From the criminal charges filed against Zeek payment vendor Jaymes Meyer in the Western District of North Carolina.
URGENT >> BULLETIN >> MOVING: (12th Update 2:57 p.m. EDT U.S.A.) In what may be a warning shot fired across the bow of payment vendors who hope to profit from Ponzi schemes, Zeek Rewards’ vendor Jaymes Meyer of Preferred Merchants Solutions LLC has pleaded guilty to a criminal charge of obstructing investigators in the Zeek Ponzi- and pyramid-scheme case.
Meyer, 47, of Napa, Calif., was charged criminally March 10 by federal prosecutors in the Western District of North Carolina. They alleged he hatched an “elaborate obstruction of justice scheme to conceal millions of dollars from the Government using a series of domestic and foreign nominees and related bank and brokerage accounts.”
He was specifically accused of impeding the SEC’s Zeek probe beginning in 2012 and later lying to a federal judge and Zeek receiver Kenneth D. Bell.
Senior U.S. District Judge Graham C. Mullen is presiding over the SEC’s Zeek case.
As the PP Blog reported in October 2014, Bell accused Meyer of directing a $4.8 million transfer from a Rex Venture Group trust account to Preferred Merchants’ account “just 19 minutes after the SEC told them about the asset freeze and imminent shutdown of RVG” on Aug. 16, 2012.
Rex, or RVG, was the operator of Zeek. It was under the control of accused Zeek Ponzi schemer Paul R. Burks. Burks is scheduled to go on trial in July.
U.S. Magistrate Judge David S. Cayer accepted the guilty plea from Meyer on March 22. Certain documents in the case remain sealed. One document shows Meyer withdrew $195,000 in Zeek money in cash.
At least two other payment vendors may be in Bell’s sights. On Feb. 21, 2016, the PP Blog reported that millions of dollars that originated through Zeek-related transactions involving Payza and Payment World may have ended up in a collapsed Russian bank.
Sentencing for Dawn Wright-Olivares, a former Zeek Rewards’ executive who pleaded guilty in February 2014 to investment-fraud conspiracy and tax-fraud conspiracy, has been postponed, the office of U.S. Attorney Jill Westmoreland Rose of the Western District of North Carolina said today.
Wright-Olivares, whose age was listed as 45 by federal prosecutors at the time of her guilty plea, was to have been sentenced yesterday at 2:30 pm EDT before U.S. District Judge Max O. Cogburn Jr., according to the government’s Victim/Witness site for the Zeek Ponzi- and pyramid case.
No new sentencing date has been scheduled for Wright-Olivares, prosecutors said.
Sentencing delays are not unusual in federal cases. The plea agreement for Wright-Olivares requires her to be a prosecution witness if called by the government in “any trial, hearing, or grand jury proceeding, including, but not limited to, testimony against any co-defendants, as the United States designates.”
Zeek’s alleged haul clocked in at about $897 million. In terms of the number of victims, it appears to one of the two largest Ponzi schemes in U.S. history, possibly trailing only the TelexFree MLM scheme.
UPDATED 9:08 A.M. EDT JULY 21 U.S.A. Matthew G. Pruden, an attorney with the Tin Fulton Walker & Owen law firm, is a defense lawyer in the June 2015 criminal case against “Achieve Community” figure Kristine Louise Johnson (Kristi Johnson), according to the docket of the case.
Achieve, like Zeek, is alleged to have been a pyramid- and Ponzi scheme. Pruden was appointed by the court to represent Johnson, who has pleaded guilty to a charge of wire-fraud conspiracy.
Though bizarrely dismissed by some Zeek cheerleaders as country bumpkins in the early days after the SEC brought its civil case, Tin Fulton Walker & Owen is a distinguished law firm. (Read GlimDropper of the RealScam.com antiscam forum, posting at Quatloos, covering a 2012 Robert Craddock barb against the firm.)
Achieve’s Johnson pleaded guilty to wire-fraud conspiracy on June 30. She is free on bail. Though listed as a Colorado resident, she was charged criminally in the Western District of North Carolina — the same venue in which the criminal charges against Burks were filed.
Whether the cases against Burks and Johnson raise any potential conflicts for Tin Fulton Walker & Owen was not immediately clear.
