    The respondents denied the state’s allegations, according to an Assurance of Voluntary Compliance.




  • IMPORTANT: Statement From TelexFree Trustee On Sept. 26 Claims Deadline

    UPDATED 11:23 A.M. EDT U.S.A. DEC. 22, 2016: The claims deadline has been extended from Dec. 31, 2016 to March 15, 2017, at 4:30 p.m. Prevailing Eastern Time. This marks the second deadline extension. Claims must be filed at TelexFreeClaims.com.

    Our brief on the earlier deadline is below:

    **_________________**

    The claims information below was received July 22, 2016, by the PP Blog from Stephen B. Darr, the court-appointed trustee in the TelexFree bankruptcy case.

    ** __________________________**

    September 26, 2016 at 4:30 p.m. (prevailing Eastern Time) has been established as the deadline for each person or entity (including individuals, partnerships, corporations, estates, trusts, joint ventures, and governmental units, wherever located), and Participants (collectively, “Claimants”) to file proofs of claim against the Debtors. Participants means persons or entities who purchased a membership plan in, or a voice over internet package (“VoIP”).

    Proofs of claim must be submitted electronically through the Portal and the Portal’s internet address is Telexfreeclaims.com.

    newtelexfreelogo




  • REPORTS: TelexFree Figure Murdered In Brazil

    Dorian da Silva Santos. known simply as Dorian. Source: TelexFree promo on YouTube.
    Dorian da Silva Santos. known simply as Dorian. Source: TelexFree promo on YouTube.

    3RD UPDATE 3:17 P.M. EDT U.S.A. Dorian da Silva Santos, described by Bloggers and in media accounts as a politician and promoter of TelexFree in Brazil, reportedly has been found murdered execution-style in the Brazilian state of Bahia.

    The news adds to a disturbing series of events that, since at least 2013, have become part of the TelexFree story.

    One account in Portuguese says Dorian was found Tuesday. He reportedly was shot about six times in the head “and had his hands tied behind him with a mobile phone charger wire,” according to a Google translation from Portuguese to English of a story at criativaonline.com.br.

    Authorities reportedly are trying to determine if the crime has any link to Dorian’s TelexFree participation through a company known as Ympactus in Brazil. With illicit business reportedly totaling more than $3 billion and hundreds of thousands of participants globally, TelexFree may be the largest MLM-related Ponzi- and pyramid-scheme of all time.

    Blogger Paul Joseph (Paulo José) wrote that Dorian was running for mayor of the city of Serra Preta and was found in the Humble district in Feira de Santana. The body was found in a vacant lot. Attributing information to police, Joseph reported that the body was found with “signs of torture and firearm shots to the head,” according to a Google translation of the original report in Portuguese.

    In the United States, Stephen B. Darr, the court-appointed bankruptcy trustee for TelexFree, said he was aware of the reports in Brazil about Dorian’s death. The news was awful, he told the PP Blog.

    “We do not believe he was a participant in the US-Based TelexFree operation — just Ympactus,” Darr wrote.

    There have been various threats surrounding TelexFree. In 2014, for example, there were reports in Peru about a TelexFree promoter being kidnapped and held in a van. The kidnapping reportedly was carried out by TelexFree members who ordered the man to withdraw money from a bank to make them whole.

    At least one judge and prosecutor in Brazil reportedly received death threats. American MLMers continued to promote TelexFree, despite the disturbing news in Brazil and the blocking of TelexFree assets there in 2013.

    Some TelexFree participants apparently were so eager to build a downline that they spammed the funeral notice of a TelexFree member who’d reportedly committed suicide in 2013.

    NOTE: On July 21, Globo.com reported in Portuguese that two suspects have been arrested. They reportedly are bandits who sought to rob Dorian because they believed he was rich and later engaged police in a gunfight.

    Google English translation.

  • Baton Rouge Cop-Killer Was ‘Sovereign Citizen’ And ‘Moor’ — And Also Claimed To Have Been In Dallas

    Gavin Eugene Long, the alleged mass murderer of police officers in Baton Rouge yesterday, was a “sovereign citizen” and “MOOR,” according to a bizarre filing in his name last year with the recorder of deeds in Jackson County, Mo.

