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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.

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.

Guide for the Perplexed on $HLF: FTC slaps co.’s wrist really hard – but Ackman needed them to go after co. with an AR-15, and they didn’t.

— Michael Rapoport (@rapoportwsj) July 15, 2016

$HLF is interesting b/c the stock TODAY shows the bulls won (congrats!) but the FTC ruling shows just the opposite. Fascinating!

— Herb Greenberg (@herbgreenberg) July 15, 2016

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.”

Jul 15, 2016
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.

UPDATED 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.
Jul 4, 2016
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.

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.

Jul 3, 2016
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.

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.

Jun 26, 2016
Embezzled Banners Broker Pyramid Funds Allegedly Ended Up In ‘KulClub,’ Another Ponzi-Board MLM Program

2ND UPDATE 2:25 P.M. EDT U.S.A. More horrible PR for the MLM trade: Banners Broker international pitchman and pyramid-scheme figure Kuldip Josun embezzled at least $3.6 million from affiliates, according to a receiver’s report.

The money was deposited into a Swiss bank account held by an entity known as World Web Media Inc. and appears to have been used to start an “MLM program” known as “KulClub,” the receiver advised a court in Canada.

Like the alleged $156 million Banners Broker scheme, KulClub had a presence on the MoneyMakerGroup forum, records show. U.S. authorities have alleged MoneyMakerGroup is a place from which fraud schemes are promoted.

KulClub purports to be a “unique revenue sharing program in which KulClub shares the majority of its revenue with all its members. No other club can match it!”

But msi Spergel inc., the Toronto-based Banners Broker receiver, said KulClub likely was started with stolen Banners Broker funds that never were recovered from the Swiss account.

“The Receiver believes that Josun has since used the Swiss bank account funds for personal purposes, including the launching of his own MLM program called ‘KulClub,'” Spergel alleged. The receiver is seeking a sweeping order preventing the dissipation of assets.

How did Josun end up with affiliate funds? After becoming the “main representative among international affiliates” of Banners Broker, the huckster allegedly hosted web events, flew to events in Europe, gathered money from hopefuls and kept it for himself.

From the receiver (italics added/light editing performed):

In that role, Josun would travel to meet with international affiliates, or potential affiliates, and conduct conference calls and seminars via videoconferencing. His day-to-day occupation with Banners Broker was to maximize Affiliate investment into the program, as well as to establish an international network Banners Broker Network. That is, he was responsible for encouraging the development of overseas affiliates into `super-affiliates’ (or “Resellers”), who would establish their own networks of affiliates.

In his role as Banners Broker’s international representative, Josun would frequently fly to overseas locations with a significant amount of company funds. Those funds were used to advertise a lifestyle of success and luxury to potential affiliates. Josun spent existing affiliate funds lavishly in maintaining this facade, as he carried out a campaign to woo wealthy new affiliates to the Banners Broker enterprise.

Josun’s spending in his role as Banners Broker’s international spokesperson lacked any effective oversight. No budgets were set for Josun’s business trips on behalf of Banners Broker, nor was there any control over his expenses.

The Receiver asserts that Josun would regularly receive funds from affiliates meant to be spent on Banners Broker products. Rather than remit these funds to the company, Josun would redirect the funds to his own personal accounts in offshore jurisdictions, intending to place them beyond the reach of creditors.

Similar allegations of cherry-picking have surfaced in the TelexFree Ponzi- and pyramid case. Like Banners Broker and KulClub, TelexFree had a presence on the Ponzi boards.

Josun was hardly alone in misappropriating Banners Broker funds, the receiver alleged.

Rajiv Dixit, a Banners Broker principal charged criminally, “purchased six watches from Weir & Sons in Dublin, Ireland: three Rolexes and three Breitfings,” the receiver alleged. “Two of the watches were women’s watches.”

The receiver’s allegations against Josun appear to be yet-another example of a scammer within a purported revshare “program” scamming both the “opportunity” itself and incoming participants. Although Banners Broker allegedly terminated Josun, it made little difference because the “program” itself was a scam.

Read the receiver’s report.

NOTE: Also see RealScam.com Banners Broker thread and this June 19 “Harrison” post.

Jun 21, 2016
After Vemma College Flap, Herbalife Products Marketed Through One Of Largest Catholic High Schools In United States

UPDATED 3:59 P.M. EDT U.S.A. It surfaced on Twitter today in the $HLF search thread that Herbalife products are being marketed through Mater Dei High School in Santa Ana, Calif. The Catholic school bills itself “the largest non-public school west of Chicago.”

Herbalife is under investigation by the Federal Trade Commission. Hedge-fund manager and Herbalife short-seller Bill Ackman has claimed the company is a pyramid scheme that targets vulnerable population groups. Herbalife denies the claims.

