Category Archives: SEC Press Release

Beware “Paid-to-Click” Scams

If only they told us before ASD, and other similar scams, came along.

11/07/2017 11:25 AM EST

The Securities and Exchange Commission is warning investors to beware online “paid-to-click” scams that promise an easy payday by merely purchasing a membership or an advertising product up front and then clicking on a certain number of online ads each day.

The SEC’s investor alert explains that these online advertising programs may have little to no revenues besides membership fees or sales of “ad packs” and may be nothing more than a Ponzi scheme.  The SEC filed an enforcement case that was unsealed last week in federal court in Florida, alleging that roughly 99 percent of the purported “profits” paid to earlier investors came directly from the buy-in fees collected from newer investors.  Meanwhile, according to the SEC’s complaint, the alleged perpetrator siphoned several million dollars out of investor funds to purchase a luxury home, automobiles, and private plane charters while also using the money to fund his other businesses.

According to the SEC’s investor alert, online advertising programs also can target those with something to advertise, promising to display a company’s ads on their network or guaranteeing traffic to a website by simply paying a membership fee or buying ad packs.

“Be skeptical if you are offered high returns for buying advertising products or clicking on online ads,” said Lori Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “Some paid-to-click programs are actually Ponzi schemes.”

According to the SEC’s complaint filed against Miami-based Pedro Fort Berbel and his company Fort Marketing Group, they operated fraudulent internet advertising businesses under such names as Fort Ad Pays, The Business Shop, and MLM Shop.  They allegedly solicited investors through online posts and videos claiming they could share in the companies’ profits and earn investment returns as high as 120 percent by purchasing an ad pack for as little as a dollar and clicking on four banner ads per day.  The SEC alleges that Berbel and Fort Marketing Group raised more than $38 million from at least 150,000 investors.

“As alleged in our complaint, these companies had no viable source of revenue besides income from investor membership fees and the sale of ad packs, so this boiled down to an ad packs Ponzi scheme in which the promised investment returns to earlier investors were not possible without using funds from new investors,” said Eric I. Bustillo, Director of the SEC’s Miami Regional Office.

The SEC’s complaint charges Berbel and Fort Marketing Group with violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Section 10(b) and Rule 10b-5 of the Securities Exchange Act.  They’re also charged with selling investments that are not registered with the SEC as required under the federal securities laws.  The SEC encourages investors to check the backgrounds of people selling them investments.  A quick search on the SEC’s investor.gov website shows that Berbel and Fort Marketing Group are not registered to sell investments.

The SEC obtained a court-ordered asset freeze against Berbel and his companies.

The SEC’s investigation was conducted by Sajjad Matin, Cecilia Danger, and Margaret Vizzi of the Miami Regional Office and supervised by Jessica Weissman.  The SEC’s litigation will be led by Wilfredo Fernandez and Andrew Schiff.  The SEC appreciates the assistance of the Florida Office of Financial Regulation, Bureau of Financial Investigations.  The investor alert was prepared by M. Owen Donley III and Holly Pal in the SEC’s Office of Investor Education and Advocacy.

SEC Files Charges Against Audit Firm ‘BDO USA’

SEC Charges BDO and Five Partners in Connection With False and Misleading Audit Opinions

FOR IMMEDIATE RELEASE
2015-184

Washington D.C., Sept. 9, 2015 —The Securities and Exchange Commission today charged national audit firm BDO USA with dismissing red flags and issuing false and misleading unqualified audit opinions about the financial statements of staffing services company General Employment Enterprises.

The SEC also charged five of the firm’s partners for their roles in the deficient audits, and filed fraud charges against the client company’s then-chairman of the board and majority shareholder Stephen B. Pence, who is a former U.S. attorney and a former lieutenant governor of Kentucky.

BDO agreed to admit wrongdoing, pay disgorgement of its audit fees and interest totaling approximately $600,000, and pay a $1.5 million penalty in addition to complying with undertakings related to its quality controls.  The five partners also agreed to settle the charges against them.  Two former CEOs of General Employment agreed to settle separate charges, and the litigation continues against Pence.

“Audit firms must train their audit and national office professionals not only to recognize red flags but also to have the resolve to refuse signing off on an audit if there are unresolved material issues,” said Andrew Ceresney, Director of the SEC’s Division of Enforcement.  “BDO failed to do that here, even though these issues were elevated to the highest levels of its audit practice.”

