Paul Burks, the 70-year-old operator of the Zeek Rewards Ponzi scheme, now is listed as prisoner No. 29723-058 at FMC Lexington. The facility is an administrative security federal medical center with an adjacent minimum security satellite camp in Lexington, Ky.
After being sentenced in February to more than 14 years, Burks was ordered to report to the facility no later than yesterday. He reportedly is suffering from significant medical issues.
Burks has become the third and senior-most Zeek executive sent to jail. Dawn Wright-Olivares and Daniel Olivares earlier began serving respective terms of 7.5 years and two years.
U.S. District Judge Max O. Cogburn Jr. of the Western District of North Carolina was the sentencing judge in all of the cases against the Zeek braintrust.
Zeek’s operations were similar to the AdSurfDaily Ponzi scheme, which sent ASD President Andy Bowdoin to federal prison in 2012. Bowdoin, now 82, is scheduled to be released in February 2018. He is listed as a prisoner at Butner Medium FCI in Butner, N.C. The Butner prison also has a medical facility. Bowdoin, like Burks, had health issues prior to sentencing.
Like ASD, Zeek was a Ponzi-board “program.”
Troy Barnes, one of the principals of “The Achieve Community” (TAC) scam, was sentenced in April to 33 months in prison. TAC also was a Ponzi-board “program.”
Barnes’ Achieve colleague Kristi Johnson was sentenced to 21 months.
Paul Burks will be sentenced Feb. 13 for his criminal role in Zeek Rewards, and the court-appointed receiver is soliciting letters from victims of the combined Ponzi- and pyramid scheme that affected hundreds of thousands of people.
Zeek gathered hundreds of millions of dollars in a massive fraud scheme broken up by the SEC and the U.S. Secret Service in 2012.
Victims of these offenses are entitled to be heard at sentencing. If a victim would like to have a letter describing the impact that ZeekRewards had on them submitted to the Court please send an email to HearingLetter@zeekrewardsreceivership.com. In particular, the Court would like to hear about any of the below circumstances:
Becoming insolvent;
Filing for bankruptcy under the Bankruptcy Code;
Suffering substantial loss of a retirement, education, or other savings or investment fund;
Making substantial changes to his or her employment, such as postponing his or her retirement plans;
Making substantial changes to his or her living arrangements, such as relocating to a less expensive home; and
Suffering substantial harm to his or her ability to obtain credit.
I will be attending the hearings on behalf of all ZeekRewards victims and will present your letters to the Court.
Bell also is special master of the criminal case against Burks.
Burks, then 67, was indicted in 2014 on charges of wire and mail fraud, wire- and mail-fraud conspiracy and tax-fraud conspiracy. He was convicted by a jury in July 2016 at age 69 on all charges and potentially faces decades in federal prison.
BULLETIN: Dawn Wright-Olivares, the former COO of Zeek Rewards, has been sentenced to seven and one-half years in federal prison. The sentence was imposed by U.S. District Judge Max O. Cogburn Jr. of the Western District of North Carolina. The office of U.S. Attorney Jill Westmoreland Rose prosecuted Wright-Olivares for investment- and tax-fraud conspiracy.
Daniel Olivares, the stepson of Wright-Olivares and Zeek’s key programmer, also was sentenced today. Cogburn imposed a two-year prison term against Olivares, who was charged with investment-fraud conspiracy.
Both defendants had agreements with prosecutors and pleaded guilty in February 2014, more than two years in advance of the trial of Zeek operator Paul Burks. Burks, 69, was convicted by a jury in July 2016 on charges of mail fraud, wire fraud, conspiracy to commit both and tax-fraud conspiracy. No sentence date has been set.
Prosecutors said Zeek was a cross-border fraud that had gathered hundreds of millions of dollars operating over the Internet. Hundreds of thousands of victims were defrauded. Only TelexFree, another cross-border MLM “program,” may be larger when measured by the number of persons fleeced.
In addition to the criminal charges, Wright-Olivares, 48, and Olivares, 34, both of Clarksville, Ark., faced serious civil litigation from the SEC and from the court-appointed receiver in the Zeek case. The SEC accused them of keeping Zeek participants in the dark about a federal investigation and Zeek’s “imminent collapse” while accepting “substantial sums of money from the scheme.”
In the end, Wright-Olivares and Olivares ended up with nothing.