Mater Dei says its 2,145-member student body consists of 38% Caucasian, 33% Hispanic, 19% Asian, 4% African-American, 1% Native American, 1% Pacific Islander and 4% “Other Race.”

The school did not immediately respond today to a request for comment in which the PP Blog asked it whether it was aware of an Herbalife-related promo on its website, whether the promo was a school-endorsed activity and whether Mater Dei students were being recruited to sell Herbalife.

Vemma, another MLM company, was charged last year by the FTC with operating a pyramid scheme, amid allegations the firm was targeting college students.

Herbalife did not respond immediately to a request for comment on whether it was aware its products were being offered to Mater Dei students, whether students were being targeted for recruitment and whether the company had any concerns given the targeting allegations against Vemma.

The Mater Dei website has a page styled “Herbalife Program > Consent & Waiver Form.” The page says “ALL current Mater Dei student-athletes are required to have a signed consent and waiver form on file in order to participate in the HERBALIFE Program.”

A link to the form is provided, along with a text prompt that says forms also are distributed by “coaches.” (See PP Blog screen shot of form.)

A separate page on the Mater Dei website is styled “Herbalife Program > About.” It includes a phone number consistent with an Herbalife affiliate site in the name of “Coach Donte Mdhs.”

The affiliate site says, “MATER DEI HIGH SCHOOL INFORMATION . . . All H24 Products are available to MD students (except Prepare).”

A search of the Mater Dei website returns hundreds of results for the search term “Herbalife” (without the quotation marks). One of the results is an “Order NOW & Coupon Codes” page that says discounts are available to nearly two dozen school athletic teams and “Alumni, Dance, Faculty and Pep Squad” groups.

In February, a man being sued for the return of his alleged winnings in the TelexFree MLM scheme claimed Herbalife executives and personnel helped sell him on the TelexFree deal. Herbalife did not respond to a request for comment on the claim.

TelexFree generated more than $3 billion in illicit business, a court-appointed bankruptcy trustee claims.

Jun 15, 2016
Stephen L. Cohen, SEC Official Who Introduced World To Zeek Case, Leaving Agency After Nearly 12 Years

“The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors. ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor.” — Stephen L. Cohen, Associate Director, SEC Division of Enforcement, Aug. 17, 2012

Our best wishes to Stephen L. Cohen, who delivered the words above nearly four years ago. Cohen is leaving the U. S. Securities and Exchange Commission after nearly 12 years of service.

“Throughout his career at the SEC, Steve has made substantial and long-lasting contributions to the Commission’s mission,” said Andrew J. Ceresney, director of the SEC’s Enforcement Division. “He has supervised significant cases involving a wide variety of misconduct and has been closely involved in the implementation of various enhancements to the enforcement program. His keen intellect and enthusiasm will be missed.”

One of the cases he supervised — as the SEC noted today — was Zeek Rewards.

The PP Blog’s lede in the story reporting the SEC’s Zeek action on Aug. 17, 2012 (italics added):

The SEC has filed an emergency action in federal court in Charlotte, N.C., that alleges Zeek Rewards is a $600 million Ponzi and pyramid scheme.

Jun 3, 2016
PAYZA TO ZEEK RECEIVER: Don’t Blame Us

Payza, an HYIP-friendly payment processor that recently bragged on Twitter about its attendance at an event for the teetering TrafficMonsoon scheme, has advised a federal judge that it is not responsible for millions of dollars that allegedly went missing in the Zeek Rewards’ scheme taken down by the SEC in 2012.

Zeek receiver Kenneth D. Bell alleged in February that Payza and an outfit known as Payment World “facilitated” the epic cross-border Zeek Ponzi- and pyramid scheme. The PP Blog reported on Feb. 21 that the money at issue — about $13.1 million — may have ended up in one or more collapsed Russian banks after being transferred out of VictoriaBank in Moldova.

Payza acknowledged it was a business partner with Payment World, but maintained the account in Moldova was Payment World’s alone and that it has sued Payment World for more than $20 million because it, too, had been ripped off.

In response to Bell, who is seeking a contempt sanction and to hold Payza jointly liable with Payment World and VictoriaBank for return of the cash, Payza says it never had “dominion and control” over the money and thus should not be held liable.

Payza, which operates out of Canada as part of a company known as MH Pillars of the United Kingdom, further contends with worked cooperatively and proactively with Bell and U.S. authorities tracking the money. The defense filing by Payza was docketed yesterday in the Western District of North Carolina and also claims Payza performed due diligence on Rex Venture Group, the operator of Zeek. The filing contained a declaration by MH Pillars Executive Vice President Firoz Patel.

