Zeek Rewards: Verdict Sheet, Burks Criminal Trial

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Tax Crimes Handbook, SECTION 4 CONSPIRACY TO COMMIT OFFENSE OR TO
DEFRAUD THE UNITED STATES – 18 U.S.C. § 371

Overt Act:
[b] In furtherance of the conspiracy. The government must prove that the commission of
the overt act was in furtherance of the conspiracy. Grunewald v. United States, 353 U.S. 391,
396-397 (1957); Braverman v. United States, 317 U.S. 49, 53 (1942); United States v.
Provenzano, 615 F.2d 37, 45-46 (2d Cir.), cert. denied, 446 U.S. 953 (1980); Castro v. United
States, 296 F.2d 540, 542-543 (5th Cir. 1961). The overt act must have been calculated to
achieve some goal or objective of the conspiracy. Grunewald, 353 U.S. at 414-15.

 

Zeek Rewards: Paul Burks Found Guilty on All 4 Counts!!

zeekrewards

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

FOR IMMEDIATE RELEASE
Thursday, July 21, 2016

Former ZeekRewards CEO Is Convicted Of Federal Charges For Operating $900 Million Internet Ponzi Scheme

CHARLOTTE, N.C. – U.S. Attorney Jill Westmoreland Rose announced that a federal jury sitting in Charlotte retuned a guilty verdict today against the former CEO of ZeekRewards for operating a $900 million Internet Ponzi scheme.  Following a three-week trial, the jury convicted Burks, 69, of Lexington, N.C., of wire and mail fraud conspiracy, wire and mail fraud, and tax fraud conspiracy.

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.

“For nearly two years, Burks used deceit and dishonesty to engineer an extensive Ponzi scheme that amassed millions of dollars from thousands of victims, many in the Western District of North Carolina. This massive scam is one of the largest in breadth and scope ever prosecuted by this office.  I commend the United States Secret Service and the IRS agents who worked closely with our prosecutors to unravel Burk’s fraud and to obtain a conviction against the mastermind of a scheme that has left so many victims with substantial losses.  I want to remind the public to steer clear of ‘get rich’ schemes and to follow the old adage that if it looks too good to be true, it likely is,” said U.S. Attorney Rose.

“Today’s verdict is the result of a joint investigative effort and it is representative of the commitment the U.S. Secret Service and our partners have towards ensuring those intent on defrauding the citizens of North Carolina and the United States are held accountable,” said Special Agent in Charge Rolin.

According to filed court documents, court proceedings, evidence introduced at trial and witness testimony:

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.

Burks will remain free on bond.  A sentencing date for the defendant has not been set yet.  The wire and mail fraud conspiracy charge, the mail fraud charge and wire fraud charge each carry a maximum prison term of 20 years and a $250,000 fine.  The tax fraud conspiracy charge carries a maximum prison term of five years and a $250,000 fine.

Burks’ co-conspirators, Dawn Wright Olivares, Zeek’s Chief Operating Officer, and her step-son and Zeek’s Senior Technology Officer, Daniel C. Olivares, pleaded guilty in December 2013 to investment fraud conspiracy.  Dawn Wright Olivares also pleaded guilty to tax fraud conspiracy.  Both defendants currently await 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.

 

Zeek Rewards: Latest Docket Entries in Burks’ Trial

This is all that was on the docket today:  zeekrewards

Full docket text:  (July 15)
Minute Entry: JURY TRIAL as to Paul Burks held before District Judge Max O. Cogburn, Jr.. Evidence continued. Jury Trial set for 7/18/2016 09:30 AM in Courtroom 2-1, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.Government attorney: Jenny Sugar, Corey Ellis. Defendant attorney: Noell Tin, Jacob Sussman, Melissa Owen. Court Reporter: Cheryl Nuccio. (chh)

Full docket text: (July 14)
Minute Entry: JURY TRIAL as to Paul Burks held before District Judge Max O. Cogburn, Jr.. Evidence continued. Jury Trial set for 7/15/2016 09:00 AM in Courtroom 2-1, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.Government attorney: Jenny Sugar, Corey Ellis. Defendant attorney: Noell Tin, Jacob Sussman, Melissa Owen, Isham Reavis. Court Reporter: Cheryl Nuccio/Laura Andersen. (chh)

No new motions have been added to the docket file in the past few days, and Judge Cogburn has not made a ruling on the prosecution’s motion to preclude the testimony of the defendants “expert witnesses”.