    The news of the filing appeared in the Kansas City Star. Here is a copy of Long’s rambling narrative in which he purportedly changed his name to “Cosmo Ausar Setepenra.”

    CBS News reported Long, a Kansas City native, claimed to have been in Dallas after the July 7 ambush murders of five police officers there by Micah Xavier Johnson.

    “Sovereign citizens” form an irrational belief that laws to not apply to them. African Americans who may self-identify as “sovereigns” sometimes express an affiliation with Moors or Moorishness. Long, killed after reportedly ambushing police, was African American.

    Published reports have described Long as a self-identified “nutritionist, life coach, dietitian, personal trainer, author and spiritual adviser.” Three law-enforcement officers died in Baton Rouge yesterday. Three others were injured.

    Some “sovereigns” have participated in HYIP schemes such as AdSurfDaily, Zeek Rewards, JustBeenPaid/JSS Tripler and DFRF Enterprises.

    Visit the PP Blog’s tag archive on references to “sovereign citizens.”




  • URGENT >> BULLETIN >> MOVING: Herbalife Must ‘Fundamentally Restructure Its Business,’ FTC Says In Settlement Announcement; Agency Brings Complaint In Federal Court That Alleges ‘Deceptive And Unlawful Acts And Practices’

    EDith Ramirez makes the announcement this morning. Source: Screen shot of live news conference feed.
    Edith Ramirez makes the announcement this morning. Source: Screen shot of live news- conference feed.

    URGENT >> BULLETIN >> MOVING:  (13th Update 3:45 p.m. EDT U.S.A.) The FTC is going to federal court in the Central District of California, alleging that Herbalife engaged in “deceptive and unlawful acts and practices.”

    Separately, the agency announced a settlement with the company that will have Herbalife pay $200 million and change the way it does business. The company has not formally been accused of operating a pyramid scheme, although the agency directed harsh words at the MLM enterprise.

    “This settlement will require Herbalife to fundamentally restructure its business so that participants are rewarded for what they sell, not how many people they recruit,” FTC Chairwoman Edith Ramirez said in a statement. “Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered as a result of what we charge are unfair and deceptive practices.”

    Herbalife described the FTC settlement and a separate, $3 million settlement with the state of Illinois as wins.

    “The settlements are an acknowledgment that our business model is sound and underscore our confidence in our ability to move forward successfully, otherwise we would not have agreed to the terms,” said Michael O. Johnson, chairman and CEO, in a statement.

    Although Herbalife contended in a statement this morning that the “terms of the settlement do not change Herbalife’s business model as a direct selling company and set new standards for the industry,” the FTC’s complaint paints a picture of a company the institutionalized deception and pyramid behavior.

    Herbalife currently “does not offer participants a viable retail-based business opportunity,” the FTC alleged.

    And, it alleged, the firm’s “compensation program incentivizes not retail sales, but the recruiting of additional participants who will fuel the enterprise by making wholesale purchases of product . . . The retail sale of Herbalife product is not profitable or is so insufficiently profitable that any retail sales tend only to mitigate the costs to participate in the Herbalife business opportunity.”

    Said Herbalife: “While the Company believes that many of the allegations made by the FTC are factually incorrect, the Company believes settlement is in its best interest because the financial cost and distraction of protracted litigation would have been significant, and after more than two years of cooperating with the FTC’s investigation, the Company simply wanted to move forward. Moreover, the Company’s management can now focus all of its energies on continuing to build the business and exploring strategic business opportunities.”

    Herbalife’s stock soared when Wall Street opened this morning. At 9:36 a.m., it was up more than $10 — or more than 17 percent.

    The National Consumers League said it welcomed the settlement.