In a May 15 Twitter post, Payza said Patel was a speaker at a May 15 event in New York for the Traffic Monsoon program.

Come meet #Payza Executive VP @Firoz_Patel_ who will be speaking on Saturday, May 15, at the Traffic Monsoon Event! https://t.co/zdjCB4wr6J

— Payza News (@Payzaofficial) May 13, 2016

The Tweet made no due-dilignce claims about Traffic Monsoon, which reportedly is under investigation by PayPal and has been blocked from a sum totaling on the order of $60 million.

NOTE: Our thanks to the ASD Updates Blog.

Also see TaraTalks site.

Jun 1, 2016
Alleged Zeek ‘Winner’ Repeatedly Invokes Fifth Amendment In Clawback Case

UPDATED 3:07 P.M. EDT U.S.A. Darren Miller, an alleged winner of more than $1.635 million in Zeek Rewards and one of the lead defendants in a civil class-action clawback lawsuit filed by Zeek receiver Kenneth D. Bell, repeatedly has invoked his Fifth Amendment right not to incriminate himself, according to new court filings by Miller.

In response to Bell’s 2014 clawback action in which the receiver seeks return of the winnings plus interest, Miller, of Coeur d’Alene, Idaho, also marked “sic” next to mentions of himself as a defendant. Bell is suing Miller and more than 9,000 alleged Zeek “winners.” The case is styled Bell v. Disner.

Miller appears to have invoked the Fifth Amendment 41 times in response to 41 inquiries from Bell — 14 questions and 27 requests for documents.

His response provides an overview of the sorts of questions Bell asked alleged “winners” through interrogatories. It also provides an overview of the type of documents sought from defendants by the receiver. Zeek was part of Rex Venture Group or RVG, alleged by the SEC and federal prosecutors to have been a North Carolina-based Ponzi- and pyramid scheme that gathered hundreds of millions of dollars before the SEC shut it down in August 2012.

The Zeek clawback litigation itself shows the perils of pushing MLM schemes authorities deem to be fraudulent. Not only is money received from a “program” at great risk of clawback, expensive and emotionally draining legal proceedings on multiple fronts may ensue. Some defendants even may fear criminal prosecution.

At the same time, the Zeek clawback actions may provide something of a preview of what’s in store for tens of thousands of TelexFree “winners” pursued by the trustee in that Massachusetts case for return of their gains. TelexFree also was an MLM scheme.

Pictured below is the first of 14 interrogatories advanced by Bell, according to Miller’s response:

Question 1 of the Zeek interrogatories.

As you can see above, Bell not only asked about Miller’s involvement, he also asked about the involvement of others, potentially including upline sponsors. Here’s how Miller answered Question 1 and 13 others. (Only minor variations such as the Interrogatory number were present.)

Darren Miller’s answer to the first Zeek interrogatory.

For years now, the SEC has expressed concern about scams spreading on social media. Bell also had a question about that — in this case, in Interrogatory 14 (as show below):

The Zeek receiver asked about social-media accounts. There has been a longtime concern about scams spreading on Facebook, Twitter, YouTube and other sites.

In the interrogatories, Bell wanted to know when an individual’s participation began and when it ended. The receiver also was interested in dates and sums and outcomes — such as when money was paid to Zeek and when money was received from the “program” and how it was spent or kept.

Individuals also were asked to name people who had information “related to your defenses or claims,” according to Miller’s response. Meanwhile, they were asked if they contended Zeek was not a Ponzi or pyramid scheme and to provide the names of individuals who could back up the claim.

Bell previously expressed concern that some MLMers were moving from one fraud scheme to another in serial fashion.

On the document front, Bell had 27 specific requests for production, according to Miller’s response. Here is how Miller answered a request to produce documents used “in connection with recruiting persons to participate” in Zeek.

Miller’s response to a request for document production by the receiver.

Miller’s response to the 26 other requests for documents was substantially similar.

Also see PP Blog editorial from July 1, 2014: On The War In Zeekland And HYIP Rabbit Holes.

NOTE: Our thanks to the ASD Updates Blog.

May 20, 2016
DEVELOPING STORY: Phil Ming Xu Of WCM777 May Be Under Arrest In China

UPDATED 3:11 P.M. EDT U.S.A. A report dated today at ShanghaiDaily.com says an individual “surnamed Xu” and associated with “World Capital Market Inc.” is “now in custody” after a police action against a “pyramid scheme” in China.

The PP Blog has contacted the U.S. Securities and Exchange Commission to determine if the person reportedly under arrest in China is “Phil” Ming Xu of the World Capital Market/WCM777 scheme from 2014.