Before its August 2012 collapse in a pile of Ponzi rubble, Zeek tried to dupe people into believing they were not making an investment. Any number of current schemes are doing the same thing.
Among other things, the Zeek case shows that key executives aren’t the only people who risk prosecution for pushing online fraud schemes. In December 2015, the SEC charged alleged Zeek promoter Trudy Gilmond with fraud.
Separately, Kenneth D. Bell, the Zeek receiver, has been pursuing hundreds of millions of dollars in clawback claims against alleged net winners globally. Bell said he’d be in court today to present the sentencing judge letters from Zeek victims.
2ND UPDATE 12:53 P.M. EDT U.S.A. With sentence court set next month for Zeek Rewards’ figures Dawn Wright-Olivares and Daniel Olivares, Zeek receiver Kenneth D. Bell has established an email address for victims who wish to tell their story to the court.
“Victims of these offenses are entitled to be heard at sentencing,” Bell wrote in an Aug. 29 announcement on the receivership website. “If a victim would like to have a letter describing the impact that ZeekRewards had on them submitted to the Court please send an email to HearingLetter@zeekrewardsreceivership.com. I will be attending the hearings on behalf of all ZeekRewards victims and will present your letters to the Court.”
Sentencing is set for 9:30 a.m. on Sept. 13, Bell wrote.
Under the terms of her plea agreement, Wright-Olivares faces a maximum of 10 years for investment-fraud conspiracy and tax-fraud conspiracy. Olivares face a maximum of five years for investment-fraud conspiracy.
Bell wrote that “the Court would like to hear about any of the below circumstances”:
Becoming insolvent;
Filing for bankruptcy under the Bankruptcy Code;
Suffering substantial loss of a retirement, education, or other savings or investment fund;
Making substantial changes to his or her employment, such as postponing his or her retirement plans;
Making substantial changes to his or her living arrangements, such as relocating to a less expensive home; and
Suffering substantial harm to his or her ability to obtain credit.
Burks potentially faces 65 years in federal prison.
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 . . .”
URGENT >> BULLETIN >> MOVING: (7th Update 8:33 p.m. EDT U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid-scheme case has sued MLM attorney Gerald Nehra and his law firm and law partner.
Named defendants are Nehra as an individual and as a member of the Nehra and Waak law firm of Michigan, and Richard W. Waak. Like Nehra, Waak is named as an individual and as a member of the firm. The two lawyers’ individual professional LLCs also are named.
The 21-page complaint by Zeek receiver Kenneth D. Bell is dated Sept. 21 and alleges damages of at least $100 million. A section of the complaint quotes a July 22, 2012, email from Waak that reads, “I have primary responsibility for the Zeek Rewards account with our law firm.”
The SEC moved against Zeek a month later, in August 2012, alleging a massive Ponzi- and pyramid scheme. At least three Zeek executives, including alleged operator Paul R. Burks of North Carolina, later were charged criminally. Two of the executives — Dawn Wright-Olivares and her stepson Daniel Olivares — have pleaded guilty.
From the receiver’s complaint (italics added):
By virtue of their knowledge of [Zeek operator Rex Venture Group] and ZeekRewards and their legal expertise, Nehra and Waak knew or should have known that RVG was perpetrating an unlawful scheme which involved a pyramid scheme, an unregistered investment contract and a Ponzi scheme. Despite this knowledge, Nehra and Waak encouraged investors to participate in the scheme by knowingly allowing their names to be used in providing a false façade of legality and legitimacy and gave improper legal advice that allowed the scheme to continue far longer than it would have without the Defendants’ support. Nehra and Waak’s improper and negligent actions, which breached their fiduciary duties to RVG and assisted RVG’s Insiders to breach their fiduciary duties, caused significant damage to RVG.
In a complaint filed May 3, 2014, plaintiffs accused Nehra of counseling TelexFree “on methods to evade United States securities laws that were intended to offer, in part, protection from pyramid Ponzi schemes; all to enrich himself financially and serve his own selfish interests.”
He further was accused of encouraging unknowing TelexFree members to “participate in the evasion of federal and state securities laws.”
The Zeek receiver made similar claims against the lawyers.
“With their inside knowledge of multi-level marketing schemes and access to RVG’s Insiders, Nehra and Waak knew or should have known that insufficient income from the penny auction business was being made to pay the daily ‘profit share’ promised by ZeekRewards,” Bell alleged.
