doj-warning-ponzi-scammers-december-2013

Due to ongoing coverage of some the biggest Ponzi schemes that operate within the MLM industry, here at BehindMLM one of the more common questions we get is “why aren’t the authorities doing anything?”

Some affiliate investors in such schemes even go so far as to use a lack of regulatory intervention as “proof” of a schemes legitimacy. Others argue that non-action translates to endorsement.

At the end of the day BehindMLM is an independent website and I, Oz, your author, do not work with or am in no way affiliated with any law enforcement or regulatory agency.

I have no doubt that regulators from around the world have visited the website and perhaps used the information and analysis provided in their investigations – however as far as I’m concerned, I’ve never directly been in contact with or worked in co-operation with them.

What I have come to appreciate in the half decade I’ve been covering the industry, and wholly incorporate in my MLM reviews and analysis, is that regulators investigate companies the same as anyone else would.

That primarily being the following of money, from how revenue is generated to how it’s paid out as commissions.

Time and time again when one of the larger schemes get busted (in the US or elsewhere), I see the same concerns I initially might have raised in a review or analysis here pop up as the basis for regulatory investigation.

In what I thought was a rather unusual warning issued to Ponzi scheme operators, the DOJ laid out the cold hard facts about Zeek Rewards – most of which was revealed by myself or readers on BehindMLM in real-time as the scheme proliferated:

“ZeekRewards used the enormous power of the Internet to rip off $850 million from hundreds of thousands of victims in less than two years” said Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina.

From January 2010 through August 2012, Dawn Wright Olivares, her step-son, Daniel Olivares, their unindicted co-conspirator and owner of RVG (identified in the charging document as “P.B”) and others engaged in a Ponzi scheme that raised more than $850 million through a sham internet-based penny auction company named “Zeekler” and its purported advertising division “ZeekRewards.”

The defendants and their co-conspirators lured investors by falsely representing that ZeekRewards was generating massive profits from its penny auctions, and promised substantial returns on their investment, as much as 125 percent.

Zeekler’s purported profits were bogus and ZeekRewards operated as a fraudulent Ponzi scheme whereby the co-conspirators used monies from victim-investors to pay fraudulent returns to earlier victim-investors and to personally enrich themselves.

As a result, Dawn Wright Olivares, Daniel Olivares, “P.B.” and others induced victims worldwide, including over 1,500 victims in the Charlotte, N.C., area, to invest, thereby sustaining losses of at least $750 million.

Dawn Wright Olivares was closely involved in the strategic operations and ultimately served as the Chief Operations Officer of Zeekler and ZeekRewards (together “Zeek”).

Dawn Wright Olivares also owned 95 percent of Wandering Phoenix LLC, a company that she used to receive payments from Zeek and RVG. During the course of the conspiracy, Dawn Wright Olivares and Wandering Phoenix received approximately $7.2 million in victim funds.

Daniel Olivares was RVG’s senior technology officer and was responsible for, amongst other things, database design, management and operations for Zeek.

During the course of the conspiracy, Daniel Olivares personally enriched himself with victim funds totalling approximately $3.1 million.

Other unnamed co-conspirators also personally enriched themselves with millions of dollars of victim funds.

In addition to the penny auction scheme, Dawn Wright Olivares, Daniel Olivares and their co-conspirators represented that victim-investors in ZeekRewards could participate in what came to be known as the Retail Profit Pool (“RPP”), which supposedly allowed victims collectively to share 50 percent of Zeek’s “massive” net retail profits.

However, the reported “daily net profit” was illusory and had no relationship at all to actual penny auction revenues or retail profits.

The co-conspirators often re-used bogus daily profit figures from preceding days to report that new day’s purported profits and did not even keep books and records needed to calculate such a figure.

Rather, the owner of RVG simply made up the “daily net profit” reported to victims. The true revenue from the scheme – approximately 98 percent of all incoming funds – came from victim-investors and not “massive” retail revenue and profits from the penny auctions and the co-conspirators claimed.

