Sunday, August 19, 2012

ZeekRewards aftermath: how much did my analysis get right?

For those who haven't heard the news, ZeekRewards had been shut down by the SEC as a huge $600 MILLION Ponzi scheme. 

I had been tracking the scam since April 2012 (and actually a bit before that), and I wrote this hub. 

The hub was apparently was so damaging to the scam, one of their consultants sent a bogus takedown notice to my host trying to get rid of it. He succeeded only for about 7 days. 

And while I am glad to have finally been "vindicated", this has been a learning opportunity as well. How much did I get right, and how much did I get wrong? Let's go through my own hub and analysis, and compare it with the SEC complaint, and see how close did I get without any of the SEC's resources. 

1: Introduction and History of Rex Venture Group, Zeekler, and ZeekRewards

Both SEC and I agree that Zeekler started in 2010 and ZeekRewards started in January 2011. This is public info. I have the info that Zeek didn't get NC auctioneer's license until early 2012, but that is not relevant to the SEC investigation. 

2: Is ZeekRewards paying out too much money?

I had predicted only tens of millions of VIP points. I was way too conservative. The SEC complaint said the VIP point total is close to three BILLION. I was off by factor of 100. 

3: Is ZeekRewards an investment?

As I stated, ZeekRewards is an investment based on the Howey Test, and that is indeed what SEC charged RVG with... multiple violations of the Securities Act. 

4. Is ZeekRewards a Ponzi scheme?

SEC does indeed contend that ZeekRewards is a Ponzi scheme, and an emergency asset freeze order was signed by a judge, and Paul Burks agreed to turn over all RVG assets to a court appointed receiver, plus cough up all 4 million that remained of his ill-gotten profits. 

So I was mostly right... 3.5 out of 4. And I was guilty of UNDERestimation. 

However, I had no idea that ZeekRewards is close to collapse. There are peripheral signs, like multiple additional revenue streams, like "mandatory video ad package", "mandatory compliance course", customer lead system, and so on. Those were picked up as warning signs, as a company that was profitable should not need to force members to cough up more money. However, I had no idea how close it was.  

The language and tone of the company also changed, demanding more "compliance" (i.e. bend over) than ever, and now with more threat than just "nice". 

Clearly, they know the end is near. What was surprising was how well the SEC was tracking the amount of cash Zeek has. Apparently, they have close cooperation with financial institutions around the world. SEC specifically thanked Canadian authorities, and Solid Trust Pay is based in Canada. SEC says that in July 2012 Zeek received 162 million but paid out 160 million. Money from new members are NOT sufficient to to offset the payout to existing members any more, esp. when more and more people request "cash out". 

What lessons to take away, as a purely amateur scambuster? 

1) A Ponzi can be a lot bigger than even I can imagine. I was apparently TOO conservative to the scope of the scam. 

2) When it looks too good to be true, it probably is

3) Instinctive reaction backed up by proper analysis and confirmed through multiple sources is the next best thing to truth. And don't let anyone tell you otherwise. 

So my personal predictions? 

I expect additional charges to be filed, by other agencies, against other company officials, and possible clawback lawsuits against top affiliates. 

I expect Paul Burks to sell out everybody else in the company

I expect we won't see this case wrapped up until 2016 or 2017, and only if delusional affiliates don't try to sue the Federal government in order to delay the restitution process (yes, it had happened before). 

I expect criminal charges to be filed. Somebody will go to jail. 

I expect the genre gets a close scrutiny, and the various upcoming launches of penny auctions gets delayed or downright cancelled. 


  1. Right on. I had a friend constantly trying to get me to jump on the zeekler bandwagon with him. Eventually he said I should sign up as "big skeptic" as my password. Clearly I did not sign up, and I hope your posts here and elsewhere will discourage those eager to join these ponzi schemes. Hat's off to you and oz and the rest. Cheers.

  2. Thank you for your reasonable and cogent analysis. I find it very strange, and a reflection of an odd combination of denial and stupidity, that some are actually planning to litigate with the SEC. This will only delay the resolution and partial reimbursement of those who lost funds. Greed and stupidity is a very bad combination.