“The Defendants knew or should have known that the money used to fund ZeekRewards’ distributions to Affiliates came almost entirely from new participants rather than income from the Zeekler penny auctions. Further, based on their inside knowledge and access, Nehra and Waak knew or should have known that the alleged ‘profit percentage’ was nothing more than a number made up by Burks or one of the other Insiders. Rather than reflecting the typical variances that might be expected in a company’s profits, the alleged profits paid in ZeekRewards were remarkably consistent, falling nearly always between 1% and 2% on Monday through Thursday and between .5% and 1% on the weekends, Friday through Sunday.”
Nehra also was a figure in the 2008 AdSurfDaily Ponzi scheme story, opining that ASD was not a Ponzi scheme despite remarkably consistent returns. ASD operator Andy Bowdoin later pleaded guilty to wire fraud and acknowledged his company was a Ponzi scheme and never operated lawfully from its inception in 2006.
Like Bowdoin, Zeek’s Burks is accused of making up numbers to dupe participants. In TelexFree-related matters, class-action lawyers argued that “Attorney Nehra’s extensive experience in multi-level marketing, and particularly his involvement with the Ponzi schemes involving Ad SurfDaily and Zeek Rewards, armed him with the knowledge of what constitutes violations of United States securities law. Indeed, Attorney Nehra was well aware that the use of semantics and obscured phraseology to obfuscate securities laws fails to legitimize TelexFree’s illegal Pyramid Ponzi Scheme.”
Zeek receiver Bell accused Nehra and Waak of turning a “blind eye” to incredible claims by Zeek and of suggesting cosmetic changes to language instead of “recommending substantive changes that would make the program lawful.”
At least one alleged TelexFree promoter accused by the SEC last year of securities fraud has alleged she was duped by both the company and Nehra. That claim was made by veteran HYIP Ponzi pitchwoman Faith Sloan.
UPDATED 10:04 A.M. EDT JULY 18 U.S.A. The Zeek Rewards’ receivership this morning told the PP Blog it had “no comment” on a report that alleged Zeek insider Darryle Douglas was involved in a new scheme known as “AuctionAttics.”
BehindMLM.com reported early yesterday that Douglas, who owes the Zeek estate $2.2 million plus postjudgment interest, was involved in the selling of shares in a purported “profit pool” offered by Auction Attics. The report led to immediate questions about whether Douglas, a Californian, was involved in another cross-border offering fraud and would market it to former Zeek members.
Zeek is alleged by the SEC and federal prosecutors in the Western District of North Carolina to have been a Ponzi scheme that gathered hundreds of millions of dollars. The SEC filed civil charges in August 2012. Prosecutors have filed criminal charges against alleged operator Paul R. Burks and former executives Dawn Wright-Olivares and Daniel Olivares, her stepson.
Wright-Olivares and Olivares entered guilty pleas to the criminal charges in February 2014. The criminal case against Burks is proceeding toward trial. Douglas was identified as a Zeek “insider” in a lawsuit filed by Zeek receiver Kenneth D. Bell in February 2014.
AuctionAttics appears to be an upstart MLM “program” pitched on social-media sites such as Facebook. The “program” appears to be in prelaunch phase and to have a dotcom website that uses graphics that resemble Post-it brand notes, a trademark owned by 3M.
A spokesperson for 3M did not immediately return a call by the PP Blog for comment on whether the company was concerned its trademark was being infringed by AuctionAttics.
A snippet from the Business North Carolina story (italics added):
“Some of these folks had been engaged in this kind of thing before, and frankly, some of our largest winners re-engaged in similar schemes right away.”
Based on a victims’ count on the order of 800,000, Zeek likely is the largest or second-largest Ponzi scheme in U.S. history. (In the end, the TelexFree scheme shut down by the SEC and federal prosecutors last year may take the title, but the final numbers are unclear.)
Zeek was a purported “penny auction.” AuctionAttics appears to be using a similar theme, amid suggestions that its customers can be both bidders and sellers who will generate enormous personal profits either way.
The AuctionAttics website appears to be publishing testimonials attributed to people who were big winners, despite the fact the “program” appears not even to have launched.
One of the testimonials quotes “Maria” as saying, “I can earn much more selling on Auction Attics than i [sic] could anywhere else.” The “program” itself claims “Maria didn’t have a store front, she sold reconditioned cell phones exclusively on Auction Attics and earned up to 500% profit.”