Certain documents that appear to be related to Johnson’s passport have been sealed in the criminal action against her. Certain documents in the Zeek case also are sealed.
Pruden assisted Johnson when she appeared in court last month and pleaded guilty, according to documents in the case.
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 10:25 P.M. EDT U.S.A. The trial for accused Ponzi schemer Paul R. Burks of Zeek Rewards now has been set for May 2016.
Burks, 67 at the time of his indictment in October 2014 on charges of wire and mail fraud, wire- and mail-fraud conspiracy and tax-fraud conspiracy, argued successfully that he needed more time to prepare.
Prosecutors in the Western District of North Carolina hoped for a November 2015 trial date. Burks asked the court to delay trial until September 2016.
U.S. District Judge Max O. Cogburn Jr. somewhat split the difference. In an order dated yesterday, Cogburn set the trial for the May 2016 calendar term, advising attorneys for both sides to be prepared to pick a jury.
“The parties are advised that absent some unforeseen contingency, this action will be the first matter on for trial during the May 2016 term and will be tried to completion during that term, which may be extended,” Cogburn wrote. “The parties should be prepared to pick a jury on the second day of that term.”
Cogburn noted that Burks has waived his right to a speedy trial and that discovery in the case is voluminous.
In the earliest days after the SEC’s civil action against Burks and Zeek in August 2012, some Zeekers planted the bizarre story that Burks had hired country-bumpkin lawyers who railroaded him.
In the order yesterday, Cogburn said Burks’ counsel has been “excellent.”
“In addition to the reasons given for continuance under the Speedy Trial Act, the court has conducted a separate inquiry with defendant concerning his Sixth Amendment right to a speedy trial, informing him that the extension he seeks exceeds a year and that, if he so requested, the court would be able to try this case sooner,” Cogburn wrote.
“After such inquiry, the court is satisfied that the defendant understands his Sixth Amendment right to a speedy trial and has knowing sought an extension exceeding a year so that he can better prepare for trial or another resolution of this matter,” the judge continued. “Further, the court determines that such request: (1) is informed as he has been advised by excellent counsel; and (2) is a reasoned decision based on the volume of discovery, the seriousness of the charges, and the time needed to digest such material and consider legal options.”
9th UPDATE 9:01 P.M. EDT U.S.A. Indianapolis-based USHBB Inc. and three of its principals — James A. Moore, Robert Mecham and Oscar H. Brown — have been sued by the court-appointed receiver in the Zeek Rewards Ponzi- and pyramid-scheme case.
Receiver Kenneth D. Bell alleges USHBB, a producer of videos, also did work for the AdSurfDaily Ponzi scheme “and one or more other failed MLM operations.”
Though not referenced specifically in the complaint, one of those operations was “NarcThatCar,” a bizarre pyramid scheme that collapsed in 2010.
Not only did USHBB and its principals mine $676,848 from Zeek for producing videos and marketing materials that duped vast numbers of Zeek participants, Moore, Mecham and Brown piled up hundreds of thousands of dollars in illicit profits as Zeek affiliates, Bell charged.
Brown, better known as O.H. Brown, used “ushbb” as his Zeek affiliate name and amassed $168,642.70, Bell alleged.
Moore scored $109,130.64 under multiple usernames, including “geniweb” and “ttm,” Bell alleged.
Mecham piled up “at least $868,542.17 through his shell companies Five Star Marketing, LLC and The End Media, LLC, under multiple usernames, including ‘napier2’ and ‘theend,’” Bell alleged.
Moore resides in Indianapolis, according to the complaint. Mecham is a resident of Bountiful, Utah, and Brown lives in Mount Pleasant, S.C.
Mecham and Brown received transfers of $25,000 each from a Zeek “insider” in August 2012, the same month Zeek collapsed, according to the complaint.
Brown, according to the complaint, potentially knew that the SEC was looking at Zeek in June 2012 and dashed off a panicked email to Zeek executive Dawn Wright-Olivares.
What appears to have happened, according to the complaint, was that a technology company with which USHBB did business was contacted by the SEC, prompting Brown to tell Olivares:
“Heads up!!!! Our IT partners, RMR development received a telephone call from the SEC today regarding yougetpaidtoadvertise and what organizations were associated. This was a very short call I am told. Not sure what will come of this but this is an alarm at least that the government is looking. We need to get squeaky clean and quick!”
