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Recent SEC Releases

Entries in sec (29)

Tuesday
Nov202012

SEC: Secretive 'Trust' With World War II Ties That Promised 38% Annual Returns Was $15 Million Ponzi Scheme

The Securities and Exchange Commission ("SEC") instituted a civil enforcement action against a Florida man and a California woman, alleging that the investment opportunity promising 38% annual returns and requiring strict secrecy was, in reality, a Ponzi scheme that raised more than $15 million from unsuspecting investors.  Billy W. McClintock, 70, and Diane Alexander, also 70, were charged with multiple violations of federal securities laws in connection with the alleged scheme, which promised lucrative gains through a highly-secretive entity known as the "Trust".  The SEC is seeking injunctive relief, an asset freeze, disgorgement of all ill-gotten gains, and civil monetary penalties.

According to the SEC, McClintock was a resident of Bradenton, Florida, and had previously served time in prison due to a cocaine trafficking conviction.  McClintock and Alexander apparently shared a long-time friendship, and sometime before 2002, McClintock confided to Alexander that he was associated with a secretive investment club known as the "Trust".  Apparently, while on a trip to London, McClintock had happened upon a man named "John" who was a member of the Trust and disclosed to McClintock that he could lend money to the Trust and receive a 38% annual return.  The "Trust" was allegedly formed after World War II by several wealthy European families, with offices in Luxembourg and Zurich, and had the power to create money "through fractional banking and the sale of banking debentures"

The "Trust" was shrouded by heavy secrecy, with McClintock being told that the communication of any details about the trust to any third person, such as an attorney, certified financial accountant, or financial planner, would result in that person's permanent ban from participating in the Trust.  After hearing McClintock's story, Alexander accepted McClintock's offer to serve as United States Regional Director for the Trust, in addition to three other unnamed Regional Directors.  Along with McClintock - the 'United States National Director' - the two relayed the same story to potential investors, along with the promise of steady annual returns of 38%.  The two also appealed to investors' religious beliefs, telling them to "put your money in the Trust and your trust in God.” In total, approximately 220 investors contributed over $15 million to the "Trust".

However, contrary to their representations, there is no evidence that any secretive Trust ever existed, and neither Alexander nor McClintock ever sent any investor funds to any Trust.  Rather, according to the SEC, investor funds were simply pooled together in classic Ponzi scheme fashion, and the regular interest payments made to investors were in fact comprised of these commingled funds.  Additionally, investors were not told that, in return for referring investors to the "Trust", Alexander received a 'management' fee of 5%, which she also received for every investor that 'rolled over' their principal investment upon expiration. As the SEC stated, 

the Trust is a Ponzi scheme in which new investor funds, not Trust profits, pay the purported fees  and interest owed to earlier investors. 

Ironically, Alexander sought to convince investors to disregard the old agage that  'If it sounds too good to be true, it probably is,' claiming that it was simply 'a lie that came from the pit of hell.' 

A copy of the SEC complaint is here.

Tuesday
Aug212012

Another Day, Another Ponzi: SEC Busts $7 Million Puerto Rican Ponzi Scheme

Continuing its aggressive campaign to root out Ponzi schemes, the Securities and Exchange Commission ("SEC") announced the filing of civil fraud charges against a Puerto Rico man in what is alleged to be one of the largest Ponzi schemes to originate out of the U.S. territory.  Ricardo Bonilla Rojas ("Rojas") and his firm Shadai Yire ("SY") were charged with multiple violations of federal securities laws after taking in at least $7 million from investors primarily located in Puerto Rico.  The SEC is seeking disgorement of ill-gotten proceeds, injunctive relief, and civil monetary penalties.  Simultaneously with the SEC's announcement, the Department of Justice also announced the filing of criminal charges against Rojas.

Beginning no later than August 2005, the SEC alleged that Rojas and SY solicited investors, including Evangelical Christian groups and factory workers, for a "risk-free" investment that promised 15% to 50% annual returns derived from commodities trading.  Rojas told investors that he had a long history of successful returns in trading commodities, and touted SY as an international enterprise in the business of global private investments.  Besides personal solicitations, Rojas also engaged the services of sales agents who solicited potential investors on a commission basis.  From the beginning of the scheme until February 2009, Rojas and SY collected at least $7 million from investors based on these representations. 

