CHARLOTTE, N.C. U.S. Attorney Jill Westmoreland Rose announced today that U.S. District Court Judge Max O. Cogburn, Jr. sentenced the former CEO of ZeekRewards to 176 months in prison for operating a $900 million Internet Ponzi scheme. Paul Burks, 70, of Lexington, N.C. was also ordered to serve three years of supervised release and to pay $244,000,000 as restitution. A federal jury convicted Burks in July 2016 of wire and mail fraud conspiracy, wire and mail fraud, and tax fraud conspiracy following a three-week trial.
Michael Rolin, Special Agent in Charge of the United States Secret Service, Charlotte Field Division and Thomas J. Holloman III, Special Agent in Charge of the Internal Revenue Service, Criminal Investigation Division (IRS-CI) join U.S. Attorney Rose in making todays announcement.
According to filed court documents, evidence introduced at Burks trial and todays sentencing hearing:
From January 2010 through August 2012, Paul Burks was the owner of Rex Venture Group, LLC (RVG), through which he owned and operated Zeekler, a sham Internet-based penny auction company, and its purported advertising division, ZeekRewards (collectively Zeek). Burks and his conspirators induced more than 900,000 victims including over 1,500 victims in the Charlotte area to invest in their fraudulent scheme, by falsely representing that Zeekler was generating massive retail profits from its penny auctions, and that the public could share in such profits through investment in ZeekRewards. Burks and his conspirators, including Zeeks former Chief Operating Officer Dawn Wright Olivares and her step-son and Zeeks Senior Technology Officer Daniel C. Olivares, claimed at one point that investors would be guaranteed a 125% return on their investment.
Burks and his conspirators represented that victim-investors in ZeekRewards could participate in the Retail Profit Pool (RPP), which supposedly allowed victims collectively to share 50% of Zeeks daily net profits. Burks and his conspirators did not keep books and records needed to calculate such daily figures. Instead, Burks simply made up the
daily profit numbers. Contrary to the conspirators claims, the true revenue from the
scheme did not come from the penny auctions massive profits. Instead, approximately
98% of all incoming funds came from victim-investors, which were then used to make
Ponzi-style payments to earlier victim investors.
In addition to promising massive returns on investments, Burks and his conspirators
used a number of ways to promote Zeek to current and potential investors. For example,
the conspirators hosted weekly conference calls and leadership calls, where participants
could call in listen to Burks and others make false representations intended to
encourage victim-investors to continue to invest money and to recruit others to invest in
Zeek. Burks also organized and attended Red Carpet Events, where victim investors
came to hear details of the scheme in person. During these events, Burks and his
conspirators made false representations about the massive retail profits generated by
Zeek. They also used electronic and print media, including websites, emails and
journals, to make false and misleading statements about the success of Zeekler to recruit
victim investors.
As the Ponzi scheme grew in size and scope it became unsustainable and it eventually
began to unravel as the outstanding liability resulting from the bogus 125% return on
investment continued to rise beyond control. By August 2012, Burks and his
conspirators fraudulently represented to the collective victims that their investments
were worth nearly $3 billion, but had no accurate books and records to even determine
how much cash on hand was available to pay such liability. Contrary to representations
made to victim investors, at that time, Burks and his conspirators had only $340 million
available to pay out investors. Over the course of the scheme, Burks diverted
approximately $10.1 million to himself.
Burks also failed to file corporate tax returns or to make corporate tax payments for his
companies, among other things. In addition, for tax year 2011, Burks issued fraudulent
IRS Forms 1099s, causing victim-investors to file inaccurate tax returns for phantom
income they never actually received.
At sentencing, Judge Cogburn stated that for the defendants scheme to work would
have required a miracle on the order of the loaves and fishes. Judge Cogburn stated
that a significant sentence was necessary to promote respect for the law, provide just
punishment, and also deter others considering committing fraud. Judge Cogburn
further noted that the scheme was almost breathtaking and emphasized that the
defendant had time to stop it.
Burks will be ordered to report to the Federal Bureau of Prisons to begin serving his
sentence upon designation of a federal facility. All federal sentences are served without
the possibility of parole.
Burks co-conspirators, Dawn Wright Olivares, Zeeks Chief Operating Officer, and her step-son and Zeeks Senior Technology Officer, Daniel C. Olivares, were previously sentenced to 90 and 24 months in prison and three years of supervised release, respectively, for their involvement in the scheme.
In making todays announcement, U.S. Attorney Rose thanked the U.S. Secret Service and IRS-CI for investigating the case, and the U.S. Securities & Exchange Commission, Division of Enforcement for its assistance with the investigation.
The prosecution is handled by Assistant United States Attorneys Jenny Grus Sugar and Corey Ellis of the U.S. Attorneys Office in Charlotte.
--DOJ Western District of North Carolina
Source: U.S. Secret Service