Olivares, charged civilly by the SEC and criminally by federal prosecutors in the Western District of North Carolina in 2013, allegedly shared inside information with USHBB and Brown.
From the receiver’s complaint (italics added):
Further, the Defendants were involved in the Zeek scheme’s operation and the Insiders’ decisionmaking. For example, in August 2011, ZeekRewards adjusted some of the terminology it used publicly in an attempt to disguise the “Compounder” as a legitimate retail profit sharing mechanism. The Compounder’s name was changed to the “Retail Profit Pool,” but the substance of this investment vehicle did not change. USHBB was or should have been fully aware of this deceitfulness in which it participated.
In a June 24, 2011 email, Dawn Wright-Olivares wrote to O.H. Brown regarding a webinar that USHBB had created for Zeek: “I started to do minor edits . . . ([Y]ou’ll see them where I started to say Retail Profit Pool) lol instead of Compounder . . . . ” She further wrote to Brown: “the silent cap [for bid expiration] reality will be 125% but we can’t SAY it as you know.”
Wright-Olivares pleaded guilty to investment-fraud conspiracy and tax-fraud conspiracy in February 2014.
Consistent with USHBB’s “dubious track record” in ASD and other schemes, the company and its principals “assisted the ZeekRewards scheme by creating multiple videos that served as promotional tools for ZeekRewards,” Bell alleged.
Titles included:
“One Penny Billionaire.”
“You Get Paid to Advertise.”
“Got 20 Seconds.”
“The Dog Gone Truth.”
“Spin the Wheel.”
“The videos were carefully produced to mislead and deceive victims into participating in the scheme, convincing victims that with minimal effort they could earn significant financial returns from the Zeek scheme,” Bell alleged.
And, he alleged, “These videos assisted the Insiders in promoting the alleged ease with which affiliates could earn passive profits by investing in the scheme and selling membership in the scheme to others. Affiliates were told to mention the ZeekRewards program to a prospective affiliate or advertise it on a web page, and then email or otherwise provide them a link to the USHBB videos, which upon information and belief convinced other unwary victims to sign on . . .
“The videos were a key component in proliferating the RVG Ponzi scheme, causing significantly more victims and financial loss than otherwise would have occurred absent Defendants’ actions.”
RVG stands for Rex Venture Group, the alleged operator of Zeek. It was controlled by Paul R. Burks of Lexington, N.C. Burks also has been charged criminally.
ASD was a $119 million Ponzi scheme broken up by the U.S. Secret Service in 2008. NarcThatCar was a “program” that purported to pay MLM “program” members to recruit other members and to record the license-plate numbers of vehicles parked at restaurant chains, big-box retailers, universities, doctors’ offices and throughout neighborhoods from coast to coast.
The information purportedly would be entered into a database that could assist the U.S. Department of Homeland Security locate terrorists and lenders repossess automobiles. The bizarre scheme disappeared after it caught the attention of the Better Business Bureau and investigative journalists.
Bell is seeking treble damages and the return of ill-gotten gains from the USHBB defendants.
Zeek receiver Kenneth D. Bell has filed a land claim in the Turks and Caicos Islands on behalf of Zeek victims, according to this evidence exhibit in U.S. District Court for the Western District of North Carolina. (Masking by PP Blog.)
BULLETIN: The court-appointed receiver in the Zeek Rewards Ponzi- and pyramid case says millions of dollars in Zeek assets were transferred from the United States to the Cook Islands in the South Pacific by a former Zeek vendor known as Preferred Merchants Solutions LLC. At least part of the money allegedly then was used to purchase and renovate a “water-view vacation home” in the Turks and Caicos Islands in the North Atlantic.
Receiver Kenneth D. Bell hired local counsel in the Turks and Caicos to bottle up the property through the filing of a “Caution,” which Bell says “forbids any action with respect to the title of the Turks & Caicos Property” until the matter is resolved in the United States.
Senior U.S. District Judge Graham C. Mullen has frozen the island property, which Bell said he intends to sell to benefit Zeek victims.
Zeek was operated by Paul R. Burks through Rex Venture Group LLC. Preferred is operated by Jaymes Meyer of Napa, Calif.
