Undoubtedly if one was to credit a single source for the current rash of Ponzi scheme “daily revenue share” companies infecting the MLM industry, it would have to be Zeek Rewards.

Under the guise of a penny auction, Zeek Rewards let its members invest in the company and paid out a daily ROI over 90 days. The business model hinged on affiliates receiving >100% than the money they invested over the 90 day maturity period.

Zeek Rewards ran from January 2011 till it was shut down by the SEC in August 2012 for being a $600M Ponzi scheme. Following the SEC’s investigation it was revealed that at best, Zeek Rewards only had enough invested funds in reserve to continue paying out affiliates for 5 days ($45 million USD a day).

Since Zeek Rewards was shut down, those of us observing the industry has seen an explosion of Ponzi schemes popping up. Most, if not all of these companies seek to recapture the inherent addictiveness of affiliates investing money and then watching virtual earnings grow via a daily paid ROI.

The problem is that fundamentally, every single one of these opportunities still boils down to affiliates investing their own money into the company which is then used to pay out existing affiliates who invested earlier.

One of the closest imitators of the Zeek Rewards “daily revenue share” Ponzi scheme I’ve seen thus far has been AddWallet. The company has gone to great lengths to replicate the design, look and feel of the Zeek Rewards backend and is heavily marketed towards ex-Zeek Rewards affiliates.

With a business model and compensation plan that simply exchanged penny auction bids with advertising credits, naturally questions have arisen from prospective investors curious as to why, once the scheme grows big enough, the SEC won’t just simply shut down AddWallet too.

Seeking to address those concerns, AddWallet held a conference call a few days ago. The gist of the explanation being not that AddWallet is any different to business model and compensation wise to Zeek Rewards, but rather that being based offshore, AddWallet are confident the they are safe from the SEC.

The AddWallet call, hosted by ex-Zeek Rewards and current AddWallet affiliate Cesar Ramirez, was mostly a Q&A session from existing and prospective investors, largely focused on concerns they had over obvious similarities between AddWallet and Zeek Rewards.

On the call the management structure of AddWallet was revealed, naming Louis Cordero as CEO (Ecuador), Brandon Bradshaw as Vice-President (Florida in the US) and Logan Chamberlain as CFO (Ecuador).

Bradshaw took most of the questions on the call and started by lamenting on the loss of Zeek Rewards and the intentional similarities that exist between the it and AddWallet:

[4:52] After the fall of the major player Zeek (Rewards), we… saw a lot of things there.

[13:34] It’s unfortunate what happened, alot of good people got hurt. I thought Zeek was doing a fantastic job.

[5:26] We put a base operating system down. Yes, it’s very much like Zeek when you go into the retail profit pool earnings, you see something that you’ve seen before.

So in essence, for a lot of people we didn’t have to really train them. You already know what’s going on as soon as you reach that screen.

[7:31] This business model, this compensation plan is proven to be dynamic. Everyone will make lots of money here at AddWallet.

Addressing concerns over what happened with Zeek Rewards, Bradshaw then attempted to reassure those on the call that AddWallet would not be in danger of facing the same fate:

[13:44] One of the first things that was wrong was that they (Zeek Rewards) were incorporated in the southern United States, they were incorporated in North Carolina and they were sitting ducks.

Y’know, once you have so much advertising people know you, you become global and they became a target.

So we saw all the way what happened here. So we incorporated in Ecuador, spoke to the lawyers in Ecuador. They said “this business model is fine”. So by doing that, we are offshore.

[5:10]The CFO, Dr. Logan Chamberlain, moved down in Ecuador and we saw an opportunity. We had a lot of meetings, we put a lot of things in place.

[5:50] We launched on January 7th. We’re an Ecuadorian corporation, owned and run by Ecuadorians. [6:09] We have our server here in Tampa.

[15:11] The Ecuadorian government loves us, welcomes us. We feel that, besides having our server in Tampa (Florida) right now, getting it, the servers are already in Ecuador, flipping the switch to speak, that’s the only thing left to do.

Rather than address the obvious problem with paying your existing affiliates with their reinvested money and new money invested by new affiliates, Bradshaw appears to believe that Ecuador has no problems playing host to Ponzi schemes.

The problem with Zeek Rewards wasn’t a jurisdictional one, it was that it was a $600M unsustainable Ponzi scheme operating with money it didn’t have.

