THE FACTS: Dissecting the Zeek Ponzi apocalypse
Zeek Rewards was first reviewed here on BehindMLM way back in September 2011 and just two days after my initial review (in which I struggled to see the attraction of retail customers to the business), I wrote a followup exploring the passive investment nature of Zeek.
What has followed over the past eleven months can only be described as a communal firestorm of critical analysis and exploration of Zeek Rewards, its business model, money trail, compensation plan and commissions structure from every angle imaginable.
20 something articles later and thousands of comments exchanged between fellow analysers, blind cheerleaders, cautious profit seekers, harsh critics and a host of characters, today saw the conclusion of that analysis finally put to the test.
Often dismissed for “not having the facts”, today we look at just how accurate the discussion and analysis here at BehindMLM was in deconstructing and analysing the $600 million dollar Zeek Rewards Ponzi scheme.
Filed as a complaint in a North Carolina District Court, the following facts and figures are taken directly from an undercover SEC investigation into Zeek Rewards, Zeekler, Rex Venture Group (the parent company) and Paul Burks (CEO and owner of all three).
An investigation which yesterday, culminated in the shutting down of Rex Venture Group’s entire operations.
Exactly how much money has been raised by Zeek Rewards has been a source of fierce debate, mostly due to the fact that under the belief that mostly affiliate money was being used to pay affiliates, how much of this money was raised would indicate the viability of the business.
In total, the SEC claim
Since approximately January 2011 through the present, the
Defendants have raised more than $600 million from approximately 1 million investors nationwide and overseas by making unregistered offers and sales of securities through the ZeekRewards website in the form of Premium Subscriptions
and VIP Bids.
Presumably so low was the revenue generated by Shopping Daisy, Zeekler retail bids and the FSC Store, that the SEC didn’t even bother to include their figures in their complaint.
The irrelevance of Rex Venture Group’s other properties in terms of revenue generation has been consistent. With a complete lack of retail customers evident, it was obvious that all of Zeek Rewards’ revenue was solely being generated by affiliates’ purchasing VIP bids.
The daily ROI “proprietary secret” percentage of affiliate money being paid out to affiliates
One of the strongest criticisms of analysis into whether or not Zeek Rewards was a Ponzi scheme has been the constant claims of “critics” ‘not having all the facts‘.
Despite mountains of evidence from affiliates, observations of the mechanics of Zeek Rewards payouts and tracking of commissions paid out to thousands of affiliates, claims that Zeek Rewards were paying out a daily ROI that consisted of mostly new affiliate money, were often dismissed.
Zeek Rewards was queried multiple times on this very issue and every time the response was always the same:
That information is proprietary.
Infamously, Zeek Rewards’ Official Training Consultant Troy Dooly even went so far as to stop then COO Dawn Wright-Olivares answering questions on this very topic, claiming that Zeek would be “out of compliance if they did so”.
More recently, when left to her own devices, Wright-Olivares made the claim that unless Zeek Rewards affiliates deposited more money into their e-wallet accounts, the company would be unable to pay commissions (“what goes in can come back out“).
Following this announcement in late June, Wright-Olivares seemingly disappeared off the face of the planet and was publicly never heard from again. She was replaced by Greg Caldwell as COO in July.
So just how much affiliate money was making its way into the company’s daily ROI payment to affiliates?
Approximately 98% of ZeekRewards’ total revenues, and correspondingly the purported share of “net profits” paid to current investors, are comprised of funds received from new investors.
Zeek Rewards was paying existing members Ponzi returns made up of 98% investments from new affiliates.
Zeekler’s penny auctions were a “cash cow”
Often compared to non-MLM penny auctions like Quibids, affiliates and supporters of Zeek Rewards often claimed Zeekler’s penny auctions could easily and continue to easily cover the daily ROI paid out to affiliates, based on their success.
This, according to the SEC, was not the case:
In 2010, Burks created Zeekler.com, a penny auction website offering items ranging from personal electronics to cash.
The penny auctions were not particularly successful until Burks launched ZeekRewards in January 2011.
After Zeek Rewards launched of course affiliates started investing in VIP bids to the tune of $10,000 a pop and well… $600 million dollars later here we are.
But hang on Oz, $600 million in bids? Surely that’s evidence of Zeekler’s success right?
Almost none of the VIP Bids given away by Qualified investors are actually used on the Zeekler penny auction website.
Of approximately 10 billion VIP Bids purchased by or awarded to investors, less than one-quarter of one percent have been actually used in auctions on the Zeekler penny auction website.
Yet a quarter of one percent of VIP bids actually being used in the auctions was more than enough to observe the ridiculous prices Zeekler’s penny auctions were closing at (often hundreds of dollars above the retail value of the item being auctioned).
So what happened to the rest of the bids? Well, with Zeekler requiring no customer email verification both affiliates and “Zeekler customer vendors” simply created thousands upon thousands of dummy accounts for affiliates to simply dump bids onto.
