Keith Laggos: FTC to hit Zeekler within 6 months
As for the asinine comment on Dr. Laggos… Yes he is a paid consultant. However, with a little due diligence, it is easy to see his reputation as an expert in his field is second to none.
Keith Laggos credits himself as a ‘marketing and management consultant‘ and claims to have worked with ‘dozens of direct sales companies as well as to other sales and distribution companies outside of the (MLM) industry‘.
Laggos joined Zeek Rewards as a paid consultant around June 2011 and shortly after the company switched from guaranteeing a 125% ROI on every bid purchased, to paying out a variable ROI over 90 days.
Laggos largely credits himself for instigating such changes, claiming on a recent promotional call for MLM company Lyoness that he’s ‘been able to help them (Zeek Rewards) change the comp plan to keep within the pyramid scheme and Ponzi scheme laws‘.
With Zeek Rewards still refusing to divulge whether or not the daily ROI they pay out to affiliates contains mostly affiliate money (this is “proprietary information”), Laggos’ claims of being within pyramid scheme and Ponzi laws are naturally still questionable.
That said, Laggos appears to believe that as far as being a Ponzi or Pyramid scheme, that Zeek Rewards are in the clear and has since shifted his focus to the penny auction side of the business.
This shift in focus ultimately resulted in the abrupt and completely unexpected parting of ways between Laggos and Zeek Rewards last week.
So just what happened between Keith Laggos and Zeek?
It would appear the fallout between Laggos (photo right) and Zeek Rewards might have something to do with a recent call Laggos took last week, promoting the MLM company Lyoness.
Lyoness allow members to make investments with the company, and after a specific number of investments have been made by people in your downline, the company pays you out a ROI to the tune of 730-1164%, depending on how much you invest.
Laggos claims that his Lyoness ‘group is the fastest growing group in the history of the company‘ [21:50], and when comparing investments in either Zeek Rewards or Lyoness that
You put ten thousand dollars in Zeekler, if nothing happens over the next year, you’ll probably make twenty or forty thousand if that’s all you do without building the front end.
If you put the same amount of money in Lyoness and don’t do anything else, without a single sponsored person you could probably make a quarter of a million dollars. [21:16]
Not “building the front end” of course refers to the passive investment nature of Zeek Rewards, in that members can simply “put ten thousand dollars in” Zeek Rewards, purchase alleged retail customers (who are nothing more than email addresses) or create fake customer accounts themselves, automate the publishing of a daily ad and receive, according to Laggos, a return of around forty thousand dollars in 12 months.
Opening the Lyoness promotion call by acknowledging listeners on the call ‘were all in Zeekler’ [13:04] before strongly advising them to join Lyoness and make it their ‘Plan B’, one possible reason for Laggos leaving Zeek Rewards might be the blatant cross-recruiting that occurs during the call.
This is not tolerated by Zeek Rewards, who state in their affiliate policies and procedures that
REX Representatives shall not sell or represent non-REX products or represent marketing opportunities from other companies to other REX Representatives.
Zeek Reward warns that failing to adhere to their policies and procedures ‘may be terminated for violating the terms of his or her agreement‘.
Whilst Zeek Rewards and Laggos himself have confirmed he is no longer a paid consultant with Zeek Rewards, Troy Dools today claimed that Laggos ‘is still an affiliate’ [10:47].
Laggos mentioned on the call that he has a Zeek Rewards downline of ‘about 4,500 people‘ and that his ‘total income with Zeekler is only about $40,000 a month‘, before rhetorically asking ‘you think I wanna lose $45,000 a month?‘ [45:13].
Infact, by all accounts it appears as if Laggos was taken completely by surprise and might not have left voluntarily (I won’t go so far as to say he was terminated, as the nature of his consultant agreement and what exactly transpired between him and Zeek Rewards following the call is unknown).
On the call, recorded last Tuesday just one day before Zeek Rewards’ latest ‘Red Carpet Wednesday’ affiliate event, Laggos stated
I told him (Burks) about ‘Plan A / Plan B’ and we’ve had a conversation.
He laughed and said “I believe in ‘Plan A / Plan B’. I said “as you know for most people that got involved Zeekler, Zeekler was their plan B” and he laughed.
He said “yeah, the majority of the big hitters were all ‘plan B’ for all of them – I don’t have a problem when it comes to ‘Plan A and Plan B'” [39:23].
I’m going to be at the red carpet service on Wednesday [24:48].
Zeek Rewards’ CEO Paul Burks didn’t seem to have a problem with Laggos promoting Lyoness (his ‘plan B’), but sometime over the next 24 hours Keith Laggos ceased being a consultant for Zeek Rewards. Nor was he present at the Red Carpet event.
Troy Dooly tried to get an answer from Zeek Rewards and was told by recently appointed Chief Operating Officer, Greg Caldwell that
[2:26] Keith Laggos and Rex Venture Group have agreed to part company effective immediately. We wish him the best and we wish him luck in his future endeavours.
Troy, don’t ask me about this ever again.
Unless something else happened within 24 hours of the Lyoness call going live, the only other reason I can think of was Laggos spilling the beans on alleged FTC going after Zeekler (and penny auctions in general), and his appraisal of Zeek Rewards and its future.
Citing contacts in the processing and banking sectors informing him of the FTC’s actions, Laggos claims
[14:06] The FTC has been taking action against all 32 penny auction sites. They put out letters to the top big four banks asking them not to, to encourage them not to open up accounts for penny auctions.
They call them illegal gambling. Their idea is that you buy bids, you place bets with those bids and only the winner gets the pot or the prize, and the rest of the people lose their chips or bids.
So they (the FTC) consider it to be illegal gambling online and they’re trying to stop it.
They (the FTC) sent notices to all the major (payment) processors in the US (telling them) that they do not want them to process a penny auction site as of July 5th. And most of them quit processing, if not all of them, on July 5th for penny auctions. Won’t do them, closed the doors – the rest of them will go offshore.
[14:55] I already had, as you probably know, moved Zeek processing to Hong Kong and other places outside of the US so it looked like it didn’t affect them.
The reason it took them so long to get the processors in the first place, is because they (the FTC) were actively trying to shut ’em, block ’em (in the US) so we had to go offshore.
Zeek Rewards stopped issuing checks to affiliates back in late May 2012, claiming their bank accounts had been closed because the company was “too big”. Since then, affiliates have experienced credit card charges originating from Panama, South Korea and Hong Kong (China), with many of these charges being initially blocked in the US for suspected fraud.
Additionally the company currently only pays out affiliates via third-party offshore payment processors. Then COO Dawn Wright-Olivares even went so far as to tell affiliates that unless they deposited new money into Zeek Rewards e-wallet accounts, they wouldn’t be able to withdraw commissions from them.
The company does claim to currently have US-based bank accounts but to date refuses to divulge to their affiliates or anyone else who these bank accounts are with.
Despite Laggos’ best efforts to help Zeek Rewards circumvent US laws and regulations, his predictions on the future of Zeekler remain grim:
[15:20] Unfortunately I don’t think the FTC is going to be satisfied with them (Zeek Rewards) going offshore.
When they did the same exact action against online gambling with poker and they went offshore, shortly (after) they (the FTC) prepared regulations, calling it ‘illegal gambling’, and made sure that no poker sites could have paid gambling online in the US.
Troy Dooly meanwhile claims that no such regulations exist, stating that ‘the FTC has never regulated online gambling at all’ [4:13].
Laggos seems confident they do though, and continues his frank assessment of the future of Zeekler and Zeek Rewards:
[15:52] Online gambling in the future is going to be highly regulated and they’re going to apply that same law I’m afraid to penny auctions. I don’t know if it’s going to be one month, or three months or six months.
[16:30] That is what I’m afraid the situation is. I’ve got an idea to help Zeekler continue if they lose the penny auctions, with other ideas that would be equally good but no doubt what there’s going to be a bump in the road followed by some loss in momentum. [17:08] I believe they’re (Zeek Rewards) are going to lose their momentum shortly.
[35:50] The FTC caused problems for Zeekler by making sure they couldn’t get their credit cards open for a long time, their merchant accounts, by causing them discomfort using the bank accounts – they couldn’t process orders, couldn’t pay their commissions and that caused hundreds if not thousands of complaints (from affiliates) to state attorneys and the FTC.
[23:50] I don’t think it’s (Zeek Rewards) going to last. I think the FTC will take action within 6 months, maybe 3 or less. I don’t think they’ll go a year before they take action.
[24:52] I can’t stop the FTC but I can have plan B for Zeekler in place when the FTC does take action.
I don’t want to be alarmist but I know what’s happening, I know what’s coming down the pipeline, we’re taking action to defend ourselves, to protect ourselves and our families.
I’ve been teaching this for over forty years…and if you’ve been in the industry for long you know what I’m talking about and won’t fault me for saying that, ’cause you know I’m right.
Whatever Laggos’ contingency plan for Zeek Rewards was, by severing him as a consultant it appears they weren’t interested.
I do however note the apparent similarities in Lyoness’ ‘retail cashback’ frontend and Zeek Rewards’ much hyped to-be-released Zeebates shopping portal. Whether or not Laggos is behind Zeebates however is unclear.
Although not confirmed, it appears as if Zeek Rewards members are going to have to find customers for the shopping portal to qualify for their daily ROI through Zeek Rewards, something many affiliates are not happy about.
Laggos goes on to finish up by accusing the FTC of being willing participants in extortion (a federal crime in the US):
[43:18] Even if they don’t win in court, they (the FTC) know they can extort money from them (Zeek Rewards), legally extort money from them.
Zeek Rewards has never made public mention of the FTC or any possible future action against Zeekler or penny auctions in general. If Laggos’ comments are accurate, in that he claims he’s been ‘reporting to Zeekler for months that the FTC has been becoming more active on penny auctions’ [2:42], this is something they’re well aware of and have known for a while.
In the meantime, while all this has been going on, the internet has been flooded with Zeek Rewards marketing from affiliates, making no mention of the difficulties the FTC have allegedly imposed upon Zeek Rewards and other penny auctions.
Instead, the company has been busy running around ensuring its members don’t use investment terminology to describe the business. Yet when push comes to shove, here we’ve got Keith Laggos himself publicly defining participation in Zeek Rewards by affiliates as simply “putting money in”.
In his defense, Laggos told Dooly that he ‘did not know they were recording (the call) or how many Zeekler people would be on it‘.
Although I can’t say I’m surprised, I find the notion of simultaneously being a paid consultant and enrolled affiliate ethically abhorrent. How on Earth are you expected to consult impartially when you’ve got such a big potential financial conflict of interest always looming over your head?
Then again, when it comes to Zeek Rewards one of the most worrying points of contention has always been that executive management in the company also have enrolled affiliate positions.
With insider knowledge of pending FTC action and contact with regulators, Zeek Rewards financials and the company backend, when you consider it takes 90 days to fully withdraw earnings on VIP points, quite clearly Zeek Rewards executive management affiliates are wholly at an unfair competitive advantage when compared to your average non-executive Zeek Rewards affiliate.
Zeek Rewards management and Keith Laggos know what’s coming, do you?
Update 2nd August, 2012 – On a video blurb published on Better Networker by Troy Dooly, he confirms that Keith Laggos was indeed terminated by Zeek Rewards:
After a prosecting call for Lioness went public where Dr. Keith Laggos questions the longevity of Zeek Rewards and other unique bid auctions, while seemily promoting Lioness, Zeek terminates his consulting contract.
Footnote: Troy Dooly broke this story a few hours ago and to his credit published the full Lyoness marketing call referenced in this article – my thanks to him for that as it’s likely this important information would have been buried had he not gone public.
All timestamp references contained in this article are in relation to Dooly’s video that accompanies his article, ‘Breaking MLM News: Zeek Rewards Officially Parts Ways With Dr Keith Laggos After Recorded Call Goes Public’.
Troy was partially correct. While FTC does not regulate online gambling, it did issue this warning in 2002.
http://www.ftc.gov/opa/2002/06/onlinegambling.shtm
Just as it did with the entire genre of penny auctions.
Also, FTC says “The FTC enforces the (anti-Internet Gambling) Act and regulations with respect to payment systems and financial transaction providers not specifically assigned to other agencies under GLB or the Commodities Exchange Act.”
http://www.ftc.gov/ogc/stat3.shtm
So they *are* in control of the payment processors.
Well… you can’t have online gambling without payment processors right?
Troy had no choice. He’s all for Laggos a while back. Now he needs to report both sides or get slammed for slanted coverage.
Laggos, IMHO, needs to get slapped by the FTC for double-dealing. I was pretty sure I read somewhere that he had a run in with SEC many years ago for not disclosing he has interest in the company he promoted.
Troy had to report on it because the recording was spreading among Zeek Rewards affiliates anyways.
What is interesting is how Laggos described Zeek exactly in the same way “the critics” have been describing it, i.e. a fancy Ponzi investment scheme. Maybe between Randy Schroeder and Keith Laggos’s comments, Troy will eventually realize that all of the critics AND these respected icons of the industry can’t all be wrong.
btw, shouldn’t Laggos affiliate relationship be terminated for all those violations of the T&C’s? Didn’t he ‘check flash’ with that $40k/month statement? That’s against the rules right?
Dr Keith Laggos is also out of compliance when he states that he makes 40k per month. It’s called Enticement. Even though the majority of the listeners were zeek affiliates he made this claim without the IDS statement.
His account should be terminated….well see if he gets special treatment.
So how fast does zeek crash if this news spreads, people panic and try to cash out quick?
I thought the last red carpet event WAS the last until Nov. convention ?
zeekrewardsnews.com/2012/08/tickets-for-august-22nd-rcw-go-on-sale-today-noon-edt/ Money grab ?
Laggos did a great job making zeek rewards compliant. With him talking about plan B and stating zeek rewards is not going to last, he was worth every penny.
Look what is happening you have desperate management with too little too late zeebates-fsc revamp, very angry affiliates at what ever level, and regulators ready to pounce and now hired experts trying not be alarmists.
Alot of shit can build up in a business model when you dont have real customers.
