Zeek Rewards: Dawn and Daniel Olivares Sentenced

Department of Justice
U.S. Attorney’s Office
Western District of North Carolina

FOR IMMEDIATE RELEASE
Tuesday, September 13, 2016

ZeekRewards’ Former Chief Operating Officer And Former Senior Technology Officer Sentenced In Federal Court

CHARLOTTE, N.C. – U.S. District Judge Max Cogburn, Jr., sentenced Dawn Wright Olivares, 48, and Daniel C. Olivares, 34, both of Clarksville, Ark., to 90 and 24 months in prison, respectively, for their involvement in an $850 million Internet Ponzi scheme that promised victims a bogus return on investments, announced Jill Westmoreland Rose, U.S. Attorney for the Western District of North Carolina.

The two Arkansas residents were associated with the Lexington, N.C. based Rex Venture Group, LLC (RVG), which owned and operated Zeekler and ZeekRewards.  In addition to the prison term imposed, Judge Cogburn also ordered each defendant to serve three years under court supervision.  The restitution amount will be set at a later date.

Michael Rolin, Special Agent in Charge of the United States Secret Service, Charlotte Field Division and Thomas J. Holloman III, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation Division (IRS-CI) join U.S. Attorney Rose in making today’s announcement.

According to filed court documents and today’s sentencing hearings, from January 2010 through August 2012, Dawn Wright Olivares, her step-son, Daniel Olivares, and Paul Burks, the owner of RVG, conspired with each other and engaged in Ponzi scheme that raised more than $850 million through a sham internet-based penny auction company named “Zeekler” and its purported advertising division “ZeekRewards” (collectively “Zeek”).  According to court records, the conspirators induced more than 900,000 victims – including over 1,500 victims in the Charlotte area – to invest in their fraudulent scheme, by falsely representing that Zeekler was generating massive retail profits from its penny auctions, and that the public could share in such profits through investment in ZeekRewards.  Court documents indicate that, at one point, the conspirators claimed that investors would be guaranteed a 125% return on their investment.

Court records show that the co-conspirators represented that victim-investors in ZeekRewards could participate in the Retail Profit Pool (RPP), which supposedly allowed victims collectively to share 50% of Zeek’s daily net profits.  The co-conspirators did not keep books and records needed to calculate such daily figures.  Instead, Burks simply made up the daily “profit” numbers.  Contrary to the conspirators’ claims, the true revenue from the scheme did not come from the penny auction’s “massive profits.”  Instead, approximately 98% of all incoming funds came from victim-investors, which were then used to make Ponzi-style payments to earlier victim investors.

In addition to promising massive returns on investments, the conspirators used a number of ways to promote Zeek to current and potential investors.  For example, the conspirators hosted weekly conference calls and leadership calls, where participants could call in and listen to Burks, Dawn Wright Olivares and others make false representations intended to encourage victim-investors to continue to invest money and to recruit others to invest in Zeek.  Burks and Dawn Wright Olivares also organized and attended “Red Carpet Events,” where victim investors came to hear details of the scheme in person.  During these events, Burks and his conspirators made false representations about the massive retail profits generated by Zeek.  They also used electronic and print media, including websites, emails and journals, to make false and misleading statements about the success of Zeekler to recruit victim investors.

As the Ponzi scheme grew in size and scope it became unsustainable and it eventually began to unravel as the outstanding liability resulting from the bogus 125% return on investment continued to rise beyond control.  By August 2012, the conspirators fraudulently represented to the collective victims that their investments were worth nearly $3 billion, but had no accurate books and records to even determine how much cash on hand was available to pay such liability.  Contrary to representations made to victim investors, at that time, the conspirators had only $340 million available to pay out investors.

