Online Auction Revealed to Be $500 Million Ponzi Scheme
A North Carolina company known as ZeekRewards, or Zeekler, solicited investors worldwide to participate in its penny-auction business where participants could “bid” on popular merchandise in 1-cent increments. In addition to the ‘retail” business, the company also promised its “affiliates” hefty returns for recruiting new participants and placing free advertisements on other sites. In return, those “affiliates” were handsomely rewarded with daily returns of 1.5%. In total, nearly 1 million “affiliates” would entrust more than $500 million to ZeekRewards.
However, in August 2012, the Securities and Exchange Commission initiated an emergency civil enforcement action and accused ZeekRewards and its founder, Paul Burks, of masterminding a massive Ponzi scheme that was on the verge of collapse. According to the Commission, Zeek Rewards’ current cash holdings of $225 million were at risk of “rapid depletion” had investors elected to receive cash distributions rather than accumulate “profit points.” A receiver was appointed by a North Carolina federal court to preserve and recover assets for the benefit of investors, and has recently sought to recover winnings from “net winners” that were fortunate enough to profit off their investment with Zeek Rewards.
While certainly paling in comparison to Bernie Madoff’s massive Ponzi scheme, ZeekRewards might be one of the largest Ponzi schemes in history as measured by the sheer number of victims affected. Indeed, while Madoff involved several thousand investors, the court-appointed receiver in ZeekRewards announced that he had received proof of claim forms from over 174,000 victims. Victims are expected to recover at least 50% of their losses.