Zeek Rewards: Paul Burks Sentenced to Over 14 Years

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

FOR IMMEDIATE RELEASE
Monday, February 13, 2017

Former ZeekRewards CEO Sentenced To More Than 14 Years For Operating $900 Million Internet Ponzi Scheme

CHARLOTTE, N.C. – U.S. Attorney Jill Westmoreland Rose announced today that U.S. District Court Judge Max O. Cogburn, Jr. sentenced the former CEO of ZeekRewards to 176 months in prison for operating a $900 million Internet Ponzi scheme. Paul Burks, 70, of Lexington, N.C. was also ordered to serve three years of supervised release and to pay $244,000,000 as restitution. A federal jury convicted Burks in July 2016 of wire and mail fraud conspiracy, wire and mail fraud, and tax fraud conspiracy following a three-week trial.

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, evidence introduced at Burks’ trial and today’s sentencing hearing:

From January 2010 through August 2012, Paul Burks was the owner of Rex Venture Group, LLC (RVG), through which he owned and operated Zeekler, a sham Internet-based penny auction company, and its purported advertising division, ZeekRewards (collectively “Zeek”). Burks and his 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. Burks and his conspirators, including Zeek’s former Chief Operating Officer Dawn Wright Olivares and her step-son and Zeek’s Senior Technology Officer Daniel C. Olivares, claimed at one point that investors would be guaranteed a 125% return on their investment.

Burks and his 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. Burks and his 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, Burks and his 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 listen to Burks and others make false representations intended to encourage victim-investors to continue to invest money and to recruit others to invest in Zeek. Burks 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, Burks and his 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, Burks and his conspirators had only $340 million available to pay out investors. Over the course of the scheme, Burks diverted approximately $10.1 million to himself.

Burks also failed to file corporate tax returns or to make corporate tax payments for his companies, among other things. In addition, for tax year 2011, Burks issued fraudulent IRS Forms 1099s, causing victim-investors to file inaccurate tax returns for phantom income they never actually received.

At sentencing, Judge Cogburn stated that for the defendant’s scheme to work would have required a miracle on the order of the “loaves and fishes.” Judge Cogburn stated that a significant sentence was necessary to promote respect for the law, provide just punishment, and also deter others considering committing fraud. Judge Cogburn further noted that the scheme was “almost breathtaking” and emphasized that the defendant had time to stop it.

Burks will be ordered to report to the Federal Bureau of Prisons to begin serving his sentence upon designation of a federal facility. All federal sentences are served without the possibility of parole.

Burks’ co-conspirators, Dawn Wright Olivares, Zeek’s Chief Operating Officer, and her step-son and Zeek’s Senior Technology Officer, Daniel C. Olivares, were previously sentenced to 90 and 24 months in prison and three years of supervised release, respectively, for their involvement in the scheme.

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 February 13, 2017

BehindMLM: Brazil indicts twenty-two TelexFree scammers

Here is a link to an article on BehindMLM.  http://behindmlm.com/companies/telexfree/brazil-indicts-twenty-two-telexfree-scammers/

Mentioned in the indictments are Carlos Wanzeler and Carlos Costa (and their family members) for their roles in TelexFree Brazil.

Thanks Oz for another great article.

Zeek Rewards: Receiver’s Announcement for February 2

ANNOUNCEMENT FROM THE RECEIVER – February 2, 2017

As I previously announced, I continue to pursue Final Judgments requiring each member of the Net Winner Class of those who won at least $1000 in ZeekRewards to repay their net winnings to the Receivership for distribution to victims of the scheme. On January 27, 2017, United States District Judge Graham Mullen entered an Order on Process for Determining the Amount of Final Judgments Against Net Winner Class Members, which sets forth the process for determining the amount of the net winnings received by each member of the Net Winner Class. That amount plus prejudgment interest will then become the amount of the Final Judgment to be entered against the net winner. I intend to pursue collection of these judgments vigorously, and expect the ultimate amount collected, while uncertain, will be a substantial sum.

