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Tag: Stephen Cohen

  • URGENT >> BULLETIN >> MOVING: SEC Charges Alleged HYIP Operators Who Ran ‘Profits Paradise’ From India; Scammers Allegedly Used Fake Names And Engaged In Wanton Deception

    From an SEC exhibit in the Profits Paradise complaint.
    From an SEC exhibit in the Profits Paradise complaint.

    URGENT >> BULLETIN >> MOVING: (Updated 9:33 p.m. ET U.S.A.) The SEC has charged two Indian nationals with running an HYIP scheme known as “Profits Paradise” that reached into the United States and offered “extraordinary” returns of up to 480 percent in 240 days, plus “compounding.”

    As is typical in HYIP schemes, the “program” gained a head of steam on social media, the SEC charged. (A quick Google search shows that ProfitsParadise also had a presence on well-known Ponzi forums such as TalkGold and MoneyMakerGroup.)

    ProfitsParadise operated between April 2013 and early February of 2014 and offered “guaranteed” payouts, the SEC alleged.

    The scam “invited investors to deposit funds that supposedly would be pooled with money from other investors and traded on foreign exchanges as well as in stocks and commodities,” the SEC alleged.

    Pitches on Facebook, YouTube and Twitter were “pervasive” and resulted in investors being exploited, the SEC charged.

    The named respondents are Pankaj Srivastava of Mumbai and Nataraj Kavuri of Hyderabad. They also are accused of promoting the scam through Google Plus.

    Srivastava “used the pseudonym “Paul Allen,” the SEC charged. Kavuri called himself “Nathan Jones.”

    It was not immediately clear from the complaint whether the HYIP scammers intended to trade on the name of Microsoft co-founder Paul Allen. HYIP schemes, however, are infamous for trading on the names of prominent individuals.

    “Srivastava and Kavuri used excessive secrecy in their effort to swindle investors through social media outreach and a website that attracted as many as 4,000 visitors per day,” said Stephen Cohen, associate director of the SEC’s Division of Enforcement.  “Our investigation stopped the constant solicitations once the website disappeared, and successfully tracked down the identities of the perpetrators behind those fraudulent solicitations.”

    Bogus names also were used to register websites, the SEC charged.

    Srivastava caused the Profits Paradise website to be registered through GoDaddy in the name of “Jane Roe” of Seattle, the SEC charged.

    “Jane Roe is a fictitious name, and there is no connection between Profits Paradise and the dwelling at 300 Boylston Ave E., in Seattle, Washington, or its residents,” the SEC charged. “The telephone number provided to GoDaddy is a toll-free number for a conference call center that is unrelated to Profits Paradise,” the SEC charged.

    Meanwhile, a Gmail email address linked to the supposed Seattle street address was associated with IPs “located in India, not Seattle,” the SEC charged.

    At the same time, the agency charged, “Kavuri disguised Profits Paradise’s physical location by providing the false ‘whois’ data, indicating that Profit Paradise’s operations were within the United States when they were not.”

    From the SEC’s civil administrative complaint (italics added):

    “The phony name and address served a dual purpose. In addition to concealing the fact that Srivastava and Kavuri were behind the Website, the domain name registration to Jane Roe at a Seattle address was meant to attract American investors. Additionally, to create the illusion that mainly American investors were visiting the Profits Paradise Website, Srivastava instructed the web designer to ensure that the ‘Alexa detail’ showed the Website’s ‘rank in the United States’ rather than its ‘rank in India.’ “Alexa” refers to a website (www.alexa.com) that ranks other websites, by country, based on the amount of Internet traffic directed to the website.”

    Also typical of HYIP scams, payment processors such as Liberty Reserve, PerfectMoney and EgoPay were used. Dates cited in the SEC complaint suggest Profits Paradise opened its Liberty Reserve account just prior to federal prosecutors bringing criminal charges against Liberty Reserve in May 2013.

    Liberty Reserve has been described by prosecutors as a $6 billion money-laundering operation that propped up HYIPs and other frauds.

    Srivastava, in 2005, worked for Quixtar.com in Minneapolis, but returned to India in 2007, the SEC said.

    Read the SEC complaint,  which alleges the Profits Paradise scheme also was “structured so that under certain conditions investors could never recover their principal investments.”

    The SEC also has updated its Investor Alert on fraud schemes that trade on social media.