With 98% of the daily ROI coming from new affiliate investments in bids, what happened to the bids was ultimately irrelevant to the commissions structure of Zeek Rewards.
Or as the SEC put it, ‘the VIP Bids do little or nothing to actually promote the retail business‘.
Zeek Rewards affiliates are paid to advertise the company
One would think 98% of the daily ROI paid out to affiliates would clearly show that affiliates were indeed not being paid to advertise the company, however in forcing members to spam the internet once a day to qualify for their daily ROI payout, thus Zeek Rewards claimed it was so.
Given that this was on all company marketing and training materials, over the eleven months Zeek Rewards analysis has featured on BehindMLM, that meant that during this time we’ve had a steady stream of affiliates trying to justify Zeek Rewards’ daily ROI payouts on the claim that they are indeed “paid to advertise”.
The requirements to become a Qualified Affiliate constitute an investment in a common enterprise and require little or no investor effort.
Earning daily dividends also requires that affiliates place one free internet advertisement daily for the company, but that exercise requires little or no effort.
Affiliates may merely copy and paste free ads – created by Defendants without input from affiliates – from a company-sponsored program, which the ZeekRewards website boasts should take no more than five minutes per day.
Affiliates also may employ a third-party program to generate ads automatically for them; affiliates must simply verify that they’ve placed the ad by submitting an internet link to ZeekRewards.
Placing more or better ads does not enhance an individual’s share of profits.
The size of the each Qualified Affiliate’s daily award is dependent
solely on how many Profit Points that investor has accumulated, and is not based on rendering any significant service to ZeekRewards.
“Qualifying” for your daily ROI had nothing to do with publishing ads and instead was simply tied into how much you’d invested.
Over the months I’d easily lost count of how many times I’d refuted the ‘we get paid to advertise” claims with the fact that the entire process could be automated and publishing replicated ads on crappy little free classified websites nobody visited did not generate business for Zeekler.
A fact that was largely dismissed by affiliates and supporters of the scheme.
Due to point expiration, the Zeek Rewards daily ROI was sustainable
Suspending basic mathematics, it was often argued that due to points expiring after 90 days in Zeek ROI scheme, that this somehow rendered payouts sustainable.
At the heart of the Zeek Rewards business model however was of course the guarantee that affiliates would be paid out a large enough return over 90 days, such that they’d be able to re-invest it and wind up with more points than they started with, irrespective of how many points retired on any given day.
With point balances increasing indefinitely, this meant that so too would the amount of money from Zeek to meet this implied guarantee. Failure to do so would result mass cash outs and withdrawals from the scheme which, once initiated, would be impossible to recover from (such is the nature of a Ponzi scheme).
without new investor deposits (in the form of VIP Bid purchases and subscription fees), revenues would dwindle substantially as less than 10% of daily revenues come from actual retail sales, and the scheme would likely collapse immediately.
So, what was Zeek Rewards’ bid liability when the SEC shut them down?
As a result of the compounding effect, Qualified Affiliates now have nearly 3 billion Profit Points outstanding. Based on the ZeekRewards current outstanding Profit Point balance, the company would be obligated to pay out approximately $45 million per day if all Qualified Affiliates elected to receive their daily award in cash.
$45 million a day huh? So how much money did Zeek Rewards have then?
Defendants currently hold approximately $225 million in investor funds in approximately 15 foreign and domestic financial institutions, and those funds are at risk of imminent dissipation and depletion.
A 5 day reserve. When you consider that
the company’s actual daily revenues in July 2012 averaged approximately $5 million per day.
the company would quickly become insolvent if more Qualified Affiliates elected to take daily awards in cash from the Retail Profit Pool rather than converting their awards into ever increasing accumulated Profit Points,
it’s evident just how close to the bone Zeek Rewards were running their Ponzi scheme and why the authorities stepped in when they finally did.
Evidently the much touted launch of the Zeebates affiliate shopping portal on August 22nd wasn’t just to boost non-affiliate revenue in the daily ROI payments, it was a last-ditch attempt to inject some much needed funds into a Ponzi scheme that was teetering on the brink of collapse.
ZeekRewards’ current investor payouts are approaching, and may soon exceed, total incoming revenue. In July 2012, total revenue for ZeekRewards was approximately $162 million, while total investor cash pay-outs were approximately $160 million.
$45 million a day and rising out and just $5 million in? Ponzi sustainability mathematics at their finest. Or simply “proprietary information” as Paul Burks so loved to go around telling anyone who dared to ask.
Zeek Rewards pays out 50% of the company’s net profits each day
After Zeek Rewards launched it’s Ponzi scheme (or “the compounder” as it was known then), it wasnt long before people started to notice that regardless of auction volume or other events (such as holidays and website downtime), the daily ROI paid out always seemed to average out at about 1.5% a day.
After a series of blunders in the daily ROI paid out, which were quickly fixed in the proceedings days with a manual intervention to the ROI percentage paid out to affiliates, suspicions ran high that Zeek Rewards were just “making up” the daily ROI percentage paid out to affiliates.
