URGENT >> BULLETIN >> MOVING: (21st update 5:49 p.m.) Zeek Rewards figures Dawn Wright-Olivares and Daniel Olivares of Clarksville, Ark., have been charged criminally by federal prosecutors in the Western District of North Carolina and sued civilly by the SEC.
Among the criminal allegations are tax-fraud conspiracy and investment-fraud conspiracy, according to a charging document. Wire fraud also is alleged. Zeek’s Zeekler arm is called a “sham internet based penny auction company” in the charging documents. Zeek’s Zeek Rewards arm is called a “purported advertising division.”
Wright-Olivares has agreed to plead guilty to investment-fraud conspiracy and to tax-fraud conspiracy, federal prosecutors said this afternoon. Daniel Olivares has agreed to plead guilty to investment-fraud conspiracy.
Daniel Olivares is the 31-year-old stepson of Wright-Olivares, 45. Zeek operated from Lexington, N.C., with Wright-Olivares at one time serving as its COO. The court docket in the criminal case notes a plea agreement.
Information published by the government suggests Daniel Olivares had been in plea negotiations with prosecutors since at least July 29, 2013, before finalizing a deal yesterday. Wright-Olivares, meanwhile, appears to have finalized a deal on Nov. 22, 2013.
The deals suggest that Wright-Olivares could be sentenced to a maximum of 10 years in federal prison and Olivares five years. Both deals contemplate cooperation from the defendants. Wright-Olivares, according to plea papers, is represented by Brian S. Cromwell and Sarah F. Hutchins. Olivares is represented by S. Frederick Winiker III. All three attorneys are specialists in white-collar defense.
Zeek operated through Paul R. Burks and Rex Venture Group LLC. A “P.B.” is referenced in the Wright-Olivares/Olivares charging documents as an “Un-indicted co-conspirator.”
Wright-Olivares allegedly received Zeek and Rex payouts through an entity known as Wandering Phoenix LLC, according to the charging documents.
“Wright-Olivares was a marketing and operational mastermind behind the scheme and Olivares was the chief architect of the computer databases they used,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement. “After they learned ZeekRewards was under investigation by law enforcement, they accepted substantial sums of money from the scheme while keeping investors in the dark about its imminent collapse.”
Wright-Olivares has settled the civil action by agreeing to “pay at least $8,184,064.94,” the SEC said.
Olivares settled by agreeing “to pay at least $3,272,934.58,” the SEC said.
The settlement amounts, the SEC said, “represent the entirety of their ill-gotten gains plus prejudgment interest.”
Meanwhile, the SEC said that the Zeek fraud “raised more than $850 million from approximately one million investors worldwide.”
The dollar sum is about $250 million higher than the SEC’s original estimate in August 2012.
From the SEC complaint (italics/bolding added):
[Zeek operator Paul] Burks provided the daily dividend rate to Olivares, who then entered it into the ZeekRewards databases to establish each affiliate investor’s daily award (communicated to affiliates through the ZeekRewards website). Wright-Olivares and Olivares learned that the daily dividend rate was fabricated by Burks and not actually calculated based on “daily net profits” or any actual company earnings, as represented to investors. In fact, in several instances when Burks was unavailable, Wright-Olivares instructed Olivares to enter daily dividend rates to mimic the payout from a prior week, without any regard for the company’s actual earnings.
Precisely when Wright-Olivares and Olivares allegedly learned that Burks had fabricated the daily payout rate is unclear. In a bizarre radio interview in June 2012, Wright-Olivares maintained that Burks “manages all that.”
In the criminal charging document, prosecutors say that Zeek employed a so-called “80/20 VIP Bid Strategy” to keep adequate cash on hand to “make the daily Ponzi payments to victim-investors.” Under such 80/20 plans, investors are encouraged to keep 80 percent of their money in an enterprise and to withdraw no more than 20 percent in cash.
Zeek’s 80/20 program, prosecutors said, caused liabilities to mushroom in August 2012 to approximately $2.8 billion. Zeek, however, had only about 11 percent of that sum on hand. The SEC said in an emergency enforcement action in August 2012 that Zeek was teetering on collapse because of ever-accumulating, unfunded liabilities.
Meanwhile, according to the criminal charging documents, Rex, Zeek Rewards and Zeekler failed to file any corporate tax returns or any corporate tax payments to the IRS.
And for the 2011 tax year, according to the charging documents, “P.B.,” Wright-Olivares and others reported to the IRS that Zeek investors had received more than $108 million from the scheme when Zeek had paid out only about $13 million.
This caused Zeek victims to file “false tax returns with the IRS reporting phantom income that they never actually received,” according to the charging documents.
Zeek used the “false tax notices to perpetuate the Ponzi scheme,” according to the charging document.
“This case shows that the appearance of success can be a mask for a tangled financial web of lies” said Richard Weber, chief of IRS Criminal Investigation. “The underlying structure can fall apart at any time and leave many investors in financial ruin.”
Added Paul Morrissey, assistant director of investigations for the U.S. Secret Service: “As today’s technology continues to evolve, cybercriminals use these advances and enhancements to perpetrate an expanding range of crimes. As we have seen with this case, even with the increasing complexity of online Ponzi schemes, it remains difficult for criminals to remain anonymous. The Secret Service continues to seek new and innovative ways to combat emerging cyber threats.”
U.S. Attorney Anne M. Tompkins is supervising the criminal prosecution. The Zeek investigation is ongoing, her office said in a statement.
As part of the criminal case, prosecutors are seeking the forfeiture of $850 million.
NOTE: Our thanks to the ASD Updates Blog.
