Paul R. Burks of Lexington, N.C., his firm ZeekRewards.com and Rex Venture Group LLC have agreed to SEC sanctions, including a $4 million fine, for raising more than $600 million from more than a million investors through a Ponzi scheme, the SEC announced today.
The SEC alleges Burks solicited investors through the Internet and other means to participate in ZeekRewards, which involved purchasing securities in the form of investment contracts through several entities, two of which were known as the "Retail Profit Pool" and the "Matrix," neither of which was registered with the SEC as required by federal securities laws. Burks was offering penny auctions through these affiliates.
Investors were promised a portion of the company's net profits, as high as 1.5% per day, which "fraudulently conveyed the false impression that the company was extremely profitable," the SEC says. In fact, the profits were paid from funds received from new investors.
The SEC complaint also says the "scheme was teetering on collapse with investor funds at risk of dissipation." The scheme in July brought in $162 million and paid out $160 million. "If customers had continued increasingly to elect to receive cash payouts rather than reinvest their money ... ZeekRewards' cash outflows would have quickly exceeded its total revenue," the SEC says.
The SEC alleges the defendants sold securities in violation of the registration and antifraud provisions of federal securities law.
The defendants have agreed to a permanent injunction against future violations of registration and antifraud provisions. Burks has agreed to relinquish interest in the company and to pay a $4 million civil penalty.
The assets of the company have been frozen and a receiver appointed. According to the SEC, ZeekRewards holds approximately $225 million in investor funds in 15 foreign and domestic financial institutions. The receiver has been assigned to distribute the remaining assets to the investors.
The receiver has established the Web site http://www.zeekrewardsreceivership.com for communicating with investors and can be reached at firstname.lastname@example.org.