Zeek Rewards: Government Rests Its Case

zeekrewardsI checked the docket a little while ago and saw this entry for July 13th:

Full docket text: (emphasis added)
Minute Entry: JURY TRIAL as to Paul Burks held before District Judge Max O. Cogburn, Jr.. Evidence continued. Government rested. Oral Rule 29 Motion by defendant is denied by court. Jury Trial set for 7/14/2016 09:00 AM in Courtroom 2-1, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.Government attorney: Jenny Sugar, Corey Ellis. Defendant attorney: Jacob Sussman, Isham Reavis, Melissa Owen, Noell Tin. Court Reporter: Cheryl Nuccio/Laura Andersen. (chh)

Here is the definition of Rule 29 from the Cornell Law website:

Rule 29. Motion for a Judgment of Acquittal

(a) Before Submission to the Jury. After the government closes its evidence or after the close of all the evidence, the court on the defendant’s motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction. The court may on its own consider whether the evidence is insufficient to sustain a conviction. If the court denies a motion for a judgment of acquittal at the close of the government’s evidence, the defendant may offer evidence without having reserved the right to do so.

Judge Cogburn didn’t find that there was insufficient evidence to sustain a conviction; I like this guy.

So far, Judge Cogburn has not ruled on a few defense motions and there is no entry for the government’s motion to preclude Burks’ expert witnesses.

I wish we had someone in the courtroom for all of this. The docket entries are minimal at best.

Zeek Rewards: Prosecution Seeks to Limit or Preclude Reliance Witnesses

Jill Westmoreland Rose, United States Attorney, has filed a motion in limine to preclude Paul Burks from zeeklerintroducing “irrelevant testimony” through Nehra & Waak, Keith Laggos, Kevin Grimes, Howard Kaplan, Gregory Caldwell, and Greer & Walker.

A motion in limine is a motion made at the start of a trial requesting that the judge rule that certain evidence may not be introduced in trial.

The Motion goes on to say:

On or about April 11, 2016, Defendant notified the United States that he may assert a reliance defense in his response (Doc. 52) to the Government’s Motion in Limine regarding the reliance defense (Doc. 47), though no specific individuals upon whose advice the Defendant relied were named. On or about June 26, 2016, the defense again repeated that he may assert a reliance defense in its trial brief. (Doc. 86, page 6.) Again, no specific individuals were named. Moreover, Defendant’s trial brief asserts that his purported reliance defense is based upon the assertion that he made changes to the (already existing and implemented) program in good faith based on the advice of experts. That is, by his own admission Defendant did not seek advice about potential future conduct, but instead about his ongoing conduct.

Burks also appears to net be able to keep his dates straight:

In particular, Defendant has asserted that he first sought advice from the following individuals during the following months:
• Nehra & Waak – April 2011 (though this appears to be an error and should be June 2011)
• Keith Laggos – June 2011
• Kevin Grimes – December 2011
• Howard Kaplan – January 2012
• Gregory Caldwell – January 2012
• Greer & Walker – March 2012

The prosecution contends that at trial, they will establish that Zeek Rewards launched in January 2011 and promised a 125% return. Additional evidence will show that Burks and his co-conspirators “were aware that compounding bids purchased by affiliates in Zeek rewards were ‘debt bids’ creating exponential debt to the company well beyond 125% and driving away retail customers.”

Though cosmetic changes were later made to the program, it continued to essentially function in the exact same manner as it had before any consultants or attorneys were employed: money came in largely from affiliates (who were supposed to be the “advertising” force for Zeekler.com the penny auction); those affiliates received a purported “profit-share” equivalent to approximately a 125% return on their bid purchases in a 90 day period (later as a Retail Profit Pool percent averaging 1.43% per day); and Defendant Burks promoted the program as sharing the profits from the penny auctions.

Next, they establish how the testimony would be irrelevant:

Even if Defendant can establish “that he disclosed all material facts to [the counsel or expert] and that he acted strictly in accordance with [the counsel or expert’s] advice,” to establish a reliance defense, he must establish that he obtained that advice prior to and with regard to future conduct.

 

 

Simply, “a defendant who takes ‘significant steps’ toward the completion of his criminal action cannot avail himself of later-received advice of counsel respecting the lawfulness of that action.” Id.

 

 

Put another way, “[t]he party must also consult the attorney as to the lawfulness of his possible future conduct and may not consult an attorney after he has already manifested an intent to act unlawfully in an attempt to retroactively protect himself from the consequences of his illegal conduct.”