According to court records, Dawn Wright Olivares was closely involved in the strategic operations and ultimately served as the Chief Operations Officer of Zeek.  Dawn Wright Olivares also owned 95% of Wandering Phoenix, LLC, a company that she used, among other things, 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, among other things, database design, management and operations for Zeek.  During the course of the conspiracy, Daniel Olivares personally enriched himself with victim funds totaling approximately $3.1 million.  Other unnamed co-conspirators also personally enriched themselves with millions of dollars of victim funds.

Dawn Wright Olivares and Dan Olivares previously pleaded guilty to one count of investment fraud conspiracy.  Dawn Wright Olivares also pleaded guilty to one count of tax fraud conspiracy.

In July 2016, a federal jury convicted Paul Burks of wire and mail fraud conspiracy, wire and mail fraud, and tax fraud conspiracy, following a three-week trial.  Burks is currently awaiting sentencing.

In making today’s announcement, U.S. Attorney Rose thanked the U.S. Secret Service and IRS-CI for investigating the case, and the U.S. Securities & Exchange Commission, Division of Enforcement for its assistance with the investigation.

The prosecution is handled by Assistant United States Attorneys Jenny Grus Sugar and Corey Ellis of the U.S. Attorney’s Office in Charlotte.

Additional information and updated court filings about this and related cases filings can be accessed at the district’s website: http://www.justice.gov/usao/ncw/ncwvwa.html.

Updated September 13, 2016

TelexFree: Merrill and Wanzeler Charged in Superseding Indictment

newtelexfreelogoIn a 27 page document filed yesterday, the Grand Jury has added a few charges to the 2 individuals running TelexFree in the USA.  The co-defendants are now charged with 17 counts each, as indicated below:

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The superseding indictment also lists all items up for possible forfeiture and the list is huge. I have added this new Indictment and attachments onto the Files Website.

TelexFree: Judge Hillman Issues Memorandum on Merrill’s Motions to Suppress

telexfree-logoAs with many Ponzi scammers that got caught, motions were filed to suppress information obtained by search warrants, claiming the affidavit used to obtain these search warrants was over-broad and inaccurate.  Here’s what Judge Hillman thought about these motions:

James Matthew Merrill (Defendant) has been indicted for eight counts of wire fraud in violation of 18 U.S.C. § 1343 and one count of conspiracy to commit wire fraud in violation of 18 U.S.C. § 1349. The charges are related to TelexFree, Inc. (TelexFree), a company that Merrill and others allegedly ran as an illegal pyramid scheme. Merrill has filed four motions to suppress evidence obtained pursuant to three search warrants: (1) a warrant to search TelexFree’s headquarters in Marlborough, Massachusetts; (2) a warrant to search Xand Corporation, an electronic storage facility in Marlborough, Massachusetts; and (3) a warrant to search Merrill’s personal email account. 1 He also moves for a hearing pursuant to Franks v. Delaware, 438 U.S. 154 (1978), arguing that the affidavit that supported the search warrants contained false statements and material omissions of fact. For the reasons set forth below, Merrill’s motions to suppress and for a Franks hearing (Docket Nos. 237, 238, 239, 244) are denied.

1 Merrill also moved to suppress evidence obtained pursuant to a warrant to search Exigo Office Inc., an electronic storage facility located in Texas. The government has represented that it will not introduce at trial any evidence obtained from this search. Accordingly, Merrill’s motion with regard to Exigo is moot.

The argument Merrill is making is based on an affidavit by James Soares, a Special agent with Homeland Security Investigations, Judge Hillman had this to say:

Merrill has not shown any material misstatements of fact in Soares’s analysis of
TelexFree’s incoming revenue. Rather, he disagrees with Soares’s conclusions based on the facts set forth in the affidavit. Soares acknowledged the existence of the back office system but opined that the ratio of participants buying into TelexFree as promoters versus people buying the phone plan was not likely to be substantially different for customers paying with bank deposits and credit cards as compared to customers paying through the back office. Even if that conclusion was questionable, the underlying facts were disclosed in the affidavit, and Merrill has not challenged their veracity. Accordingly, he has not shown any material misstatements to warrant a Franks hearing.