    “The FTC’s action today addresses many of the concerns that NCL and other experts on pyramid schemes raised about Herbalife’s business practices. Specifically, consumers will benefit greatly from the settlement’s requirement that Herbalife base its compensation structure on verifiable retail sales to end-users of the product, not recruitment of new distributors. This is the core distinction, as enumerated by more than 30 years of case law, between a legal direct-selling company and a fraudulent pyramid scheme. The settlement’s requirement that at least 80 percent of product sales, companywide, must be made to end-users will further address concerns about a lack of retail sales to buyers outside the business opportunity. The FTC’s settlement will also address many of the blatantly unsubstantiated earning claims made by Herbalife’s distributors to entice new recruits to join the business opportunity and keep existing distributors paying to remain in the business opportunity. We look forward to the FTC’s forthcoming guidance to the direct selling industry as an opportunity to address the persistent lack of clarity that has characterized many industry practices.”

    Despite Herbalife’s settlement with Illinois, the state still is soliciting complaints about the company.

    “This scheme preyed on people looking to make a better life for themselves and their families,” said Illinois Attorney General Lisa Madigan. “Herbalife created an incentive structure that made it easy for people to invest, but impossible for most people to make any money.”

    From Madigan’s office (italics added):

    Madigan alleged that Herbalife’s current business model involved luring members with promises of lavish rewards for selling the company’s products, when in fact, the majority of incentives were given to people who recruited others to sell the company’s products. As a result, most people who joined Herbalife never made any money from the company but lost the costs of starting a business.

    The FTC settlement requires Herbalife to change its business model to ensure all compensation is based on retail sales that are verified. It also prohibits Herbalife from making statements that indicate that participation in Herbalife is likely to result in a lavish lifestyle, such as you “can quit your job,” “be set for life,” “earn millions of dollars,” or “make more money than they ever have imagined or thought possible.” That also includes images of opulent mansions, private helicopters, private jets, yachts and exotic automobiles in their promotions.

    Pershing Square Capital Management — the home of Herbalife short-seller Bill Ackman — suggested other regulators across the globe might follow the FTC’s lead in acting against Herbalife.

    Ackman famously has called Herbalife a pyramid scheme.

    “The FTC complaint and settlement provide a roadmap for regulators in 90 other countries around the world to enforce similar requirements,” Pershing Square said in a statement. “We intend to work with these regulators to ensure that no future victims are harmed whether in the U.S. or otherwise.”

    Moreover, Pershing Square said the forced changes at Herbalife might cause core distributors to flee — something that could affect Herbalife’s bottom line.

    “The [FTC] settlement also requires Herbalife to eliminate minimum purchase requirements and other inventory loading incentives,” Pershing Square said. “Furthermore, in order to maintain eligibility or advance in the plan, distributor requirements must be met through ‘Profitable Retail Sales’ or sales to ‘Preferred Customers,’ who are not buying product to participate in the business opportunity.

    “We expect that once Herbalife’s business restructuring is fully implemented, these fundamental structural changes will cause the pyramid to collapse as top distributors and others take their downlines elsewhere or otherwise quit the business.”

    Even though the FTC didn’t use the phrase “pyramid scheme” today in its actions against Herbalife, the agency’s “findings are clear,” Pershing Square contended.

    It “appears that Herbalife negotiated away the words ‘pyramid scheme’ from the settlement agreement,” Pershing Square said.

    Read the FTC complaint against Herbalife. Read the “STIPULATION TO ENTRY OF ORDER FOR PERMANENT INJUNCTION AND MONETARY JUDGMENT.”




  • 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.




  • DEVELOPING STORY: U.S. Attorney Carmen Ortiz ‘Has Been Recused’ From Prosecution Of TelexFree Figures James Merrill and Carlos Wanzeler

    U.S. Attorney Carmen Ortiz has been recused from the prosecutions of TelexFree figures James Merrill and Carlos Wanzeler, according to a government filing.
    U.S. Attorney Carmen Ortiz has been recused from the prosecutions of TelexFree figures James Merrill and Carlos Wanzeler, according to a government filing.

    2ND UPDATE 6:27 P.M. EDT U.S.A. A government filing dated July 1 — a Friday before the long Independence Day weekend — says U.S. Attorney Carmen Ortiz of the District of Massachusetts “has been recused” from the prosecutions of TelexFree figures James Merrill and Carlos Wanzeler.