That recording was made before the last RCE. Hence the reason that Laggos was not at the RCE as persona non grata.
@Wallace
1) Depends on how many read the news. 🙂 As soon as most people decided they are cashing out, Zeek will have no choice but to lower their RPP (or deplete their “cash reserves” to maintain the RPP). Both of which accelerates depletion and will break a Ponzi.
Remember, they are paying out millions a month and also paid a ton of money to the lawyers and consultants.
2) Red Carpet Event is also an income source. Remember, they are charging $25 per person, more if you want to shake hands with the head honchos.
Supposedly they are changing the rules soon that one can only get paid through the RPP is they have real customers each month who are actually purchasing a certain amount of product each month.
Affiliates aren’t very happy about this proposed changed because most affiliates don’t have real customers and certainly don’t have customers who are purchasing products.
This new requirement will probably mean most affiliates won’t earn from the RPP in the future.
Here’s Mr. Laggos previous run-in with the law:
http://www.sec.gov/litigation/litreleases/lr19367.htm
Isn’t Laggos “legally extorting” money from ZeekRewards by wanting to be paid to provide solutions to ward off the government? 🙂
Exactly: you protect a Ponzi two ways: increase intake, or decrease output. They are trying to decrease output by adding on requirements.
It’s bait-and-switch.
I just checked out Lyoness, looks like Zeebates.
Actually, Lyoness resembles something much worse: the DMG Ponzi in Colombia.
http://en.wikipedia.org/wiki/D.M.G._Grupo_Holding_S.A.
Though it *does* have a free frequent shopper portion of the card that people prefer to point to when you point out it may be illegal.
Can you post the call or did you already?
Sorry I see it on Troy’s website.
Look what I saw posted on the Zeek wall on FB:
(Name) Remember, it’s not an investment
I guess the FTC going after banks with penny auctions as their customers explains why Zeek’s bank told them to hit the bricks, and now they have to mess around with these e-wallet companies.
@Brad
If something happens to the recording on Troy’s video I’ll put it up, otherwise it’s tacked onto the end of his video commentary.
Interesting
The novemeber they mention must be that plan B
No idea why Dooly didn’t mention this on MLM Helpdesk, but he’s published a short video blurb on Better Networker that claims Laggos was indeed “terminated”:
This information was absent from the MLM Helpdesk video and report.
Just FYI…
Troy Dooly posted that ONLY affiliates with more than 10K points will have the new requirements to have real customers who make purchases. He states that nothing will change for those at 10K or below.
Qualifiers kicking in at 10,001+ points and $10,000 the maximum personal investment permitted per account.
No co-incidence there.
I think he means anyone under the 10,000 mark does not have to get customers to qualify for points, everyone over 10,000 has to have customers buying to get daily points ?
If you have 10k or more points, you can afford to pay for fake/friends/family to “buy stuff” through the Portal.
There is no way the shopping portal will produce enough revenue for the affiliate payouts, Troy is bullish on it and mentioned Groupon as an example, but the reality is that every major affiliate shopping portal out there has bombed.
No way a few Amazon shoppers generates any significant revenue. Imagine you have 10k to 20k points, what’s a few bucks from 2 affiliate shoppers going to produce in revenue?
The play here is to diversify the customer base, regardless of revenue, to skirt the Ponzi and investment problems.
@Wallace
Yeah, my point being that the qualifiers kick in at the same figure of points purchasable (1 vip bid purchased = 1 vip point).
In a nutshell you invest $10,000 yourself or less and make up the difference by convincing others to invest and/or investing through dummy customer accounts, and as soon as $10,000 goes into the system you are hit with qualifiers (less if you go the retail bid route).
Most affiliates don’t bother with fake customers and retail bids, so I think it’s safe to say there’s a good reason they picked 10,000 points – it ties in with the max amount of real money cap an individual investor can pump into the system (officially).
Mind you, the details of the qualifiers haven’t been been made public yet – despite being announced back in March I think it was.
When they’re out I’ll go over them but till then not much point analysing unannounced qualifier changes too much.
From zeek’s FB page:
Sounds like someone in the US (specifically North Carolina) needs to get in contact with this State Credit Union, find out who sent them a letter and get a copy of it.
I assume “she” is the wife. It’d certainly be interesting to hear how the banks think Zeek Rewards work!
Have followed this thread with interest. Have been approached so many times by Zeek followers and all they talk about is ‘investment’ and “ROI”.
Have been on a couple of private webinars where I saw the individuals’ back offices and it was all about again, the ‘investment’ and the ‘ROI”. It smelled like a HUGE ponzi/pyramid and I wouldn’t join.
I heard earlier today from a Zeek friend who shared that ticket sales for the NC Red Carpet event later this month sold out in less than 30 minutes. Tickets for the Nov event in Nashville will sell for $500 or $1500! Hmmmm….
I have made an honest full-time living working with legitimate MLM companies for over a decade and I have paid anywhere from $99 to $200 to attend national events. What’s up with $500 or $1500? Sounds like a big cash influx for Zeek with 12,000 tickets that will go on sale (and they project will sell out fast!).
If all 12,000 sell for $500, that’s a $6 million windfall for Zeek! Unless they’re giving away gold and diamonds, Zeek should come away from that event with a lot of extra cash to keep pumping into their ponzi.
Go away Zeek! A lot of people are going to get hurt when this thing gets shut down, as it almost inevitably will.
Im not 100% but i think the $500+ rates are for people that want to chat with zeek corporate. Not all the people going to the event. Who knows? Zeek is vague with everything they do.
Troy at MLMHD
“most folks” dont feel the auctions and other crap do earn enough outside the comp structure. Who are “most folks”? zeek corporate?
Zeebates will be another huge flop decoy like zeekler is. Feel bad for people with little pockets when this thing burns.
How does anyone think paying out a daily ROI that consists of just 1% of outside non-affiliate money is not a Ponzi scheme?
All I heard in those comments is
I doubt an affiliate shopping portal will change this, not when you have people slamming down $10,000 in investment principals.
Troy at MLMHD
Pretty much shows the auction doesnt generate crapola for external profit.
I think Troy is scrapping my posts, I havent seen one of mine let through for a while.
Sent an email to (NC) State Employees’ Credit Union last night and got a very brief response from a Senior Administrative Officer this morning (at 7:08 am Eastern Time)….
Fwiw, I asked, Is it true that your credit union believes that Zeek Rewards, based in Lexington, NC, may be a massive ponzi scheme and is alerting its customers to exercise caution?
And the response was:
Al,
Thank you for your inquiry. That is the latest information we have about Zeek Rewards. Thank you.
If the FTC is alerting banks & credit unions about Zeek being a possible ponzi scheme, could the end be near?
Has the FTC ever done this in the past with other ponzi schemes?
That Troy guy writes some funny stuff, not too much of a schill for Zeek. ” If Zeek goes down it’s because of software problems ” 🙂
@Al
Possible to give them a followup call/email and ask who supplied the information to them? I’ve since sent my own correspondence off so I’ll see if I hear anything back.
In responding to your email, it’s interesting they confirm Zeek Rewards is a Ponzi scheme, a step up from stating Rex Ventures is fraudulent over the phone.
I don’t imagine there’s too many authorities whose advice a bank takes seriously enough to warrant phone calls to customers with warnings.
Update from the Zeek Rewards affiliate who originally published the news on Facebook:
I am a new customer/affiliate with ZeekRewards just several days now, a friend help sign me up and explain it, have been checking to see if new bids purchase have show of yet, not as today.
After reading this Zeekler and looking at BBB report on Rex Venture/Zeekler, am only thinking the worst of it, and will only belived in it when the money is in my hand, if that ever happens. I would like to think so, we can’t all be screwed all the time or maybe just a few of us will be, all the time.
I know the idea is for some work you will be compensated, its not free and with out effort no benefits, but for once something and at least a few people must be honest. I see no way now of seeking ne customers or members to join, will just hope to be paid for work some day.
I just spoke to Cory at NC Credit Unions Risk Managment, his name was Cory, # is 1-800-385-7014. He did verify they are telling there customers to be aware of Rex Ventures. He would not tell me if they came to this on there own or if it came from AG or FTC.
I just got this reply back from the NCSECU media liason officer:
A totally different response. Note that I didn’t mention anything about investing… he mentioned “investor education” on his own.
Received the following followup (I mentioned the call to Cory in my followup email):
Now I’m not really sure what to make of all this. Are NCSECU singling out Rex Ventures (and if so, why?) or do they explicitly advise their members to be vigilant in their due diligence on all the companies they have dealings with.
I just got off the phone with a representative from the NC State Employees’ Credit Union and he did confirm that they are encouraging members to be careful about Zeek Rewards because Zeek is possibly fraudulent. The rep answered the questions directly and provided very limited commentary or insight.
I kept pressing him for additional information such as how the NC SECU came to this decision, but he did not say except they think Zeek Rewards is possibly fraudulent.
Brad,
Who did you speak with and from what department? It seems odd that we seem to be getting conflicting information, so it would be helpful that all available information is available.
I sent an e-mail to info@ncsecu.org asking for clarification on their position on Zeek Rewards. I will let you know what they send me.
I called (888) 732-8562 (NC SECU contact center) and spoke to a representative. Unfortunately I did not write his name down but I also e-mailed the NC SECU (see above post).
I spoke to this guy for a good 10 minutes. Maybe try another source, state AG office ? Other banks in area ?
The problem with NCSECU is they can’t bad-mouth companies without being accused of libel and whatever. A lot of the stuff they act on is proprietary, could be algorithmic and such, like financial transaction patterns.
When you think about it, putting in a large amount and get it back in smaller amounts does feel a lot like money laundering.
My e-mail to the NC SECU –
Response e-mail –
Brad, you have a securities license, you said. So you know the Howey test, right?
Apply Howey test to ZeekRewards. What do you see?
They insist they are NOT an investment.
You tell me does that jibe with reality or not.
@gen3Bez
“I think Troy is scrapping my posts, I havent seen one of mine let through for a while.”
Seriously… Here is your latest comment!
Now why would I “Scrap your posts”?
Just all of a sudden I would violate just your Right to Free Speech?
Just because we do usually agree on this issue doesn’t mean I would limit your’s or anyone else’s freedom to speak your mind.
Hi, I am a new affiliate and sent in a cashiers check. It has been over two weeks and it has not posted to my account. I am very concerned about this company now.
I tried customer service phone number and got kicked off of the line after the introductory message. This has happened 6 times today. I can not get throught. I have also sent in a ticket in the back office and have not gotten any responses in 8 days.
Can anyone help me? Thank you
K Chang, I know you have written extensively on Zeek Rewards and the information below is to lay out my logic for the benefit of others. Thank you for your hard work.
I hate to say this because I don’t like it when other people do it to me but a securities attorney is best qualified to give their legal council and ultimately the legal courts have the final verdict. That does not mean to say I do not have a professional opinion on the subject.
I have successfully completed the series 7, 63, 65, state insurance exams, and I am a Board Certified Financial Planner. I do not invest money for clients outside stocks, bonds, mutual funds, ETFs, annuities, life insurance, private REITs, checking & savings accounts, etc. Basically plain vanilla registered investments, securities, and contracts.
I can not advise clients to invest money outside these types of products. A securities attorney will also be familiar with investments outside the scope I just outlined.
That being said below is my opinion.
An instrument qualifies as an “investment contract” for the purposes of the Securities Act (which later came to be referred to as the Howey test):
1. Investment of money due to – Purchase VIP Bids that earns daily net profits. In this specific case, purchase or invest is just semantics. Check.
2. An expectation of profits arising from – The company has created a Retail Profit Pool (RPP) and shares up to 50% of the daily net profits with its Qualified Affiliates. Many affiliates have claimed to be awarded 1.40% to 1.50% PER DAY minus points being redeemed on a 90 day rolling period. Check.
3. A common enterprise – Zeekler. Check.
4. Which depends solely on the efforts of a promoter or third party – You then (that day and every day) would simply log-in to your ZeekRewards Back Office, go to the Ad Center and place and submit your free ad for Zeekler.com for that day (This takes approximately 3-5 minutes of your time.) So simple anyone can do it.
Now some affiliates get other people to join Zeek, but many affiliates do nothing more than the simple 3 to 5 minute cut and paste. So I would say the work is on the efforts of a third party (Zeek). Check.
So in my opinion I believe Zeek offers an investment and meets the four parts of the Howey test.
K Chang,
I just wrote a long response but it did not post for some reason. The bottom line is yes, I think Zeek Rewards meets the four parts of the Howey test. However, a securities attorney and ultimately the courts decide the final verdict.
In regard to this comment by Troy: The issue is that there is no regulation or clarification of what a “customer” truly is. The lack of clarification has created many issues; is baffling to me.
Of course there is a clear clarification of who is a “customer.” It is someone who is not a member of the program but is merely buying the goods or services from a member of the program. Anyone in your downline is not a “customer.” If you are in the program, you are not a “customer.”
Troy: I do have a question or two for you. You have indicated that you have sat in on meetings with Paul, and I’m sure with other members of the executive team. If that is so, why were you there if you are not a part of the company in an official capacity?
To me this raises serious questions about your “role” in Zeek and your objectivity in reporting on Zeek. It also raises the spectrum that you are being paid by Zeek, which also erodes your credibility.
But it also raises the question as to the integrity of the company that they would allow an “outsider” to sit in on executive meetings of the company. There is no way I would ever allow an “outsider” to sit in on a company meeting, not even with a signed NDA.
Care to clarify?
Finally a post got through. I left a response to the guy that got snippy, “AND!” I left another about the 2-8 customers and how much would be required to earn from each. At least 4 posts have been scrapped
Brad: I find it interesting that you think Zeek does meet all the 4 requirements of the Howey test. My reason for saying that is because I have a friend who owns an investment services firm, and he reviewed Zeek and said it failed all 4 requirements. He said Zeek was an investment despite all their claims saying it isn’t.
But I do agree that the better answer would come from a Securities Lawyer, or if of course the feds raid Zeek and shut it down.