Events that led to the island freeze involve a bizarre circumstance that allegedly occurred in June 2012, when tens of millions of dollars in undeposited checks — enough to fill six to eight mail bins — had backed up at Zeek, starving the Rex enterprise for cash during a period in which Zeek was having banking problems in North Carolina and its alleged Ponzi was crumbling.
As the PP Blog reported in October 2014, Burks allegedly hired Preferred to solve the problem and also to provide trust services. Bell contends that Preferred effectively transferred Zeek Ponzi cash to itself after it learned from the SEC on Aug. 16, 2012, that an order freezing Zeek assets was imminent.
Bell now says Preferred Merchants, “a single-member LLC owned entirely by Jaymes Meyer, transferred $7,737,402 of RVG assets from an RVG trust account . . . for which Preferred Merchants served as trustee. Prior to receiving the RVG Trust Funds, Preferred Merchants had a total of $2,790 in its bank account on August 1, 2012. Preferred Merchants is Meyer’s only source of income.”
The SEC moved against Zeek on Aug. 17, 2012, securing an asset freeze.
“On October 5, 2012,” according to Bell, “Meyer transferred $300,000 from Preferred Merchants to a Scottrade account held in the name of Fidus, LLC, a Delaware entity for which Meyer is the managing member, but was owned by ‘The Spiritum Holdings Irrevocable Trust,’ . . . a ‘Cook Islands Trust’ that Meyer set up in September 2012” after the Zeek freeze.
“On October 9, 2012, Meyer transferred an additional $6,100,000 from Preferred Merchants to the Scottrade Fidus account,” Bell said. “All or nearly all of the money held or transferred by Preferred Merchants or Meyer to the Scottrade Fidus account were RVG Trust Funds.”
More asset-shielding shenanigans occurred as 2013 was getting under way, months after the court-imposed freeze in August 2012, Bell alleged.
“On February 21, 2013, Meyer wired $6,000,000 from the Scottrade Fidus account to an account owned by the Spiritum Trust at Capital Security Bank Limited located in the Cook Islands,” Bell alleged. “On July 3, 2013, Meyer wired the $400,000 remaining in the Scottrade Fidus accounts to the same Spiritum Trust account in the Cook Islands.
“On or about June 28, 2013, Bella Vita Ltd., an entity in the Turks & Caicos Islands that was created and owned by the Spiritum Trust, purchased real property in the Turks & Caicos Islands designated as Title # 60609/24/Norway & Five Cays Section / Providenciales Island (‘Turks & Caicos Home’).”
What are the specs on the home?
It “is described as a 5 bedroom 5 bath home, which Meyer testified has views of the water,” Bell said. “The money used to purchase this real property were RVG Trust Funds that Meyer had deposited into various accounts owned by the Spiritum Trust.”
What else did Zeek victims allegedly pay for?
“Since the purchase of the Turks & Caicos Home, Meyer has coordinated and supervised improvements and renovations to the home and property, purchased furniture and fixtures, and purchased a boat, scuba equipment, and other personal property to be used with the Turks & Caicos Home . . .
“Meyer claims that over $1.5 million . . . has been spent ‘renovating’ the property and making these additional purchases,” Bell said. “All of these purchases were made with RVG Trust Funds that had come directly or indirectly from the Spiritum Trust or Meyer. However, Meyer and Preferred Merchants disclaim any ownership interest or control over Bella Vita, Ltd. or the Turks & Caicos Property.”
Bell has asked Mullen to “impose and enforce an equitable lien by ordering transfer of title to the Turks & Caicos Property to the Receivership Estate to ensure that there is no more evasion or hindrance of the Receiver’s recovery of these assets by Preferred Merchants and Meyer. The Receiver can then sell the Turks & Caicos Property to collect additional funds for the benefit of the victims of the ZeekRewards scheme.”
This map, created by the PP Blog through ZeeMaps, depicts the headquarters of Zeek Rewards in Lexington, N.C., the headquarters of of Preferred Merchants Solutions LLC in Napa, Calif., the Cook Islands’ island of Rarotonga in the South Pacific, and the island of Providenciales (Turks and Caicos) in the North Atlantic.
