One of the hot topics that has been discussed ever since Zeek Rewards merged a penny auction with a MLM compensation plan has been the viability of the penny auctons themselves.

Despite Zeek Rewards (the largest MLM penny auction company to date) claiming that their auctions were wildly profitable and able to support a MLM compensation plan, an SEC investigation revealed a whopping 98% of the money coming into the company was from its own affiliates.

Coupled with a daily return on investment (ROI) paid out, this meant that effectively Zeek Rewards was by and large just shuffling its members own money around, with how much a member received as a ROI pegged to how much money they themselves had invested and/or convinced others to invest.

In the aftermath of the Zeek Rewards Ponzi apocalypse though, despite the facts and figures many still believe that penny auctions with a MLM style compensation plan are viable.

Thus far the only other business we can look at is Bidify, who had a similar “Ponzi points” style compensation plan to Zeek Rewards, but scrambled to change their compensation plan to focus on the sale of bids to actual customers shortly after the Zeek went down.

I don’t particularly like to cite Alexa rankings as they don’t paint a concrete picture, however it appears since making the changes both Bidify and their penny auction Bidsson have been in steady decline:

Zeek Rewards went down mid August and since then both websites’ traffic reports indicate the new compensation plan hasn’t worked out too well.

Additionally affiliates based in the US are now complaining about having issues getting their money out from Towah, who Bidify use as a payment processor:

I can’t transfer my Towah funds to my card due to “errors” from their end.

Payments made to Bidify’s affiliates seem to reflect the drop in traffic and subsequent activity surrounding Bidsson’s penny auction:

Well…. I am making .60 or .49 daily.

Everybody that was above or under me left so I am own my own… Just barely making what it needs to be made to pay the monthly fees.

Looking forward the future doesn’t appear to be too promising, with some affiliates even going so far as to announce a “recruitment strike“.

I bring this up not to have a go at Bidify in any way, but rather to make a point as, following Zeek Rewards’ collapse, Bidsson was marketed in a manner that focused on the penny auction and giving the strong indication it was a “MLM penny auction done right”.

But what if the penny auctions simply aren’t enough?

Today in yet another blow to the penny auction niche of the MLM industry, Funky Shark announced it had abandoned plans to push forward with their penny auction.

Added to the BehindMLM penny auction prelaunch list back on September 18th, I noted in my prelaunch review striking similarities between Funky Shark and Zeek Rewards along with some other red flags, including commissions paid out on the recruitment of new members.

Not surprisingly, after claiming to have taken ‘advice from (their) legal counsel‘, in an email sent out to Funky Shark members today, the company states it has

recently discovered that the way we executed our Founder program may violate certain securities laws in the United States.

Given the near identical model to Zeek Rewards and pyramid scheme style recruitment commissions they were offering, why this wasn’t picked on before prelaunch is anyone’s guess.

On the cynical side of things one could suggest this was never going to be anything more than a $1000 “Crown Member” founder position recruitment scheme (affiliates were paid $500 to recruit Crown members), however Funky Shark are claiming that

any Crown Member who paid the $1,000 and has not received any commissions from the Founder program will be refunded their entire $1,000 payment.

Where this money will come from is a mystery however given that the company has already paid out (presumably) thousands of dollars in recruitment commissions to existing members.

These members Funky Shark state are ‘not due any additional funds‘, nor do they appear to request they give the money back (likely because they know it’s not going to happen).

Looking at the bigger picture though, amazingly Funky Shark’s pyramid scheme style commissions and Ponzi points compensation plan wasn’t the reason the company pulled the plug on their opportunity.

They could have course just pulled a Bidify and redid their comp plan, but they didn’t.

Why?

Due to these actions that we’re taking to remedy this error, in conjunction with our business model, our confidence in the future success of Funky Shark as a penny auction is greatly reduced.

We really cannot in good conscience move forward with the penny auctions.

In order for the penny auction to be profitable, there needs to be a lot of activity with the auctions. We lack confidence in this regard.

Apart from revealing that Funky Shark never had any confidence in their penny auctions sustaining their business model and were instead primarily relying on member investment as per Zeek Rewards, here we have a company who charged people $1000 to join, was weeks away from launch and now finds itself in somewhat of a nightmare position having to pay out more money than they’ve taken in.

All because they don’t believe penny auctions on their own in MLM are viable.

The weight of Funky Shark’s decision is in no way to be taken lightly, as obviously given a viable alternative (other than actually relying on their penny auction to sustain a MLM compensation plan), no doubt they would have opted for that rather than shut their doors.

Between Zeek Rewards’ Zeekler penny auction contributing just 2% of the company’s non-affiliate revenue, Bidify ongoing problems and now Funky Shark’s management in essence admitting an MLM penny auction model that doesn’t primarily revolve around member investment doesn’t work, things aren’t looking good for the MLM penny auction niche at all.

What does this mean for the ten or so MLM penny auctions either still in pre-launch or who have launched recently?

Stay tuned.

 

Footnote: The complete email sent out to Funky Shark members today is as follows:

Please read this communication in it’s entirety as it contains important information crucial to your business with Funky Shark.

Today marks a sad day for us all here at Funky Shark. I’m sorry to report that we’ll be cancelling the launch of Funky Shark. We’re sorry to those of you that were excited about the launch. We want to ensure everyone that we will be providing refunds for everyone, making them completely whole.

Funky Shark is a unique twist on the idea of being able to qualify for commissions resulting from penny auction profits and bid sales. But based on advice from our legal counsel, we have recently discovered that the way we executed our Founder program may violate certain securities laws in the United States.

While this news has come as an extreme shock to us, our immediate response was to ensure that all Crown Members be made whole. The goal is to restore all members to their original situation before starting the program. This means the following:

Any Crown Member who paid the $1,000 and has not received any commissions from the Founder program will be refunded their entire $1,000 payment.

Any Crown Member who has received commissions from the Founder program will have the difference between commissions collected and the $1,000 Crown Member fee reimbursed to them. The sum of our reimbursement and collected commissions will total $1,000; thus, rendering the member whole.

As for the Crown Members who have received more than $1,000 in commissions from the Founder program, they’re not due any additional funds. The sum of collected commissions have exceeded the $1,000 fee paid; therefore, they’ve gained from the program, not lost.

Regarding the administrative fees collected when you joined, those funds will also be refunded in similar fashion.

Due to these actions that we’re taking to remedy this error, in conjunction with our business model, our confidence in the future success of Funky Shark as a penny auction is greatly reduced. We really cannot in good conscience move forward with the penny auctions. In order for the penny auction to be profitable, there needs to be a lot of activity with the auctions. We lack confidence in this regard.

The Business Manager web site will remain live so that you can receive future updates from Funky Shark and it will remain live until all members have been refunded.

We ask that you please remain patient and give us the opportunity to work with our legal counsel and payment processors to devise a plan to get everyone accommodated. Our commitment to you is that we will work quickly and diligently around the clock to resolve this matter.

Please log into the Business Manager (Back office) for refund instructions and details.

We will keep you well informed of our efforts and progress.

Sincerely,
Funky Shark