ZeekRewards: A $600 Million Ponzi Scheme Born in a N.C. Town

Zeekler Ponzi scheme office
(AP Photo/Chuck Burton)

LEXINGTON, N.C. -- In the hardware store on South Main Street, the owner pulled Caron Myers aside to tell her about the best thing to happen in years to this once-thriving furniture and textile town.

Had she heard about the online company ZeekRewards? For a small investment, she could make a fortune. He had invested. So had his grandsons. And so were more and more people in Lexington, including doctors, lawyers and accountants.

Skeptical at first, Myers drove a few blocks to the company's one-story, red-brick office and spotted a line of people circling the building. She was sold, and plunked down several thousand dollars. But months later, Myers, like hundreds of thousands of others, discovered the truth: ZeekRewards was a scam.

"I was duped," Meyer said. "We trusted this man. The community is still in shock."

Authorities say owner Paul Burks was the mastermind of a $600 million Ponzi scheme -- one of the biggest in U.S. history -- that attracted 1 million investors, including nearly 50,000 in North Carolina. Many were recruited by friends and family in Lexington, a quintessential small town where neighbors look out for each other.

But what investors didn't know was that regulators had received nearly a dozen complaints about ZeekRewards and the related site Zeekler.com, but failed to take action for months, leaving the company free to recruit tens of thousands of new victims.

The Securities and Exchange Commission, which closed the operation Aug. 17, said Burks was selling securities without a license. The Ponzi scheme was using money from new investors to pay the earlier ones.

Burks has agreed to pay a $4 million penalty and cooperate with a federal court-appointed receiver trying to recover hundreds of millions of dollars.

Investigators say Burks, a former nursing-home magician, siphoned millions for his personal use. But he has not been charged.

In his first public comments, Burks told The Associated Press he couldn't discuss details because of lawsuits by victims trying to recoup money.

"Everything will come out in time," said Burks, 66, standing in the doorway of his home.

Asked if he had anything to say to victims, he shook his head.

"I never told anyone to invest more money than they could afford," Burks snapped. "I didn't tell them to do that. Never."

He said if they lost money, "it's their fault. Not mine. Don't blame me."

But Cal Cunningham, a former prosecutor representing investors in a lawsuit, slammed Burks -- and regulators for taking so long to act.

"It's why we need a full hearing on what happened in a court of law -- whether that be our civil case or a criminal proceeding. A lot of people were hurt," he said.

Mixing Penny Auction Action With Multilevel Marketing

Burks started Zeekler in early 2010 as an online penny auction site. His business experience included nearly four decades in multilevel marketing programs -- such as Amway -- including failed attempts to launch similar businesses of his own.

In penny auctions, consumers compete to pay pennies on the dollar for name brand products such as iPads. Each bid costs as much as $1, so participating can become expensive and the sites can earn nice profits when multiple users bid against each other.
In January 2011, he incorporated aspects of multilevel marketing into the business when he launched ZeekRewards. The program offered a share of the penny auction's profits to people who invested money, promoted the company on other websites and recruited other participants. Under a complicated formula, investors were issued "profit points" that grew every day.

Investments were capped at $10,000, but people could invest on behalf of their spouses, children or other relatives. Some mortgaged homes to raise their investment.

At first, ZeekRewards complied when investors sought to cash out. And that became the best ad of all: happy investors with their checks in Facebook photos.

People who didn't trust the mail traveled long distances to drop off checks at the cramped office building where security guards allowed only seven inside at a time. Employees collected money and wrote out receipts at the office cluttered with dozens of plastic mail bins stuffed with check-filled envelopes. To withdraw money, investors filed an online request -- or called -- and then had to wait for a check.

By the end of 2011, it seemed like everybody in Lexington was talking about ZeekRewards. Many saw it as a way to make extra cash to pay bills or help family.

"No one was in it to get rich," said Mary Bell, a 75-year-old seamstress from Lexington who scraped together money to invest.
Zeekler ponzi scheme victims Chavez family
(AP Photo/Chuck Burton) Sarah Chavez (center), her son Bidal, and daughter Sarahi. Desperate to raise money for her daughter's cancer treatments, she invested in ZeekRewards, unaware that state officials already knew it was a scam.
Sarah Chavez wanted extra money for her daughter's frequent hospital visits for leukemia. Her husband worked in a factory, and they invested $7,000.

"It's hard to believe in something like that. But everyone told us it was a sure thing," she said.

Burks mostly kept to himself, and few locals knew anything about the quiet, balding man with thick glasses.

In the 1980s and early 1990s, the Shreveport, La., native toured nursing homes in the South as a magician with country singer David Houston. Burks moved to Lexington in the early 1990s because his wife was from the area.

In 2000, Burks ran for the state House as a Libertarian, but he collected only 330 votes.

Then he became a local celebrity.

Most afternoons, he ate lunch at the same downtown restaurant with an entourage of managers. Conference calls with investors were posted on YouTube. He produced glossy brochures touting the company.

"In addition to the mind-blowing savings, you can create more wealth than you have ever thought possible with ZeekRewards' geometrically progressive matric compensation plan," the brochure said.

Burks also hired some of the industry's top attorneys and analysts to promote his company.

The publicity paid off. When the Association of Network Marketing Professionals held its annual convention in March 2012, it called ZeekRewards the model of legal compliance.

Authorities' Slow Response

But behind the scenes, there were troubling signs, according to documents, company emails and consumer complaints reviewed by the AP.

In early June, the state of Montana gave ZeekRewards the boot. Montana requires multilevel marketing companies to register. But ZeekRewards didn't submit any paperwork -- even after warnings, said Luke Hamilton, a spokesman for the attorney general's office.