If past examples are any indication, your check will be credited in another 2 weeks or so. However, I have no magical mirror into Zeek’s inner sanctum.
@Brad — looks like your long post came through. So yes, you know Zeek’s an investment, yet they insist they’re NOT an investment. You “do the math”. 😉
@Lynndel — Brad agrees that it’s an investment. So whether it “fails” or “passes” depends on your viewpoint. It passed the test if you’re asking “is it an investment”. I think we actually agree. 🙂
@gen3benz,
I do not scrap anything. So either the thread got to long and you had to post back at the top, or there was a disconnect on your end and the server on our end did not get the comment.
You are always welcome to post.
An apology. I got my tongue in front of my eye teeth and I could not see what I was typing. I meant to say that Zeek was an investment and Zeek failed in all 4 requirements trying to claim it was “not” an investment.
Wow, reminds me of what my dad used to say “bomb the hell out of ’em and let God sort ’em out”.
You guys have a lot of guts, I can agree with that. But to “scare” everyone who reads this thread about the “possibility” of the Feds, FTC, or AG coming down on the company is why I took a few weeks off of reading the comments/blogs here.
Troy has some good points about the company trying to help the affiliates earn more money, legitimately earn more by having customers from the zeebates site. Can’t everyone agree that would be exactly what you have been saying isn’t happening now?
Also, all about the SECU calling and sending letters out does sound a little suspicious, that they may be losing deposits or cds that they need to have since SECU has been trying to grow their business, just look at all the new buildings popping up, it does throw a red flag out there both ways.
I have commented before when I had some difficulties getting paid through the ewallets, since that has changed for me and I am now getting paid I can say I have more confidence about the future.
I have been wrong before and I will admit it if all of what you are proposing becomes true… until then I feel the urge to go sign up some more people who want to take control of their financial future, and take a few risks, which may reward them.
Oh by the way even some of the legacy networking companies were started, owned, and the upline to many of their distributors.
Amway, which is ever changing, being a start up company from Jay VanAndel and Rich DeVos, who were the original upline sponsors of the company’s distributors is something to think about when you speak about being an employee of the company and also having downline affiliates in that company being unethical.
If you put it all together then the company is hiring sales people to sell their product whether it is by an employee of the company or an outside independent business owner should really not make a difference, by the way I am not an employee of the company, but you will probably disagree with me regardless of what I say.
@Greg
First of all, what is “being proposed” is being proposed by Keith Laggos. A paid consultant who worked with Zeek Rewards for over a year. It goes without saying he had access to information even Troy Dooly wouldn’t be privvy to.
That only confirms that for the past year they’ve been paying out a daily ROI with mostly affiliate money. As for declaring this still isn’t the case. Until Zeebates has launched with demonstratable success (retail customers, not affiliates buying stuff through the portal), it’s entirely premature to suggest the daily ROI isn’t still largely just affiliate investments being shuffled around and paid out again.
Amway is irrelevant. Amway don’t pay out a daily ROI that consists of mostly new affiliate money being invested.
The issue here is that management can see new member affiliate investments slowing down way before your average affiliate can, and adjust their withdrawal rate accordingly.
This concern doesn’t exist in Amway’s business model, in that you’re paid for selling products to customers, not on how much money you personally invest and/or convince others to invest.
I figured, you have posted everything prior. You are good at putting up and responding to people that disagree and should be commended for that.
Thanks Troy
Huh? You’re saying SECU was motivated to notify its members that Zeek might be fraudulent investment because they were afraid of depositor’s money being spent on Zeek?
Oh my, where to begin.
1. It’s pure speculative drivel
2. Even if it were possibly true, it’s extremely improbable.
3. Even if it was probable, it would be illegal (here, a real example of tortious interference for some great irony)
4. If you believe in Zeek, then wouldn’t you conclude the OPPOSITE. Depositor’s will earn back their initial investment in Zeek many fold, so they should be encouraging members to send money to Zeek because that much more money will come back in the form of new deposits.
If you’re going to play the “make up random crap” speculation game, you need to do better than that.
Don’t know why you’d think that, since we only talk about Zeek here… Sounds like a cute way of saying “you guys are all idiots”…
We said it, now a consultant (former) for Zeek said it. Who do you prefer to hear it from? President Obama?
Qualifiers means additional things you have to do to qualify for the RPP. That means LESS people will earn through RPP, not more.
It also means something was wrong with the way it was before, else they would leave it alone.
The biggest red flag for Zeekler in my opinion is how they keep changing things around constantly for “compliance reasons”, give different nonsensical stories for why things are changing ( ie growing pains, OFAC sanctions, Zeekler is too big for the banks etc ), and always seem to be dodging and weaving rather than open and honest.
I mean really if the bank loses deposits, it needs to get them back somehow, because that is what determines stability in their lending and leveraging. Right?
I believe that I could just walk away from this blog and say it was all “pure speculative drivel” because you have NO SOURCE other than Laggos, who was recorded as saying “[14:06] The FTC has been taking action against all 32 penny auction sites.” And “So they (the FTC) consider it to be illegal gambling online and they’re trying to stop it.”
So what has the FTC got to say other than his here say, officially? This entire blog could simply be “speculative drivel”, because it is not backed up by any federal investigative sources.
I still respect you guys because I know you want to make sure you are the first to cry wolf, and hope that others listen “when it becomes true”. At this point though, there is not an official statement from the AG of NC, FTC, or any other government body saying that Zeek is running a fraud/ponzi/pyramid/ripoff.
So lets keep a level head about things and remember that you set out seeking the truth, not to make yourself famous, but to protect those who are unable to on their own.
And by the way, I respect you guys either way, if Zeek is found out to have taken affiliates’ money and floated the RPP with it and gets shut down, I will congratulate you on a job well done.
Or if Zeek is found to be a legitimate online income opportunity for all those so called “investors”, I still feel that you have guts to try to expose any company and hopefully the ones that keep scheming schemes will eventually have no one left to hear their garbage because they have become educated about mlms and get rich schemes.
So in short, you suggest NCSECU is only warning members because they’re worried about them withdrawing money and Keith Laggos is full of shit.
The same Laggos who was hired as a paid consultant for Zeek Rewards for a year, on nothing more than his past experience and expertise in the industry. The call to hire him is on Zeek Rewards, nobody else.
Ah. This is just the ‘a crime was’t committed unless a court convicts somebody’ argument. A Ponzi scheme has a legal definition sure but it also has a practical one.
You don’t need MovaVie exeuctives, Laggos, the FTC, NCSECU or anyone else to confirm a Ponzi scheme – all you need to do is follow the money. Which is exactly what the FTC, banks and people like Laggos will do.
There’s no giant mystery box the courts and regulators have that spits out a verdict, they just follow where the money comes from same as anybody else.
Where’s most if not all of the money going into Zeek Rewards coming from? Affiliates.
How’s it being paid out? Via a 90 day ROI that members can compound to increase their effective overall ROI.
Now if you open up ‘Ponzi scheme 101’, you’ll find the above definition right there on page 1.
Actually the point of BehindMLM is to provide unbiased news, reviews, analysis and commentary on the MLM industry. Don’t make up what you think is the reason somebody set out to do something, and then proceed to complain when they don’t adhere to your fiction.
(This discussion is getting off topic. You’ve said your piece and if you don’t have anything further to add then you think NTSECU are lying so that they don’t lose deposits and that Laggos is full of shit, we’re done).
I can partially agree with Greg on this one (the NC-SECU warnings, etc.).
I’ll guess NC-SECU initially only received a warning about penny auctions in general from the FTC or similar authority, with Zeek as part of a list. This practice will match how the authorities work, they send out LISTS of companies affected rather than warnings against one specific company. It will also match Keith Laggo’s story about upcoming regulations for penny auctions in general.
Then we probably have general warnings from NC-SECU to people trying to do transactions with the companies involved in that list.
Then we have a serie of too detailed questions to the banks about one of the companies on that list. Banks have probably specific rules for the type of information they CAN give and HAVE TO give in different situations, and those rules can have interferred with what type of answers people have got in reply.
So if a concerned customer asks specific questions, but wrong type of questions, the bank will probably have to confirm his worries, without being able to give him the complete information. I can see several “wrong type of questions” here in the communication with NC-SECU.
Some of the questions have been too specific in some parts, asking for the answers they want to receive rather than for neutral and unbiased information about something.
I think the idea of a credit union warning people away from Zeek because they want all that money for deposits is laughable. I guess Greg has never heard of libel.
If I were to tell customers (or anyone for that matter) that my competitors were running a fraudulent business because I wanted all the customers to spend money with me, then I could be sued for libel (and would probably lose the lawsuit).
No credit union would warn people away from Zeek or RVG without having a very good reason to do so, and only after consulting with lawyers, I’m sure.
If anyone really thinks that NCSECU is just lying about Zeek being fraudulent then they should tell Paul Burks so he can get his lawyers on the case.
Sorry, but sour grapes doesn’t work here.
That isn’t the official story from NCSECU. They have released the official story through their media officer in a reply to Oz. They have warned about “something” when people have tried to do transactions.
By the way, thank you for reminding me of the purpose of your site/blog here, to present unbiased information. I also appreciate the info you shared on the new Solavei company launching! (off subject, I know)
@Greg
We have added “balanced” in addition to “unbiased”.
So the purpose is now “unbiased and/or balanced information” (my definition, not Oz’).
There’s several reasons for that. One of them is that people normally is biased in one direction or another, they are not completely unbiased. Another reason is that people gradually will become more unbiased when a topic goes on for several months.
Maybe off topic, but this is rich from Zeek Facebook:
Isn’t that the truth. So funny how after so much compliance training this is how they talk in a public forum.
It’s called “plausible deniability”.
As long as someone else creates the fake customers, it’s not my problem. 😉
I think we need to get into the fake customer business. I’ll undercut zcustomers by $.25 a customer. We could make millions!
SMH
People need to wake up, the zeek cult is making people stupid.
You need access to Zeek’s API, but then, I doubt their programmers have locked you out. 😉
I am heavily “invested” in this program, and I knew it was high risk from day 1. If I loose everything tomorrow from the AG, FTC, etc shutting down the operation then life moves on.
There is Reward without Risk. Don’t gamble with money that you can not afford to loose.
I hope everything is OK, and these are only rumors but if NOT then on to the next risk for possible reward.
Every Ponzi, or any other illegal endeavor (mafia, drug dealer, arms dealer) has risk vs. reward. Risk/reward isn’t the point, obivously.
Ha! The funny thing is that there are lots of people on fiverr.com doing the exact same thing as zcustomers selling 35~40 ‘leads’ for $5. I posted that fact a few times but the responses have indicated that those readers prefer zcustomers at $2+ per lead.
I feel compelled by my conscience to contribute some points here in this forum, i was introduced to Zeek rewards by a co worker, who had made so much money from zeek reward, i have witnessed him being paid $14,000, and = $3600 and so many checks coming in weekly.
But after a lot of thinking and googling, i decided to join zeekrewards, after joining i made a payment for bids and was not delivered within a week i sent about two tickets complaining to zeek that i need my bids delivered, i did not know it will take up to 7-10 working days for zeek to do this.
I went back and study their website, then i found the information that buying bids with checks and money order will take a while, about 7-10 working days to deliver, truly today is about 11 days and the bids has been delivered to me.
In any investment there are always what is called trade secrets, even all banking institutions, lenders, car dealers etc, there are risks associated with any investment or program. Here zeekrewards reject the word investment and they have trained so many affiliate to reject this term.
Now some one who was working for zeekrewards is now affiliated or a co owner of lyoness group and is busy telling people the estimated life span of zeekrewards. If people look critically into what this person called plan B, then people will still be shocked to learn that no matter how he may wish to polish Lyoness, there still exist some trade secrets and sharp practices .
I have personally meet so many zeekrewards affiliates who are happy with this zeekrewards for making their dreams a reality, there exist other Affiliates who may not be happy with some certain aspect of Zeekrewards, just like the time my bids did not arrive.
I even posted on a forum that zeekrewards customer service sucks, but now the Bid has been delivered promptly and i can never buy bids with money order again because it take longer to process it, i now feel more secure using other automatic purchase options found on their site.
Investment advisers will always frown on this type of zeekrewards program and they may chose stock or share for you to buy, but even with their best good intention, stocks and share do crash because there are speculative, even investing in real estate at time become speculative because you can not be too sure.
Should any one want to join zeekrewards, it is a matter of considering the how much risk they can take, and if zeekrewards continue to operate as there are doing now. Many families will gain a lot in this program but the fall of zeekrewards will come if the management decided that Affiliates over 10,000 point should get a life customer to purchase products from their auction before there are paid, or that affiliates need to have some down line recruitment drive.
So many people do not want to talk to other people about the program, they may decide to use their money and buy bids rather than the down line commission, this should be what Zeekrewards management should allow, so that people can make the choice themselves.
I wish that all those who comment here, should be unbiased and should post comments that will help others to make a search on whether to join zeekrewards or not
@victor
When getting paid becomes your only criteria, common sense goes out the window and it’s safe to assert you joined based on nothing more than greed (“I can get paid too!”).
I think Zeek Rewards affiliates and prospective members would do much better to look critically into Zeek Rewards rather than Lyoness. “My friends got paid” is not critical analysis.
Follow the money.
No sure what you’re point is. Investment advisers advise against Ponzi schemes because their guaranteed to be mathematically unsustainable in the long-term. It has nothing to do with stock market speculation.
Well, when Zeebates launches I guess I’ll see you at ground-zero.
Oz-
Why do you think Zeebates causes a ground zero scenario?
@Ryan
I was merely playing with Victor’s prediction on ‘the fall of zeekrewards’ when the new qualifiers are introduced.
Fall –> ground –> ground-zero. I didn’t mean anything more by it.
Personally, I find the entire prospect of “paying” that much to attend any Zeek get together a joke. I’ve never been in a business where they charged $500+ to attend. I have a fairly large downline in Zeek but you can bet I will not be attending.
