Those caught up in Ponzi scheme detail loss

Published 12:00 am Thursday, August 23, 2012

By Nathan Hardin
nhardin@salisburypost.com
LEXINGTON — One person caught up in the alleged $600 million Ponzi scheme invested hours and a $1,000 bid buy-in during his five months with ZeekRewards. And he signed up dozens of friends.
But after the Securities and Exchange Commission shut down ZeekRewards last Thursday, Robert was thinking of another person.
“He was a very, very poor guy and he had scraped $250 up to try and raise his handicapped kid,” said Robert, who agreed to be interviewed by a Post reporter if his last name wasn’t used. “That sticks in my mind.”
That man, Robert said, is one of about a million people believed to have been involved in the scheme based in Lexington.
“Having a handicapped kid and trying to better his life, and (he) ended up losing everything he probably had,” Robert said.
In an SEC complaint filed in U.S. District Court in Charlotte on Aug. 17, the alleged Ponzi scheme was “teetering on the verge of collapse.” The website brought in $162 million in July, but paid out $160 million, the complaint said.
Online marketer Paul Burks, of Lexington, and his company, Red Venture Group, were behind the website, authorities said.
Federal securities regulators have frozen the company’s assets.
Burks agreed to pay a $4 million penalty and relinquish his interest in the company. He agreed to settle the SEC’s fraud charges against him, a press release said, without admitting or denying the allegations.
On Wednesday, an attorney appointed by a federal judge to manage the seized assets of the website set up a new web page to communicate with victims in the alleged fraud.
Kenneth Bell, the court-appointed receiver, is asking those who invested in ZeekRewards.com to go to www.zeekrewardsreceivership.com for more information or to e-mail him at info@zeekrewardsreceivership. com.
Bell told the Associated Press he is working to seize about $225 million in assets believed to be held in foreign and domestic financial institutions.
Robert said he knew of hundreds of people who were involved in the alleged fraud.
He signed up dozens for the website, many of them from Rowan County.
His mother, who is from Salisbury, and his son also joined.
Robert said he received no money from the website in return for his $1,000 buy in, but was due three checks later this month.
He said he has not been contacted by authorities.
For many “profit shareholders,” Robert said, they learned of the fraud claims from media reports.
The reaction was immediate, he said.
“A lot of people were very sick and very mad that they had lost all this money,” Robert said.
One woman he knew was seen leaving the headquarters that day in tears.
Because the bid purchase had to be bought with a cashier’s check or money order, many people borrowed money.
“I personally know a guy who did a mortgage on his house and put $10,000 on his house,” Robert said.
“Now he’s paying the bank back.”
Robert said he met the man who lost $250 at a presentation for the penny auction website, the foundation of ZeekRewards.
Presentations were always given in someone’s home and invitees were notified only by word of mouth.
The website was set up to allow an initial bid purchase of $10 to $10,000, Robert said.
As an example, Robert said, the website showed a $1,000 bid buy-in as 1,000 VIP points. Investors were encouraged to wait until the VIP points reached 50,000 before changing the settings to allow payouts.
Until then, the points were accumulated by recruiting investors and by selling the purchased bids.
But several things have changed over the last five months, Robert said.
When he joined March 10, cash was accepted.
A few days after that, he said, they began restricting money tenders, requiring cashier’s checks or money orders.
The change didn’t slow down potential investors.
“There were hundreds of people standing outside of this place to put their bid money in,” Robert said.
After a month, the organization set up a drop box to speed up the transaction.
Those that joined were required to take a compliance test. It told potential buyers to call themselves “profit shareholders,” not “investors,” Robert said.
“There were strict compliance guidelines and they made everybody take this compliance test,” he said. “It’s disheartening to find that they weren’t in compliance themselves.”
Part of the legitimization of the business, Robert said, was that a security guard was hired full-time for the business, giving the headquarters a bank-like atmosphere.
“We all assumed this was a legal business, because there was an officer working there,” he said.
After a week, Robert said, the feeling of disappointment hasn’t left Lexington residents.
“Everybody in town is in disbelief,” he said. “I’ve talked to several people that continually rode by the building.”
If you lost money
Anyone who invested in ZeekRewards, an alleged online Ponzi scam based out of Lexington, is asked to go to www.zeekrewardsreceivership.com for more information or contact attorney Kenneth Bell at info@zeekrewardsreceivership.com
The Associated Press contributed to this report. 

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