 

TelexFree: Judge Denies Merrill’s Motion to Suppress Evidence

newtelexfreelogoBack in May of this year, James Merrill filed for a motion for a Franks Hearing and also to

suppress all evidence derived from any and all search warrants issued pursuant to an affidavit of Special Agent John S. Soares, as the affidavit submitted in support of the search warrants contained false statements and/or reckless misstatements of fact, as well as material omissions of facts, all of which ultimately render the search warrants invalid, see Franks v. Delaware, 438 U.S. 154 (1978).

Just like other scammers caught in the act, he claims the search warrants were obtained through false statements, omitted material information, and that the search warrant affidavit does not establish probable cause to issue a warrant.  Seems like many other Ponzi operators have made the same claim when they got caught; it did not work out well for them, either.

Today, Magistrate Judge Hillman denied these motions.

Zeek Rewards: Sentencing for the Dawn Wright-Olivares and Daniel Olivares

zeekrewardsHere is the latest update from Kenneth Bell, Zeek Receiver. He has included an email address for victims to provide information that may be used at the Sentencing Hearing:

 

ANNOUNCEMENT FROM THE RECEIVER – August 29, 2016

On September 13, 2016 at 9:30 AM Dawn Wright-Olivares and Daniel Olivares will be sentenced in United States District Court for the Western District of North Carolina for their roles in the ZeekRewards Ponzi and pyramid scheme. The sentencing hearings are open to the public and will be held at the Federal Courthouse at 401 W. Trade Street, Charlotte, NC.

Victims of these offenses are entitled to be heard at sentencing. If a victim would like to have a letter describing the impact that ZeekRewards had on them submitted to the Court please send an email to HearingLetter@zeekrewardsreceivership.com. In particular, the Court would like to hear about any of the below circumstances:

  • Becoming insolvent;
  • Filing for bankruptcy under the Bankruptcy Code;
  • Suffering substantial loss of a retirement, education, or other savings or investment fund;
  • Making substantial changes to his or her employment, such as postponing his or her retirement plans;
  • Making substantial changes to his or her living arrangements, such as relocating to a less expensive home; and
  • Suffering substantial harm to his or her ability to obtain credit.

I will be attending the hearings on behalf of all ZeekRewards victims and will present your letters to the Court.

Zeek Rewards: Jaymes Meyer Gets 15 Years in Prison and $4.8 Million Judgment

According to the Charlotte Observer:

A federal judge in Charlotte delivered a message Tuesday to a Napa Valley financier:

 

 

What Zeek Rewards giveth, the federal government taketh away.

In Jaymes Meyer’s case, that includes his freedom.

The CEO of Preferred Merchants LLC in Napa, Calif., will serve 15 months in prison and pay a $4.8 million judgment for attempting to hide millions in assets connected to the Rex Ventures Group, the Lexington-based parent company of Zeek Rewards, which prosecutors describe as one of the largest Ponzi schemes in U.S. history.

Read more here: http://www.charlotteobserver.com/news/local/crime/article97429572.html#storylink=cpy

Zeek Rewards: Receiver Replies to Class Defendants

zeekrewardsJust filed today, Kenneth Bell has replied to the Class Defendant’s (Rhonda Gates, Innovation Marketing, LLC, Aaron Andrews, Shara Andrews, and Durant Brockett) response to his initial Motion for Summary Judgment and Partial Summary Judgment against the Net Winner Class. It seems that Jerry Napier, Darren Miller, T. Le Mont Silver, Global Internet Formula, Inc., Karen Silver, and Dave and Mary Kettner did not respond to the Receiver’s motion.