  • URGENT >> BULLETIN >> MOVING: Zeek Rewards Figures Dawn Wright-Olivares And Daniel Olivares Charged Criminally, Sued Civilly

    Dawn Wright-Olivares. Source: Cropped section of 2012 online promo for Zeek.
    Dawn Wright-Olivares. Source: Cropped section of 2012 online promo for Zeek.

    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.

  • URGENT >> BULLETIN >> MOVING: SEC Calls Zeek ‘$600 Million Online Pyramid And Ponzi Scheme’

    URGENT >> BULLETIN >> MOVING: (UPDATED 6:25 P.M. EDT (U.S.A.) 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.

    “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,” said Stephen Cohen, an associate director in the SEC’s Division of Enforcement. “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.”

    In its emergency filing, the SEC described Zeek as a classic Ponzi scheme. The agency charged that “approximately 98% of ZeekRewards’ total revenues, and correspondingly the purported share of ‘net profits’ paid to current investors, are comprised of funds received from new investors.”

    Records show that the AdSurfDaily Ponzi scheme which, like Zeek, suggested that investors would receive a return on the order of 1 percent a day, also received only about 2 percent of its revenue from sources other than members. Zeek had members in common with ASD.

    Zeek, the SEC alleged, “is teetering on collapse.”

    Zeek CEO Paul R. Burks has been charged with selling unregistered securities as investment contracts, the SEC said. Burks presided over Rex Venture Group LLC, Zeek’s purported parent company. Rex Venture also has been charged. The SEC said it was aided in the probe by the Quebec Autorite des Marches Financiers and the Ontario Securities Commission.

    Burks’ program holds “approximately $225 million in investor funds in approximately 15 foreign and domestic financial institutions, and those funds are at risk of imminent dissipation and depletion,” the SEC charged, noting that the Ponzi potentially could affect more than 1 million people globally.

    A federal judge has ordered an emergency asset freeze and a receiver will the appointed, the SEC said.

    “Through the ZeekRewards program, Defendants offer affiliates several ways to earn money, two of which involve the offer and sale of securities in the form of investment contracts: the ““Retail Profit Pool” and the “Matrix,” the SEC charged.

    And, the agency said, the “compounding” effect has created a condition under which 3 billion Zeek “Profit Points” are outstanding.

    “Based on the ZeekRewards current outstanding Profit Point balance, the company would be obligated to pay out approximately $45 million per day if all Qualified Affiliates elected to receive their daily award in cash,” the agency charged.

    Amid Zeek claims that it paid out 50 percent of its daily net and that its business model was “proprietary,” investigators discovered that Zeek delivered an unusually consistent return of about 1.5 percent a day.

    “In fact, the dividend bears no relation to the company’s net profits,” the SEC charged. “Instead, Burks unilaterally and arbitrarily determines the daily dividend rate so that it averages approximately 1.5% per day, giving investors the false impression that the business is profitable.

    Similar allegations were made in 2008 against ASD operator Andy Bowdoin.

    Zeek’s fabled Zeekler “bids” were described by the SEC as smoke-and-mirrors. From the complaint (italics added):

    Despite encouraging affiliates to purchase and give away VIP Bids to promote and drive traffic to the Zeekler penny auction website, Defendants fail to disclose that almost none of the VIP Bids given away by Qualified investors are actually used on the Zeekler penny auction website. Of approximately 10 billion VIP Bids purchased by or awarded to investors, less than one-quarter of one percent have been actually used in auctions on the Zeekler penny auction website. Thus, the VIP Bids do little or nothing to actually promote the retail business.

    Zeek operator Burks, meanwhile, “has withdrawn approximately $11 million while operating Rex Venture and ZeekRewards, of which approximately $4 million remains in his possession, custody or control.

    Burks “distributed approximately $1 million of the funds garnered from ZeekRewards to family members,” the SEC said.

    Amid high drama and confusing website reports from Zeek yesterday, including the virtual abandonment of its office in Lexington, N.C., and petition drives by Zeek affiliates to demand the return of Zeek, it turns out that “Burks has agreed to settle the SEC’s charges against him without admitting or denying the allegations, and agreed to cooperate with a court-appointed receiver,” the SEC said.

    The U.S. Secret Service also is investigating Zeek, as is the office of North Carolina Attorney General Roy Cooper.

    Read the SEC complaint.