Another “program” claim: “Micheal [sic?] and Brenda buys [sic] items, and then sells [sic] them on Auction Attics. They have the potential to earn $1,000’s weekly!”
“Micheal” and Brenda, meanwhile, are quoted as saying, “What a business, we love it.”
The images depicting them appear to be clipart.
An “opportunity” page on the site of AuctionAttics positions the “program” as the next Apple, Instagram and eBay. Namedropping is a common theme in MLM/network-marketing scams.
Among other things, the website of Auction Attics purports to sell “Cover Ads,” explaining them in this fashion:
“Cover ads are so called because they cover more than the original cost of your item even when it was new.”
In July 2014, according to court filings, Zeek’s Burks, Wright-Olivares and Olivares agreed to a $600 million civil consent judgment with the receivership “to be satisfied with substantially all of their assets.”
UPDATED 9:37 P.M. EDT U.S.A. David Ian MacGregor Fraser, a New Zealand resident who allegedly used the Zeek Rewards’ username of “sovlife,” has challenged a U.S. Court’s jurisdiction over him in a clawback lawsuit filed in February by Zeek receiver Kenneth D. Bell.
Bell alleged that David Ian MacGregor Fraser received $89,722 from Zeek’s “unlawful combined Ponzi and pyramid scheme.” The receiver, who contends the U.S. Court has jurisdiction in international clawback actions in part because Zeek operated from North Carolina and sent money from the state to participants such as MacGregor Fraser, is seeking a judgment in that amount, plus interest. He alleges the money came from Zeek victims.
The U.S. Securities and Exchange Commission described Zeek in 2012 as a massive, cross-border fraud scheme that had gathered hundreds of millions of dollars. In October 2014, alleged Zeek operator Paul R. Burks was charged criminally with wire- and mail-fraud conspiracy, wire fraud, mail fraud, and tax-fraud conspiracy.
Earlier in 2014, Zeek figures Dawn Wright-Olivares and her stepson Daniel Olivares pleaded guilty to criminal charges filed in 2013 — Wright-Olivares to investment-fraud conspiracy and tax-fraud conspiracy and Olivares to investment-fraud conspiracy.
Web records suggest MacGregor Fraser used the shortened name of “David MacGregor” when pitching Zeek online through GetResponse.com, an email service sold in the United States and other countries.
A Zeek promo in which the username “sovlife” and the name “David MacGregor” appear begins in this fashion, according to Google search results. (Italics added):
Hi Friend
If you haven’t caught up with the latest news, or weren’t on the conference call the other day, then I just wanted to highlight the main points.
Screen shot of promo for Zeek. Red highlight by PP Blog.
MacGregor Fraser, who is represented in the clawback lawsuit by North Carolina attorney June K. Allison of Shumaker, Loop & Kendrick in Charlotte, answered Bell’s complaint as “David Fraser.” The answer, however, acknowledges the longer version of the name as it appeared in Bell’s complaint. So does an affidavit submitted to the U.S. court by David Ian MacGregor Fraser.
The moniker “sovLife” appears repeatedly on the website theclassifiedsplus.com through which videos play. Some of these videos point to MLM “programs” such as the Empower Network in which “sovLife” is used as the affiliate ID.
Other videos at theclassifiedsplus point to a web entity known as sovereignlife.com. This domain is styled “SovereignLife” and identifies its operator as “David MacGregor.” There is a corresponding YouTube account in that name through which videos viewable through theclassifiedsplus.com play.
One of them with an upload date of July 3, 2013, is titled “My July 4 Message for the America That Was.” In the video, a man (presumptively “David MacGregor”) holds forth that he once was a big supporter of the United States. That support, however, apparently has evaporated in that the man contends in the video that the United States is “Dare I say it? A force for evil.”
Other videos in the David MacGregor account have titles such as “Bitcoin Debit Card – How to Get One,” “You Can Now Be a Reseller For SovereignLife And Keep All The Money!,” “Tax Slave or Sovereign Individual?”
Some individuals who may identify with the word “sovereign” have participated in various fraud schemes, have painted their fellow human beings as slaves (see Frederick Mann) or government-owned property (see Kenneth Wayne Leaming) and have expressed an irrational belief that laws do not apply to them.