Under “Summary of Argument”, the Reply states that after more than a year and considerable cost to the Receivership engaging a defense expert to investigate the question of whether or not Zeek operated as a Ponzi that the

Defendants have conceded—without a single reference to their own expert—that ZeekRewards was a Ponzi scheme which intentionally defrauded hundreds of thousands of victims out of hundreds of millions of dollars. Indeed, since the filing of the Receiver’s motion Paul Burks, the mastermind of the ZeekRewards scheme, has been found guilty by a Federal court jury of three counts of securities fraud and one count of tax fraud related to the Ponzi scheme. So, the fact that ZeekRewards was a Ponzi scheme has now been established as a matter of undisputed facts and law.

Despite this concession that Zeek was a Ponzi, the Defendants argue that they can avoid returning their “net winnings” based upon the TOS (Terms of Service) which

can limit the Receiver’s rights to assert claims and that they should be given credit for recruiting victims to the scheme. Defendants still act as if Zeek was a legitimate business and Defendants were “internet marketing specialists” entitled to be paid as employees rather than investors in the scheme, all of which is of course pure fiction.

The Court should resist Defendants’ invitation to create the dangerous loophole of allowing a fraudster to use the terms implementing a Ponzi scheme to limit the right of a subsequently appointed Receiver to recover funds paid to the winners of the fraudulent scheme. While such a rule would be a great recruiting tool for future Ponzi scheme operators, it is surely an unacceptable legal rule and public policy.

The Defendants urge the Court to rule that purchasing bids, posting online advertisements (which only took 5 minutes a day) and recruiting thousands of victims somehow means they provided “reasonable equivalent value” such that they get to keep the victim’s money.

Bell goes on to eviscerate the Defendant’s attempt to legitimize their actions:

In other words, Defendants claim that those Defendants who spent the most time successfully promoting the scheme and multiplying the number of its victims should be given the most credit against the Receiver’s claims to recover their fraudulently transferred winnings. In fact, in arguing that they were supposedly rightly paid for their “services,” Defendants stretch to compare themselves to the utility company, which among many other differences does not invest money in their customers’ businesses hoping to share in compounding profits of 125% every ninety days. Whether or not innocent third-party trade creditors of a Ponzi scheme could be subject to a clawback action is not at issue in this case. Here, Defendants—all active participants and investors in the scheme—provided no value to ZeekRewards as a matter of law and fact; instead, as a result of their efforts the company became liable for hundreds of millions of dollars in losses incurred by the victims they recruited to the scheme.

You can read the full Response, the Zeek Terms Of Service and the Purchase/Subscription Agreement here.

Zeek Rewards: “Net Winner Class” Defendants File Reply to Complaint

zeekrewardsIn case 14-cv-91, Bell v Disner ,et al, the “Defendant Class of Net Winners” by and through their Texas attorney, James Kevin Edmundson, have filed a “Defendants’ Answer to Complaint and Affirmative Defenses” in reply to the original complaint filed back on February 28, 2014.

The very first 2 sentences are this:

1. The statement that RVG operated as a Ponzi scheme is a legal conclusion to which no response is required. Defendants lack knowledge or information sufficient to form a belief as to the truth of the remaining allegations of paragraph 1.

2. Defendants deny the allegations of paragraph 2 because, among other reasons, they have no information leading them to believe that RVG was a “scheme” or that they or others were somehow “net winners” as opposed to individuals who worked diligently for the income they earned in connection with Zeek.

I suppose even though a legal decision has been made as to whether Zeek was a Ponzi or a “scheme”, following the conviction on all counts of Paul Burks in the criminal trial, one would surmise that these positions by the Net Winners would be somewhat untenable. But, it gets even better with their Affirmative Defenses: (Pay particular attention to “C”, emphasis added)