EDITOR’S NOTE: The MLM “program” known as Wings Network is alleged to have operated through two business entities that used the name “Tropikgadget.” The SEC’s case, announced Friday, is filed in U.S. District Court for the District of Massachusetts. That’s the same venue in which the agency’s epic TelexFree case was filed last year.
There can be no doubt — zero, none — that vulnerable immigrant populations in Massachusetts are being targeted in one MLM scheme after another. Speakers of Spanish or Portuguese may be particularly at risk. It’s also apparent that Asian, Haitian and African population groups are being targeted and that the risk is not unique to Massachusetts residents. The WCM777 “program,” for example, brushed through Massachusetts, where it was aimed at speakers of Portuguese and was stopped by the Massachusetts Securities Division in late 2013.
MSD also has squared off against a “program” known as EmGoldEx. In this scam, investors were promised returns of up to 1,105% and photos of children “getting paid” were used as lures to drive dollars.
One of the Tropikgadget entities — Tropikgadget Unipessoal LDA — allegedly was set up in the Madeira Free Trade Zone in November 2013 and later abandoned. Madeira, whose largest city is Funchal, is a North Atlantic Portuguese archipelago slightly closer to continental Africa than continental Europe. It is worth pointing out that the SEC publicly thanked both Portugal’s securities regulator (Comissão do Mercado de Valores Mobiliários) and the office of Portugal’s Attorney General (Procuradoria-Geral da República of Portugal) for assistance in the American probe.
The other Tropikgadget entity — Tropikgadget FZE — appears to have been set up in Sharjah, United Arab Emirates, also in November 2013. Sharjah, on the Persian Gulf, is the UAE’s third most populous city, behind Dubai and Abu Dhabi, according to WikiPedia. The paper presence of these companies at geographic points on the North Atlantic and the Persian Gulf more than 4,300 miles away from each other and how they enlisted Massachusetts residents to do their bidding probably is a story unto itself, but it is a story for another day. What’s news today is that Wings Network was operating in Massachusetts at Ground Zero for TelexFree after the TelexFree action and, like TelexFree, is accused of fleecing vulnerable immigrant populations.
At least seven of the 12 charged Wings Network promoters had addresses in Marlborough, Mass. This is potentially important because TelexFree’s U.S. operations were based in Marlborough. TelexFree operated through various U.S. entities and a Brazilian entity known as Ympactus. Brazil-based TelexFree/Ympactus figure Carlos Costa has TelexFree business partners in Massachusetts, waved the flags of Madeira and Portugal in a 2013 TelexFree promo and invoked God in appeals to support TelexFree. Sann Rodrigues, a charged TelexFree promoter associated with an MLM entity known as iFreeX that also operated in Massachusetts and has come under scrutiny, has claimed “God” invented MLM and “binary.” Rodrigues, according to the SEC, is a recidivist pyramid-schemer.
There’s also evidence that the Zeek Rewards “program” taken down by the SEC in 2012 targeted vulnerable people.
**____________________**
Funchal, Madeira, to Sharjah, UAE. Source: Google Maps.
UPDATED 11:32 A.M. ET U.S.A. The SEC’s “Wings Network” case announced Friday is the latest example of the MLM world’s intolerable capacity to deceive. Though the facts alleged by the SEC are alarming, the action against two companies, three officers and 12 promoters is not an indictment of the trade. Indeed, the agency worked with the Direct Selling Association to expose one of the most mind-numbing lies.
But you still have to wonder if MLM and network marketing in general are on the road to perdition. This is because the horrifying abuses and thematic lies that propped up Wings Network are so common across the larger MLM trade that one can be forgiven for wondering if targeting vulnerable population groups and institutionalizing prevarication is Rule No. 1.
How DSA Got Involved In The Wings Network Case
Adolfo Franco, the trade association’s executive vice president and chief operating officer, sits at the intersection of commerce and government affairs. He’s an old political hand and has worked as a Republican strategist and assistant administrator for Latin America and the Caribbean for the U.S. Agency for International Development (USAID). Franco wants the MLM industry to prosper, and he wants to make sure he has a wholesome story to tell in government corridors.
Wings Network didn’t give him one, to be sure.