Other “sovereigns” have made wild claims that they hold diplomatic immunity and thus cannot be prosecuted or are answerable only to Jesus Christ.
Zeek Clawback Defense
Compared to the “David MacGregor” video suggestion that America is evil, the David Fraser response to Bell’s clawback complaint before Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina includes no inflammatory rhetoric or claims of evildoing by the United States.
Fraser, through the American law firm, is seeking dismissal of the complaint for lack of jurisdiction. He also is seeking to quash process in New Zealand, even though he acknowledges he has been served.
Among Fraser’s specific defense claims is that he was an “innocent participant” in Zeek, having joined the program in “November 2011” while he was a “resident of Malaysia” and maintaining “a Post Office Box in New Zealand.”
In possible conflict with the information shown in the screen shot above that references a sum ($5,000 in U.S. cash), the Super Bowl played in the United States and Super Bowl tickets that have “cash-out values for those not in the USA,” Fraser further contends he had “no specific knowledge that ZeekRewards was initiated from the United States.”
He also contends he was “unaware that ZeekRewards originated in North Carolina.” This, too, may be in possible conflict with information generally known about Zeek, in that Zeek openly operated from North Carolina and invited participants to events held in that state.
At one point in its history, Zeek openly advertised auctions for sums of U.S. cash — even as it preemptively denied it was operating a pyramid scheme and complained that the U.S. Social Security system was a “legal” and “collapsing” pyramid scheme.
Precisely why Zeek was making political statements on its website is unknown.
Accused Zeek Ponzi schemer Paul R. Burks lived in North Carolina. In 2012, Federal Election Commission records showed that Burks gave money to the campaign of U.S. Presidential hopeful Rep. Ron Paul.
From a U.S. standpoint, Zeek used offshore payment processors such as SolidTrustPay and AlertPay, both of which provided services for the $119 million AdSurfDaily Ponzi scheme broken up by the U.S. Secret Service in 2008.
Now-jailed AdSurfDaily Ponzi-scheme operator Andy Bowdoin also made donations to a political cause, according to the 2010 indictment against him.
In his defense filings, Frazer said he “made or received” Zeek payments through AlertPay over the Internet, but maintained he’d never set foot in North Carolina.
Now, he contends, he unfairly is being “haled” to appear in court in North Carolina.
“To ask him to defend this suit halfway around the world on account of falling into the [Zeek] Insider’s international Internet scheme would clearly offend traditional notions of fair play and substantial justice,” his lawyer argued.
“Defendant Fraser never ordered or directed that anything of value be sent to him in either Malaysia or New Zealand from North Carolina,” his lawyer argued. “Rather, based on the way the website operated, amounts he earned on-line were credited to his on-line Payza account by ZeekRewards . . . Defendant Fraser did not know from what country or state the funds originated . . .”
In court filings, Fraser says he has been a citizen of New Zealand since 1978 and was born in Great Britain. He is a citizen there, too, according to his affidavit.
URGENT >> BULLETIN >> MOVING: (3rd Update 10:03 a.m. ET Dec. 10 U.S.A.) The federal judge presiding over clawback cases against alleged Zeek Rewards “winners” has dismissed jurisdictional challenges and a claim by the winners that Zeek was not selling securities under the Howey Test.
The rulings mean that clawback claims seeking millions of dollars from the winners remain intact.
Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina also has ruled that the receiver’s request to impose a constructive trust against the winners to prevent further dissipation of Zeek winnings was proper.
The clawback defendants, including Trudy Gilmond, Trudy Gilmond LLC, Jerry Napier, Darren Miller, Durant Brockett, Rhonda Gates, Innovation Marketing LLC, Aaron Andrews, Shara Andrews, Global Internet Formula Inc., T. Lemont Silver and Karen Silver, had contended the fact they performed some work to score their winnings took a Howey prong out of play because they did not expect profits based solely upon the efforts of others. Absent this prong, the winners argued, receiver Kenneth D. Bell could not prove Zeek was selling unregistered securities as investment contracts.
“Defendants’ emphasis upon the long hours they worked to recruit . . . others is misplaced,” Mullen ruled. “Without the essential managerial efforts of [Zeek President Paul] Burks and [Zeek operator Rex Venture Group], no profits would have been generated at all.”
And, Mullen added, “As the Court finds that it clearly has subject matter jurisdiction, it is unnecessary to address the Receiver’s ancillary and supplemental jurisdiction argument or his argument that the Court also has diversity jurisdiction.”