AFFIRMATIVE DEFENSES
A. Defendants devoted significant time and money working on behalf of RVG, which was performed pursuant to a contract between Defendants and RVG by which RVG agreed to pay Defendants for the work that they performed. Defendants performed as agreed and were owed the compensation that RVG promised to pay.
B. If RVG was a Ponzi scheme, Defendants had no knowledge of that fact. If RVG was a Ponzi scheme, then all of the other affiliates who participated in RVG have unclean hands as a result of their participation in a fraudulent scheme.
C. On information and belief, the SEC knew or should have known of the RVG Ponzi scheme, but delayed unreasonably in its prosecution of claims against RVG. Alternatively, the SEC knew for some time that RVG was operating as a Ponzi scheme but intentionally delayed disclosing that information to Affiliates and to the public. That unreasonable delay has prejudiced Defendants because t h e y h a v e paid taxes on the money they earned working on behalf of RVG and have incurred business expenses as a part of their work on behalf of RVG. The Receiver in this action stands in the SEC’s shoes and also delayed to Defendants’ detriment and now seeks return of all monies Defendants earned in connection with RVG, with no credit for the taxes or business expenses that Defendants legitimately paid, but that could have been avoided had the SEC or the Receiver timely advised Defendants of RVG’s true nature or acted in a more expeditious manner.
D. The Receiver’s claims in this case against Defendants are barred by the equitable doctrine of laches.
E. Defendants accepted compensation in connection with RVG in good faith, in exchange for reasonably equivalent value and in accordance with the terms of the contract between Defendants and RVG.
F. Defendants are entitled to a setoff for the amounts they paid to RVG for the purchase of bids and to otherwise participate in the Affiliate program, the amount of any and all expenses they incurred in operating their business for the benefit of RVG, for the amount of all taxes they paid and for the value of the funds the Receiver wrongfully misappropriated from Defendants’ e-wallet accounts. Defendants are also entitled to a setoff to the extent of any judgment on their counterclaims.
G. The Receiver has filed suit against two attorneys who provided legal advice to RVG and Affiliates, including Defendants. Defendants relied on that advice in concluding that RVG was a legitimate business and in committing significant personal resources to grow their now defunct business. Because Defendants’ damages were caused in part by the conduct of the two lawyers, Defendants are entitled in equity and at law to a credit for all money the Receiver recovers from the two attorneys as a result of their claims against them.
H. Plaintiff’s claims are time-barred pursuant to the express terms of the agreement between RVG/ZeekRewards and Defendants.

SEC Halts $207 Million Traffic Monsoon Ponzi

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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23604 / July 28, 2016

Securities and Exchange Commission v. Traffic Monsoon et al., No. 2:16-cv-00832-JNP (D. Utah filed July 26, 2016)

SEC Halts $207 Million Internet-Based Ponzi Scheme

The Securities and Exchange Commission today announced that it has obtained an asset freeze against the operator of a Utah-based international Ponzi scheme that raised more than $207 million from investors worldwide, primarily in the U.S., India and Russia.

In a complaint filed in federal court in Salt Lake City on July 26, the SEC alleges that Traffic Monsoon LLC and Charles Scoville, the company’s only member operated an Internet-based Ponzi scheme that they falsely represented to investors was an advertising company. According to the SEC complaint, Scoville began operating Traffic Monsoon in October 2014 as a combination Internet traffic exchange and pay-per-click program and recruited more than 162,000 investors around the world. According to the complaint, although Traffic Monsoon markets itself as a highly successful company, nearly all of its revenue is generated by other investors, not its products or services. The complaint alleges that more than 99% of Traffic Monsoon’s revenue is derived from new investor funds, making claims that it is a successful advertising business merely an illusion.

The SEC’s complaint alleges that Traffic Monsoon and Scoville violated Sections 5(a), 5(c) and 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder. Among other things, the SEC’s complaint seeks permanent injunctions, prohibiting further violations of the laws charged, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties from Traffic Monsoon and Scoville.

The SEC’s investigation was conducted by Alison Okinaka, Scott Frost and Cheryl Mori of the SEC’s Salt Lake Regional Office. Daniel Wadley is leading the SEC’s litigation.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2016/lr23604.htm

 

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