$600 Million Ponzi Scheme Halted by SEC

The SEC announce on August 17th that it has been able to stop a $600 million ponzi and pyramid scheme, being perpetrated by Paul Burks, who was the sole owner of Rex Venture Group LLC. The scheme was being perpetrated via a company owned by Rex Ventures called Zeekrewards.com. According to the filing by the SEC, allegedly one million people bought into the scheme, which had so far raised $600 million since January 2011. Furthermore, the scheme had paid out approximately $375 million to investors, while currently holding $225 million in 15 accounts which the SEC has now frozen.

The scheme operated in the typical fashion, it offered users of the website the opportunity to purchase investments which the company claimed would provide large returns by sharing up to 50% percent of daily net profits with the investors who were deemed as “qualified affiliates”. These investment were not registered with the SEC, and were composed primarily of the “Retail Profit Pool” and “Matrix”. Each one encouraged the investors to retain their money in the program as opposed to cashing out, ensuring the continuing flow of money into the funds.

The scheme created the illusion of a highly profitable company who had a business model which perpetuated excess profits which they could share, but the reality was that the company wholly survived as a result of the investments done. According to the filing which the SEC submitted to the courts, they estimate that 98% of the so called net profits which were being paid to investors came from funds generated by new investors. The situation for the website was dire, as the scheme was about to fail due to the large number of people who were cashing out, in July the it allegedly brought in $162 million, while paying out $160 million. If they would of continue in this trajectory, they would be facing a situation in which their payments would of exceeded their income, leading to failure.

The SEC has been able to freeze the accounts to prevent further fraudulent activity to occur. Furthermore, they have been able to make Paul Burks to” agree to relinquish his interest in the company and its assets plus pay a $4 million penalty.” for the funds which he personally siphoned from the company. A receiver has been appointed by the courts to manage and distribute the remains of the funds in an effort to ensure the least possible damage is done to all the people who were defrauded.

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