 

 

Defendant Burks had formed intent and taken significant steps in the scheme prior to the time he sought counsel.

The Conclusion says it all:

Without evidence presented that Defendant (1) obtained the advice of counsel or expert (1) prior to engaging in the conduct and then (2) relied upon the instructions or advice of a particular “expert,” there can be no reliance defense. See Pearrell, 1996 WL 10284 at *2; Polytarides, 584 F.2d at 1352. Here the evidence already establishes that Defendant did not seek advice until after he had manifested the intent to commit his crimes and taken significant steps in furtherance of his scheme. Thus, there can be no reliance defense, and the testimony of Defendant’s “Advice of Counsel/Expert” witnesses should be precluded as irrelevant, as their testimony would not make any fact of consequence more or less probable.

 

The prosecution believes that is these “expert witnesses” are allowed to testify, the “minimal relevance will be outweighed by the risk of confusing the issues and misleading the jury.”

Zeek Rewards: Latest Docket Entries

ZeekIt seems no reporters from the Charlotte area are covering the Burks Criminal trial every day, so we will have to rely on what appears on the PACER docket.

On Sunday, this was filed; the document is on the Files website:

07/10/2016 105 REPLY TO RESPONSE to Motion by USA as to Paul Burks re 90 MOTION to Exclude Expert testimony of John White and to exclude and/or limit expert testimony of Morris Aaron (Sugar, Jenny) (Entered: 07/10/2016)

 

Here’s what we have for today:

Full docket text:
Minute Entry: JURY TRIAL as to Paul Burks held before District Judge Max O. Cogburn, Jr.. Evidence continued. Jury Trial set for 7/12/2016 09:00 AM in Courtroom 2-1, 401 W Trade St, Charlotte, NC 28202 before District Judge Max O. Cogburn Jr.Government attorney: Jenny Sugar, Corey Ellis. Defendant attorney: Melissa Owen, Noell Tin, Jacob Sussman, Isham Reavis. Court Reporter: Cheryl Nucio/Laura Andersen. (chh)
Full docket text:
TEXT-ONLY ORDER denying [92] Motion to Continue Docket Call/Trial as to Paul Burks (1) Text of Order: denied for reasons discussed in court So Ordered. Entered by District Judge Max O. Cogburn, Jr on 7/11/2016. (Davis, David)

Zeek Rewards: Opening Day in Burks Trial

This comes from The Dispatch in Lexington N.C.

Burks, 69, is the founder of an alleged Ponzi scheme called ZeekRewards that took $939 million from its “affiliates,” or people who paid into the company in hopes to see a return on their money. He is on trial for four counts of fraud, and Burks has pleaded not guilty. If convicted, he could be sentenced to up to 65 years in prison and pay a fine of $1 million.

The prosecution made its opening statement:

Corey Ellis, First Assistant United States Attorney, spoke and began his address by simply stating how the prosecution viewed this case.

“This case is about the defendant telling lies in order to get money, it is as simple as that,” Ellis said. “Every fraud has a fairy tale, and this one started with a penny auction site.”

 

 

Ellis went on to explain why prosecutors believe they have a case against Burks. Among the reasons listed was the fact that the prosecution could not find any ledgers or accounting books that kept records of the money ZeekRewards was rapidly accumulating.

According to the prosecution, these affiliates bought the bids under the promise that they would see 125 percent returns on their money, money that was allegedly up to 50 percent of the daily profits from the penny auction site Zeekler. However, they allege Burks used the money to pay the older affiliates or investors.

 

 

 

“Our purpose is not to demonize or villainize anyone. … He is on trial for his actions,” Ellis said.

Then we have Noell Tin, Burks’ long time attorney:

Burks’ defense lawyer, Noell Tin, led the defense’s approximately 45-minute opening statement. Tin used his time to strip the history of Burks and his company to what he referred to as “the bare bones.”

He touched on Burks’ personal and professional history before describing in great detail how ZeekRewards was meant to work.

 

 

Tin explained Burks created the ZeekRewards website as a way to generate traffic for Zeekler. He said ZeekRewards acted as a multi-level marketing branch of the business, allowing anyone to buy bids and post ads to bring more people to the auctions.

 

 

The defense repeatedly contested the use of the word “investor” during the trial, and said those who paid money in were buying nonrefundable bids that had no monetary value on their own.

Tin disputed the allegations that Burks had no books to account for the money coming in and out of his business. He said Burks had over a terabyte’s worth of company data online.

 

 

Tin also explained Burks and his company always planned to “make good on their promise.”