In reality, the SEC claimed that Rojas began misappropriating investor funds as early as October 2005 - two months after the scheme started.  Additionally, Rojas alleged failed to invest any of the funds raised from investors, and instead sent out false account statements purporting to show continued growth in investor accounts.  Instead, at least $4 million was returned to investors in the form of fictitious trading profits and principal redemptions.  Additionally, Rojas used hundreds of thousands of dollars of investor funds for his personal use without the consent or knowledge of investors.  

It has been a busy week for the SEC.  In the past seven days, the SEC has (1) filed charges against a Utah man accusing him of operating a $27 million Ponzi scheme, (2) charged 2 Denver men with a $16 million Ponzi scheme, (3) charged a former college football coach with a $80 million Ponzi scheme, and (4) busted a $600 million multi-level marketing scheme called ZeekRewards.  Whether it represents a shift in department priorities remains to be known, but this recent enforcement spree is easily above average for the SEC.  

While the majority of victims are said to be located in Puerto Rico, investors were also located in the mainland U.S., including Florida, North Carolina, and New York.  

A copy of the SEC's complaint is here.

Monday
Aug202012

ZeekRewards Victims: What Happens Next


"“It's a process...We're going to try to gather as much money as we can and figure out who deserves what.”

Kenneth Bell, Court-appointed Receiver of ZeekRewards


The Securities and Exchange Commission ("SEC")'s shutdown of ZeekRewards last Friday left many of the estimated one million victims shocked and confused, with many still refusing to believe that they had fallen victim to one of the largest Ponzi schemes in history. With the SEC alleging that Zeek's cash reserves were far insufficent to cover the nearly 3 billion "profit points" accumulated by members, it will be up to the court-appointed receiver to begin the arduous task of trying to recover assets for the benefits of victims. The Receiver has already indicated that the process will likely "take a long time." A court-ordered asset freeze on the $225 million currently held by Zeek in various financial institutions ensures that victims can be assured of at least some recovery.

The establishment of a receivership is common in the wake of an exposed Ponzi scheme. Usually simultaneously with the filing of charges, the SEC also requests the appointment of a receiver. In this case, the SEC chose Kenneth Bell, a North Carolina attorney with law firm McGuireWoods who is experienced in white collar fraud. According to Lexington newspaper The Dispatch, Bell visited Zeek headquarters for the first time today. There, Bell likely took possession of investor files and office computers, which he will try to use to piece together to fully understand the scheme. Bell also announced that he will be establising a website, www.zeekrewardsreceivership.com, where he will communicate with all concerned parties. At the time this article was published, the website was not yet live.

Likely due to the staggering amount of victims, Bell also stated that communications with investors would be through email only, and provided this address for victims: info@ZeekRewardsReceivership.com. Before any distribution process can be established, it is likely that Bell will first provide the court with a report on his investigation and findings. This process will likely take weeks or months.

In addition to any funds recovered by the Receiver, both the SEC and Department of Justice ("DOJ") allow for any funds forfeited or paid as penalties to be returned to investors. In the context of an SEC proceeding, this is known as a "Fair Fund", while the DOJ process to return funds to victims is known as remission. For those familiar with the AdSurfDaily Ponzi scheme, which was similar to ZeekRewards in that it purported to pay investors daily returns in exchange for visiting websites daily, those investors received approximately $55 million in funds seized by the Department of Justice from foreign bank accounts.

After the Receiver completes his initial investigation, he will then begin the process of recovering assets for the benefits of victims. These efforts may include securing or disposing of property owned by Zeek and/or Burks. Additionally, there is also the possibility that the Receiver could employ the use of "clawback" lawsuits, which target those investors that withdrew funds in excess of their initial investment. This will especially be important in the context of Zeek, where those that invested early in the scheme and grew their "downline" affiliates likely received exponential returns exceeding their original investment. Mr. Bell said that it was still unclear as to whether clawback lawsuits were likely. He may also look to financial institutions or other third parties who were involved with Zeek that ignored or should have noticed "red flags" relating to the scheme.