According to the SEC’s orders instituting settled administrative proceedings against BDO and the partners:

  • Near the end of BDO’s 2009 audit of General Employment, BDO was advised by the company that $2.3 million purportedly invested in a 90-day nonrenewable CD wasn’t repaid by the bank upon its maturity date.  BDO also learned that a bank employee indicated there was no record of a CD being purchased from the bank.  The $2.3 million represented approximately half of the company’s assets and substantially all of its cash.
  • BDO then received multiple conflicting stories from company management and board members about the status of the purported CD, and the company received a series of deposits totaling $2.3 million from three entities unaffiliated with the bank.  One entity was purportedly owned by Pence.
  • After BDO raised more questions, the company claimed the deposits were proceeds of an agreement to assign the purported CD to an unrelated party in return for the value of the CD.  But BDO never received reasonable and coherent explanations about why the $2.3 million went missing and why an equivalent amount was later received by the company under suspicious circumstances.
  • BDO’s engagement partner on the audit Sean C. Henaghan and concurring reviewer John E. Rainis subsequently consulted with senior BDO partners including regional technical director James J. Gerace, national director of accounting Leland E. Graul, and national SEC practice director Wendy M. Hambleton.
  • BDO then issued a five-page letter to the company highlighting the conflicting information and demanding an independent investigation overseen by the audit committee.
  • But just days later despite no reasonable explanation from the company, BDO withdrew its demand and subsequently issued unqualified opinions on the financial statements included in General Employment’s 2009 and 2010 annual reports.

Without admitting or denying the SEC’s findings, Henaghan, Rainis, Gerace, and Graul agreed to be suspended from practicing public company accounting for varying periods.  Henaghan agreed to pay a $30,000 penalty, Rainis agreed to pay a $15,000 penalty, and Gerace, Graul, and Hambleton each agreed to pay $10,000 penalties.

According to the SEC’s complaint filed against Pence in federal court in Manhattan:

  • Pence made materially misleading statements and omissions to BDO audit professionals in response to questions about the purported $2.3 million CD and dubious related-party transactions.
  • Pence signed the company’s 2009 annual report despite knowing it included misleading statements and omissions about the missing $2.3 million and related-party transactions.
  • Pence created the false appearance that he was acting independently in his capacity as the majority shareholder and chairman of General Employment when in fact he was acting as an agent for a convicted felon named Wilbur Anthony Huff, who had funded Pence’s purported acquisition of a majority stake in the company.
  • Pence received at least a half-million dollars from Huff in 2009 and 2010 as well as a luxury Cadillac Escalade valued at approximately $50,000.
  • Huff has since received a prison sentence in a criminal action related to his intricate involvement in a wide-ranging conspiracy, which included misappropriating the $2.3 million in question from General Employment.

The SEC’s complaint charges Pence with violating Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 and 13b2-2.  The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and penalties, and an officer-and-director bar.

The SEC separately charged former General Employment CEOs Ronald E. Heineman and Salvatore J. Zizza with making materially misleading statements and omissions to BDO.  Without admitting or denying the findings, they consented to SEC orders requiring them to each pay $150,000 penalties.

“Company executives and board members have an obligation to tell auditors the complete truth about corporate events and transactions,” said Andrew M. Calamari, regional director of the SEC’s New York office.  “We allege that Pence misled auditors and investors while acting as a front man for a convicted felon who was actively scheming to misuse company funds.”

The SEC’s investigation was conducted by Wendy Tepperman, Mark Germann, Kenneth Gottlieb, and Nicholas Pilgrim of the New York office.  The SEC’s litigation against Pence will be led by Mr. Pilgrim and Mr. Germann.  The case is being supervised by Sanjay Wadhwa.  The SEC appreciates the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, and New York State Department of Financial Services.

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SEC Press Release – DFRF Enterprises

sec-logoU.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23296 / July 2, 2015

Securities and Exchange Commission v. DFRF Enterprises LLC, et al., Civil Action No. 1:15 cv 12857-PBS (United States District Court for the District of Massachusetts)

SEC Halts Pyramid/Ponzi Scheme Targeting Spanish and Portuguese-Speaking Communities

The Securities and Exchange Commission today announced fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold. With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DFRF’s profits are used for charitable work in Africa. The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts. The SEC further alleges that Filho has withdrawn more than $6 million of investor funds to buy a fleet of luxury cars among other personal expenses.