I see it as another revenue stream for these guys, sort of like paying money to meet the bigwigs. Please. Paying money to shake hands with someone who has screwed up the system so bad? Right.
Not to break topic but a zeek affilliate told me that zeek was partnering with walmart. I know they brought in a walmart exec. to help with finances but not sure about partnering anyone here this.
Unlikely. Many MLM’s have as their “product” a gift card so they can attach names of trusted brands. Like a Walmart or Target gift card that they give out as part of some bonus pool, or auction item, and then the field starts making claims of “affiliation” and “partnering”.
For example:
http://www.patrickpretty.com/2010/09/25/another-mpb-today-pitch-page-that-uses-walmarts-name-in-registered-domain-surfaces-more-check-waving-promos-using-name-of-distressed-bank-elsewhere-on-web/
I agree. I pray all turns out ok with Zeekler. If they are shut down I would think the rest would be shut down as well.
Its easy to speculate and watch a company that is growing so rapidly. The main change I would like to see is the customers that are purchased. We never see how many bids they use.
I have my own but earning over 300 a day your bids go fast!
Did anyone dig deep enough to go beyond opinions and hearsay and have actual proof whether or not it’s a big fat ponzi?
Penny auctions surely are ridiculously profitable, so it rather seems to be about how scalable it is.
From my current state of research/ understanding it seems that Zeek could be the best or worst of opportunities, and the only way to KNOW if it’s a ponzi or not is via Zeek’s voluntary disclosure of the relevant financial records.
I was told that this is exactly what the CEO did a while back, but haven’t been able to find the authoritative documentation on that. If anyone has a link, please post it!
Thank you 🙂
You obviously haven’t done your research if you are asking here if anyone has done enough research. Have you read all 25 articles and 4500 comments? We have been showing the evidence here for 9 months.
Well observed, Jimmy, me asking if someone has dug that deep means I haven’t. I’m down about a dozen hours of research, but have not read all 2376 articles and 7392040 comments about Zeek.
The quantity of online material about zeek is slightly tremendous, so is there anything inappropriate about asking if someone has a link or can confirm/rebut the claim that such disclosure of the relevant financials has happened?
I will continue my research and post if I find it and in the meantime would much appreciate of someone who already has the facts to post them.
Disclosed to who? It’s never been publicly disclosed whether or not ZR pay out the majority of their daily ROI using affiliate money or not.
Apparently the answer to that is “proprietary” and would put ZR “out of compliance”.
It would be a pretty poor bunch of fraudsters, indeed, if they made their fraud obvious enough for its’ illegality to be “proven” beyond a shadow of a doubt on an internet blog or forum.
Still, if someone can believe a company can be the only one in the history of the planet to be able to offer a ROI of 1% or 2% a DAY repeatedly WITHOUT being a ponzi, then one could probably reasonably assume no “proof” would be acceptable, anyway.
Come to think of it, there are STILL people out there who continue to believe the last big HYIP ponzi swindler, Andy Bowdoin, is innocent, even AFTER he pleaded guilty to fraud, conspiracy, wire fraud and money laundering.
i was reading this post and its really intresting point i would like to make i know the lyoness model of by heart and it certainly doesnt give back any payment especiaaly if you dont do anything.
its probably a bigger money collecting scheme than the one your refering to so this guy who is suppost to be a mlm guru i am afraid to tell you is full of shit when it comes to the above mlm firm so probably anything else he had to say could also be bullshit just my 2 cents worth
Lyoness pays out a cash + reward ROI if you get X members to invest after you.
X depends on the AC amount you decide to invest.
As I’m reading these comments, I can’t believe that no one is touching on the issue of the 1099 forms.
If the powers that be allow ZR to operate even when they know that the money that is put into the profit sharing pool comes primarily from the initial bid purchases of new affiliates, as well as repurchases and so on…that’s fine with me.
Yes eventually the system will break down, however, if I were a diamond affiliate right now with tens of thousands or hundreds of thousands of points stacked up, I would be drawing huge cash outs daily or every other day and wouldn’t concern myself with ZR dancing around the laws so called trying to stay within them.
I also wouldn’t concern myself with Keith breaking compliance or anything of the sort.
I dang sure wouldn’t concern myself with ZR being a Ponzi or anything like that…
My thinking would be if the powers that be are allowing them to do what they are doing, so be it, make as much money as I can while I can, and for as long as I can. (sorry, just being honest)
Bottom line, if I can make huge money with ZR, none of those types of issues are a concern to me.
My issue is the 1099s.
Dawn, the COO of ZR, stated that the 1099s would be issued based on the dollar amount of the profit shares and not based on the dollar amount of actual “cash out” money.
So if I had 150,000 point and received 1 percent profit share daily, that would be $1,500 each day. Now if I set my repurchase to 80/20 for 30 days. I would be cashing out $300 each day. However, when I am 1099ed, I will be expected to pay taxes based on $45,000 ($1,500 times 30 days), and not from the $9,000 that I actually put into my pocket.
That is a major, major issue and I’m surprised no one on behindmlm has even addressed this.
It has been addressed dozens of times: issues of buying bids as expenses, audit risk, specific lines on your schedule C, revenue to expense ratio, self-employment tax, and other issues. Use the search function.
As for your strategy that you will maximize earnings irregardless of all other issues, its your conscious.
@ Jimmy
“buying bids as expenses.” Wow that sounds disgusting.
Okay, thanks, I’ll use the search function.
BTW, my conscious would only bother me if I was purposely screwing another person directly. And I know what you’re thinking, “sharing in the profit pool IS screwing other people.
And it may be indirectly…hmm.
There’s nothing wrong in being honest. Usually it makes things easier. Personally, I would have felt “relaxed” if I had participated in ZR, but I would have withdrawn my money completely several months ago (if I had been a member), because of too much upcoming problems.
If you’re wondering about the tax issue, we haven’t reached any clear conclusion here on this website. The most updated parts of the tax discussion can be found in the thread “Zeek Rewards admits $100,000’s in fraud occurring” (can be found under “Most popular last 30 days” in the menus), near the end of the thread.
I have clearly been addressing the tax issue, both here and on MlmHelpDesk. Last time was a couple of weeks ago. I have even got a few answers from Zeek (through Troy Dooly). The one thing that is needed is for the IRS to collect the correct information from Zeek/Rex Venture Group through an audit.
From my viewpoint, RPP paid to the backoffice should not be taxable when it’s being reinvested in sample bids. It’s only POINTS, not money. For something to be taxable, there needs to be some money connected to it, like money being set aside on a separate account. And that part is missing for the reinvested RPP.
The general tax advice from Howard was “keep your own track of work, expenses and payouts” (use a calendar and a spreadsheet, and organize your documentation) and “make sure you understand the business, and are able to communicate it to an advisor (accountant, tax advisor)”.
I have also put up a potential red flag for U.S. affiliates on the method for earning 20% commission (buying retail/VIP bids instead of sample bids).
* withdraw money
* use them to buy retail or VIP bids, through a family member
* earn 20% commission, and matching VIP points (and the bids)
i went to a meeting tonight, about 20 people were there, what i can see is that the people that got in early is making good money, yet this is not even 2 yrs old.
I was told that it has now 1.3 mill affiliates and after say 6-7 months some can pull out 50-100 dollars a day. So i asked this question, if on the avg all 1.3 mill affiliate can pull out $50.00 day THAT IS OVER $50 MILLION DOLLARS A DAY. NO WAY ZEEKS CAN KEEP DOING THIS and if affiliates keep coming they got to lower the rate NO COMPANY can pay that out and survive, the people on the bottom will lose it all.
and not one thing was said about getting 2 customers that pays for bids, i have friends and family in it, i hope they can get their money out before the fall of this mess.
My prediction would be we’ll discover it’s not “people who got in early” who are making the big dollars it will turn out to be “people involved in the scam who were allowed in early” who made the big dollars.
IM(very)HO, it’s improbable that Paul Burks and a handful of people could pull off a scam this size without the involvement of dozens, if not hundreds, of worker bees and shills.
Oh, and BTW, if people care to read the “usual suspect” forums, they’ll discover those shills are conspicuous by their absence.
That’s how the HYIP biz works. Not only are shills told when to get “in” they’re also told when to get “out”
All HYIPs “pay” early. Zeek’s acting very much like an HYIP, albeit at a far larger scale, while paying lawyers and such to appear to be legit.
Those who have built up huge amounts of VIP points, BEFORE there was a cap, are taking out tons of money, while the rest of the affiliates put in money and leave it in hoping to accumulate VIP points. Guess who gets shafted?
You don’t even need to go that far. Let’s just take a recent example: at a recent company event (held every month), CEO of Zeek, Paul Burks announced to much cheers, that a dozen affiliates are earning ONE MILLION A MONTH.
That’s TWELVE MILLION a month to PAY THOSE DOZEN PEOPLE, which means the revenue is well in exceed of 24 million a month… or 800K a day. JUST FOR THAT DOZEN PEOPLE.
Yet nobody can account for more than 250K of revenue a day from the auctions.
And we haven’t even considered pay to the other 99.999% of the affiliates yet.
Enough circumstantial evidence, absolutely.
Zeek’s not holding enough of them. We’ve seen several “snapshot” analysis of a Zeekler day. They all came up with a pretty consistent number: Zeekler’s daily revenue is in the 250K range.
Let’s say we’re undercounted revenue by 100%. Call it they have daily revenue of 500K at best.
Paul Burks himself says that 12 people are earning ONE MILLION dollars a month from ZeekRewards.
That’s 12 million in payout for them alone. As “up to 50% of revenue” was shared, Zeek must have earned AT LEAST 24 million a month.
That’s 800K a day, just for that dozen people, and we haven’t counted any payout to the other 99.999% of affiliates who earn much less. Conservatively, I’d say collectively the other 99.999% earns just as much as that dozen people. So Zeek needs to be doing 48 million revenue a month. That’s 1.6 million PER DAY!
Where is the rest of the money coming from?
Without being “inside” Zeek with access to the accounts, there’s no way to ascertain with complete certainty whether or not it’s a ponzi.
That’s the whole point of fraud.
To make it “look” enough like a legitimate opportunity to fool the aged/unwary/unsophisticated/desperate/greedy/uneducated people who are the REAL targets.
Zeek doesn’t even bother trying to fool everyone.
It’s target market begins and ends with anyone who thinks 1% or 2% a day ROI is possible.
As the saying goes, “anyone who believes that, will believe anything”
Another problem Zeeksters love to ignore is even if Zeekler does produce sufficient revenue to pay Zeek Rewards affiliates current VIP point balances (which it isn’t even close to being able to do today), there is that pesky thing called daily compound interest.
Zeekler penny auction revenue has to increase exponentially at the same rate as Zeek Rewards VIP point growth. If VIP points grow faster than Zeekler revenue, the whole scheme falls apart.
So even with the most optimistically delusional benefit of the doubt estimate of Zeekler revenue, the math shows it just is not sustainable. Exponential compound interest kind of does that to scams.
Troy keeps reminding his readers of Laggos’ true colors.
Remember, this was a man Troy held up to be THE #1 expert on MLM and compensation plans and as an indicator of Zeek’s legitimacy (along with other indicators):
I’m trying to move a tax discussion from one thread to this one. The other thread had 820 comments and caused loading problems.
Post #809 in that thread contains some valuable links to IRS about tax rules.
Some other posts have been about the upcoming tax return, April 15th 2013, e.g. about how to file or correct the 1099 for 2012 (or how to correct the 1099 for 2011).
“How to file taxes” will be of interest for:
* Net winners, what is taxable and what is not?
* Net losers, how can net losses be deducted?
Moving a tax discussion from another thread …
I’ll guess the 1099’s for 2012 may have been prepared before Zeek was shut down. Then they are probably incorrect.
People should NOT accept any incorrect 1099 without correcting it.
Money paid to the backoffice = NOT TAXABLE.
Money paid to eWallets = NOT TAXABLE.
Money withdrawn from eWallets = TAXABLE, but only the net winnings.
Money that has to be returned to the Receiver can later be deducted.
If people have received false or misleading 1099 for 2012, they should notify the Receiver about the problem.
People who received false or misleading 1099 for 2011 should notify the Receiver about that too.
I think the 1099s were recently generated to comply with IRS reporting requirements deadlines and its not likely the Receiver will amend them. Taxpayers will have to make their own adjustments.
I agree with everything else you have said.
The issuance of largest possible Miscellaneous 1099 income amount to the 1200 biggest net winners provides a powerful settlement incentive. How Bell arrived at that amount can only be speculated, but its pretty obvious he included income that people never received in cash.
That behaviour will be “fraudulent”. 🙂
We know that RVG’s accounting practice partly was a mess. That can be seen in the 1099’s for 2011, where both virtual and real payouts were included as “taxable income”.
ANYTHING PAID TO THE BACKOFFICE
That were only virtual currencies, and shouldn’t be taxable no matter what they were called. For something to be taxable, a “taxable event” must have occured. That “taxable event” is missing here.
The 1099’s for 2011 erroneously stated amounts paid to the backoffice as “taxable income” (accrued income). But they will fail the two tax doctrines “Cash Equivalence” and “Constructive Receipt”.
If the Receiver has repeated the same error for 2012, he’s the one who needs to correct it. He’s the one responsible for sending correct 1099’s to the tax payers and to the IRS.
The taxpayers will of course need to correct it, too. But the correct procedure is to contact the party that has produced the 1099 originally, and make sure BOTH makes the correct changes.
ANYTHING PAID TO THE EWALLETS
1. Money paid in from the “outside”, e.g. from the affiliates own bank account, should normally belong to the affiliate if it haven’t been involved in anything in Zeek’s business operations. It won’t generate any “taxable events” if it’s paid back to the clients.
2. Funds transferred from RVG to clients’ eWallets are only VIRTUAL funds. Those transactions won’t generate any “taxable events”.
3. Money transferred from RVG to eWallets, AND have been withdrawn in one way or another (check, wire transfer, etc.), have generated a “taxable event”.
CONCLUSION
The only taxable events have been when money has been withdrawn from the eWallets, or have been withdrawn in other ways.