The Court’s Order, which describes the process in detail, may be viewed by following this link. The first step in the process – notifying each Net Winner of the amount of their net winnings – is expected to begin next week. After notification, each Net Winner is required to provide a response stating whether he or she accepts or disagrees with that amount within 60 days of the notification using a website Net Winnings Determination Response Portal. More information and links to the Response Portal will be sent to the Net Winner Class members in the notification email. If a Net Winner does not receive their notification by February 13, 2017 then he or she should email netwinningsresponse@zeeknetwinnerclass.com to receive instructions on how to obtain the notification.

Throughout the Receivership, the Receiver has expressed a willingness to consider voluntary final settlements with ZeekRewards’ Net Winners to efficiently resolve the claims against them. Hundreds of settlements have been negotiated with Net Winners and approved by the Court. If a Net Winner wants to discuss a settlement of the Receiver’s claims prior to Final Judgment being entered, please communicate with the Receiver at zeeksettlement@mcguirewoods.com.

Zeek: Order Issued on Final Judgement Process for “Net Winner Class”

In the case entitled “Bell v Disner, et al”, we have the Judge’s Order on a Motion to set up a process for determining Final Judgments against Zeek “Net Winners”. Here are a few highlights, there are 25 sections within the Order:

  • The amount of net winnings shall be calculated in the same manner as the Final Judgments entered against the named Net Winners in this action. “Specifically, Net Winnings shall be calculated as total cash paid-out by RVG less outside cash (excluding reinvested funds generated as part of the ZeekRewards Program) used to purchase VIP bids, retail bids, and subscriptions (VIP bids + Retail bids + Subscriptions)”
  • On or before January 31, 2017, the Receiver shall notify each Net Winner Class member of the amount of their ZeekRewards Net Winnings as reflected in the available books and records of the RVG Receivership.
  • The Receiver shall notify each member of the Net Winner Class of the amount of their Net Winnings by email to the email address provided by the net winner in connection with any account included in determining the amount of Net Winnings as well as any other email address that has been provided by the net winner following the appointment of the Receiver. The Receiver shall also post a link on the Receivership website that allows class members to receive notification of the amount of their Net Winnings. In the event that the notice cannot be delivered to any email address provided by the Net Winner, the Receiver shall send a letter to the last known physical address of the Net Winner informing the Net Winner of the proceedings and the availability of the amount of his or her Net Winnings on the Receivership website.
  • Class Counsel for the Net Winner Class shall (i) post a notice on the Net Winner Class website describing the process set forth herein and (ii) communicate to the Net Winner Class the availability from the Receiver of the Net Winnings amount for each class member.
  • On or before March 31, 2017 (or at least 60 days following the initial email transmittal of the Net Winning amounts to class members if the Receiver’s email notice occurs after January 31, 2017), each class member shall, if they choose to do so, respond to the calculation of their Net Winnings from the RVG records.
  • Final Judgment shall be entered against any Net Winner Class member who does not respond to the Receiver’s calculation of their Net Winnings on or before the response deadline in the amount of their Net Winnings as calculated by the Receiver plus prejudgment interest, calculated at the North Carolina statutory rate of 8% per annum from August 17, 2012, which is on or after the date of the last fraudulent transfer payment to each Defendant, to November 29, 2016, the date of the Summary Judgment Order in this action.

I have uploaded the complete Order here.

 

TelexFree: Feds Release Photo of $20 Million in Box Spring

Photo of $20M seized in box spring following arrest of Brazilian national in scheme to launder proceeds of TelexFree

The owner of this mattress, Cleber Rocha, a Brazilian national,  is being detained due to being a flight risk.

Zeek Rewards: Receiver Asks For Victims to Write Sentencing Hearing Letters

 


ANNOUNCEMENT FROM THE RECEIVER – January 19, 2017

On February 13, 2013, Paul Burks will be sentenced in United States District Court for the Western District of North Carolina for his role in the ZeekRewards Ponzi and pyramid scheme. The sentencing hearing is 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: Receiver Proposes Final Judgment Process For “Net Winners”

Zeek Receiver, Kenneth Bell, has filed a Motion to Enter and Order for determining the amount of Final Judgment against the “Winner Class” members. The Court had entered an Order granting a Summary Judgment and Partial Summary Judgment against the Net Winner Class on November 29, 2016. The Court found that the Net Winner Class received “fraudulent tranfers” that must be repaid to the Receiver.