Meanwhile, Mullen ruled that the winners’ claims that Bell could not pursue fraudulent-transfer claims under North Carolina law were without merit.
“Defendants argue that this claim must be dismissed because neither the Receiver nor RVG (in whose shoes he stands) is a ‘creditor’ as defined in the North Carolina Uniform Fraudulent Transfer Act (‘NCUFTA’) and therefore he has no standing to pursue fraudulent transfer claims. Defendants’ argument is without merit.”
On the issue of the imposition of a constructive trust against the winners, Mullen ruled (italics added):
“Defendants’ argument that they should not be subjected to the imposition of a constructive trust because their own fraud is not the subject of the complaint fails. The Complaint sets forth allegations sufficient to show that ‘some other circumstance’ makes it inequitable for these Defendants to retain the funds they received . . . This ‘other circumstance’ is that Defendants received the funds from an admitted Ponzi and pyramid and that the funds are nothing more than other people’s money wrongfully diverted from RVG. Therefore, Defendants have received property which they ‘ought not, in equity and good conscience, hold and enjoy.'”
Zeek figures Dawn Wright-Olivares and Daniel Olivares pleaded guilty to investment-fraud conspiracy earlier this year.
UPDATED 8:30 P.M. EDT U.S.A. The SEC this afternoon declined to comment on a confounding claim attributed to Zeek Rewards figure Robert Craddock that Zeek took in $1 billion in 12 months and that the U.S. government should have modeled a “stimulus program” after Zeek instead of shutting it down in 2012.
News that Craddock apparently had authored a book on Zeek and was making new claims first appeared on BehindMLM.com early today. In 2012, the SEC described Zeek as a massive Ponzi- and pyramid scheme and described Craddock as an obstructionist who was encouraging victims not to cooperate with Kenneth D. Bell, the court-appointed receiver in the agency’s civil case. Craddock has not been been charged with wrongdoing.
Titled “The Zeek Phenomenon: Zero to $1 Billion in 12 Months,” the book in which Craddock is listed as the author is advertised on Amazon.com as a paperback “Out of Print” and with “Limited Availability.” Sept. 29 of this year is the asserted publication date.
The office of U.S. Attorney Anne M. Tompkins of the Western District of North Carolina did not respond immediately to a request for comment on the claims. Tompkins’ office brought successful criminal prosecutions against Zeek figures Dawn Wright-Olivares (investment-fraud conspiracy and tax-fraud conspiracy) and Daniel Olivares (investment-fraud conspiracy) in late 2013.
Wright-Olivares, 45, and Olivares, 31, her stepson, pleaded guilty to the respective criminal charges against them in February 2014. Earlier, in December 2013, they settled SEC civil charges against them by agreeing to pay millions of dollars each, “the entirety of their ill-gotten gains plus prejudgment interest,” the SEC said at the time.
In July 2014, Bell said in court filings that Wright-Olivares, Olivares and alleged Zeek operator Paul Burks had agreed to a consent judgment of $600 million “to be satisfied with substantially all of their assets.”
Other court filings by Bell say a criminal investigation into Burks remains open. Bell also is special master in the criminal case.
The Confounding Claims
Craddock’s apparent claim that Zeek took in $1 billion in a year appears to be at odds with court filings by federal prosecutors in December 2013 that claim Zeek gathered a maximum sum of $897 million before collapsing in August 2012. If, as the claim suggests, Zeek took in $1 billion, there may exist a discrepancy of at least $103 million between the claim attributed to Craddock and the government’s account.
How Craddock apparently arrived at the $1 billion figure was not immediately clear. Such a discrepancy, though, potentially could cause both the SEC and federal prosecutors to revisit the Zeek numbers. The assertions attributed to Craddock suggest that Zeek’s haul could have been much larger and occurred in the narrower time frame of 12 months, not the nearly 20 months cited by the SEC.
In short, could an undisclosed, unrecovered pile of Zeek cash exist elsewhere?
According to marketing copy on Amazon.com for the book attributed to Craddock, the government messed up big time by taking down Zeek.
Here’s a snippet (italics added):
In 2012, if the present Administration wanted to build a successful stimulus program, it should have used Zeek Rewards as a guide. This pioneering venture went from zero to one billion dollars in just 12 months, paid over 400 million dollars to more than 20,000 people earning an average of $20,000, created 10 people who made over one million dollars, and caused several thousand people to earn incomes in excess of one hundred thousand dollars. This unparalleled example would have been a phenomenal feat for our US Government during a period when our very financial existence was threatened.