According to the SEC’s complaint filed June 30 and unsealed today in federal court in Boston, Filho is a Brazilian native who lives in Winter Garden, Fla., and he orchestrated the scheme with assistance from six promoters also charged in the case: Wanderley M. Dalman of Revere, Mass., Gaspar C. Jesus of Malden, Mass., Eduardo N. Da Silva of Orlando, Fla., Heriberto C. Perez Valdes of Miami, Jeffrey A. Feldman of Boca Raton, and Romildo Da Cunha of Brazil.

The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses. DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded. As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

The SEC’s complaint alleges that all defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Mark Albers, John McCann, Frank C. Huntington, and Michele T. Perillo of the SEC’s Boston Regional Office, and assisted by Carlos Costa-Rodrigues in the agency’s Office of International Affairs.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Boston field office of the Federal Bureau of Investigation, the Massachusetts Securities Division of the Massachusetts Secretary of Commonwealth’s office, the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, the British Columbia Securities Commission, the Swiss Financial Market Supervisory Authority, the Financial Services Commission of Barbados, and the United Kingdom Financial Conduct Authority.

 SEC Complaint

http://www.sec.gov/litigation/litreleases/2015/lr23296.htm

SEC Testifies Before Subcommittee

Testimony on “Oversight of the SEC’s Division of Enforcement”

Andrew Ceresney, Director Division of Enforcement

March 19, 2015

Chairman Garrett, Ranking Member Maloney, and Members of the Subcommittee:

Thank you for inviting me to testify on behalf of the U.S. Securities and Exchange Commission (“SEC” or “Commission”) about the Division of Enforcement (“Enforcement” or “Division”).

The SEC’s mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation.  The Division furthers this mission by, among other things, investigating and bringing charges against violators of the federal securities laws.  A strong enforcement program is at the heart of the Commission’s efforts to ensure investor trust and confidence in the nation’s securities markets, and the Division is committed to the swift and vigorous pursuit of those who have broken the securities laws.

In FY 2014, the Commission brought the highest number of enforcement actions to date, 755, and obtained monetary remedies at our highest level, totaling over $4.16 billion.  More importantly, these actions addressed significant issues, spanned the entire spectrum of the securities industry, and included numerous first-of-their kind actions.  We punished securities law violators, returned funds to injured investors, and sent important messages of deterrence.  Our investigative efforts have been assisted by industry experts and by new tools developed to harness data, including trading and financial data.  The Division also maintained its strong litigation record and implemented a new approach of requiring admissions in certain cases.

(continued)


 

Here’s the link to the full testimony

SEC Files Suit Against ‘Wings Network’ as “International Ponzi Scheme”

sec-logoU.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23209 / February 27, 2015

Securities and Exchange Commission v. Tropikgadget FZE, et al., Civil Action No. 1:15 cv 10543-IT (United States District Court for the District of Massachusetts)

SEC Charges Operators of International Pyramid Scheme Targeting Latino Communities

The Securities and Exchange Commission today announced that it filed charges against three company officers and 12 promoters behind an international pyramid scheme targeting Latino communities in the U.S. The agency also obtained a court order to freeze the assets of the company officers, promoters, and related parties.

In a complaint filed February 25, 2015 in federal court in Boston that was unsealed yesterday, the SEC alleges that the Portuguese companies – operating under the name Wings Network – claimed to run a multi-level marketing company that offered digital and mobile solutions to customers, including apps and cloud storage. However, Wings Network’s revenues actually came solely from selling memberships to investors, not from the sale of any products. The company relied upon the recruitment of new members, and commissions were paid to earlier investors with money received from later investors. The scheme raised at least $23.5 million from thousands of investors, including many in Brazilian and Dominican immigrant communities in Massachusetts.