In the near future, many will simply be waiting for word from the Receiver as to his initial findings. Some investors have already begun to secure legal representation as well. Kevin Thompson, a well-known attorney in the direct sales industry who operates themlmattorney.com, indicated that he had already been contacted by 2,000 victims seeking help whose losses ranged from $500 to $70,000. Many of these stories, according to Thompson, were "heartbreaking", and involved many victims who had cashed out their retirement accounts to invest in Zeek. Thompson estimated that there could potentially be up to 1.2 million victims.

The North Carolina Attorney General's ("NCAG") office has also warned Zeek's victims to be wary of "reload scams", which purport to "help them replace the income they were receiving from Zeek Rewards." Some of these programs even refer to themselves as the "Zeek rescue program." The NCAG urged investors to cut their losses rather than lose even more.

The Receivership website will be established at www.zeekrewardsreceivership.com. All investors seeking to contact the Receiver should email info@zeekrewardsreceivership.com.

A statement released by the Receiver this evening is here.

Friday
Aug172012

SEC Shuts Down Zeek Rewards, Alleges It Was $600 Million "Massive Ponzi Scheme" On Verge Of Collapse

"Unbeknownst to its investors, ZeekRewards is, in reality, a massive Ponzi and pyramid scheme. "

-SEC

The Securities and Exchange Commission ("SEC") announced late Friday that it had filed suit against ZeekRewards, alleging it operated a $600 million Ponzi scheme that had gained a cult-like following for its seemingly consistent and above-average returns through the operation of a penny auction website. The company has been the focus of fervent speculation as of late by many who questioned the legitimacy of its operations.  According to the SEC, the payouts by ZeekRewards had no relation to the company's "profits", and in fact, the operation was on the verge of collapse, as its total investor cash payouts in July were nearly even with July infusions of investor funds.  The SEC's complaint charges the company's founder, Paul R. Burks, as well as Rex Venture Group, which does business as ZeekRewards.  Both are charged with multiple violations of federal securities laws, including the unregistered offering and fraudulent sale of securities.  Additionally, the SEC is seeking injunctive relief, disgorgement of all ill-gotten gains, and civil monetary penalties.  The SEC also announced that Burks had agreed to settle the charges against him, without admitting or denying guilt, by relinquishing his interests and assets in the company and paying $4 million in the form of a civil penalty.

According to the complaint, Burks has operated through Rex Venture since 1997.  In 2010, he formed zeekler.com, which operated as a penny auction website offering participants the ability to place incremental bids on merchandise in one-cent increments.  Individuals were required to purchase "bids" in lots, usually at a cost of $.65 per bid, in order to participate in the auctions.  Burks launched ZeekRewards in January 2011 as an "affiliate advertising division" of Zeekler.  Participants were then solicited to become investors, or affiliates, in ZeekRewards in the form of investment contracts called the "Retail Profit Pool" and the "Matrix."  None of these investments were registered with the SEC or any state regulatory authorities.

The Retail Profit Pool promised investors the chance to earn lucrative daily returns of "up to 50% of the daily net profits" after completing a process that involved enrolling in a monthly subscription plan, soliciting new customers, selling or purchasing ten Zeeker.com "bids", and placing one free ad daily for Zeeker.com.  According to the ZeekRewards website, a daily commitment of "no more than five minutes per day" was required to share in daily profits.  The daily "award" was usually 1.5% of the individual's 'investment'.  Due to the compounding nature of these "Profit Points", as they were called, the cumulative amount of outstanding Profit Points now numbers nearly $3 billion.  Assuming a 1.5% daily "award", this would require daily cash outflows of $45 million should all investors seek to receive their "award" in cash.  

In addition to the Retail Profit Pool, investors could also participate in the "Matrix", which was a form of multi-level marketing that rewarded investors for each "downline" investor within that investor's "Matrix".  The Matrix consisted of a 2x5 pyramid, and each person added to an investor's Matrix qualified that investor to receive a bonus.  

While ZeekRewards represented to investors that the operation was extremely profitable, in reality, the company's revenues and payments to investors were derived solely from funds contributed by new investors - a classic hallmark of Ponzi schemes.  Thus, the scheme could only stay afloat so long as new investor contributions were sufficient to satisfy the amount of outflows.  According to the SEC, ZeekRewards had paid out nearly $375 million to investors to date, and currently holds roughly $225 million in various domestic banking institutions.  With only $225 million on hand, the company would quickly be unable to satisfy investor redemptions if it was forced to make daily payouts of $45 million, which is the daily cash "award" value of the approximately 3 billion outstanding Profit Points.  To prevent the funds' rapid depletion until a receiver is appointed, the SEC is seeking an emergency asset freeze. 