One of the changes AddWallet has made to the Zeek Rewards business model is that they do not permit affiliates to withdraw 100% of their returns:

[17:44] With Zeek you could withdraw 100% of what you earned, what is the highest amount, percentage wise, that you can withdraw here and why?

[17:58] The highest on a daily basis is 75%. We just did not see that it was a very smart business move to let everyone, every single member, withdraw 100% of everything they earn every single day. We’ll just have maybe a “run on the bank”, we just don’t know. It’s an extra precaution.

A “run on the bank” of course being what happens

a large number of customers withdraw their deposits from a financial institution at the same time and demand cash because they believe that the financial institution is, or might become, insolvent.

As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy (or positive feedback loop) – as more people withdraw their deposits, the likelihood of default increases, thus triggering further withdrawals.

This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy.

In Ponzi speaking terms, this is simply acknowledgement of what happens when your investors demand their money all at once, revealing the scheme to be unable to pay out its investors (Ponzi schemes pay out ROIs based on the flaw of never-ending new investment).

Forced re-investment will prolong the inevitable, however ultimately ROI liabilities will exceed new money coming in and crash the scheme. That is if the company isn’t shut down by regulators and authorities first.

It’s also worth noting that prior to being shutdown, Zeek Rewards also had lawyers (in the US) professing the legality of the company’s compensation plan and business model.

Paying out affiliates with newly invested affiliate money isn’t the only similarity between the two companies, like Zeek Rewards, AddWallet are also promising to reveal additional sources of revenue, under the guise of a “premium ad service”:

[6:36]We know that the power and our expertise in the past has been through advertising. The true success and longevity of this program is gunna be through advertising. You will see this before too long.

[7:09]We’re gunna start introducing our premium advertising.

Largely seen as a token effort that would have had no impact on the source of revenue (investments by affiliates), shortly before being shutdown Zeek Rewards began promoting a shopping mall.

98% of the revenue generated by Zeek Rewards was from affiliate investment in VIP points. A shopping mall was unlikely to put a dent in that figure.

And even if it did, that doesn’t erase a year and a half of paying out a daily ROI sourced from new investors.

Similarily, whatever AddWallet’s future plans are, like Zeek Rewards it’s tainted by the fact that it was kickstarted by paying out a daily ROI sourced from money invested by affiliates.

Bradshaw does try to downplay this later in the call by claiming “advertising” is the source of AddWallet’s revenue:

[18:56] How does the company make money?

[19:00] Advertising. We drive traffic and we’ve got advertising. Our internet properties that we’ve got out there right now are making money.

Claiming to sell advertising has long been a cover for some of the most prolific Ponzi schemes that have popped up in the MLM industry. The most infamous of  which would have to be AdSurfDaily.

Shut down in 2008, AdSurfDaily claimed they were not a Ponzi scheme but rather sold affiliates advertising, redistributing these funds to affiliates who had previously brought advertising from the company.

This argument was later demolished in court with the company’s CEO and founder Andy Bowdoin confessing AdSurf Daily was a Ponzi scheme in 2012.

Under the guise of selling advertising, AdSurfDaily paid out it’s affiliates an average daily ROI of 1% a day. Under the same guise, how much are AddWallet paying their affiliates?

[8:35]The retail profit pool, what has the payout been lately as far as the percentage?

[8:54] The retail profit pool has been floating probably between 1.4% to 1.8% lately.

As with both Zeek Rewards and AdSurfDaily, it’s more than obvious where AddWallet’s daily ROIs are being sourced from.

Why else would Bradshaw feel the need to reassure everyone that with a near identical business model to Zeek Rewards, that AddWallet was safe merely because they have incorporated themselves in Ecuador?

As far as I know legitimately selling advertising isn’t a crime in the US. Running a Ponzi scheme whilst pretending to pay out your affiliates from imaginary advertising revenue however is.

Despite this however, Bradshaw states the following at [14:55]:

We don’t feel that our business model is illegal in any way in any country.

Getting back to Ecuador, do they really “love” Ponzi schemes? And are AddWallet really protected from the US by incorporating their company there?

Research into Ponzi schemes in Ecuador indicates somewhat of a mixed answer.

In 2005,

A 71-year-old provincial notary who died in a luxury hotel room earlier this year left behind a teenage girlfriend — who said he’d been on cocaine and Viagra — and a crumbling $800 million pyramid scheme that has blossomed into a nationwide scandal.