    The document does not say why Ortiz no longer will oversee the cases against the alleged pyramid- and Ponzi-schemers. The recusal comes more than two years after Merrill and Wanzeler were charged criminally by prosecutors in Ortiz’s office and nearly 24 months after they were indicted.

    Ortiz, in May 2014, described the alleged fraud as “breathtaking.”

    At the time of this story, no media announcement about the recusal appears on the U.S. Attorney’s website.

    On Saturday (today), Ortiz’s office did not respond immediately to a request for comment.

    U.S. District Judge Timothy S. Hillman is presiding over the cases.

    Here is the text of the “NOTICE OF RECUSAL BY THE UNITED STATES ATTORNEY” dated yesterday (italics added):

    The United States respectfully notifies the Court that United States Attorney Carmen M. Ortiz has been recused from this matter. Pursuant to 28 U.S.C. § 515 and related delegations, an Associate Deputy Attorney General has directed and authorized First Assistant United States Attorney John T. McNeil to have the status, and perform all of the authorized functions, of a United States Attorney with respect to this case.

    Ortiz announced the appointment of McNeil as her first assistant on April 28, 2014. TelexFree declared bankruptcy just 15 days earlier, on April 13. The SEC moved against TelexFree on April 17, 2014.

    Section 3-2.170 of the U.S. Attorneys’ Manual says recusals are required “only where a conflict of interest exists or there is an appearance of a conflict of interest or loss of impartiality.”

    From the manual (italics added):

    A United States Attorney who becomes aware of circumstances that might necessitate a recusal of himself/herself or of the entire office, should promptly notify [the General Counsel’s Office of the Executive Office For United States Attorneys] at . . . to discuss whether a recusal is required. If recusal is appropriate, the USAO will submit a written recusal request memorandum to GCO. GCO will then coordinate the recusal action, obtain necessary approvals for the recusal, and assist the office in arranging for a transfer of responsibility to another office, including any designations of attorneys as a Special Attorney or Special Assistant to the Attorney General . . .

    Whatever TelexFree-related conflict exists, it appears only to affect Ortiz, given that her first assistant has been put in charge and the entire U.S. Attorney’s Office in Massachusetts has not been excluded from the prosecution.

    NOTE: Our thanks to the ASD Updates Blog.




  • 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.




  • FEDS: Having Pocketed $11 Million In 2011, Burks Plowed Forward With Zeek, Despite Knowledge Of AdSurfDaily Ponzi Case

    “Rather, [Andy] Bowdoin manufactured the revenue numbers to deceive members into believing that they could reasonably expect to receive an average daily return on their investment with [AdSurfDaily] of at least 1%. This percentage in no way corresponded to the daily revenue that ASD was generating, but had been determined by ASD’s operators to be the amount needed to attract a steady stream of newcomers.” — U.S. Secret Service affidavit in AdSurfDaily forfeiture case, Feb. 26, 2009

    “Defendant [Paul] Burks simply made up the ‘daily net profit’ without any reference at all to profits. The true revenue from the [Zeek] scheme, approximately 98% of all incoming funds, came from victim-investors . . . [T]he co-conspirators published bogus daily figures of Zeek’s profits, averaging approximately 1.4% a day . . .” — Office of U.S. Attorney Jill Westmoreland Rose, June 24, 2016

    “Burks and his co-conspirators were very aware of ASD and of the fact that it was shut down. For example, on March 26, 2011, a few months after the owner of ASD was indicted, Burks and Dawn Wright-Olivares emailed regarding an affiliate[‘]s advertisement for ZeekRewards that included in the title, ‘[i]f you were in ASD or AVG then you will know how good this is.'” — Office of U.S. Attorney Jill Westmoreland Rose, June 24, 2016

    EDITOR’S NOTE: Prior to the Aug. 17, 2012 fall of Zeek Rewards, the PP Blog reported on a number of similarities between Zeek and AdSurfDaily. (See June 10, 2012, editorial, “A Friday Evening In MLM Radio La-La Land.” Also see Aug. 12, 2012, editorial, “Karl Wallenda Wouldn’t Do Zeek.”)