COURT DOCUMENTS, EXAMPLES
Chloe from NxPay clearly describes the funds in the eWallets as “VIRTUAL funds” in page 4 in “Exhibit J”.
Source:
mlmhelpdesk.com/wp-content/Docs/Zeek/ZeekDoc81-10.pdf
“Exhibit J” was found in ZeekDoc-81, official court documents.
MEMORANDUM in Support re 80 MOTION FOR AN ORDER REQUIRING RELEASE OF FROZEN THIRD-PARTY ASSETS AND REQUEST FOR EVIDENTIARY HEARING by Fun Club USA, Inc., David Kettner, Mary Kettner, David Sorrells. (Attachments: # 1 Exhibit A, # 2 Exhibit B, # 3 Exhibit C, # 4 Exhibit D, # 5 Exhibit E, # 6 Exhibit F, # 7 Exhibit G, # 8 Exhibit H, #9 Exhibit I, # 10 Exhibit J, # 11 Exhibit K, # 12 Exhibit L)(Alexander, Rodney) (Entered: 12/11/2012)
NOTE:
I have checked all the court documents related to NxPay here, but I can’t link to each and every document. I can link to them if the discussion goes in a detailed direction like that.
Thank you for discussing the Zeek tax issues.
Remember those CPAs who were advising us to deduct bids as expenses and to run Zeek as a “real business”? What advise do they have now about the tax mess?
Any CPA that vouched for the integrity of Zeek should be viewed as incompetent.
Before going into any detailed tax discussion, the MAIN conclusion has already been stated in post #117:
IF they have received false or misleading 1099 for 2011 and/or 2012, from Rex Venture Group and/or the Receiver, notify the Receiver about the problem. Make sure he agrees in corrections, or make sure to clarify if he disagrees in some corrections.
“FALSE OR MISLEADING 1099”
* Anything paid ONLY from RVG to the affiliates’ backoffice will be false and misleading if it has been included in a 1099.
* Anything paid ONLY from RVG to the affiliates’ eWallets, but NOT withdrawn from the eWallets.
* Any other “internal transactions” between RVG and the affiliate, where there haven’t been any REAL monetary transactions. Virtual transactions are NOT taxable.
TWO EXAMPLES
1. If people received payouts to the eWallets, and used the eWallets to pay for membership fee: NOT TAXABLE (only payouts WITHDRAWN are taxable).
2. If people received payouts to their backoffice (“RPP”, “Sales Commission”, “Cash Available”, etc.), and used the payouts to buy sample bids: NOT TAXABLE.
I know people received false 1099’s for 2011. I don’t know anything about the 1099’s for 2012.
I’m not sure a withdrawal would neccessarily have to be made by the affiliate to trigger a taxable event.
If you have followed the Motion to Unfreeze and the Opposition by the Receiver the affilliate’s position is that the money was theirs the moment RVG transferred it to their sub accounts and NXPay had no right to freeze or transfer it back to the Receivership…..which if upheld would make it a taxable event even if the affiliate did not, has not or could not withdraw the funds.
In any event the Reciever argues that the funds belong to RVG under the Terms of Agreement with NX Pay.
Given that the deadline for issuing 1099s was prior to filing the Receiver’s Opposition and there has been no ruling by the Court on the Motion to Unfreeze I find it very plausible that Bell decided to report the funds transferred to NXPay as Miscellaneous 1099 payments made to affiliates.
We have no way of knowing who, or in what circumstances each 1099 recipient stands, some may have gotten cash, and others may only have received a credit via an RVG transfer to their NX Pay account, but until there is a ruling on the Motion to Unfreeze, the ownership (and thus the taxability) of those funds remains in doubt (at least plausibly).
Bell used that plausibility to issue the 1099s and make clear the tax consequences of continued intransigence in the face of his demands for repayment. Quite legally he has enlisted the IRS as his ally in recovering money for the estate.
Howard Kaplan had TWO useful advices:
“Run your business as a real business, and keep track of all the documentation (money IN and OUT, work done, etc.).”
“Make sure you’re able to UNDERSTAND how the business works, and make sure you’re able to EXPLAIN how it works to an accountant or tax advisor”.
I have participated in the Zeek tax discussions since around May/June 2012. We have also had comments from an accountant, but that was before Zeek was shut down. Some details have become clearer since then.
Several others have participated in the tax discussions on a time to time basis, e.g. in February 2012 when the first 1099’s were received, in April 2012 when tax returns were about to be filed, and frequent discussions in May, June, July and August 2012.
My conclusion is:
If people have received misleading 1099’s for 2011 or 2012, they should correct them ASAP. They should also notify the Receiver about the corrections. They should start NOW trying to correct them, rather than in the last few days before April 15th.
NOTE:
I have moved the tax discussion to this thread from another thread. Check the link in post #116 to the other thread.
I have organised earlier discussions in a similar way, e.g. by collecting discussions into one thread rather than having them spread around.
That’s THEIR claim rather than the reality. EWallets only contains VIRTUAL funds, and they are NOT similar to bank accounts.
Sorrells, Kettner and Kettner are using a “play stupid, act innocent” strategy. It doesn’t necessarily reflect the reality. They have “misinterpreted” messages from other parties like NxPay to support their own POV.
We can use the “Exhibits” they have provided, minus their conclusions. Their conclusions have several logical and factual errors.
If there was any doubts, he should have clarified it BEFORE sending out the 1099’s, or made a statement about the possible doubts in the 1099.
The Sorrells / Kettner / Kettner dispute hasn’t been concluded yet, but here’s the current response from the Receiver and SEC to that motion:
mlmhelpdesk.com/wp-content/Docs/Zeek/ZeekDoc129-1.pdf
mlmhelpdesk.com/wp-content/Docs/Zeek/ZeekDoc129-main.pdf
mlmhelpdesk.com/wp-content/Docs/Zeek/ZeekDoc130.pdf
I haven’t analysed them yet, but a quick overview showed relatively similar conclusions as I had.
Bell included a carefully worded **Important Tax Information** letter with the 1099s.
http://asdupdates.com/wordpress/wp-content/uploads/2013/02/Clipboard28.jpg
You can readily see that he does not characterize the income or admit that the receipt of it was proper. It is also based upon records received from RVG (not as Bell might have adjusted them based on his current legal opinion.
I have read the Sorrel Motion and Receiver response. Sorrel is dead meat. I can’t say what the Receiver should have done but what he seems to have done is reported income strictly as the records of RVG dictated and he is willing to let the taxpayer work out the kinks.
Once these net winners are faced with a taxable event (accurate or not) there is an incentive for them look for ways to avoid paying taxes, and the easiest, least expensive, least risky way to do that is to return the money back to the estate….which is what Bell is after.
The other thread where I collected several discussions into one thread can be found via this link:
Dan Matthews was the accountant I was talking about. He contributed with some viewpoints about the conditions for something to be taxable, and something about when IRS sees something as “work”.
For something to be stated in a 1099, there has to be an actual remuneration = there has to have been a real transaction of money from the company to the affiliate. Displaying something on a screen as “Cash available” isn’t a transaction of money.
Yes…in general….. providing it is only on the internal records of the company, but once “cash available” shows up in an external account(e.g., in an affiliate’s NX Pay account or my bank account) then a transfer of funds has taken place and there is a 1099 event.
This view is consistent with both the Reciever’s 1099 issuance and the Sorrel-Kettner argument which on its own asserts that the NX pay account balances can not be frozen because they are not estate assets.
If this is true then they must have been transferred into the possession of the affiliate and if transferred then a 1099 event has taken place.
IMHO this is a valid argument as far as it goes, except that the Receiver later informs us that the NX Pay Terms of Use provide that RVG can recall transferred funds at any time prior to their actual withdrawal by the affiliate.
Essentially you have Sorrels and Kettner arguing that NX Pay had no right to freeze money that did not belong to the estate, and Bell arguing that funds credited to their account were “in a folder on a desktop” until withdrawn and could be withdrawn by RVG at will.
Maybe the Receiver considers that there was a 1099 transfer followed by a freeze, superceded by the recall of the transferred funds back to the estate. This is the way Sorrel and Kettner see it for they contend that the Receiver’s motion is tantamount to requesting a pre judgment writ of attachment, i.e., attaching their money prior to a possible clawback judgment.
The deposited MONEY is stored in the main account (the company’s account), not transferred to the eWallets. Transactions between the main client (the company) and the sub-clients (the affiliates’ eWallets) are VIRTUAL transactions.
NxPay’s representative Chloe used more correct definitions than the other NxPay representative (Kenneth S. Mitchell-Philips, Sr.).
She repeated “virtual” a couple of times. The other guy gave a simplified explanation, comparing the eWallets to “a folder with the person’s name on it, sitting at the company’s counter, waiting to be picked up by the sub-client”.
Chloe has a lower rank in the NxPay organisation, and is more dependant on giving “technically correct descriptions” than the other guy. The other guy gave a visual description rather than a technical one, so Chloe’s description is probably more correct.
The last description is inaccurate. In that scenario, the “folder” would have to contain money, but it only contains a balance. A balance is a “message” telling you how much money the company has reserved to you, an IOU. The eWallets contained IOUs from Rex Venture Group, while the money was stored in RVG’s account.
IOUs from an insolvent company do NOT qualify as “constructively received”. Any taxable event will first occur when the money are being withdrawn from the eWallets, when a REAL monetary transaction has occurred.
NOTE:
I haven’t checked the last 3 court documents yet, so it’s possible that I will have to make some minor corrections. And I have only checked NxPay, not Payza or STP.
@Hoss
I believe it might be wise to ask some technical questions to NxPay, to Kenneth S. Mitchell-Phillips, Sr.
His visual description about how the eWallets are working is probably not technically correct. He will need to clarify how they work, using a technically correct description. It can possibly make a huge difference for some tax payers if the eWallets only contained IOUs rather than money.
* MONEY paid from RVG to the eWallets might be taxable as “constructively received”, but there’s lots of doubt about it.
* IOUs paid from RVG to the eWallets are probably NOT taxable. RVG was insolvent, and it wouldn’t have been able to keep all its promises.
Here’s the two tax doctrines, found in Wikipedia:
http://en.wikipedia.org/wiki/Doctrine_of_cash_equivalence
http://en.wikipedia.org/wiki/Constructive_receipt
For the purpose of this part of the analysis, I’m comparing the eWallets to “a promise to pay” rather than to a bank account.
CASH EQUIVALENCE?
I didn’t bother to analyse point 3-5. One “FAILED” is enough to fail completely.
CONSTRUCTIVELY RECEIVED?
Credited to his account?
YES, for the purpose of this part of the analysis, we can identify the eWallets as something similar to a bank account.
or set aside to him?
YES, but RVG was insolvent.
or otherwise made available?
YES, but RVG was insolvent.
Substantial limitations or restrictions?
YES, RVG turned out to be a fraudulent scheme rather than a legitimate business. The funds set aside were subject to SUBSTANTIAL restrictions and limitations, e.g. when the eWallets indirectly were frozen by a court order.
From my POV, the eWallets will fail both doctrines.
I have used a simplified logical method here, trying to identify whether the two doctrines will fail or pass a test, rather than analysing each and every details in the doctrines.
“Simplified logical method” = I tried to find CLEAR and identifiable rules in each of the doctrines, and I modified the description of the eWallet so it could be tested against clear rules. That method can be used when people don’t need 100% accurate answers.
May I suggest you carefully reread Document #129-1 a couple of times, particularly items 7 and 8. The document is an affidavit by NX Pay’s Corporate Counsel (“the other guy”)
This is not at all what he wrote: see item 8 again… His explanatory analogy specifically said MONEY is in the folder sitting on the counter.
Item 7 reiterates, with explanations that that NX Pay is a FUNDS transfer platform. Funds (no mention of Virtual or IOUs)
The general scheme, which bears recall is that a person opened an account in their own name at NX Pay with good funds and then that money was transferred to RVG.
At some point RVG internally redistributed the incoming funds according to its compensation plan and transferred good funds from its account back to SOME affiliate’s real world eWallet accounts where they could be withdrawn.
The AMOUNT transferred to an affiliate’s E Wallet account was bogus because RVGs accounting was bogus but the transfers themselves were in good funds and for that reason constitute 1099 income.
The internal backroom Ponzi facade was virtual in the sense that it was not at all real, but The EWallet payment processing is real or at least no more virtual than me paying my house payment with a Visa Card that I pay off with a check from my bank. The whole modern monetary system is in that sense virtual.
RVG took in good funds and redistributed good funds via the e-wallets. The fakery was in the in house internal accounting/compensation system, but eventually that system had to interface with the real world. That interface was the e-wallet processors such as NX Pay.
He’s a Corporate Counsel, not a technical expert. His description is more inaccurate and less “technical” than Chloe’s description.
He’s visualizing how the eWallets are working by using an imaginary comparison to “a folder with money”. But the folder probably contains an IOU rather than money.
An IOU in this scenario is a message “We have made this amount available for you in OUR account, and you can withdraw it to an external account whenever you like. Or you can use it for internal purposes, e.g. paying membership fees. Or you can simply let us take care of them until you’ll need them”.
The FUNDS are transferred to and from the main account. The eWallets only contains VIRTUAL funds.
The funds have clearly been made available for the tax payer, but there’s also clearly some RESTRICTIONS and LIMITATIONS involved. It’s not an unconditional promise to pay, only a promise.
“Good funds” isn’t solely about whether or not it’s about real money. It’s also about “legality”, e.g. whether or not the funds legally can be transferred to other accounts. The “good funds” in this scenario has later been defined to be “illgotten gains” by a court.
NxPay separated all the “good funds” from all the “illgotten gains”. “Good funds” were returned to the rightful owners. “Illgotten gains” were returned to the Receiver.
Can you tell me where I can view a copy of the Chloe correspondences?
@Hoss
Post #119.
Chloe is probably from a Skype transcript or something similar, a dialogue between David Sorrells and NxPay client support.
I checked “Exhibit A” too, 2 letters from NxPay to David Sorrells.