If the individual proves to be the Xu in the SEC case, it would mean that Xu left the United States sometime after being charged civilly by the SEC in March 2014 with a fraud alleged to have gathered tens of millions of dollars. It also potentially means the scheme, which allegedly operated under different names and resulted in the appointment of a receiver by a U.S. federal court, continued offshore after the U.S. action.

Phil Ming Xu resided in Temple City, Calif., the SEC said in 2014.

From Shanghai Daily (italics added):

Last June and August, police received alerts from the People’s Bank of China and the Guangdong branch of China Securities Regulatory Commission that the company and its owners were not qualified to conduct public financing, and a criminal investigation began.

A U.S. criminal probe into World Capital Market and related companies or figures also is believed to be under way.

The WCM777 story in the United States has been consistently bizarre. MLM hucksters, for example, pitched the “program” in churches and claimed the company had given loans for spectacular sums to some top American businesses.

There also was a claim a former CIA operative was involved, that the appearance of “blood moons” in the sky would provide investors guidance, that Ming Xu had acquired a company that produced “Innocence of Muslims,” a film that has been described as anti-Islamic and denigrating to the prophet Muhammad, that Ming Xu was an educator at a purported university known as the Joseph Global Institute.

UPDATE 2:03 P.M. EDT MAY 17 U.S.A. The SEC said today that it didn’t have anything on whether the Xu reportedly under arrest in China is the Xu from the agency’s March 2014 case.

May 16, 2016
Individual Linked To Payment Processor For ‘MyAdvertisingPays’ Scheme Listed In Panama Papers

Roger Alberto Santamaria Del Cid, an apparent nominee director for offshore companies who is listed as a corporate “subscriber” for VX Gateway in Panamanian business records, is referenced at least three times in the “Panama Papers.”

The PP Blog discovered the Del Cid listings today. On Monday, the International Consortium of Investigative Journalists made its database of Panama Papers listings searchable. (For additional background and reporting on the Panama Papers, visit ICIJ’s website.)

VX is a payment processor for the MyAdvertisingPays (MAPS) cross-border scheme that touts Anguilla registration after earlier operating from the U.S. state of Mississippi. MAPS purportedly pulled out of the United States last year, potentially leaving thousands of American affiliates expecting payouts holding the bag.

In April 2015, the PP Blog reported that MAPs, a purported “advertising” program similar to the AdSurfDaily Ponzi scheme, was trading on the name of President Obama after ASD previously had traded on the name of President George W. Bush. MAPS is known to have members in common with the judicially declared TelexFree Ponzi- and pyramid scheme, which also traded on the names of government officials.

It is somewhat common in the HYIP sphere for “programs” and their affiliates to drive traffic to schemes by suggesting the endorsement of government agencies or prominent government officials.

TelexFree, which may have generated $3 billion in illicit cross-border business, collapsed in 2014.

The Facebook site for the TaraTalksBlog, a MAPS critic, reported on May 7 that it had received “numerous reports that MAP has closed members accounts, with no redress, after members have requested payment withdrawals.”

In short, non-U.S. affiliates of MAPs also may be having trouble getting paid.

MAPS recently attempted unsuccessfully to sue TaraTalks. In 2012, a top official from the U.S. Department of Justice who was speaking at an event in Mexico warned about bogus libel lawsuits in the context of cross-border crime.

Then-Deputy U.S. Attorney General James Cole also said (bolding added):

“Because of the sophistication of the world economy, organized crime groups have developed an ability to exploit legitimate actors and their skills in order to further the criminal enterprises. For example, transnational organized criminal groups often rely on lawyers to facilitate illicit transactions. These lawyers create shell companies, open offshore bank accounts in the names of those shell companies, and launder criminal proceeds through trust accounts. Other lawyers working for organized crime figures bring frivolous libel cases against individuals who expose their criminal activities.”

As noted above, the Panama Papers database shows Del Cid’s name at least three times. On April 14, the PP Blog reported (italics added):

Del Cid’s name has appeared on the PP Blog a couple of times. On Feb. 8, 2011, the Blog reported that his name had appeared in court filings in a federal forfeiture case involving assets linked to the notorious EMG/Finanzas Forex scheme in the Middle District of Florida. (See Paragraph 10 of this affidavit by a Task Force investigator.)

Money from EMG/Finanzas was linked to the international narcotics trade. OpenCorporates lists del Cid here as a Finanzas “subscriber.” The site lists Tatiana Itzel Saldaöa Escobar as another Finanzas subscriber, and the same name appears alongside Del Cid as a VX subscriber.

As the PP Blog reported on Feb. 10, 2011, del Cid’s name also had appeared as the contact person for Perfect Money, another financial vendor purportedly operating from Panama. The SEC has linked Perfect Money to the incredibly toxic Imperia Invest IBC offshore scheme that targeted thousands of people with hearing impairments.

May 11, 2016