The only issue now remaining before the Court with respect to the Net Winner Class is how to fairly and efficiently determine the amount of the Final Judgment (ZeekRewards net winnings plus pre-judgment interest) to be paid by each of the over 9000 members of the class.

Attached to the Motion is an Exhibit containing the proposed process

that will give each class member individual notice of the amount of his or her “net winnings” according to RVG’s records, an opportunity to respond to that amount with evidence of a different amount and access to a fair and expedient process to resolve any cases in which the Receiver and Net Winner cannot agree on the amount of the Final Judgment. Counsel for the Receiver has conferred with Counsel for the Net Winner Class, and Counsel for the Net Winner Class has stated that the Net Winner Class has no objection to the Receiver’s proposed process.

Part of the proposal is notification “on or before January 31, 2017” of the amount of “Net Winnings” as indicated in RVG’s records and the records of the Receivership.

The amount of net winnings shall be calculated by the Receiver (through his expert witness) in the same manner as the Final Judgments entered against the named Net Winners in this action.

The process proposed is rather lengthy, so here is a link to it on the ASDUpdates Files website. Also listed is the Proposed Order.

Zeek Rewards: Paul Burks Sentencing Set For Mid-February

Judge Cogburn has issued the following Order:

THIS MATTER is before the court on the parties’ Joint Motion to Continue Sentencing (#119). Having considered the motion and reviewed the pleadings, the court enters the following Order. The court notes that the parties have requested that the court continue the sentencing hearing to or after January 30, 2017 and have reported that February 9th, 2017 is a known conflict for the counsels’ schedules.

ORDER
IT IS, THEREFORE, ORDERED that the parties’ Joint Motion to Continue Sentencing (#119) is GRANTED, and the Clerk of Court is instructed to place this matter on the next appropriate sentencing calendar.

The case docket sets a tentative date:

Sentencing set for 2/13/2017 09:30 AM in Courtroom, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.

Zeek Rewards: Announcement From Receiver

 

 

ANNOUNCEMENT FROM THE RECEIVER – January 12, 2017

I am pleased to announce that we will be making a third partial interim distribution to all Affiliates who hold Allowed Claims on March 15, 2017. When made, combined with the first and second partial interim distributions and the amounts paid by ZeekRewards to such Affiliates before it was shut down, the third partial interim distribution will have returned to victims with Allowed Claims a total of at least 75% of their losses using the rising tide method.

If you previously have received payment from the Receivership, or receive a payment for the first time during the January 31 distribution, you will be issued another payment on March 15, 2017. If you had recovered more than 60% from ZeekRewards prior to its shutdown, but less than 75%, you will receive a distribution as part of the third partial interim distribution.

The funds used to make the third partial interim distribution will be taken from the reserves that I previously held for those Affiliates whose claims were disallowed and forfeited pursuant to the Court’s November 16, 2017 Order that required these claimants to provide their Release and OFAC certification by December 31, 2016. Their failure to do so has permitted me to release these reserves and to pay the third partial interim distribution to Affiliates that hold Allowed Claims.

Finally, we do not have authority to accept new claims and are not considering further requests to amend previously allowed claims. The time to file claims or to amend claims has passed.

I am confident that we will make a further distribution in the future. I ask you for your patience, and thank you for your continuing support.

USFIA: Consent to Enter Final Judgment

You can find the entire document here 194.

(emphasis added)

orders the Entity Defendants to pay disgorgement in the amount of $135,598,118.47, plus prejudgment interest thereon in the amount of $9,811,646.50, the payments of which will be deemed satisfied by the amounts recovered and distributed by the court-appointed receiver as set to be set forth in the receiver’s final report and accounting to the Court.

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