According to the SEC’s complaint, the scheme was orchestrated by Wings Network officers Sergio Henrique Tanaka of São Paulo, Brazil and Davie, Fla., Carlos Luis da Silveira Barbosa of Lisbon, Portugal, and Claudio de Oliveira Pereira Campos of Lisbon, Portugal. After establishing a network of lead promoters, recruitment of new members surged through the use of social media such as Facebook and YouTube. The promoters used Facebook to publicize “business meetings” that took place at hotels and other locations in Connecticut, California, Florida, Massachusetts, Pennsylvania, Texas, Georgia, and Utah. The promoters also set up storefronts or “training centers” to lure investors into attending Wings Network presentations. For example, one promoter used a storefront in downtown Philadelphia to make presentations to prospective investors, and another promoter rented office space in Pompano Beach, Fla., and spread the word in the local Latino community to attract prospective investors to come in and hear presentations.

Several of the scheme’s promoters charged in the SEC’s complaint live in Marlborough, Mass., while others reside in Clinton, Mass., Sandy, Utah, Duluth, Ga., and Waco, Texas.

The SEC’s complaint alleges that the Portuguese entities and principals Tanaka, Barbosa and Campos violated antifraud provisions Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10-b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act, and that the promoter defendants violated Section 5(a) and 5(c) of the Securities Act.

The SEC’s investigation was conducted by Scott R. Stanley, Dawn Edick, John McCann, Deena Bernstein, and Amy Gwiazda of the SEC’s Boston Regional Office. The SEC’s litigation will be led by Ms. Bernstein.

The SEC appreciates the assistance of the Massachusetts Securities Division of the Massachusetts Secretary of the Commonwealth’s office, which previously filed its own action against Wings Network and other parties, as well as the Comissão do Mercado de Valores Mobiliários of Portugal and the Procuradoria-Geral da República of Portugal.

SEC Complaint

http://www.sec.gov/litigation/litreleases/2015/lr23209.htm

SEC Litigation Release: Permanent Injunctions Against Zhunrize, Inc.

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23164 / December 19, 2014

Securities and Exchange Commission v. Zhunrize, Inc., Civil Action No. 1:14-cv-3030-RWS, United States District Court, Northern District of Georgia

SEC Obtains Permanent Injunctions Against Zhunrize, Inc. and Jeff Pan

The Securities and Exchange Commission (“Commission”) announced today that the Honorable Richard W. Story, United States Judge for the Northern District of Georgia entered permanent injunctions against Zhunrize, Inc. (“Zhunrize”) and its CEO, Jeff Pan (“Pan”) (collectively “Defendants”). These judgments enjoin Defendants from future violations of Sections 5(a), (c) and 17(a) of the Securities Act of 1933 and Section 10b of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The judgments further provide that upon motion of the Commission, the Court will set disgorgement, prejudgment interest, and civil penalties. Defendants consented to the entry of these judgments without admitting or denying the allegations of the Commission’s complaint.

The Commission’s complaint, filed on August 22, 2014, alleges that Zhunrize is operating as a pyramid scheme because its commission structure is based on the continual recruitment of new members, with the most lucrative returns dependent on the downline recruitment of other members through store sales irrespective of any product sales. According to the complaint, Zhunrize has taken in approximately $105 million from approximately 77,000 investors since 2012.

The Commission’s complaint further alleges that in its promotional materials, Zhunrize touts the ability to earn commissions from the sale of products, both through the owner’s store and through downstream owners’ stores. For example, a Zhunrize promotional video differentiates Zhunrize from other on-line multi-level marketing plans, claiming that Zhunrize has “sustainability.” According to the video, the Zhunrize “model will sustain itself because we will have millions more customers than distributors.” Later, the narrator in the video claims “we have the Vendor Relationships, the Logistics, the Payment Gateways to reach millions of new customers each month.” The Commission’s complaint also alleges that Zhunrize does not disclose, however, that to date substantially all of its revenue has comes from the sale of memberships (referred to as stores) and the corresponding monthly internet hosting fees associated with operating those stores, rather than the sale of products. Indeed, Pan testified that the company currently derives 80-90% of its revenue from selling online stores and the monthly internet hosting fees for them, as opposed to actual products from these stores. Thus, contrary to the representations to potential investors, Zhunrize is actually a fraudulent pyramid scheme.

