Breaking News
More () »

Zeek Rewards and Zeekler.com shut down

Federal regulators announced fraud charges Friday against a company they said was operating a $600 million Internet Ponzi scheme “on the verge of collapse...
Rex Venture Group Closed

NEW YORK (CNNMoney) — Federal regulators announced fraud charges Friday against a company they said was operating a $600 million Internet Ponzi scheme “on the verge of collapse.”

The Securities and Exchange Commission accused ZeekRewards.com, its parent company, Rex Venture Group, and Rex Venture head Paul Burks of luring more than 1 million investors worldwide into the scheme, which began in early 2011.

ZeekRewards is a companion to the penny auction site Zeekler.com. Visitors to the the ZeekRewards site were told that by paying subscription fees and becoming “affiliates,” they could share in the company’s profits.

In fact, the SEC said, the payouts the firm made came from the funds of new investors, “in classic Ponzi scheme fashion.”

“The obligations to investors drastically exceed the company’s cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors,” the SEC’s Stephen Cohen said in a written statement.

The SEC said it has frozen the roughly $225 million in investor funds that remain in the company’s bank accounts. So far, the agency said, ZeekRewards has paid out some $375 million to investors, while Burks allegedly siphoned off millions for himself in the process.

Burks has agreed to settle the SEC case without admitting or denying wrongdoing, paying a $4 million penalty and forfeiting his stake in the firm.

The SEC can only pursue civil charges. Burks could still face further charges from subsequent criminal investigations.

Lawyers for Burks and Rex Venture did not immediately return requests for comment.

“Penny auctions” are a controversial kind of online sale in which prospective buyers compete over a set period of time with bids that increase by increments of one cent.

Participants pay a separate, non-refundable fee for each bid they make. An expensive item like an iPad might therefore sell for a seemingly unbelievable list price of $30, even though participants in the auction paid many times more than that in total to place their bids.

Original story posted 12:05 p.m. Friday, August 17, 2012:

LEXINGTON, N.C. — The company behind the penny auction website Zeekler.com and Zeek Rewards has closed its headquarters in Lexington.

Three signs posted outside the headquarters of Rex Venture Group at 803 West Center St. indicate the building will remain closed for the rest of the week.  The signs also instruct visitors to check the company’s websites for more information.

As of noon Friday, both Zeekler.com and ZeekRewards.com displayed the same message stating: “Zeek Rewards is currently unavailable. More information will be available shortly on this website.”

The signs were posted on the windows of the building around 4 p.m. Thursday.  The websites themselves began featuring the notices around 9 p.m. Wednesday.

A spokesperson with the Better Business Bureau said their office began receiving complaints concerning the company about one year ago.

At least 39 complaints have been filed regarding the investment aspect of Zeekler, however there have been more than 20,000 inquires filed against the company within the past 30 days alone, the spokesperson said.

Most of the complaints have appeared in recent days, the spokesperson added.

The spokesperson said those with money tied up in Zeekler may have reason to be concerned, but he could not elaborate further.

According to The-Dispatch of Lexington, the North Carolina Attorney General’s has made a civil demand for Rex Venture Group’s documents.

Officials told the paper they have not shut the company down.

The-Dispatch reports dozens of complaints and inquiries have been filed through the Attorney General’s office since February 2012.

A man who did not wish to be identified but told paper he was speaking on behalf of Zeek said the closure is necessary so the company could “answer inquiries from the Attorney General, made in the form of a Civil Investigative Demand.”

A CID is an administrative subpoena issued when the Attorney General suspects an individual or organization may have information relevant to an ongoing investigation.

On ZeekRewardsNews.com, the company stated it was canceling its ‘Red Carpet Wednesday’ event. No further information was provided in the notice other than to continue searching for updates on Zeek’s websites.

The company announced Monday on ZeekRewards.com that there would be no training, recruitment or leadership calls in the coming days “while planning is going on.”

While rooted in its penny auction website, Zeek expanded in the past year by allowing users to “buy in” through an “affiliates program,” The-Dispatch reports.  Online reports indicate there are more than 700,000 affiliates using Zeek Rewards, however company officials gave the paper a lower estimate of more than 200,000.