Paul Burks indicted for operating Zeek Rewards
After two and a half years of silence leaving many of us wondering what Paul Burks’ ultimate fate would be, news broke this morning that he has now been indicted.
Burks was indicted by a grand jury for the operation of Zeek Rewards, an $850M Ponzi scheme he operated between 2011 and 2012.
For those unaware of the grand-daddy of penny auction MLM scams, Zeek Rewards offered unregistered securities using the penny auction platform Zeekler as a front.
Burks (right) is collectively named in the indictment, along with those who helped run the scam, as co-conspirators.
The co-conspirators falsely represented that Zeekler was generating massive profits from its penny auctions that the public could share in such profits through investment in Zeek Rewards.
In truth and fact, Zeekler’s purported profits were bogus and Zeek Rewards operated as a fraudulent Ponzi scheme whereby the co-conspirators used monies from later victim-investors to pay fraudulent returns to earlier victim-investors and to personally enrich themselves.
The indictment goes on to detail the fraud behind the pretending that Zeek Rewards’ ridiculous ROIs were pegged to the retail activities at Zeekler.
Nailed in the indictment are Gerry Nehra’s attempts to legitimize Zeek Rewards with pseudo-compliance:
As the Ponzi scheme grew in size and scope, the co-conspirators took several steps to conceal its true nature and to prevent scruitiny be regulators by making a series of cosmetic changes.
a. Initially, the co-conspirators called the Retail Profit Pool the “compounder” (ref our report on this dated June 2012) and touted it as a way to obtain a 125% “rebate” or “return on investment” on the purchase of “compounding bids.”
Over time, the co-conspirators attempted to eliminate references to the terms “compounder,” “compounding bids,” and 125% “return on investment,” to conceal the true nature of the Ponzi scheme and to prevent scrutiny by regulators.
At some point, instead of specifically promising a 125% return of investment on each dollar invested through the purchase of a VIP Bid, the co-conspirators published bogus daily figures of Zeek’s profits, averaging approximately 1.8% a day, to reach the 125% goal.
The supposed daily Zeek’s profits figure was not based on actual computation of daily profit. Indeed Zeek lacked the books and records that would be necessary to compute such a number.
Instead the RPPP was made up by Paul Burks to artificially reach the originally advertised 125% return of investment.
And this is the real icing on the cake.
What was Gerry Nehra’s legal analysis and opinion that the scheme was perfectly legal based on?
Nothing. It was all bullshit conjecture.
The co-conspirators attempted to lull victim-investors and to bolster the credibility of Zeek by hiring attorneys, and touting their advice and approval of the legality and legitimacy of Zeek to victim-investors and others, including banks, in emails, letters, and conference calls.
In reality, these attorneys could not have reviewed the actual books and records of Zeek, which were non-existent, nor otherwise made any determination of whether or not the profits were legitimate, which they were not.
Burks is also called out for lying about Zeek Rewards’ banking problems.
As the Ponzi scheme grew in size and scope, banks and other financial institutions began to question the co-conspirators about the fraudulent appearance of the scheme and many shut down or refused to open Zeek bank accounts.
However, Paul Burks and other co-conspirators falsely told victim-affiliates that Zeek had merely outgrown its banks.
To this day, Robert Craddock, sidekick of Zeek’s acting COO Gregory Caldwell, maintains that Zeek Rewards was not a Ponzi scheme.
I’ve previously published the facts destroying any and all arguments supporting the notion that Zeek wasn’t a big fat fraud, but here they are again – as detailed in Burks’ indictment:
As the scheme continued and the number of victim-investors grew, the outstanding liability to victims resulting from the bogus 125% return on investment continued to rise beyond control.
Indeed, by August 16 2012, there were approximately 3 billion outstanding VIP Bid points in the RPP, which the co-conspirators fraudulently represented to victims was worth approximately $2.8 billion.
Yet, the co-conspirators had no accurate books and records to even determine how much cash on hand was available to redeem the victims’ VIP Bid Points.
In truth and fact, by August 17, 2012, the co-conspirators had only $320 million (approximately 11% of the $2.8 billion) available to pay out to victim-investors.
Irrespective of whether the SEC moved to shut Zeek Rewards down when they did, the scam was on the fast track to collapse town regardless.
Robert Craddock and anyone else who tells you otherwise is simply full of shit.
For their part in operating Zeek Rewards, Paul Burks (owner) walked away with $10.1 million, Dawn Wright-Olivares (COO and later CMO) $7.2 million, Daniel Olivares (programming) $3.1 million and Darryle Douglas (Sales Director) $2 million.
And then there was the tax fraud…
Rex Venture Group, Zeek Rewards and Zeekler failed to file any corporate tax returns or to make any corporate tax payments to the IRS.
For the tax year 2011, Paul Burks and others issued many IRS Form 1099s to victim-investors that purportedly reported the “income” received by the victim-investors for their participation in the scheme.
Paul Burks also engaged attorneys and tax professionals to legitimize the issuance of the 1099s.
However, in truth and fact, the vast majority of income reported to the IRS was fictional and had neither been earned nor received by the victim-investors.
In total, Paul Burks and others reported to the IRS supposed income by the victim-investors of over $108 million for the year 2011 on the 1099s issued, while Zeek Rewards actually paid out less than approximately $13 million in cash to victim investors.
As a result, individual victim-investors filed false tax returns with the IRS reporting phantom income that they never actually received, and Burks, and others were able to use the false tax notices to perpetuate the Ponzi scheme by making it seem legitimate.
For his part in orchestrating an $850 million MLM Ponzi, Paul Burks was indicted on four counts:
- conspiracy to commit wire and mail fraud
- mail fraud
- wire fraud and
- tax fraud conspiracy
The court has issued a summons against Burks and he is expected to appear in federal court for his initial appearance in the coming days.
The wire and mail fraud conspiracy charge, the mail fraud charge and wire fraud charge each carry a maximum prison term of 20 years and a $250,000 fine.
The tax fraud conspiracy charge carries a maximum prison term of five years and a $250,000 fine.
Accoridng to the current case docket, the summons referenced above was issued on the 24th of October and Burks appearance has been scheduled for the 13th of November.