Burk, as principal of Rex Ventures and Zeek Rewards, is alleged to have withdrawn approximately $11 million from the operation, of which only $4 million remains.  

The company's headquarters in Lexington, North Carolina was shut down this morning.  Visitors to the company's website were informed that "Zeek Rewards is currently unavailable. More information will be available shortly on this website."

The North Carolina Attorney General's office has set up a hotline for concerned investors at (919) 716-6046.

A copy of the SEC's complaint is here.

Thursday
Aug162012

Hall of Fame College Football Coach Charged In $80 Million Ponzi Scheme

A former college football coach at the University of Georgia has been charged with operating a Ponzi scheme that took in more than $80 million from victims that included fellow coaches and former players. The Securities and Exchange Commission ("SEC") alleged in a complaint filed Thursday that Jim Donnan committed multiple violations of federal securities laws by soliciting investors for his liquidation business and promising exorbitant annual rates of return ranging from 50% to 380%.  According to the SEC, Donnan used little of the $80 million raised for authorized purposes, using the rest to operate one of the largest Ponzi schemes in Georgia history.  The SEC is seeking injunctive relief, disgorgement of all ill-gotten proceeds, and civil monetary penalties.

Donnan, along with Gregory Crabtree ("Crabtree"), operated GLC Limited ("GLC"), which was formed in 2004 and purported to be in the wholesale liquidation business.  Beginning in 2007, potential investors were told that GLC would purchase discontinued or damaged merchandise from major retailers at a discount, and then resell those goods at a substantial profit to other liquidators or discount retailers.  The merchandise ranged from out-of-season toys, patio furniture, or holiday decorations.  Investors were given the opportunity to "fund" specific deals, with GLC and the investor splitting the resulting "profits".  The deals, according to Donnan, offered interest rates of 13% to 40% which, when represented returns of 50% to 380% on an annualized basis.  Between August 2007 and October 2010, nearly 100 investors contributed approximately $80 million to the scheme.  

However, out of the $80 million raised from investors, slightly more than 10% was used to purchase merchandise for resale.  Of that merchandise, only $4.1 million was ever resold.  The remainder, or nearly $68 million, was used to make payments of purported interest and principal redemptions to investors.  Crabtree and Donnan also misappropriated millions of dollars of investor funds, with Crabtree taking approximately $1 million, and Donnan paying himself $7.4 million in "returns" on his original $5.8 million investment.  After GLC began missing interest payments, a group of investors obtained the appointment of a Restructuring Officer, who discovered the fraud and, in February 2011, caused GLC to file a voluntary bankruptcy petition.  Donnan also filed for personal bankruptcy following increasing claims from GLC victims.

Before his tenure as head football coach at the University of Georgia, Donnan was the head coach at Marshall University.  He lwas inducted into the College Football Hall of Fame, and later served as an ESPN analyst.  It was through these connections, alleged the SEC, that Donnan recruited scores of victims to GLC.  These victims included fellow football coaches Tommy Tuberville of Texas Tech, Frank Beamer of Virginia Tech, and former Dallas Cowboys coach Barry Switzer, as well as at least one former player who Donnan solicited based on his "fatherly-figure" stature.  

In its complaint, the SEC also singled out two of Donnan's children and a son-in-law for receiving large "returns" from the scheme, naming them as relief defendants in the complaint.  A relief defendant is not alleged to have committed any wrongdoing, but rather has funds that are traceable to the wrongdoing and cannot assert any legitimate claim to.  The children, their investment amounts, and their "returns" are listed here:

  • Todd Donnan: invested $232,000 - received $620,333.
  • Tammy Donnan: Invested $16,000 - received $140,000.
  • Gregory Johnson: Invested $141,000 - received $617,875.

In order to keep the funds, the Donnan children must be able to show a legitimate origin of the funds. The SEC will likely seek the return of the funds from the children through summary procedures.

Donnan's lawyer questioned the motives of the SEC, claiming that Donnan was "broke".  

A copy of the SEC's complaint is here.