"We started getting a lot of complaints," he said.

In August, a North Carolina employees' credit union warned customers not to invest in ZeekRewards because it was a "fraudulent company."

But regulators received complaints long before then.

In a Nov. 23, 2011, complaint filed with the North Carolina Attorney General's office, Wayne Tidderington of Florida called ZeekRewards an "illegal" Ponzi scheme. He said a relative had invested $8,000 and the company guaranteed a return of 125 percent every 90 days.

The attorney general's office can ask a judge to shut down a business because of deceptive trade practices. But it forwarded Tidderington's complaint to the secretary of state's office because it looked like it might involve securities. The secretary of state's office, however, declined to take action because it didn't believe it had the jurisdiction, spokeswoman Liz Proctor said.

The complaint died.

"I put it all together," Tidderington told the AP. "I gave them the roadmap. I said, 'Here's a snake. Here's the gun. Here's the bullets. Shoot the snake.' But they ignored me."

Over the next seven months, the attorney general's office received nearly a dozen more complaints.

But it wasn't until July 6 that it issued an order giving Burks until the end of the month to turn over all Zeek-related documents. He missed that deadline.

Kevin Anderson, senior deputy attorney general for consumer protection, insisted his agency correctly handled the case, saying his office receives thousands of complaints a year.

"We have to have more concrete evidence than a couple of consumer complaints before we go to court," he said.

The SEC received similar complaints during the same period, but the agency didn't begin its investigation until the summer.

SEC spokeswoman Christine D'Amico declined to comment on the investigation, except to say the agency took action "as soon as we believed we had sufficient evidence to obtain an emergency court order to halt the fraud."

Waiting for Answers

Months later, people in Lexington are wondering what's next.

Kenneth Bell, the court-appointed receiver, said ZeekRewards may have taken in $800 million. So far, he's recovered $312 million. Hundreds of millions were paid out to investors. Just how much is missing? He doesn't know.

Myers said the community is still recovering -- but the wounds are deep. People are wondering why investigators didn't act more quickly and why no one, including Burks, has been charged.

"There are thousands and thousands of victims who might not have lost a penny had the government intervened more quickly," she said.

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That's chicken feed compared to the 17 trillion ponzi scheme by congress, senate, president of this nation that hasr aped the citizens and all should be in prison forever.

October 26 2014 at 6:11 PM Report abuse rate up rate down Reply

I have this bean and jack said a pot of gold ...no i have this little green man who ,,,no this bird laided an egg that's ...no buy lottery ticket no..

GET A JOB that works .............yes How that obama care going for you
You wanted hoped and the change --- Just wait till 2015 when obama care kicks in and I hope you get that 15 per hour . then you lose your free housing -phone - food stamps -free health care -free child care .
It a win ---- burgers will cost 10 buck fine with me ...... I love it.
milk 8 dollars a gal --- meat 16 Dollars per pound gas $6.78.9 gal.

October 26 2014 at 6:27 AM Report abuse +1 rate up rate down Reply

Inflation is a Ponzi scheme,,, so is the Federal Reserve System which is a private bank which prints money out of thin air and loans to the US Government and charges interest on this printed money,,, The Big question is why does the US keep borrowing this money when the US can print its own money and not pay interest to the Fed?. Now that is something big which needs to be investigated.

October 24 2014 at 5:17 PM Report abuse rate up rate down Reply
1 reply to geoflying's comment

That's how the federal reserve ( investment bankers ) make their revenue by committing fraud, but all members of congress, senate continue to allow this to happen, why, they all get their kick-back to fill their personal bank accounts and the federal debt can never ever be paid as the crooks get richer and richer.

October 26 2014 at 6:16 PM Report abuse rate up rate down Reply

It is just basic investing sense to do your research. She saw a line out the door, so she gave them her money?!?.
This sounds mean, but if you don't take the time to do research then don't invest. People see quick money and they jump and they pay the price EVERYTIME. How many times has this happened?! Why are people so greedily dumb? If you don't want to be fleeced like a sheep; don't be a sheep.

April 08 2013 at 10:15 PM Report abuse rate up rate down Reply

BIGGEST PONZI SCAM REMAINS social security/MEDICARE as we are FORCED INTO IT and most likely WILL NEVER SEE THE RETURN on the amounts they GARNISHED-
hope by now ALL ARE AWARE that YOU WILL ALSO BE RIPPED OFF from your social security income for THEIR BS HEALTH INS commonly known as MEDICARE...never mind the copays on and on.

April 01 2013 at 12:06 PM Report abuse rate up rate down Reply

How many times will the people who are suppose to protect investors look the other way. We know that there are people out there promoting these schemes. Most recently Madoff, made off with a lot of people's money. If it sounds too good to be true, then it isn't, and one should be very cautious to invest with these fly by night companies. I feel bad for all concerned and hope every entity involved will roll up their sleeves to return as much money as possible. Some times not being well off, pays off.

April 01 2013 at 1:09 AM Report abuse rate up rate down Reply

Well there are much bigger money creating schemes out there. Inflation is the one you can find in the shadows...waiting to jump out and get you.

March 31 2013 at 10:01 AM Report abuse +1 rate up rate down Reply

these people who complain that the "government didn't act more quickly" are the same ones who vote against government regulation. You live by the sword.......

March 30 2013 at 11:10 PM Report abuse rate up rate down Reply

All and I mean ALL ponzi schemers should be put to death. The sooner they are in
hell the better!

March 30 2013 at 2:40 PM Report abuse rate up rate down Reply