You see, Wings Network is accused by the SEC of using the DSA’s name to sugarcoat a creeping, cross-border fraud scheme that ultimately gathered at least $23.5 million. What actually happened, according to the SEC and an affidavit prepared by Franco, is that DSA received an “e-mailed request” for a DSA membership “application.” It then sent out the application, which was never returned. Not only was the application not returned, according to the affidavit, DSA never even heard back from Wings Network.
What allegedly happened next will surprise no one who follows the bizarre dramas MLM has been serving up for the past several years. This simple request for a membership application was conflated by Wings Network and affiliates as an endorsement by DSA of Wings Network.
By April 2014, according to the SEC, DSA became aware of this ribald deception. The association reacted by sending Wings Network a cease-and-desist letter, directing Wings Network and affiliates to stop claiming membership in DSA and stating point-blank that “any indication that Wings Network is a member of the DSA is fraudulent.”
Multiple Layers Of Deception
Could it get worse? Sure. Wings Network hucksters also are accused of duping participants into believing the “program,” which advertised guaranteed income, had the additional benefit of insuring them against loss.
Anyone who’s been following the unbelievably noxious example of TelexFree can tell you that the same thing allegedly happened there. The same thing currently is happening in a “program” known as “MooreFund,” and it previously happened in the AdSurfDaily Ponzi scheme in 2008 broken up by the U.S. Secret Service.
The MLM scammers look for a tiny kernel of truth and then wrap a lie around it: A “program” may have a bank account, for example. Money in the account may be insured by the FDIC in the event of a bank collapse.
From this, the “programs” themselves and affiliates conflate a fantastically malignant construction by which no one can lose money because of the “insurance.” It is just a contemptible lie. It’s also one that has been bettered by new versions of the lie. These versions — as is the case with Wings Network, TelexFree and MooreFund — hold that private insurers or even software companies such as Symantec have the companies’ backs and that these private insurers never would do business with a fraud scheme.
Supplementing this lie are companion lies — advanced by Wings Network, TelexFree and others — that a business registration with a Secretary of State or equivalent agency domestically or overseas is proof that there is no underlying scam. (One need only to look at Bernard L. Madoff Investment Securities LLC to understand just how preposterous this type of lie is.)
Here’s the thing: The type of lies advanced by Wings Network are not unusual for “opportunities” using an MLM or network-marketing business model. DSA happened to be the victim of brand-leeching and runaway disingenuousness in this case, but other cases show it’s hardly alone. Even the names of the U.S. government and various U.S. agencies have been dropped in this fashion.
Not even the “brands” of God and Jesus Christ are off-limits in the MLM sphere. Sometimes an asserted endorsement by a deity is supplemented by suggestions that living legends of entertainment and business have piled aboard a “program” train.
This is a short summary of these tactics as employed by recent MLM or network-marketing schemes that either cratered on their own or collapsed after regulatory intervention. (Note: Some background information also appears in the summary):
WCM777. Operated by Ming Xu. Targeted people who spoke Spanish, Portuguese, English and Asian languages. Dropped names of God, “Yahweh,” Jesus Christ, Al Gore, Steve Wozniak, Sylvester Stallone, “Rocky,” Eric Garcetti, Siemens, Goldman Sachs, the Denny’s restaurant chain and many, many more famous companies. (As many as 700.) Basic sales message: Send us money. Get rich. Estimated haul: $80 million in less than a year. Estimated number of victims: tens to hundreds of thousands.
TelexFree. Operated by James Merrill, Carlos Wanzeler and Carlos Costa. Largely targeted people in the United States and internationally who spoke Spanish, Portuguese and English. Global penetration at an almost unfathomable level. Appears to have created black market and back-alley economy in Massachusetts. Became subject of undercover investigation by the U.S. Department of Homeland Security. Dropped names of God, Jesus Christ, MLM Attorney Gerald Nehra, President Obama, Massachusetts Commonwealth Secretary William Galvin, the SEC, the U.S. Attorney General. Basic sales message: Send us money. Get rich. Estimated haul: $1.82 billion in about two years. Estimated number of victims: hundreds of thousands to more than 1.8 million.
