DOJ issue end of year warning to Ponzi scammers
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!
Congratulations OZ, for your 1,000th post!
Well deserved celebration!!!
Thank you Oz. I lost money in Zeek, never recruited anyone, never drew any money out.
I don’t know how much I will get back, but the experience has been worth the education I’ve gotten, in large part due to the simple, easy to understand way you get to the point explaining things.
Maybe one day you will tell us what drew you to take an interest in MLM. 🙂
It probably derived from his other blog, when he covered Liberty League International in Australia in 2009 / 2010. I’m only guessing, but it’s an educated guess. Filling that other blog with MLM stuff would have ruined its other content, so a solution was to set up a new blog.
You will probably find some other idea sources too, e.g. the Whirlpool forum. People there covered a similar topic, and the Liberty League articles attracted contributions from that group of people (some of them posted updates in both places).
I hope they do something about WCM777, before more people get hurt.
It’s about time that the DOJ shut down David Wood and Dave Sharpe… the pied pipers of Empower Network.
These 2 charmers are elieving unsuspecting affiliates out of thousands of dollars selling there pass up scheme to 1000’S..while raking in over 8 million dollars themselves since launching 2 years ago…
My prediction for 2014 is it will be the year of the Scam Buster.
IM(very)HO, the most important, yet most often overlooked change in the way things are done the past few years is this one:
All of the major based online fraud busts of the past couple of years have involved the task force whcich includes the Secret Servie, Homeland Security, the FBI, all the states Attorneys General, the IRS and virtually every Federal, state and local law enforcement agency.
Great article, Oz!!
I wish that you would cover these so called “MLM Advocates” in particular Troy Dooley and Ted Nuyten. These guys are “on the take”
Their greed puts out a distorted message leaving the public to believe that these companies they review are “OK”
When people post hard questions, or offer facts, they simply do not approve the posts. This behavior from a so called expert is unacceptable.
Time to expose them all, and now is the time.
Dooley is just as guilty as Dawn and the rest of them. Dooley validated Zeek, cause countless people to invest in a ponzi, shame on him, he needs to be exposed for what he is.
Come on now, do we really believe he did not know Zeek was a Ponzi? If Dooley did not know Zeek was a Ponzi, he is really not an expert, nor is he very bright.
As far as Ted is concerned, here’s one post on Telexfree, businessforhome.org/2013/08/telexfree-review-2013/ – read the comments and then try to post a comment, this has to stop.
This is cyber racketeering
OZ, Thank you for hitting hard and not folding!
Congratulations on the 1,000th post. I know there are many, many more to come and all spot on.
You are Eagle’s source for anything to do with MLM. We send everyone asking about MLM to this blog to get educated as they get to see both sides of the story.
Now if I could just get you to work with us to provide info to law enforcement I would be a happy camper. LOLOL!
Wishing you and yours, as well as all your readers a most joyous Holiday Season, a Merry Christmas and a prosperous and fantastic New Year.
Oz have covered “Troy Dooly gets fined for pimping ZeekRewards”. It’s a relevant part of the Zeek story, e.g. “what happens in the aftermath of a Ponzi shutdown” part of the story.
Troy Dooly is actually a contributor to this blog from time to time, just like people here contributes “now and then” with comments on his blog.
“Blog about other bloggers” is not a part of the idea here. When it happens, it’s normally because it’s part of another story.
He has already settled his case and paid a $3,000 civil fine plus a $3,000 disgorgement of 17% of his salary from Rex Venture Group. He has also received a restraining order.
He violated section 17(a) in the Security Act 1933 if I remember it correctly. It’s about doing paid promotions of unregistered securities without properly disclosing the facts about the payment.
The SEC have probably handled that part correctly.
His primary field of expertise is probably about branding himself as an “MLM expert”, and about branding other “MLM experts” in the process (“know the right people, and recommend them, and make them recommend you” type of expertise).
There’s nothing wrong with that idea in itself, but it has some limitations.
When it comes to blogs in general, they will typically be designed for specific groups of people. An “MLM advocate” will attract a different audience than this blog. It will be up to the readers themselves to find out how they best can get some use of it, i.e. you can’t reflect everyone’s “wants and needs”.
Thanks for the support guys.
I try to draw an editorial line between writing about individuals unless it directly relates to a company and their interaction with it. I’ve got so much to cover on the company side of things, writing about individuals in the MLM space would be a whole other blog.
I think here it’s balanced well enough. You get some insight into MLM individuals but I try to keep the companies front and center.
I covered Dooly’s involvement in Zeek and have documented some of Nyuten’s involvement in EN on the affiliate side. There’s only a few of us in the MLM blog sphere and just as they let me do my thing I too have to respect what they do.
Sure you can call them out on it but bloggers or otherwise people are going to make their own decisions. The idea is not to change or tell them what to do, but just cover it.