    **______________________**

    From a Zeek promo.
    From a Zeek promo.

    With the July 5 trial date for alleged Zeek Rewards’ operator Paul Burks fast approaching, federal prosecutors making a case for willful blindness now say Burks and co-conspirator Dawn Wright-Olivares plowed forward even though they were “very aware” of the Ponzi-scheme case against AdSurfDaily and operator Andy Bowdoin.

    In fact, the office of U.S. Attorney Jill Westmoreland Rose said in June 24 filings, the subject of ASD had come up at Zeek at least by March 2011, only a few months after Bowdoin had been indicted in November 2010.

    The triggering event for an email discussion between Burks and Wright-Olivares had been an affiliate’s promotion for Zeek that in part read, “[i]f you were in ASD or AVG then you will know how good this is,” prosecutors said.

    “AVG” is short for AdViewGlobal, a 1-percent-a-day scam Bowdoin and others launched just two months after the U.S. Secret Service, using forfeiture law, seized tens of millions of dollars from Bowdoin for his operation of ASD in August 2008. A federal judge revoked Bowdoin’s bail in the ASD case after she found out about AVG.

    Wright-Olivares, in February 2014, pleaded guilty to criminal charges for her role in Zeek. She and stepson Daniel Olivares, who also pleaded guilty, are expected to testify against Burks.

    The Zeek affiliate’s March 2011 promo using the names of both ASD and AVG prompted Wright-Olivares to advise the affiliate to be “careful with [her] subject line,” prosecutors said. A lecture using all-caps allegedly ensued.

    “We cannot have ZeekRewards compared to ASD or AVG EVER for ANY REASON,” Wright-Olivares allegedly wrote to the affiliate. “They were both shut down. We are very very different from both companies.”

    It was unclear from the filing whether the Zeek affiliate also had belonged to ASD and AVG. Zeek receiver Kenneth D. Bell has raised the issue of some MLMers moving from one fraud scheme to another, actions that lead to a sort of permanent fog of preposterous disingenuousness and willful blindness in the HYIP sphere.

    After ASD had become a topic of discussion inside Zeek in March 2011, the subject came up again in June of that year, prosecutors alleged.

    “Similarly, on June 28, 2011, over [S]kype, Wright-Olivares told Burks that changes needed to be made to the program to make it sustainable,” prosecutors alleged. “Burks retorted: ‘I’m the one with my neck in the noose…not you…If the swat team shows up it’s MY ass in the can…’ Wright-Olivares responded, ‘[i]’ll be there too… they will seize it all and we are liable ask the ASD people.'”

    By June 2011, it was public knowledge that ASD had gathered at least $110 million. Burks’ prosecutors now are suggesting that, despite the lessons of the ASD case, Burks and Wright-Olivares did not abandon Zeek because the money was simply too good.

    “In 2011 alone, Burks received approximately $11 million in income from ZeekRewards out of total revenue of approximately $37 million,” prosecutors alleged in their June 24 brief. They earlier pegged the total haul of Wright-Olivares at about $7.2 million.

    Burks is facing charges of with mail- and wire-fraud conspiracy,  mail fraud, wire fraud and tax-fraud conspiracy. Some MLMers have insisted for years that the issuance of tax forms by a “program” demonstrates no fraud is under way.

    With Zeek, prosecutors have laid bare that notion.

    From prosecutors’ assertions (italics added):

    In total, Defendant Burks, and others, reported to the IRS supposed income by the victim-investors of over $96 million for the year 2011 on the 1099s issued, while ZeekRewards actually paid out less than approximately $13 million in cash to victim-investors during that year. As a result, individual victim-investors filed false tax returns with the IRS reporting phantom income that they never actually received, and Burks, and others were able to use the false tax notices to perpetuate the Ponzi scheme by making the phantom money seem like it actually existed.

    NOTE: Our thanks to the ASD Updates Blog.