See also L.R.-23091

 

http://www.sec.gov/litigation/litreleases/2014/lr23164.htm

SEC Charges India-Based HYIP Scheme

11/12/2014 12:15 PM EST

The Securities and Exchange Commission today announced charges against two India-based operators of an alleged high-yield investment scheme seeking to exploit investors through pervasive social media pitches on Facebook, YouTube, and Twitter.

The SEC’s Enforcement Division alleges that Pankaj Srivastava and Nataraj Kavuri offered “guaranteed” daily profits as they anonymously solicited investments for their purported investment management company called Profits Paradise.  They invited investors to deposit funds that supposedly would be pooled with money from other investors and traded on foreign exchanges as well as in stocks and commodities.  They created a Profits Paradise website and related social media sites to describe the profits as “huge,” “lucrative,” and “handsome,” and they characterized the risk as “minimal.”

The SEC’s Enforcement Division alleges that the guaranteed returns were false, and that the investments being offered bore the hallmark of a fraudulent high-yield investment program.  Srivastava and Kavuri attempted to conceal their identities by supplying a fictitious name and contact information when registering Profits Paradise’s website address.  They also communicated under the fake names of “Paul Allen” and “Nathan Jones.”  After the SEC began its investigation into the investment offering, the Profits Paradise website was discontinued.

“Srivastava and Kavuri used excessive secrecy in their effort to swindle investors through social media outreach and a website that attracted as many as 4,000 visitors per day,” said Stephen Cohen, Associate Director of the SEC’s Division of Enforcement.  “Our investigation stopped the constant solicitations once the website disappeared, and successfully tracked down the identities of the perpetrators behind those fraudulent solicitations.”

According to the SEC’s order instituting administrative proceedings, Srivastava and Kavuri used the Profits Paradise website and YouTube videos to detail three investment plans with terms of 120 business days.  The first plan purportedly yielded daily interest of 1.5 percent on investments of $10 to $749.  The second plan purportedly yielded 1.75 percent on investments of $750 to $3,499.  And the third plan purportedly yielded 2 percent on investments of $3,500 and above.  Postings on Profit Paradise’s Facebook page promised investors they could “Enjoy Hassle Free Income” and advertised a “5% Referral Commission.”  The scheme also utilized a Profits Paradise Twitter account to steer potential investors to the Profits Paradise website, and Srivastava and Kavuri created a Google Plus page to promote the investment opportunity.

The SEC’s Enforcement Division alleges that Srivastava and Kavuri violated Sections 17(a)(1) and (3) of the Securities Act of 1933, and will litigate the matter before an administrative law judge.

The SEC’s investigation was conducted by Carolyn Kurr and Daniel Rubenstein, and the case was supervised by C. Joshua Felker.  The SEC’s litigation will be led by Kenneth Donnelly.  The SEC appreciates the assistance of the Securities and Exchange Board of India as well as the Autorité des Marchés Financiers in Quebec, the Ontario Securities Commission, and the Securities and Futures Commission in Hong Kong.

The SEC today updated an investor alert educating investors about how social media may be used to promote so-called high-yield investment programs and other fraudulent investment schemes.

“We urge investors to exercise extreme caution if they are approached to invest in a website promising incredible returns with minimal or no risk.  So-called high-yield investment programs are often frauds,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.

Zeek Rewards: US Attorney Press Release, Paul Burks Indicted!!!

ZeekRewards President Indicted On Federal

Charges For Operating $850 Million Internet

Ponzi Scheme

FOR IMMEDIATE RELEASE
October 24, 2014
United States Attorney Anne M. Tompkins Western District of North Carolina

CHARLOTTE, N.C. – The president of ZeekRewards, Paul Burks, has been indicted on federal charges for operating an Internet Ponzi scheme that took in more than $850 million dollars, announced Anne M. Tompkins, U.S. Attorney for the Western District of North Carolina. The criminal indictment was returned today by a federal grand jury sitting in Charlotte, charging Burks, 67, of Lexington, N.C., with wire and mail fraud conspiracy, wire and mail fraud, and tax fraud conspiracy.

Russell F. Nelson, 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 Tompkins in making today’s announcement.

According to allegations contained in the indictment, 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”). The indictment alleges that Burks and his conspirators induced 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. Indeed, the indictment alleges that Burks and others claimed, at one point, that investors would be guaranteed a 125% return on their investment.