José Cabrera’s sudden death sparked panic among thousands of people who gave him a minimum of $10,000 each over two decades in exchange for up to 10 percent monthly interest.

Most were rank-and-file police and military personnel — more than 6,500 of them — and residents of Machala, the port city where Cabrera was based. The scandal has spread to high-ranking current and former military officials, judges, politicians and their families.

The head judge of the Machala Superior Court resigned after acknowledging he had invested $15,000. Ecuador’s former commander of the Joint Chiefs of Staff put in $45,000, and the wife of a former defense minister contributed $125,000, media have reported.

Interior Minister Alfredo Castillo said last week that the scheme was probably linked to money laundering for the drug trade, illegal arms dealing or counterfeiting.

Cabrera died of an apparent heart attack Oct. 26. His 18-year-old girlfriend of two years told police he had been smoking cocaine-laced cigarettes, drinking whiskey and popping Viagra.

Cabrera’s son and daughter denied their father, a former president of the National Association of Notary Publics, was involved in shady dealings. They promised to sort out the financial mess, before they disappeared last month as arrest warrants were issued.

Authorities believe they are in the United States and are preparing extradition requests.

Hundreds of investors laid siege to Cabrera’s office in mid-November. They were joined by police and soldiers assigned to guard the building.

Television broadcast images of police and soldiers leaving the scene with cash stuffed in their pockets, shoes and protective vests.

Criminal charges were lodged against 17 members of the armed forces who allegedly used two air force planes to fly from Quito to Machala to search for their money. Another 28 military personnel have been relieved of duty. Eight police officers face graft charges for their alleged involvement.

President Alfredo Palacio replaced his three top military commanders earlier this month. His administration has refused to explain the shake-up.

Cabrera, who as a notary was prohibited from handling investment funds, “managed around $800 million,” said Congressman Carlos Gonzalez, who is leading a legislative investigation of the case.

That represented more than the $700 million total deposits of the Bank of Guayaquil, Ecuador’s second-largest bank, Gonzalez recently told reporters.

Ecuador is no stranger to financial scandals. Its corruption-riddled banking system collapsed in 1999 after years of financial mismanagement, prompting a switch to the U.S. dollar as the official currency to stem the country’s worst recession in decades.

In 2009:

The Stanford Financial Group was a privately held international group of financial services companies controlled by Allen Stanford, until it was seized by United States (U.S.) authorities in early 2009.

On February 17, 2009, U.S. Federal agents put the company under management of a receiver, because of charges of fraud.

On February 27, 2009, the U.S. Securities and Exchange Commission amended its complaint to describe the alleged fraud as a “massive Ponzi scheme”.

On February 18 and 19, 2009, Ecuador and Peru suspended the operations of local Stanford units.

The Stanford Financial Group was incorporated in the US, but Ecuador seemingly had no problems swiftly putting a stop to local operations within 48 hours of the SEC shutting them down in the US.

And it’s not just the US that Ecuador are happy to cooperate with either. In 2008,

D.M.G. Grupo Holding S.A better known by its acronym DMG is a controversial Colombian company, intervened and disbanded since November the 18th 2008 by the Colombian government, under the suspicion of money laundering and illegal money catchment by using the Ponzi scheme.

People in DMG could buy a prepaid card from 100000 Colombian pesos (and) 5 to 7 months after purchasing the prepaid card, investors had the right to receive 75% to 150% of the money they invested in cash.

According to the owner and president of DMG, David Murcia Guzman, this business is supported by the constant flow of money for selling new prepaid cards, and also by the profitability of the subsidiaries companies.

David Murcia used the revenue to expand his business to Venezuela, Ecuador, and Panama where his businesses were also disbanded by the local authorities.

DMG’s “subsidiary companies” sound awful similar to AddWallet’s so-called “internet properties”.

Either way, whether the SEC do eventually move in on AddWallet (note that Ecuador has an extradition agreement with the US) or the scheme collapses due to not being able to pay out existing investors, fundamentally the Ponzi scheme business model is flawed.

Virtual profits, points and ROIs might look nice on a screen but at the end of the day there’s simply no money to withdraw. Time and time again those who get in first make money at the expense of those they promote the opportunity to who invest later.

Hiding out in Ecuador or anywhere else for that matter doesn’t change that.