A general problem is that the communication from NxPay to affected clients were too vague. They didn’t tell their clients how SERIOUS the situation was, they used “bank language” to reassure the clients that the situation eventually would be solved and money would be returned to the clients.
NxPay tried to delay “telling the bad news”, but David Sorrells asked for something like that himself. Chloe was the first one telling him about virtual funds. Other letters told him his money was safe, “everything will be solved”.
“The other guy from NxPay” is the first one telling him about the details, 5 months after the accounts were frozen. He’s telling him that his NxPay account wasn’t really a bank account, it was controlled by RVG rather than him, ownership to the money wasn’t really transferred from RVG to him.
David Sorrells had $379,000 stuck in the NxPay processor for nearly 2 months. He repeatedly tried to make sure his money was safe, e.g. by logging into his account each day to SEE the money.
All the initial answers he received reassured him his money was safe, but he didn’t ask the right questions. He received answers telling him what he asked for (“your money is safe”), rather than telling him how serious the situation was.
@Hoss
There’s alot more doubts about the eWallets than the backoffice, so the eWallets are a tougher nut to crack.
The backoffice only contained virtual currencies, not monetary payouts. Virtual currencies reinvested in bids and profit points shouldn’t be taxable.
The eWallets contained available funds. Normally that will be taxable, and it has been taxable e.g. for online poker players and other users of eWallets. So money transferred to eWallets are normally taxable.
In the ZeekRewards case, money transferred to eWallets were clawed back in the same tax year they were paid out. The funds can’t be BOTH available and clawed back in the same tax year. It will fail a reality test.
Tax doctrines are made to reflect reality principles, to reflect whether or not a taxable event has occurred during the tax year. They will not accept theoretical circumstances, e.g. that the tax payer theoretically could have been able to withdraw money if they hadn’t been clawed back.
Money in the eWallets changed status from “available” to “frozen” to “clawed back” during the same tax year. They should clearly fail the tests for “taxable event during the tax year 2012”, even if there was theoretical possibilities that the money could have been withdrawn.
A taxpayer trying to correct it will probably meet some resistance from lower levels of the IRS, e.g. individual IRS employees checking the individual tax returns. But the reality here is in favour of the taxpayer, and reality will usually beat constructed theories.
My main conclusion was posted in previous posts, e.g. #117 and #119. I have reason to believe that the 1099 for 2012 contains misleading information for some tax payers, based on the different descriptions I have read. People should try to make their tax returns become as correct as possible, e.g. by correcting misleading info.
Correction to post #121.
The first example has to be changed from “NOT TAXABLE” to “DOUBT”. There’s clearly some doubts about whether money spent from eWallets are taxable or not. It will probably be TAXABLE.
I checked out Document 81-10 (Exhibit J) and Document 81-1 (Exhibit A)
Chloe is an hourly wage employee answering questions on a chat line. She said Kettner had money in a “Virtual” wallet and that his virtual funds had been removed. but that is no technical explanation, nor any explanation at all for she sheds no light on what an NX Pay “virtual” wallet might be or how it might work. The fact is she ends up telling Kettner to expect further explanation in a letter to be furnished by Corporate Counsel (“the other guy”) Well, we have already discussed what the “other guy” said in Document #129-1 about how NXPay operates as a payment processor so there is no need to rehash it
However NXPay operates, and whatever ‘virtual” means to Chloe the customer service rep, its “virtually” impossible to understand why anyone would be fighting over IOUs from an insolvent company.
I’m copying the links to IRS to this thread, from post #809 in the other thread.
The money in the eWallets were clawed back in the same tax year as they were paid to the eWallets. “Tax year” and “Clawback year” are both the same year.
The 1099’s for 2012 will be correct for the eWallets if they contain BOTH sets of information.
* Money paid out to eWallets
* Money clawed back from eWallets
If the last one is missing in the 1099, the tax payer should try to correct it. One of the correct methods to handle the clawbacks is this one:
Money paid out to eWallets and clawed back in the same tax year should be reported and then deducted. The clawback should be DOCUMENTED.
By the way the Receiver has submitted a Declaration concerning the 1099s and states that they were sent to approximately 25,000 persons… less than I would have guessed. Net winners and losers were recipients.
I’m only TESTING the different arguments. Some arguments will meet lots of resistance, while other arguments will “hit the target” more easily.
Presenting eWallets as “virtual funds” will probably meet lots of resistance from the IRS, so that strategy should be avoided. The other strategy “Clawback year = tax year” have much better chances to be accepted by tax authorities.
When I say “people should try to correct it”, I will normally try to find the best strategy to use too. I will describe and analyse different strategies for whether they can be used or should be avoided.
* “EWallets = virtual funds” should be avoided.
* “Clawback year = tax year” can probably be used as a strategy, REPORTING the money paid to eWallets as income and DEDUCTING the clawbacks in the same tax return.
I think its necessary to parse this a little more finely. First of all there has been no clawback.
RVG funds were transferred to the affiliate’s NX Pay accounts
NX Pay froze the affiliates account in reliance on a Court Order.
That is all that has happened.
As far as tax year 2012 is concerned RVG transferred money to affiliate’s accounts and accordingly issued a 1099 Miscellaneous. To this day RVG has recovered none of this money because the funds remain frozen at a third party, NX Pay. Does a third party’s actions annul the affiliate’s Constructive Receipt of funds from RVG in 2012? I do not think so. RVG did not impose Restrictions and Limitations, NX Pay did.
It is difficult to envision that a company (even a legitimate company) could pay out millions of dollars in distributions to individual accounts year after year and the account holders could completely avoid taxation on those distributions simply by not withdrawing the funds from the payment processor.
This suggests to me that most of the 2012 1099s were issued to persons on the basis that they had money transferred into their personal Ewallet accounts and that there was no requirement to have withdrawn funds therefrom (though some undoubtedly did) to receive a 1099. Constructive receipt took place upon transfer in. This included all payment processors.
RVG transferred funds to the accounts.
RVG (via the Receiver) reversed some of the transactions, clawing back funds it previously had paid out to the eWallets.
NxPay only followed instructions from the Receiver and the court. It didn’t impose other restrictions than the court had ordered. It’s the one ORDERING the restrictions who is responsible for them, not the one EXECUTING the order.
The 1099’s for 2012 should reflect BOTH what RVG has transferred to the eWallets and what the Receiver have clawed back from them. It both happened in the same tax year.
NxPay had a total of $14.5 million in the account when it was frozen. According to the statement, it still has $4-$6 million in an account, belonging to the Receiver.
Money paid out in a tax year can’t be both available and unavailable at the same time.
* If an account is frozen, the money it contains is surely not available for the tax payer during the tax year.
* If money has been returned to the Receiver, it’s surely not available for the tax payer during the tax year.
We should ignore “constructed theories”, e.g. “the tax payer COULD HAVE been able to withdraw the money if the accounts hadn’t been frozen”.
You’re right. Amounts paid to eWallets are taxable. I know about some cases where online poker players were taxed for winnings, even if they had the money stored in eWallets and considered the money to be “playing money” rather than “winnings”.
It’s about whether or not the money is AVAILABLE for the tax payer at the end of the tax year (or during the tax year when money has been withdrawn). Money in an account frozen by a court order isn’t available for the tax payer, and will fail the “Constructively received” doctrine.
“It was available earlier that year, BEFORE the account was frozen” will be a constructed theory, not reflecting the reality.
I am not relying on constructed theories. RVG distributed money from its corporate account to the affiliate’s personal account. That is the taxable event. Its straightforward and nothing else is needed to explain it. Only subsequent events can modify this and that will not happen until there is a ruling by the Court on who owns the money. 2012 events are what they are.
Repeat: Neither RVG or the Receiver has clawed back anything. NX Pay FROZE the funds and the SEC, Reciever, and NX Pay have ALL declared that the decision to Freeze was NX Pays alone. NX Pay has made it clear that their decision was based on a reading of the Court’s Orders, AND because there was a dispute between its account holders and the Receiver. Given the dispute NX Pay determined that the rights of the parties needed to be adjudicated by the Court. Therefore the funds have not been transferred to RVG nor have they been released to the affiliates. As Chloe said, “They are safe at NX Pay.” This is not a clawback, it is a freeze.
However, if this year it is determined by the Court that the funds belong to and are subsequently transferred to the RVG estate then an affiliate may refile for 2012 and claim that the previously issued 1099 was in error (with explanation, including all the reasons you have mentioned.)
AS of now that is not possible because there has been no adjudication of rights and it could all be moot anyway if the judge decides in favor of Sorrel and the Fun Club. On the other hand there could be a decision and stay on appeal such that the funds could remain frozen indefinitely.
Freezing of a bank account is probably a standard procedure. It’s probably defined somewhere in bank laws the conditions for when a bank can freeze an account. A typical condition is e.g. that it has to be ordered by a court.
“NxPay suddenly decided to freeze the account” will be a constructed theory. There IS a court order in this case ordering freezing of assets belonging to the receivership. NxPay was served that order when RVG was shut down.
Clawing back money is a PROCESS, not a single action. It starts with a court order, and should normally end up with some money being returned to someone. Freezing accounts will be a part of that process, rather than some “random event”.
The point is “Has the money in the eWallets been made unavailable for the tax payer during the tax year?” The eWallets were clearly made unavailable in the last 3 months of 2012. The 1099’s should reflect that fact.
The court gave the order, not NxPay. NxPay FOLLOWED the order. The order was served through the Receiver. The Receiver has also participated in the decisions for how to handle the frozen account, e.g. about what belongs to the Receivership and what belongs to somebody else.
Look at it from the other side, from the RVG side. RVG transferred money to an affiliate account at Financial Institution A. IRS rules say that as a payor RVG must report the amount and to whom money was paid and issue a 1099 to the beneficial recipient. RVG complies.
Financial Institution A accepts the direct deposit of money on behalf of its account holder. It later puts a hold on all withdrawals. That is an issue between A and its account holders
Having complied with the law, RVG is under no obligation to reissue or correct the 1099s.
You are losing me here.
I have read all the first documents in the court case against RVG and Paul Burks, including Document #4 (the Order appointing a temporary Receiver, ordering freezing of assets, ordering release of information, and so on). That’s the document that has been served to all the financial institutions, ordering them to freeze assets belonging to RVG.
NxPay has clearly been ordered by a court. We shouldn’t ignore that fact. It will be constructed theories if we assume NxPay ordered the freezing itself.
Freezing of assets belonging to RVG is a part of the Receiver’s work. It’s not a “random event” initiated by NxPay itself. NxPay is simply following the court order served to it through the Receiver.
Your example doesn’t match the reality here, e.g. ZeekDoc04.
http://mlmhelpdesk.com/wp-content/Docs/Zeek/ZeekDoc04.pdf
You are focusing on the details rather than the whole picture. The whole picture tells a different story. You will first need to make the details fit within the whole picture before you can use them in theories. If they fail to fit within the whole picture, the theories will be flawed.
You do not understand this See below.
The example I gave matches reality perfectly.
The contents of the Order Authorizing the Receiver and Freezing the Assets of Rex Ventures (ZeekDoc04) is something I well understand. What you must understand is that the CURRENT issue before the Court is whether the cash held in personal accounts at payment processors such as NXPay are even Assets of Rex Ventures….if they are not the Order does not cover them.
ZeekDoc04 does not authorize the Receiver to marshall and take possession of non RVG assets, so NX Pay can not without incurring substantial liability to its clients simply transfer the contents of their accounts away. Until the judge rules on Ketttner-Sorrels Motion to Unfreeze the eWallets (which argues that their accounts are not assets of the the estate) NX Pay has decided to maintain the status quo. We have gone over this before. If you missed something then I may not have made it clear. If you understand it now perhaps my example will make sense to you. Reread the Kettner-Sorrels Motion for clarification.
The affiliates do not have their money because NXPay has decided to maintain the status quo and wait for adjudication. That is why denial of funds through the end of Tax Year 2012 and up to the present day is an issue between the Financial Institution (NXPay) and its account holders. Of course they suspect the Receiver has influenced NX Pay but so what? For now, NXPay has withheld money from the affiliates. Nobody else. Once the judge rules, NXPay will be assured they can release or transfer funds in accordance with findings and Orders of the Court and the risk of a lawsuit from their disgruntled clients drops to about zero.
But RVG was put under administration, renamed to Receivership Defendant. The Receiver is acting on behalf of RVG.
If RVG paid out an amount, and the Receiver later reversed that payout, the amount hasn’t been paid out to the tax payer during that tax year. It hasn’t been “constructively received” by the tax payer, other than in constructed theories.
The entity paying out money and the entity reversing the payouts is the same entity here, it has only been put under administration.
The Receiver is an officer of the Court charged with overseeing the affairs of RVG. For our purposes RVG and the Receiver can usually be used interchangeably.
Bell has requested net winners return funds already in their possession and marshalled assets of the estate (bank accounts, real estate etc., but there is no occasion that I am aware of where the Receiver has reversed a payout. What are you talking about? The turnover of funds from the payment processors? I am not aware.
I have explained why I believe NX Pay’s actions constitute third party action unrelated to RVG’s distribution of funds. NX Pay is the active agent in denying funds to its account holders not the Receiver.
If the affiliate’s funds are by court order transferred to the Receiver in 2013 then I suppose you could characterize that as the reversal of a payout….but not until then…at which time a fraud loss might be claimed or maybe just refile for 2012. It seems to me, as I have said before that Constructive Receipt is valid for 2012 because no actual restrictions or limitations were imposed by the Payor (RVG) even though Actual Receipt was denied by the actions of a third party.
The correct description should be “the COURT has withheld”, not “NXpay has withheld”. NXpay has EXECUTED the order, but the assets freeze was ordered by the court.
Defendant in the case about assets freeze is the Receivership Defendant, not NXpay.
The discussion has primarily focused on TAX ISSUES, not on CLAWBACKS. So the issue is about whether or not the money was AVAILABLE for the tax payers during the tax year 2012, in reality rather than in theory.