I’m no less amazed than you all are when I have to write about some of the stuff I see, but if people are going to make mistakes – at least here others might learn from them.
The promoters and PIMPs in these schemes are embolded by the appearant lack of regulatory intervention.
You are 100% correct …. non-action translates to endorsement. Presidents from south american countries have publically denounced some schemes.
$850 million? That eclipses the earlier claim of $600 million.
Interesting that the statement put out by the DOJ focuses on Dawn and only mentions Paul by initials, when he was the owner of the whole shebang.
Only took Colombia 2 weeks to shut down WCM777, and 3 weeks for Peru to shut down both WCM777 AND TelexFree.
It took the US a couple MONTHS to close Zeek, by some estimates. Who knows how many millions could have been saved had SEC acted sooner?
I have no idea why the government doesn’t have an office to regularly investigate these kinds of “businesses,” since so many of them turn out to be scams or ponzi schemes.
It wasn’t hard for those of us following Oz’s blog here to figure out Zeek was a ponzi, so I don’t know why the government has to sit and wait for a complaint to be made before anything can be done.
Law enforcement, by definition, is reactive rather than proactive.
They also can’t randomly demand “trade secrets” (internal audits) willy nilly. Complaint gives them ‘probable cause’ to start the investigation.
And technically such an agency does exist: IC3 in the US: Internet Crime Complaint Center, operated by FBI and DHS
Joe: In regard to your question, unless they have people filing complaints, they have no clue they exist. The Ponzi pimps and admins know this, so that is why they scare people into not filing a complaint.
The mantra goes along these lines: “You will just ruin it for everyone,” “If you file a complaint you may be charged,” “there are always a few who want to ruin it for all,” “they are jealous they are not successful like the rest of us,” “they are just naysayers and are not to be believed,” “it is just a minor problem and we need to give them time to fix it,” and the list goes on and on.
Unless law enforcement has numerous complaints, and there is a significant dollar amount lost, they don’t have the time, money or resources to pursue it. They have too many other crimes to deal with, and investigations cost money so it has to be worth their while to investigate.
There is more to it than this, but at least you get the picture of what law enforcement is up against as well as us who are exposing these Ponzi’s/Scams/Illegal Cash Gifting Schemes/Pyramid Schemes.
Why is WCM777 banned in the US state of Massachusetts alone and not the entire country? Does it mean it is NOT banned in other states? I would have thought it should be banned everywhere in the US.
Ponzi schemes are banned across the US. Not sure why WCM777 hasn’t attracted attention in other states, but Ming Xu is still running around the US so they could easily issue him a cease and desist or something further at a federal level (?).
Analysis would be a lot easier if we had regulatory input but I don’t think that’s going to happen anytime soon (shame).
I see people regularly call for even more government intrusion into commerce. As a libertarian I find this to be a dreadful idea.
Our Constitution was formed to KEEP GOVERNMENT OUT OF BUSINESS- not in complete control of us.
Last I looked everyone engaging in these ventures are adults, legally able to make a determination for themselves.
Government seldom intervenes in a manner that is favorable to the citizenry. It mostly serves to preserve and increase it’s own power.
If I win or I lose by investing in a venture, it should fully rest with me, not an all powerful nanny state.
I believe that LESS regulation would lead to better opportunities, and yes even scam operations. But that’s the price of operating in freedom rather than totalitarianism.
That’s just it though, it has nothing to do with you. “Winning” in Ponzi schemes is solely determined by new suckers investing after you.
Obvious attempt to hide behind libertarianism to defend your views on Ponzi scheme participation is obvious.
Deliberate fraud is “commerce” in the libertarian world now, is it ??
Fraud is fake business. So what does your Libertarian views say about fraud? Is it more lasseiz-faire, caveat emptor, and all those big words? Who should punish the guilty and restore the balance?
Might want to watch Wakeup Now. As far As I can tell they are doing the EXACT same thing as FHTM.
How naive and how wrong.
Reference Article 1, Section 8, Clause 3 of the U.S. Constitution… “the commerce clause.”
Simply put, a government cannot “promote the General Welfare” of its citizens without the power to prohibit and punish, fraud, misrepresentation, concealment and other abuses.
I’m a libertarian but I believe that government should do its job of protecting its citizens. In this case, protecting them from scammers and con artists.
I’m not calling for total government regulation of businesses, just for someone to look into the business practices of obvious ponzi schemes.
You wouldn’t eat in restaurants which didn’t have to be inspected by a government health inspector, would you?
I knew my response would trigger outrage by all of you worshippers of big government.
The government has NO authority to be involved with winning or losing. It’s the individual’s money and responsibility.
On food inspectors, there is NO authority in the Constitution for the FDA, FTC, FCC or most of the marxist Federal departments
As to the comment on the General Welfare, you show the typical Constitutional ignorance of it’s intent.