“Even on the day (ZeekRewards) closed it had enough money to fill its obligations,” Tin said.

 

 

“Paul Burks’ dream was that everyone wins …” Tin said. “Everyone has things clearly explained to them and were not lied to.”

Then there were 4 witnesses called:

After opening statements, the jury heard from three separate witnesses called by the prosecution. The first two, Wilma Gray and Thomas Harding, were affiliates who had put in $10,000 and approximately $8,000, respectively, into ZeekRewards and saw none of their promised returns.

The third was Lisa Christensen, a former NewBridge Bank employee who filed three separate suspicious activity reports, or SARS, regarding Burks after he began depositing substantial sums into his account. Burks had an account with NewBridge until April 18, 2014.

“We didn’t know where the money was coming from,” Christensen said. “… We like for our customers to have money, but we have to make sure there is no illegal or suspect activity.”

 

 

The day ended with the fourth and final witness, Dan Olivares. Olivares is indicated as a coconspirator in the case. He has pleaded guilty to investment fraud conspiracy and taken a plea deal that involved his honest testimony in the Burks trial. Olivares was the software developer for both Zeekler and ZeekRewards.

He was able to give a brief history of how ZeekRewards was created as an advertising avenue for Zeekler because the site, according to Olivares, was not doing well at the end of 2010.

 

 

Court will resume Thursday morning with the rest of Olivares’ testimony and cross examination by the defense.

Our thanks to The Dispatch and Julia Hudgins for keeping up informed about the Burks trial.

Zeek Rewards: Burks Gets Another Attorney

Today saw a Motion filed to allow Isham Reavis to Appear Pro Hac Vice in the Criminal trial of Paul Burks, and representing Mr. Burks. The Motion was filed by Burks attorney, Jacob Sussman, of the Tin, Fulton, Walker and Owen law firm. Noell Tin has represented Burks for many years, even before the Criminal Indictment was filed.

Magistrate Judge David S. Cayer has Granted the motion and Max O. Cogburn, Jr., presiding over the Criminal trial, has been notified.

reavis_2016

Reavis

Here is some info on Mr. Reavis:

Isham M. Reavis

Isham Reavis is an associate attorney at Aoki Law PLLC. He earned a J.D. from the University of Washington School of Law in 2012, and before that an art degree from the University of California, Davis. While at the UW, he interned with the Federal Public Defender and externed for the Federal Trade Commission and the Honorable Marsha J. Pechman of the U.S. District Court for the Western District of Washington. He also served as a Managing Editor of the Washington Law Review. Isham has represented clients facing charges of white-collar crimes, reckless endangerment, and assault.

In his previous life, Isham ran a restaurant and bar on Capitol Hill and can still recommend a decent food–wine pairing if called.

Professional Associations

Washington State Bar Association, Editorial Advisory Committee, 2013 Pro Bono Publico Service Commendation

King County Bar Association, Litigation & Judiciary Committee

Washington Association of Criminal Defense Lawyers

Publications

  • BIG CASE, Small Firm: Using Discovery Databases to Punch Above your Weight, NWLAWYER, Jul.–Aug. 2014, at 36
  • Driving Dangerously: Vehicle Flight and the Armed Career Criminal Act After Sykes v. United States, 87 WASH. L. REV. 281 (2012)

I am not exactly sure what Reavis brings to the defense table that wasn’t already available from Burks’ legal team. I suppose time will tell.

Zeek Rewards: Opening Statements in Burks Criminal Trial

Thanks to Julia Hudgins, a reporter from Lexington’s “The Dispatch”, we have some information (albeit NCWD sealbrief from Twitter) of the opening statements in the long-awaited trial of Paul Burks, alleged mastermind of RVG and Zeek Rewards.

Corey Ellis for prosecution: “This case is about the defendant telling lies in order to get money. It is as simple as that”

Of course, the defense paints Burks as wanting to help his fellow man, the problem is Burks helped himself to millions. I wonder when they will trot out his health issues, like they did with Andy Bowdoin in the ASD criminal trial. There are a lot of parallels between ASD and Zeek, even the top people in Zeek recognized it.

Noell Tin for the defense: “Paul Burks’ dream was that everyone wins…Everyone had things clearly explained and were not lied to”

The ones who “won” were the top promoters, not the regular folks; that’s how Ponzi scams work, after all. Even Burks didn’t understand how the scam worked, he has admitted as much in court filings.

Wow, this is gonna be a good trial, folks.

 

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