As with everything else suspicious about the company that was analysed, this was also true:
Burks is solely responsible for determining the amount of “net profits” to share in the Retail Profit Pool.
Defendants represent that daily awards are calculated by dividing “up to 50%” of daily net profits by the number of Profit Points outstanding among all Qualified Affiliates.
This calculation results in a daily dividend paid to each
Qualified Affiliate that consistently has averaged approximately 1.5% per day.
In fact, the dividend bears no relation to the company’s net profits.
Instead, Burks unilaterally and arbitrarily determines the daily dividend rate so that it averages approximately 1.5% per day, giving investors the false impression that the business is profitable.
Zeek Rewards CEO Paul Burks was simply cooking the books. Not at all surprising when you consider the impossible regularity that Zeek Rewards continued to peg it’s supposedly variable daily ROI at, yet that didn’t stop countless people from arguing the system was legit.
Zeek Rewards don’t use future money to pay out affiliates daily
Although the numbers didn’t add up when analysed, that didn’t stop an article written by then COO Dawn Wright-Olivares appearing in Keith Laggos’ The Network Marketing Business Journal (Vol. 27 Issue 4 dated April 2012), claiming that
all Commissions are paid out of current sales revenues!
Zeek Retail Point Pool consists of nothing but its current daily net, without absolutely nothing obligated from future revenues.
Once again, the reality of what was going on painted an entirely different mathematical picture:
Although to date ZeekRewards has paid out nearly $375 million to Qualified Affiliates through the Retail Profit Pool and the Matrix, the company has only approximately $225 million in deposits, which is insufficient to satisfy future awards based on outstanding Profit Points and Matrix commissions and bonuses.
At the time Troy Dooly heralded the paid journal article as ‘the legal and compliance foundation needed to prove once and for all Zeek Rewards is not being run as a pyramid or ponzi scheme‘.
Meanwhile Keith Laggos, a paid Zeek Rewards consultant and owner of the Network Marketing Business Journal publication, at no time disclosed in the magazine or to readers that he himself was a Zeek Rewards affiliate.
Given the scope of over a million affiliates involved, the fact that critical analysis has been made ready available to prospective investors in Zeek Rewards since September 2011 (here at BehindMLM at least), the rabid cheerleading by pillars of the MLM community reassuring members that the program was solid and now the ultimate fallout and truth behind the Zeek Rewards Ponzi apocalypse having been revealed – it is only now that perhaps the true toll on the MLM industry can begin to be measured.
It was only last week that Zeek Rewards COO Greg Caldwell reassured affiliates and prospective investors that all of Zeek’s critics were “unprofessional” with ‘no standing in the professional community‘, doing nothing more than publishing ‘completely false information’ about the company.
Troy Dooly himself seemed to quite enjoying the denouncement of critical analysis because “critics don’t have all the facts”. Many a time Dooly would insist he didn’t believe Zeek Rewards was a Ponzi scheme because he’d “spoken to people” and had “access to information the critics didn’t”.
In retrospect now that the SEC have laid bare all the facts surrounding Zeek Rewards’ business operations and they all only serve to confirm Zeek Rewards was a Ponzi scheme, I’m not sure what “facts” Dooly was referring to.
For those that have been following the coverage and analysis of Zeek Rewards here at Behind MLM you’re well aware of who has said what in this long and drawn out journey.
At the end of the day as I have always maintained it doesn’t matter what lawyers you hire, what you tell your members they can or can’t say and who you hire to cheerlead for your company. Ultimately all that matters is the business model you use, how it works and what’s possible within it.
This is the core principle I use when conducting analysis of any MLM company that features on BehindMLM.
Looking forward, as I write this questions are already being raised asking “who’s next?” and “where to from here?”
Regardless of what is written about BehindMLM or myself as a result of the fallout of Zeek Rewards, I maintain that the purpose of this blog is to share information and analysis of companies that operate within the MLM industry. In doing so I hope to encourage open and transparent discussion which ultimately leads to greater accountability and with any luck overall success and legitimacy within the industry itself.
As for what’s next, having been awake now for more than 29 hours ensuring that those who need it have access to and are able to discuss and share the information as it’s come to hand, I’m going to retire and take a short nap.
And in the long-term, for as long as I possibly can I’ll strive to offer up the most comprehensive and detailed information on the MLM industry any single person is capable of (with as much help as I can get from readers along the way).
I’m not infallible and I will make mistakes from time to time, and thankfully that’s where you the readers come in. There are far too many to thank who have contributed information in one or another to our ongoing coverage of Zeek Rewards here on BehindMLM.
Thankyou for reading and here’s to many more years of unprecedented and truly unbiased MLM industry coverage, news, reviews and commentary.
To the MLM industry and those of us who refused to set aside our morals, ethics, common-sense, succumb to raw greed and suspend belief in the most basic of mathematical principles, I say cheers.
Never let them shout you down.