The general welfare clause has nothing to do with the general well being of the citizenry. It was carried over from the Articles of Confederation and relates to the general welfare of the Republic-the nation, not the people themselves.
It is about the general stability and functionality of the govt itself, as the clause states “The General Welfare of the United States”, not the citizenry. The sentence clearly states that the taxing power is for the purposes of the common defense and general welfare of the United States. There is a reason for conjunctions in a sentence.
James Madison who wrote most of the Constitution stated in Federalist #45:
In Federalist 41 Hamilton argued that the “general welfare” clause could not be used to expand the federal government beyond what was intended.
It has been urged and echoed, that the power “to lay and collect taxes, duties, imposts, and excises, to pay the debts, and provide for the common defense and general welfare of the United States,” amounts to an unlimited commission to exercise every power which may be alleged to be necessary for the common defense or general welfare…But what color can the objection have, when a specification of the objects alluded to by these general terms immediately follows, and is not even separated by a longer pause than a semicolon?…
For what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power?
Nothing is more natural nor common than first to use a general phrase, and then to explain and qualify it by a recital of particulars. But the idea of an enumeration of particulars which neither explain nor qualify the general meaning, and can have no other effect than to confound and mislead, is an absurdity.
If all of the ponzi players kept things in-house and just cheated each other with their little money games, nobody would give a crap and the government would be far less likely to be involved.
It’s a bit difficult for some “adults” to make their own determinations when they are lied to by promoters.
Unfortunately, the only way for these things to grow as large as cons like Zeek did is to deceive many people into believing they are legitimate businesses.
I’m certainly no fan of big government and believe the system is essentially corrupt beyond repair, but ponzi players/defenders do the exact same thing they accuse the corrupt government of doing. They prey on the weak and uninformed.
But it sure does from time to time?
Do those agencies NEED authorisation directly from the Constitution, or can they get it indirectly from a law?
Section 8, clause 18:
Your response is interesting and while I think you should consider attending law school I would not recommend you become a judge until you have a more mature moral theory in place.
Purely legalistic arguments do not tell us what is just and this is where you fall well short of the mark.
I should mention also that the Hamilton v Madison arguments have been decidedly resolved in favor of the Federalists (as opposed to the Jeffersonians) so unless you have a time machine that can unwind the events of July 4, 1863, I do not believe your arguments hold anything but an archaic and antique interest post American Civil War.
Article One of the United States Constitution, located at section 8, clause 18.(The Necessary and Proper Claus, also known as the Elastic Clause, the Basket Clause, the Coefficient Clause, and the Sweeping Clause) states the following:
The Congress shall have Power … To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.
I think you would have to agree that this greatly expanded on the centralized power granted under the Articles of Confederation. You of course may not agree, but then you do not have an army and and a police force to enforce your point of view.
I propose a friendly pyramid/ ponzi scam FEDBUST prediction for 2014.
My top 3 in order of when they will busted.
2. BLGM aka BIDDERS PARADISE
3. TELEX FREE
All 3 shall be taken out in first 3 months of 2014. IMHO
One wonders how the Founding Fathers would have reacted to discovering they had been deliberately defrauded.
Would they have considered it a normal part of “commerce” and simply walked away ??
I think not.
All I’m still hearing is
You can try and make it about libertarianism… but at the end of the day it’s still only about your thinking you have the right to rip people off and then blame them for believing you.
Don’t even try to pull the “everyone knows what they’re getting into” Ponzi excuse.
Try as hard as I might, I cannot seem to find the section of the constitution that says: “citizens have the right to pretend to be running a legitimate business while in fact running a pyramid / ponzi / fraudulent operation disguised as a legitimate business without interference from the government”
Still, I suppose the Founding Fathers all owned muskets, so there was little need to include such a section or amendment to the Constitution
Dear Oz, congratulations for the great job. I read your blog almost everyday. Have a happy Christmas and a happy new year !
Thanks for the well wishes Guilherme. Hope your Christmas was something special. We’ve had two weeks of non-stop rain here and it’s grating on my nerves!
It’s people like Larry which give libertarianism a bad name, and who irritate responsible libertarians like me.
They seem to think that everybody should be able to do anything they want and the government shouldn’t be able to control anything anyone does. Yet libertarians like myself realize that some government involvement is needed because few people will actually do what’s best for society.
There’s always going to be people who will cut corners to save a few bucks, and others who will outright defraud others.
And if you don’t think agencies like the FDA are needed, then I hope you grow and raise all your own food. It’s bad enough what the FDA allows in food as it is, but I’d hate to see it if there was absolutely no regulation at all. *shudder*
It people like Larry that end up in jail .
Nice rant Larry! After witnessing your shameless promotion of anything under the sun on your Facebook timeline, it is no wonder you have such a warped sense of truth.
I swear I have never seen one man promote so many different scams in my entire life. Aren’t you a Pastor? Is a man of God supposed to fleece his own flock?