Zeek Rewards. Operated by Paul R. Burks. Targeted people who spoke Spanish, Portuguese, English and Asian languages. Global penetration at an almost unfathomable level. Affiliates targeted Christians. Dropped names of the Association of Network Marketing Professionals, MLM attorneys Gerald Nehra and Kevin Grimes, plus MLM consultants Keith Laggos and Troy Dooly. Basic sales message: Send us money. Get rich. Estimated haul: $897 million in less than two years. Estimated number of victims: hundreds of thousands. “Clawback” cases to return alleged ill-gotten gains may affect 10,000 or more affiliates.
eAdGear. Operated by Charles Wang and Francis Yuen. “Primarily” targeted “investors in the U.S., China, and Taiwan,” according to the SEC. Dropped names of Google, Yahoo, Target Corp., Lbrands (Victoria’s Secret), Avon, Sears, Nordstrom, eBay, QVC, HSN, J.C. Penney, Banana Republic, Dillard’s, Kohl’s, Macy’s, Amazon.com, Men’s Wearhouse, Kmart, New York magazine and many, many more. (As many as 253 brands were abused.) Basic sales message: Send us money. Get rich. Estimated haul: $129 million. Estimated number of victims: tens of thousands.)
Wings Network now stands accused of targeting “many members of the Brazilian and Dominican immigrant communities in Massachusetts” in a combined pyramid- and Ponzi scheme that raised at least $23.5 million.
If that sounds familiar, perhaps it is because the TelexFree “program” was accused last year by the SEC of doing the same thing in the same place. Like Wings Network, TelexFree reached across national borders to plunder investors. Recent filings by the court-appointed trustee in the TelexFree bankruptcy case — and these filings are subject to amendment in part because there are more than 1 trillion disparate data points involved in the reverse-engineering of TelexFree — list the “nature” of the company’s business as “pyramid scheme.”
Other filings by Stephen B. Darr, the trustee, suggest that TelexFree gathered more than $1.8 billion in about two years of operation through a series of entities in the United States and an affiliate in Brazil known as Ympactus. The dollar volume alone is simply mind-boggling, more so when one considers the records so far denote “1,894,940 Participant names, spanning 35,110 pages.”
Some readers who sift through the TelexFree material will need a name-pronunciation guide and a world atlas. TelexFree didn’t just mow down Americans. The records suggest, for example, that the “Embassy Of Nigeria P O Box 1019 Addis Ababa Ethiopia” has contacted Darr. One document lists “Baker Island,” which WikiPedia says is an uninhabited Pacific atoll tended to by the U.S. Fish and Wildlife Service, as the “country” of an investor.
It is clear that TelexFree had investors (at least) in Argentina, Australia, Belarus, Belgium, Bolivia, Cambodia, Canada, Chile, China, Colombia, Croatia, Cyprus, Dominican Republic, Ecuador, Egypt, El Salvador, France, French Polynesia, Germany, Ghana, Guatemala, Honduras, Hong Kong, Hungary, India, Indonesia, Ireland, Italy, Japan, Jordan, Kenya, Lebanon, Luxembourg, Malaysia, Mexico, Moldova, Netherlands, New Zealand, Nigeria, Norway, Paraguay, Peru, Philippines, Poland, Portugal, Puerto Rico, Qatar, Romania, Russia, Rwanda, San Marino, Serbia, Singapore, South Africa, Spain, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Togo, Turks and Caicos, U.S. Virgin Islands, Uganda, Ukraine, United Arab Emirates, United Kingdom, United States, “Unknown” country, Uruguay, Uzbekistan and Venezuela.
MLM in this form is “fraud creep” running wild. It is posing dangers to individual participants, including those who can ill afford to take a financial hit. Beyond that, it is posing a danger to the U.S. financial infrastructure.
Economic security is national security, friends. These MLM HYIP “programs” pose an untenable security threat. Many of them are shrouded in multiple layers of mystery.
DSA Needs To Do More
It is good to see that the DSA worked with the SEC on the Wings Network case. It would be better yet if the organization studied why so many MLM HYIPers appear to move from fraud scheme to fraud scheme to fraud scheme.
Where did these people start their “MLM journeys?” Did they start at, say, Herbalife or Amway after buying into the dream and the attendant hype? And did they get churned by those “traditional” MLMs, only to become shark bait for the HYIPs?