The words “Ponzi” and “pyramid” appear nowhere in the marketing copy on Amazon.com. Whether Zeek “paid” is immaterial in the context of Ponzi schemes. So is the issue of how much it paid. Bernard Madoff “paid.” All successful Ponzi schemes “pay.” Zeek launched after the collapse of Madoff’s epic fraud, leading to questions about whether Zeek, its insiders and key promoters simply divorced themselves from reality.
Moreover, Zeek launched after the collapse of AdSurfDaily, a Zeek-like scam that promoted a return of 1 percent a day. Zeek’s purported daily payout averaged 1.5 percent, a percentage grossly superior to Madoff and significantly better than ASD.
In 2012, less than a month prior to the SEC’s Zeek action, Craddock temporarily succeeded in taking down a HubPages site operated by Zeek critic “K. Chang” by accusing him of copyright and trademark infringement.
K. Chang ultimately prevailed, but the site experienced downtime.
As the PP Blog reported at the time, Zeek appeared not to own the trademarks Craddock complained about, purportedly with the authority of North Carolina-based Zeek operator Rex Venture Group. Rather, the trademarks were listed in the name of Ebon Research Systems LLC, a Florida business.
A business known as Ebon Research Systems Publishing LLC is listed as Craddock’s publisher for the new book on Zeek, according to the Amazon.com listing.
Florida records suggest that Ebon Research Systems Publishing is managed by Dr. Florence Alexander, the same person behind Ebon Research Systems LLC when the HubPages flap played out more than two years ago.
The PP Blog spoke with Alexander in 2012. She said she “certainly” knew of Zeek, but said she had “no knowledge” of any trademark or copyright complaint filed at HubPages against K. Chang.
Although Craddock claimed to be a Zeek “consultant” while filing the claim against K. Chang prior to the SEC action in 2012, Zeek itself did not list him as one after the action, according to court records maintained by the ASD Updates Blog. (See Zeek filing from September 2012 here.)
DEVELOPING STORY: (Updated 9:44 a.m. EDT Sept 3, U.S.A.) The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case has asked a federal judge for a Temporary Restraining Order he says is necessary to prevent “further dissipation and waste” of certain assets.
Receiver Kenneth D. Bell asked that the motion be filed under seal. The Zeek-related assets Bell believes could shrink were not specified in a public filing
“The underlying motion and memorandum contain sensitive information regarding Receivership Property,” Bell advised Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina.
Neither the SEC nor Zeek operator Paul R. Burks objected to the request for the motion to be filed under seal.
From the public portion of a filing by the receiver today (italics added):
The underlying motion and memorandum contain sensitive information regarding Receivership Property. As explained in detail in the memorandum, sealing the Receiver’s motion and memorandum is necessary to prevent further dissipation and waste of the assets at issue. The Receiver seeks to have the underlying motion sealed only temporarily until the Court can consider and rule on the motion.
When Mullen would rule on the motion was not immediately clear. The public portion of Bell’s pleading today is styled, “Receiver’s Motion to Seal Ex Parte Motion for Temporary Restraining Order Enforcing the Court’s Asset Freeze.”
The sealed information contains three exhibits, according to the docket of the case.
Burks and Zeek figures Dawn Wright-Olivares and Daniel Olivares agreed to a $600 million consent judgment “to be satisfied with substantially all of their assets,” according to a filing by Bell in July.
The receiver’s motion for the TRO and to file under seal appears on the docket of the SEC case originally filed against Zeek and Burks in August 2012. The agency sued Wright-Olivares and Olivares in a separate case in December 2013.
Both Wright-Olivares and Olivares have pleaded guilty to criminal charges.
Paul Burks, the 70-year-old operator of the Zeek Rewards Ponzi scheme, now is listed as prisoner No. 29723-058 at FMC Lexington. The facility is an administrative security federal medical center with an adjacent minimum security satellite camp in Lexington, Ky.
Paul Burks will be sentenced Feb. 13 for his criminal role in Zeek Rewards, and the court-appointed receiver is soliciting letters from victims of the combined Ponzi- and pyramid scheme that affected hundreds of thousands of people.