As the Ponzi scheme grew in size and scope, the co-conspirators took several steps to conceal the true nature of their scam by making a series of cosmetic changes to the ZeekRewards’ RPP.

Ultimately, the Ponzi scheme began failing because the outstanding liability resulting from the bogus 125 percent return on investment continue to rise beyond control.

By August 2012, the co-conspirators fraudulently represented to the collective victims that their investments were 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 pay such liability.

In fact, by august 17, 2012 the co-conspirators had only $320 million or approximately 11 percent of $2.8 billion in value that they claimed investors had.

In the plea agreements also filed today with the Court, Dawn Wright Olivares has agreed to plead guilty to an investment fraud conspiracy charge and to tax fraud conspiracy. Daniel Olivares has agreed to plead guilty to an investment fraud conspiracy charge.

Each charge caries a maximum prison term of five years in prison and a $250,000 fine.

As part of their plea agreements, the defendants have also agreed to pay full restitution to their victims, the amount of which will be determined by the court at sentencing.

Given the timing of the Department of Justice’s press-release and quoted comments made within it, it appears the DOJ are using the first of Zeek Rewards criminal charges as a warning to other MLM Ponzi scheme operators.

“We will continue to work with our law enforcement partners to take down greedy scam artists who think nothing of stealing the savings of hard working people,” said U.S. Attorney Tompkins.

“As today’s technology continues to evolve, cybercriminals use these advances and enhancements to perpetrate an expanding range of crimes,” said Secret Service Assistant Director of Investigations Paul Morrissey.

“As we have seen with this case, even with the increasing complexity of online Ponzi schemes, it remains difficult for criminals to remain anonymous.

The Secret Service continues to seek new and innovative ways to combat emerging cyber threats.

Our success in this case and other similar investigations is a result of our close work with our network of law enforcement partners.”

“This case shows that the appearance of success can be a mask for a tangled financial web of lies,” said Chief Richard Weber of the IRS Criminal Investigation Division. “The underlying structure can fall apart at any time and leave many investors in financial ruin.

Criminal Investigation is committed to investigating Ponzi schemes in an effort to protect the financial well-being of the American public.”

And so the stage is set for 2014, which is shaping up to be an explosive year for the MLM industry.

I of course don’t have a crystal ball and can’t predict the future – but if I did, the MLM companies I’d peg for regulatory investigation in 2014 would be (in no particular order):

  • Better Living Global Marketing – Hong Kong based Zeek Rewards clone. BLGM pretends Chinese citizens are buying penny auction bids while the company uses new affiliate investment to pay out existing affiliates over 99 days.
  • WCM777 – Hong Kong based Ponzi scheme that operates behind a “cloud-services” front. Pays out existing affiliate-investors $4-$32 a day for 100 days with new affiliate-investor money. Already banned by the US state of Massachusetts, Peru and Colombia.
  • TelexFree – Brazilian based Ponzi scheme that pretends to sell VOIP packages to non-existent retail customers. Affiliates invest in “AdCentral” accounts and receive $20 a week per account, paid out of newly invested affiliate money. Currently shutdown in Brazil and banned/declared illegal in Peru (see WCM777 link).

I’m also thinking we might see one of the MLM gifting schemes (random product with pass-up compensation plan) taken down in 2014. Empower Network currently sits at the top of the “100% commissions” heap, with Chairman David Wood declaring a few days ago that the opportunity is “not about the product“.

Outside chances for regulatory action include Herbalife (stock market shenanigans make it hard to gauge this one) and Lyoness, who are currently under investigation in Norway.

Whatever happens in 2014, I’ll be here doing what I do and covering as much of what goes on behind the scenes of the MLM industry as I can. As BehindMLM crosses over its 1000th post, I figured this was a good a time as any to wish readers a safe and happy holiday season.

As always, my personal thanks for your continued support and readership. Here’s to 2014!