The indictment alleges that 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. The indictment alleges that Burks and his conspirators did not keep books and records needed to calculate such daily figures, and that Burks simply made up the daily “profit” numbers. The indictment further alleges that, 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 indictment alleges that the conspirators also used a number of ways to promote Zeek to current and potential investors. For example, according to the indictment, 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. The indictment further alleges that Burks also organized and attended “Red Carpet Events,” where victim investors came to hear details of the scheme in person. During these events, according to the indictment, Burks and his conspirators made false representations about the massive retail profits generated by Zeek. The conspirators 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.

The indictment alleges that as the Ponzi scheme grew in size and scope, it began to unravel as the outstanding liability resulting from the bogus 125% return on investment continued to rise beyond control. According to the indictment, by August 2012, the conspirators fraudulently represented to the collective victims that their investments were worth approximately $2.8 billion, but had no accurate books and records to even determine how much cash on hand was available to pay such liability. According to the indictment, by August 17, 2012, Burks and his conspirators had only $320 million (or approximately 11% of $2.8 billion) available to pay out investors. The indictment alleges that over the course of the scheme, Burks diverted approximately $10.1 million to himself.

Burks is also charged with tax fraud conspiracy for failing to file corporate tax returns or to make corporate tax payments for his companies, among other things. In addition, the indictment alleges, 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.

The court has issued a summons against Burks and he is expected to appear in federal court for his initial appearance in the coming days. 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.

The details contained in this indictment are allegations. The defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law.

Two of Burks’ 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 await sentencing.

In making today’s announcement, U.S. Attorney Tompkins 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, Corey Ellis and Mark T. Odulio 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: www.justice.gov/usao/ncw/ncwvwa.html.

SEC Press Release, October 16, 2014

SEC’s FY 2014 Enforcement Actions Span Securities Industry and Include First-Ever Cases

New Investigative Approaches and Innovative Use of Data and Analytical Tools Help Drive Successful Enforcement Year

FOR IMMEDIATE RELEASE
2014-230

Washington D.C., Oct. 16, 2014 —The Securities and Exchange Commission today announced that in fiscal year 2014, new investigative approaches and the innovative use of data and analytical tools contributed to a very strong year for enforcement marked by cases that spanned the securities industry.

In the fiscal year that ended in September, the SEC filed a record 755 enforcement actions covering a wide range of misconduct, and obtained orders totaling $4.16 billion in disgorgement and penalties, according to preliminary figures.  In FY 2013, the Commission filed 686 enforcement actions and obtained orders totaling $3.4 billion in disgorgement and penalties.  In FY 2012, the Commission filed 734 enforcement actions and obtained orders totaling $3.1 billion in disgorgement and penalties.

The agency’s enforcement actions also included a number of first-ever cases, including actions  involving the market access rule, the “pay-to-play” rule for investment advisers, an emergency action to halt a municipal bond offering, and an action for whistleblower retaliation.

“Aggressive enforcement against wrongdoers who harm investors and threaten our financial markets remains a top priority, and we brought and will continue to bring creative and important enforcement actions across a broad range of the securities markets,” said SEC Chair Mary Jo White.  “The innovative use of technology – enhanced use of data and quantitative analysis – was instrumental in detecting misconduct and contributed to the Enforcement Division’s success in bringing quality actions that resulted in stiff monetary sanctions.”

“Time and again this past year, the Division’s staff applied its tremendous energy and talent, uncovered misconduct, and held accountable those who were responsible for wrongdoing,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement.  “I am proud of our excellent record of success and look forward to another year filled with high-impact enforcement actions.”

In addition to the first-ever cases, Chair White noted that the Municipalities Continuing Disclosure Cooperation (MCDC) Initiative was an important effort that began in the last fiscal year.  The SEC reached a settlement with a California school district for charges of misleading bond investors, making it the first settlement under the initiative targeting municipal disclosure.

Director Ceresney added that, going forward, the Enforcement Division will continue to bring its resources to bear across the entire spectrum of the financial industry, from complex accounting fraud and market structure cases, to investment adviser and municipal securities cases, microcap fraud, insider trading, and cases against gatekeepers.

SEC Enforcement in Fiscal Year 2014

Combatting Financial Fraud and Enhancing Issuer Disclosure

To read the full Press Release, click here.