The assets freeze is about a reversal of payment. It has clearly made the money become UNAVAILABLE during the tax year, not “constructively received” by the tax payers. A 1099 should reflect the reality.
The Receiver has acted within the order. Sorrells, Kettner and Kettner have misinterpreted the communication, but it will eventually be up to the court to make a decision there.
NXpay is acting within the same order, and it’s not a defendant in the case. The defendant is the Receivership Defendant. There’s no “incurring substantial liabilities” for NXpay in the assets freeze, but it can be reversed by the court.
Freezing of accounts, cancelling checks, clawbacks and similar actions are all “reversal of payouts”. He is making the payouts become unavailable for the tax payers.
Here’s an example from MMG forum:
Reversing a check is clearly a “reversal of payout”.
That’s not a “reversal”
A deposited cheque being dishonoured is not the same as a “reversal”
Any deposit into an account involving a cheque or similar money instrument remains “pending” until the transaction is verified by the issuing financial institution.
In the case of offshore cheques, this process can take place weeks after the initial deposit, even though the depositors’ account shows the money as having been deposited.
Throw in the fact the original court order comes into effect the moment the courts’ decision is handed down and NOT when the actual transaction takes place, and what may seem like a “reversal” is merely the financial institution exercising its’ right to reclassify the transaction from “pending verification” to “not accepted”
The Court has ordered an asset freeze prohibiting the transfer, sale etc of any RVG asset or recoverable asset. See Zeek Doc04. It is general.
A copy of this Order was transmitted to NX Pay who then had to decide for itself if the Order applies to assets under its control and if so, what it must do to comply.
As you are aware Quilling and Alexander tried to convince NX Pay and the Receiver that certain funds at NX Pay were not assets of RVG, nor Recoverable Assets, under the premise that Zeek was a legitimate business and the SEC actions were improper. Rumor also has it that afilliates threatened NX Pay with legal action if they chose to act against the interests of the Quilling and Alexander clients.
Considering this contention NX pay chose to err on the side of caution and steer a middle path between the two opposing parties. In doing that they have released funds to those account holders that never purchased Zeek bids (i.e., funds that clearly never came into RVG’s possession) and are conducting further audits to confirm which assets under their control are subject to the Freeze Order.
In the meantime Quilling and Alexander’s clients argued in their Motion to Unfreeze that funds at NX Pay et al are neither assets or rcoverable assets freezable under ZeekDoc04 and therefore should be released to them.
Since becoming aware of the Freeze Order NX Pay has denied transfer of funds to its clients, not because they have determined on their own that the funds are assets of the Receivership but under the premise that they need more time to conduct an audit of the accounts so as to be able to make a determination. Its plausible but it is a stall. Accordingly no funds have been transferred into the possession of the Receivership or to the affiliates. These funds will remain in limbo until the judge rules on Sorrel and Kettner’s Motion to Unfreeze.
So…..I ask you. Who has deprived the affiliates of their money? NX Pay, the Receiver or the Court? All in concert? My answer, legally is NX Pay for the reasons prior delineated.
The main focus here is on TAXES, not on “clawbacks” or “reversals”. It’s about whether or not people have received 1099 or W2 for money they haven’t received in 2012. I just copied the first example I found on the internet without checking the details, not to illustrate “reversals” but to illustrate misleading 1099 or W2.
“Reversals” and “clawbacks” have been used in a broad sense to cover different types of situations where money haven’t been paid out, e.g. I consider the freezing of NXpay accounts to be “clawback” or “reversal” from a taxpayer POV.
RVG’s book keeping must have been a mess. I believe people should report factual errors in their tax forms to the Receiver, and correct factual errors in their tax returns.
If money in the frozen accounts have been included in the 1099’s, the best argument is to point out that frozen accounts or clawed back money won’t qualify as “constructively received by the tax payer”.
Reporting factual errors to the Receiver will help both him and the tax payer. If several people are reporting similar errors then he might be able to identify solutions to the problem.
Freezing funds in an account does not constitute a reversal of payout. Only when funds are transfered out of the account and back to the RVG estate has a reversal taken place. Credits and Debits must match. This perfectly describes the situation at NX Pay.
Cancelling a check made payable to an affiliate is not a reversal since the affiliate never converted the check to money to begin with. Credits and debits must match. If the recipient claims to be a contractor who has not been paid then he must file a proof of claim against the estate (it may be a priority claim providing his claim is approved.) A contractor gets a 1099 not a W-2 so your MMG person’s account of events is sketchy.
Clawbacks—-You seem to use this word much more broadly than I think is justified. You have used it to describe every backflow of funds into the Receivership but, and I could be wrong about this, I believe a clawback pertains to recoverable assets… meaning those assets or funds paid out to affiliates of third parties. Often a lawsuit is required to prove that a fraudulent conveyance (in a specific dollar amount) was received by these persons, and once proven the clawback amount is reduced to a money judgment in favor of the estate. This can also be a negotiated return of funds in which the lawsuit is unnecessary.
The first part of it was the solution both NXpay and the Receiver agreed on, as the most correct solution. AFAIK, part of the account has been transferred to the Receivership’s account.
The second part of it … they should have been able to finish the reconciling and auditing now, if we’re talking about the same accounts here. In the statement from “the other guy”, he stated that NXpay still had $4-6 million in an account which they believe belongs to the Receivership. They’re probably awaiting an order from the Court.
The answer is the COURT, the only entity that has the correct authority to order an assets freeze. Neither NXpay nor the Receiver have that authority.
“Correct authority” is about having the right to make decisions, both types of decisions. You’ll have the correct authority if you both can order a FREEZE or an UNFREEZE of the assets. If you only can order one of them, then you’re probably executing an order from a higher authority.
NXpay has a very limited authority here, and can’t order an unfreeze of the assets. It can’t negotiate anything with its clients in conflict with the court order, or hold back money that should have been transferred to the Receivership. It will need permission from the Receiver and/or the court.
Yes, I have used “clawback” and “reversal” broadly, to determine whether or not money actually have been paid out to the tax payers in the tax year, “constructively received by the tax payers”.
The primary focus of the discussion is about TAXES and incorrect tax forms.
“Clawback” is technically a PROCESS, a whole SET of different actions. I’m focusing on the whole picture here, not on the last action where money is returned to the Receiver. Freezing of accounts is a part of the clawback process. Sending out subpoenas and collecting information is another part. Solving disputes in court is a third part.
“Focusing on the whole picture” means that I will try to identify where the authority derives from. Clawback is technically something that has been ordered by the court rather than the letters sent out by the Receiver.
I believe the Quarterly Report from the Receiver mentioned something about having redefined some contractors to employees, for the purpose of the tax forms. His statement is probably relatively correct.
The other example I found was too vague. It included the 1099’s for 2011 AND 2012, so it was difficult to analyse.
You continue to ignore the contingent nature of this situation in favor of repeating endlessly that the Court has Ordered IT. Its not that simple.
The Court’s Freeze Order only applies to assets of RVG and Recoverable assets of RVG. Since the very ownership of the NX Pay funds is contested and there is no ruling yet as to whether NX pay has custody of assets covered in the Freeze Order NX Pay HAS DECIDED TO MAINTAIN THE STATUS QUO. NXPay is under NO compulsion to transfer funds that do not belong to the Receivership.
The Receiver, as an Officer of the Court, could file a motion to compel NX Pay to transfer funds. He could ask the Court to hold them in contempt but do you see anything like that happening? NO. Why would the Receiver waste the effort when its obvious that NX Pay is cooperative and willing to transfer the funds in accordance with the Freeze Order once the issues of ownership raised by Quilling and Alexander are settled.
The Reciever has no cause to attempt to compel NX Pay for another reason, it is certain that it would not be approved since Quilling and Alexander’s objections are still outstanding and the Court would have to deal with them before Compelling NXPay to transfer and by that time it would be moot anyway.
Bell will finish off Kettner’s Motion to Unfreeze so that NX Pay has no doubt that the funds it transfers are assets or recoverable assets of the Rex Ventures. The decision to stall and hold was made by NX Pay, but quite obviously with the concurrence of Bell.
The Court, per se or the Judge himself is not involved in this little skirmish as no Orders are being ignored. There is only a delay in implementing them for good cause and since the Receiver is the eyes and ears of the Court and Bell is obviously satisfied with the decision that NX Pay has made to delay, or he would notify the Court that the Orders were being ignored there is nothing to do but wait for the ruling on Kettner’s Motion to Unfreeze.
It is that simple. The court has the authority to decide, and it will eventually rule in favour of one of the parties, Kettner or the Receivership. NXpay isn’t a party (in the same meaning as the two other).
NXpay doesn’t have the authority to hold back any funds by its own decision. It will need to find the correct authority in laws, or have permission from the court. It probably has a permission like that.
Freezing of the accounts isn’t a case about “NXpay vs account holders”, it’s about “the Receivership vs account holders”. It has to be solved in that specific court, not in any court. “NXpay vs account holders” could have been solved in any court.
It probably has a permission from the court to do what it does. That isn’t about making decisions, it’s about following rules, orders or permissions. You’re not making decisions when higher authorities already have made them for you.
For the sake of comparison….
Investopedia Definition: Money or benefits that are distributed and then taken back as a result of special circumstances.
No its not. Its neither plaintiff nor defendant nor Movant. However the outcome of the Motion to Unfreeze will determine its subsequent actions.
NXPay has no express permission from the Court. The Court rules on Motions and law etc etc, but it does not monitor the decisions of every party incidental to the case. Also, as a practical matter a higher authority as you call it is very hands off once it rules an issues an Order. The adversary system takes care of the details as where one party does not like the way another is complying with an Order and it brings it back in front of the Judge.
If you are a net winner and cashed out $100k above and beyond your “costs” in 2012, then you will have to pay taxes on that $100k.
After the clawbacks happen, when you pay back almost all of that $100k, what are you going to deduct? If you are on social security and Zeek Rewards was your only income, you have no income to deduct against in 2013.
NX Pay does not give a whiff if the money goes to the Receiver or the affiliates. Its only concern is protecting itself from potential lawsuits in the future. If the court said burn all the money it would.
Things get messy and the tax code does not help you as much as you would like or expect. Public tax policy gives a break to those who get caught up in in fraudulent schemes but it does not provide indemnification. Money returned to a Receiver or Trustee is recognized as a deduction in the year it is paid back but if you have little taxable income in that year it does not help much. You might look up income averaging and consider filing a Section 165 Fraud Loss which after considerable monkeying around with the numbers ends up coming somewhat close to squaring the situation. You might have to refile in the $100k year so that you can apply a tax credit from the year you paid the clawback. Its all counterintuitive so see your tax guy.
Restatement— NXPay is under no compulsion to transfer funds to the Receiver that are not assets or recoverable assets of Rex Ventures.
@Jimmy
Did your 1099 for 2012 contain any “potential errors”?
You were probably able to withdraw most of (or all) the money, so you probably didn’t have any funds in frozen eWallets. David Sorrells had $373,000 stucked away in NXpay. 🙂
“Potential errors” are about:
* Frozen money included in the 1099.
* Frozen money included in clawback claims.
* Payouts to the backoffice included in any of them.
The last point is about the same thing that happened in 2011, when reinvested RPP was counted as taxable income. RPP and “Cash available” are virtual currencies, not taxable payouts.
If “Cash available’ showed on the falsified backoffice records of Zeek Rewards would that same amount simultaneously appear in an affiliate’s individual E-wallet account and be available for withdrawal or was there a waiting period, or long delay?
Thanks
@Hoss
If I have understood it correctly, ALL the different payouts to the backoffice were collected together as “Cash available”. Payouts from the backoffice to eWallets were regulated by a “% repurchase / % withdrawal” button, e.g. 100/0, 80/20 or any other reinvestment percentage.
The typical investment plan for investors was to reinvest 100% for 90-180 days (grow the balance fast), before switching to an 80/20 plan (keep the balance slowly growing). People with downlines could withdraw more than 20% without reducing their future payouts.
The most typical payout to the backoffice was the daily profit share “RPP”. The second most typical payout was “Retail Commission” from downline’s reinvestments (2 levels deep, personally sponsored members and second level members).
Other payouts were too insignificant to be counted here.
Note:
Zeek had a 14 days delay before withdrawals were paid out.
You could COLLECT withdrawals during the week, ORDER the weekly withdrawal on Monday, RECEIVE the money after 14 days or more. Payouts were clearly RESTRICTED somewhere in the system.
What do you make of the thousands of checks found uncashed in the Zeekler offices? Was this because Zeek’s traditional banking facilities would no longer cash them?
I recall reading that people were told that withdrawals were slow and would remain so until more people deposited more funds into non-traditional payment processors (e Wallet accounts) which sounds queer since there were uncashed checks sitting in boxes.
That seem to be the only logical conclusion, when their local banks and credit unions seem to have them on a watch list (which got them in a tizzy and rumor-squashing mode, claiming to have “silenced” the critic)
It seems to me in the final months Laggos have them “shopping” for payment processors and check clearinghouses that would take them at all, which is soon rarer than a hen’s tooth.
Right is not the same as authority. NX Pay not only has the right but it has the contractual obligation to withhold the transfer of the funds until a ruling is made as to ownership.
The Court has the no authority to deprive the Movants of their property rights without affording them due process, nor can it compel NX Pay to do so.
NXPay is acting within its rights and needs no further authority than the 5th and 14th Amendments to the US Constitution.
I recall this being discussed earlier. Does it strike you as true that one or more of RVG’s payment processors would only accept deposits directly from individuals? In other words could it be that many thousands of Zeek checks could not be deposited at banks nor at one or more of the payment processors?
Olivares was reported to have said that Zeeklers could not withdraw until more money was loaded INTO the e-wallets at the payment processors. That suggests that one or more of the processors was a closed system and would not accept the checks found in the offices.
Your thoughts appreciated.
“Right to decide” is about having the correct authority. NXpay doesn’t have the authority (in itself as an organisation) to hold back funds. It will have to find a permission through existing laws, or get a permission from the court (or make an agreement about it with the Receiver).
