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Friday, June 14, 2024 | Back issues
Courthouse News Service Courthouse News Service

ZeekRewards CEO Pleads Not Guilty to Scam

(CN) - A North Carolina man accused of being the mastermind of an $850 million Ponzi scheme pleaded not guilty Thursday to multiple federal charges of fraud and conspiracy.

Paul Burks, the founder and CEO of the ZeekRewards penny auction site, was arraigned before U.S. Magistrate Judge David Cayer at the federal courthouse in Charlotte. In late October, a grand jury indicted Burks on charges of wire, mail and tax fraud, and conspiracy.

Burks said nothing during his brief appearance in court. His plea was entered by his attorney, Noell Tin.

If convicted on all of the charges he faces, Burks, 67, faced 65 years in prison and a $1 million fine.

At the conclusion of the hearing, Judge Cayer released Burks on $25,000 bond. No trial date has yet been set.

Burks company and its Zeekler.com auction site was shut down by the U.S. Securities and Exchange Commission in August 2012, after the agency concluded it had sold $850 million in unregistered securities.

Prosecutors say Burkes and his conspirators ripped off as many as 1 million investors with promises of big returns and what ultimately turned out to be bogus investments.

Burks, who had been accused of pocketing as much as $10 million in investors' money, agreed to pay a $4 million penalty and cooperate with a court-appointed receiver Kenneth Bell.

Bell sued Burks in March in hopes of recovering ill-gotten gains and repay at least some of the losses to the alleged victims.

Two of the other defendants in that lawsuit, Dawn Wright Olivares, chief operating officer of the now defunct ZeekRewards.com, and Daniel Olivares, its senior technology officer, pleaded guilty on Feb. 5 to participating in the scheme.

They agreed to forfeit $11.4 million as part of a civil settlement agreement with the SEC.


"Although the specifics and the terminology of the ZeekRewards 'Compensation Plan' changed from time to time as Burks and other insiders tried to prolong and prop up the scheme, the two pillars of the plain for most Affiliates were always: (1) 'profit' sharing ... and (2) the multi-level marketing pyramid that paid Affiliates a 'commission' on the membership fees paid by recruiting 'downline' Affiliates," Bell said in the 40-page lawsuit.

"Affiliate" was the defendants' term for investors in the scheme.

As described in Bell's complaint, ZeekRewards' Affiliates' primary money making tool was the 'Compounder.' To participate in the Compounder, Affiliates purchased 'compounding' bids, which earned Affiliates one point for each bid they purchased from the company.

"As the inducement to purchase these 'compounding' bids, ZeekRewards told Affiliates that the company would give a portion of the company's daily earnings or profits (often claimed to be 50%) to point-holding Affiliates. The size of the daily 'profit sharing' payments each affiliate received through the Compounder was based upon the number of points the affiliate held in his or her account,' Bell said in the complaint.

"(T)o maintain the program for as long as possible and generate the most income, ZeekRewards actively discouraged Affiliates from requesting actual payment of all their profit awards in cash. Instead, Affiliates were encouraged to let their balances 'compound' and only take 20 percent or less of their 'earnings,'" Bell claimed.

The SEC determined that these so-called "earnings" were nonexistent, and that as much as 98 percent of ZeekRewards' revenue and payouts were derived from new investors becoming enmeshed in the scheme-a classic Ponzi scheme.

Following today's hearing, Burks attorney maintained his client "did not commit any crime."

"We look forward to presenting our case in court," Tin said.

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