With so many of the scams selling the message that it’s nearly impossible to make money in “traditional” MLMs and that 97 percent of people who latch onto the MLM dream of riches emerge as losers or highly vulnerable treaders of water in rough seas, isn’t it time for those traditional MLMs to question whether they are creating the refugees and providing the training for the targeting?
Herbalife is not an HYIP. But it sells a dream and has a high burn rate. The most recent scheme to sell against traditional MLM is “Achieve Community,” taken down by the SEC last month.
Whether or not “the 97 percent” claim is precisely true is immaterial. What’s material is the ready availability of vulnerable population groups and refugees from “traditional” MLMs.
TelexFree even may have channeled Herbalife, calling its cheerleading sessions “extravaganzas” and latching onto the sport of soccer.
Stemming this hurtful tide should be a top priority at DSA. The wave of scams is not docile. It very well might be eroding protective shores in violent fashion and creeping up on the road to perdition.
A woman has contacted the court presiding over the Achieve case to solicit help in getting back her money. The six-page filing by Arla Mendenhall, who identified herself as an Achieve investor, further questions how Achieve treated her for tax purposes.
A similar situation at Zeek, according to court filings, led to a 2014 criminal charge of tax-fraud conspiracy against Zeek operator Paul R. Burks. Prosecutors alleged that Burks failed to file corporate tax returns and accused him of issuing “fraudulent IRS Forms 1099s, causing victim-investors to file inaccurate tax returns for phantom income they never actually received.”
Mendenhall claimed in a communication to the court presiding over the Achieve case that she received a 1099 that asserted she was paid $6,000 by Achieve, even though “I only withdrew $800.00.”
The remaining $5,200 was “reinvested in the business,” she advised the court.
All in all, Mendenhall contended she plowed $8,450 into Achieve.
Records in the Zeek case list her as a “winner” of a Zeek sum in excess of $1,000, meaning she’s a defendant in a class-action clawback case filed by Zeek receiver Kenneth D. Bell in 2014. Senior U.S. District Judge Graham C. Mullen of the Western District of North Carolina granted class certification earlier this month.
Separately, posters at the RealScam.com antiscam forum have linked Mendenhall to cash-gifting schemes such as The People’s Program and Blessing Gold Club.
In 2013, the PP Blog reported that certain Blessing Gold Club promoters were promoting Better-Living Global Marketing and its Zeek-like Bidders Paradise arm. BLGM purportedly operated offshore, giving rise to questions about whether U.S. members involved in Zeek later had moved to a new venue in an effort to continue to pick fruit from a poisonous tree.
On Feb. 12, U.S. District Judge Robert E. Blackburn of the District of Colorado froze Achieve Community assets after the SEC contended Achieve was a pyramid- and Ponzi scheme that had gathered more than $3.8 million.
“I had no knowledge of anything illegal when I joined this Business,” Mendenhall said in her filing today.
Much of the information submitted by Mendenhall appears to have originated in her Achieve Community back office.
Alleged Achieve operators Troy Barnes and Kristi Johnson have invoked their Fifth Amendment right not to incriminate themselves in the SEC’s civil case. Barnes has claimed he faces a criminal investigation.
URGENT >> BULLETIN >> MOVING: (3rd update 9:15 p.m. EDT U.S.A.) Alleged Zeek Rewards operator Paul R. Burks has been indicted by a federal grand jury in Charlotte, N.C., on charges of wire and mail fraud, wire- and mail-fraud conspiracy and tax-fraud conspiracy.
Burks, 67, of Lexington, N.C., is the third Zeek figure to be charged criminally.
On the tax front, the grand jury charged that Zeek Rewards, the MLM arm, and Zeekler, the penny-auction arm, failed to file corporate tax returns. So did Rex Venture Group LLC, the parent company.
Burks and “others” caused fraudulent 1099 forms to be issued for the 2011 tax year, which caused victim-investors to file false tax returns that reported “phantom” and “fictional ” income. Burks “engaged attorneys and tax professionals to legitimize the issuance of the 1099s,” the indictment alleged.
Meanwhile, the grand jury alleged, “Burks and others paid themselves large salaries and other payments from victim-investors’ funds and did not keep accurate and complete records of the payments.”
And, the indictment alleged, Burks and other used multiple bank accounts and offshore payment processors “to deposit funds from victim-investors and to make Ponzi payments” to them.
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.
