American securities regulators have filed fraud charges and an emergency order to freeze the assets of a North Carolina company officials say operated a $600 million Ponzi scheme that is on the verge of collapse. About 20,000 Israelis reportedly signed up with the website, which featured an Israeli Hebrew-language version.
The action by the U.S. Securities and Exchange Commission Friday is intended to help investors recoup money and avoid devastating losses. Online marketer Paul Burks is accused in a federal complaint of raising money from more than 1 million customers worldwide through ZeekRewards.com, a website that had been in operation less than two years. The Associated Press could not reach Burks for comment Friday and his website has been taken down.
ZeekRewards customers were offered several ways to earn money through the site, including buying unregistered investment contracts that promised a share the company's profits through reward points that could be traded for cash payouts. One Tel Aviv resident, Dor Zigdon Lax, 28, said he had heard about the site from his mother, who had thought about investing there herself. "I searched the Internet," he said, "and came to the conclusion that it was a Ponzi scheme."
Zigdon Lax said he met several months ago with company representatives in Israel who said they had about 20,000 Israeli Internet customers. There are several websites in Israel offering similar approaches.
The ZeekRewards site featured the chance to purchase products at auction. The procedure for investing in the site was complicated, involving an initial deposit and subsequent involvement in the bidding for various products, such as an iPad tablet computer for which the initial price was one cent and every participant would have the opportunity to raise the bid in increments of one cent.
The final successful bidder had the opportunity to purchase the product, but a parallel site under the same ownership gave individuals the opportunity to promote business on the auction site and to invest tens of thousands of dollars in a fund that would purportedly pay returns based on the sales volume on the auction site. ZeekRewards was said to have claimed that investors' average daily return was one and a half percent. Investors were allowed to withdraw their profits on a daily basis, but not their initial investment.
Zigdon Lax, who said the site required subscription fees of $20 to $100 a month from investors, recounted the meeting he had with a company representative here. He said he questioned what appeared to him to be a plan in which the profits did not come from the sales of the merchandise. "I made some calculations, explained what a Ponzi scheme was to him and why I think it's a scam, and now I'm sure of it after what has been reported."
Clifton Jolley, a Texas-based communications consultant representing the ZeekRewards' parent company, Rex Venture Group, said Burks had agreed to settle the SEC charges but that he has neither admitted nor denied the allegations against him. Jolley said Burks will cooperate with American federal officials and a court-appointed receiver. However, federal investigators say claims the company was extremely profitable were false.
"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," said Stephen Cohen, an associate director of the SEC's enforcement division. "ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing. In reality, their cash was just going to the earlier investor."