The court IS offering the Movants the right to test it in court. That case will be about whether or not the NXpay accounts rightfully belongs to the Movants (the MONEY in the accounts), and about whether the money should be returned to the Receiver or to the Movants.
The case isn’t about whether or not “someone” has the right to freeze privately owned property.
Before they can test “Have the money illegally been seized from their accounts?”, they must first test “Does the money in those accounts legally belong to them?”.
If the money in those accounts legally belongs to the Receivership, any case about “seizing privately owned property” will be fundamentally flawed. A fundamentally flawed case can’t be solved in court, it can only be rejected.
The MAIN QUESTION will be “Does the money in the frosen NXpay accounts belong to the Receivership or to the account holders?”.
Kettner and Sorrels FEEL the money rightfully belongs to them, and they have asked the court to rule in their favour. Their opponent in that case is the Receivership Defendant and SEC.
Nobody knows yet. Which is why NX PAY chose to retain the funds rather than give them to one side or the other.
M_Norway: The case isn’t about whether or not “someone” has the right to freeze privately owned property.
Of course it is not, NX Pay’s involvement here is incidental, but the fact that they chose to retain the funds until there’s an adjudication of ownership is the issue which impacts the 1099s.
As I have been saying, the Receiver can not be said to have clawed back that money in 2012 because the Court has not ruled that it belongs to the Receivership. As I have also been saying, the reason the Kettners have not actually recieved the money is because their agent decided to hold onto it.
The Receiver does not have it. The Court does not have it. The Kettners don’t have it. NX Pay has it and is acting as stakeholder, with the the tacit approval of the Receiver (an officer of the court) and the Kettners.
How do we know there is tacit support? Because no one is has motioned to compel NX Pay to distribute the funds. Meaning at this point….that all parties are in accord with NX Pay’s decision and actions.
The Order to Freeze prompted NX Pays decision to become the de facto stakeholder but it did not dictate their actions.
They could have paid the Receiver outright or transferred the money to their account holders. They did neither. They decided to hold the money. That is the proximate cause of affiliate Kettner’s not having received his money in 2012.
The Court Order to Freeze is what has dictated NX Pay’s actions but the proximate cause of the affiliates failing to receive their funds in 2012 was the decision by NXPay to hold funds and act as the de facto stakeholder in a dispute between the Receiver and the NX Pay clients.
The 1099s were issued by the Receiver because funds were transferred out of RVG’s account at NX Pay and to the affiliate’s accounts at NX Pay. This constituted constructive receipt by the affiliates in 2012. These were withdrawable funds not IOUs.
RVG is currently asserting ownership due to the Terms of Use at NX Pay which allows for a recall of withdrawable funds by RVG. These funds are still on deposit at New Bridge Bank subject to adjudication of ownership.
There was no limitation, action or restriction imposed by RVG that prohibited the affiliate’s from Receiving their funds. That they did not is due to to a Court Order obtained by the SEC, not by any decision or action of RVG.
The RVG Receiver merely notified NX Pay of the Court Order affecting the accounts. The Receivership has not clawed back any funds because
1. they are still in the custody of NX Pay and
2.the Receivership has not taken possession of them and
3. that is why the RVG 1099s do not have to be adjusted for 2012
AFAIK, you cannot deposit a check with the eWallet companies. You have to transfer it from an existing bank account, or from other eWallets.
If no check processors would take checks made out to Zeek, that would explain the thousands of checks in their office.
It would also explain why their end came so swiftly… they cannot tell the world why they don’t have any real money to pay the people when they supposedly have received the funds and even show them to be received.
Apparently they’re just crediting the bid purchases and the fake “earnings” but no real money has reached their accounts as nobody will take their checks.
“No restrictions”, other than that the accounts were frozen and the money was made unavailable in August 2012? 🙂
The money was available only in a constructed scenario, e.g. “They COULD have been able to withdraw it any time before August 2012”. Hypothetical scenarios are not taxable.
RVG and the Receivership Defendant is the same entity. Not EXACTLY the same, but the Receivership Defendant is the continuing of RVG during a liquidation process, i.e. “RVG under administration”.
But that point isn’t very important. Taxes are about whether or not money has been constructively received by the taxpayer, not about which entity who made the money available or unavailable.
Hypothetical scenarios can be interesting enough in discussions, e.g. to analyse something theoretically. But I will try to keep it close to the realities found in the case.
Money in the frozen accounts are either TAXABLE (as income) or NOT TAXABLE. It can’t be BOTH taxable and non-taxable.
“IS IT WORTH IT?”
I have focused primarily on the tax issues in this discussion, trying to identify facts, tax doctrines and different guidelines from the IRS.
Another question is “Is it worth it?”, e.g. worth the time and efforts it will require to check the 1099’s for factual and logical errors, report potential errors to the Receiver, make corrections in the tax returns?
We can use David Sorrells as an example.
* He received a clawback letter, estimated by the Receiver to $943,000 in net winnings.
* He had around $373,000 stuck in the frozen NXpay account.
He can potentially reduce the remaining clawback to $570,000 (instead of $943,000), and potentially reduce his taxable income for 2012 by $373,000 (IF money in the frozen accounts have been included in clawback letter or in the 1099).
RVG transferred funds to affiliates prior to August 2012 without any restrictions or limitations. The funds were received in the affiliate’s account, regardless of whether an affilliate withdrew the funds it was still constructive receipt
The Freeze was imposed by an Order of the Court based on a petition of the SEC. RVG, the payor, placed no restriction or limitations on the funds.
If an affiliate has 1099ed funds remaining in his NX Pay account and they are clawed back by Court Order then he should claim credit for repayment of fraudulent income when he files his taxes. I will bet you $5 the Receivership never reissues a single 1099.
Onward
That is a lot of taxable income. I wonder how he’s been paying his quarterly estimated taxes.
Based purely on history, the question of what happens to the NXPay funds is likely to be the least of his/her worries.
* HYIP ponzi issued 1099s are notoriously inaccurate.
* The member/victim has know way of knowing EXACTLY what information is in the possession of the IRS, or, indeed, the accuracy of the information.
The tax liability issue is but one of the problems facing victims of HYIP ponzi fraud.
HYIPS use 1099s to convince the naive the ponzi is “legit” which does NOT mean the 1099 is accurate in any way.
It is up up the 1099 recipient to prove the accuracy or otherwise of his or her tax position.
The bottom line is, the member/victims have been left holding the bag and it is now THEIR responsibility to sort out any/all mess with their banks and IRS.
Simply ignoring the fact there are potentially more than just loss of money will NOT make them go away, ESPECIALLY if the amounts concerned are more than a few dollars.
I’m adding some specific information here, designed to meet some specific needs, e.g. for accountants or tax advisors looking for some basic information. I will disable most links to avoid the moderation queue here.
HOW THE EWALLETS WORK:
A sworn affidavit from NXpay’s counsel can be found in the following link:
mlmhelpdesk.com/wp-content/Docs/Zeek/ZeekDoc129-1.pdf
He’s explaining some important facts about the eWallets and the agreement, e.g. about the ownership to the money.
Note that he’s using visual descriptions in some parts, e.g comparing the eWallets to “a folder with money, sitting at the company’s counter, with the account holder’s name on it, just waiting to be picked up by the account holder”. That description is probably NOT technically correct from a tax viewpoint (tax doctrines).
He’s also giving a description of the case. This is the type of information I would have been looking for if I had been an accountant, looking for basic information about that part of the case for a client.
People affected by frozen accounts / tax issues in the aftermath of ZeekRewards should probably copy the link or download the pdf.
OTHER COURT DOCUMENTS
http://mlmhelpdesk.com/zeek-rewards-court-documents/#.UQrMPacueM4
It’s a frequently updated collection of the court documents, partially credited Don Ryan at ASD Update (asdupdatefiles.com).
Documents mentioned in the discussion from post #116 to this post have been found via that link. I don’t expect anyone to be interested in reading all of them, but I’m expecting some people to be interested in WHERE to find that type of information.
In Norway, the tax authorities receives a COPY of the tax forms sent to the tax payer (from employers, financial institutions, social security, stock exchange registry, and so on).
We’re also receiving the tax return filled out with all those details, but we can add our own changes or add additional information. If you’re not making any changes then you don’t have to send in the tax return either.
Normally the party producing tax information will have the PRIMARY responsibility, e.g. a company sending out 1099’s is responsible for the content of the 1099.
The tax payer have a SECONDARY responsibility to make sure the information is correct, i.e. he shouldn’t add any incorrect information in his own tax return. The tax payer is responsible for the content of his own 1040, not for the content of the 1099.
That’s the general principle, but the system may be enforced differently.
Tax doctrines are about whether or not the money was available for the taxpayer, not about WHO or WHICH ENTITY who made the money become unavailable. If a check is delayed in the mail, the check is not constructively received by the tax payer.
I’m talking about “normal situations” here, not about situations where a taxpayer desperately tries to make himself unavailable for a payout in a specific tax year.
I don’t expect him to reissue anything, but I’m expecting him to give clear answers if anyone is pointing out errors in the 1099’s.
If the same type of error has been repeated in many 1099’s, I’m expecting him to publish information about it on his website (or to send information to those affected).
Zeek Rewards was a fraudulent operation.
An operation which has been proven to lie about almost every aspect of its’ operation/s.
Why, then, would anyone assume that of ALL the fraud within fraud within fraud involved in the Zeek Rewards fraud, it would have fulfilled it’s 1099 and/or taxation reporting obligations ??
IF Zeek did, in fact, send what they claimed to 1099s to members, what guarantee does the member have of the accuracy of what the 1099 shows ??
Did Zeek send the same information to the I.R.S. ???
Does the I.R.S. have information regarding the individual members affairs which even the member doesn’t know about ??
My point is, for many member/victims the taxation aspect of the Zeek fraud will make little or no difference.
BUT,
for many it WILL have consequences and/or complications which the taxpayer him/herself will have to address, like it or not.
It’s actually under administration by a court, so it has probably TRIED to send correct information for 2012. 🙂
Poor example. This describes actual receipt
This is known as an analogy: A comparison between two things, typically on the basis of their structure and for the purpose of explanation or clarification.
Again, this describes actual receipt.
A Receiver is expected to exercise reasonable care.
That goes a long way to explaining things. Thanks
IRS Publication 525(2012) – Introductory Material
Assignment of income. Income received by an agent for you is income you constructively received in the year the agent received it. If you agree by contract that a third party is to receive income for you, you must include the amount in your income when the third party receives it.
CORRECTION If the funds are transferred back to the estate it will be considered a return of funds to the estate (a clawback) and the affiliate/taxpayer can declare such a disgorgement as an offset or deduction against any 1099 income reported in 2012 or earlier.
Norway, the discussion concerning equivalent value and constructive receipt was interesting. Thanks, I learned some stuff.
Reciever just filed his Reply in Opposition to the Motion to Release Frozen Funds. He argues the funds were in transit, never received by affiliates and are transferrable to the estate under the NX Pay conditions of Use. Additionally he argues that the written record (statements by NX pay Corporate Counsel are sufficient to determine the issue and that no evidentiary hearing is not required.
Let me guess… “net winners” are requesting evidentiary hearing to delay the clawbacks as much as possible?
When
When the net winner “movants” filed their Motion to Release Funds Frozen etc.” a few months ago they requested an evidentiary hearing, the purpose of which seemed to be 1.) prove that Zeek was not a ponzi and 2.) present evidence that money held in NX Pay was legal commissions for work performed. The idea of course was to obtain a ruling that would force NX Pay to release the funds to them.
Inexplicably, or at the behest of their misinformed clients, Quilling and Alexander filed a Motion that ignored the NX Pay Conditions of Use Agreement their client’s signed.
The whole e-wallet thing is a hybrid arrangement since RVG had the right to recall funds from NX Pay that were never “picked up” and NX Pay would not allow anyone to pick them up due to the original Freeze Order. NX Pay froze them and RVG reclaimed them. is that a clawback? Sort of…not exactly…same as….?
*sigh* Morons never learn. Glenn Turner tried that “recruiting is hard work therefore it’s not a pyramid scheme” excuse when FTC slapped him with Koscot case. It didn’t work a couple decades ago. Why is “giving away bids to dummy accounts is hard work” excuse going to work now?
Qilling will file whatever his clients tell him to file, as long as he gets paid for doing it. He doesn’t really care if they win or lose and he doesn’t come out looking like too much of an idiot, a threshold that may be reached shortly.
The tax discussion in this thread has got ONE conclusion = some people complained about errors in the 1099’s, the Receiver sent amended 1099’s to the IRS in April 2013.
Source:
STATUS REPORT FOR THE FIRST QUARTER 2013 – page 11-12
(ZeekDoc143-main.pdf)
“Some people” was actually “hundreds of people”. Two tax payers got the amounts adjusted UP rather than down.
Typical errors in the 1099’s were:
* failed electronical transactions
* failed checks (e.g. the payout in late May 2012)
post #157:
And he actually confirms that idea in his report. It helped the team in understanding more parts of the 406 database tables.
Lucky for you, we don’t make bets here. He has amended several hundreds of them.
Is that right. Spontaneously or upon request?
Will you accept five Jubi-bucks?
Also known as Trial and error
Probably both. He received hundreds of relatively similar complaints about failed payouts that had been included in the 1099. In the process of checking them, they discovered 2 payouts they hadn’t found earlier. I don’t think those two were complaints, so they were probably added spontaneously.
I won’t make any bets when I’m analysing something. It will only add the wrong type of motivation. The “bet” quote was because a part of the discussion had been about amended 1099’s.
He has probably tried to send CORRECT tax forms to the tax payers, but Zeek’s database was a mess.
By reading a few post on the MMG-forum in Febryary/March I was able to identify at least 1 potential error, and I found a few other potential errors by reading through some of the court documents (e.g. some of the NxPay communication).
One person (a contractor / service provider) had received a W2 tax form for a check cancelled by the Receiver before it was paid out. That type of error was one of the two types mentioned in the Quarterly Report. The other type of error was “electronically failed transactions”, and that’s probably about frozen eWallets.