A North Carolina man accused of masterminding a massive Ponzi scheme that caused hundreds of millions of dollars in losses has sought to postpone his trial that was scheduled to start later this month. Paul Burks, who allegedly duped hundreds of thousands of victims who invested in Zeek Rewards, filed the request through his attorney seeking to remove the case from the January 2015 trial term on the basis that his defense team required additional trial preparation time due to ongoing discovery. Burks, 67, was indicted late last year on charges of mail fraud, wire fraud, mail and wire fraud conspiracy, and tax fraud conspiracy.
Burks, a former nursing home magician and country music DJ, founded Rex Venture Group, LLC ("RVG") in 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. Indeed, authorities alleged that 98% of all incoming funds were derived from the funds of new investors. Thus, the scheme could only stay afloat so long as new investor contributions were sufficient to satisfy the amount of outflows. However, because investors were actively encouraged to "roll-over" their "profit points" back into the scheme, the number of outstanding liabilities to investors steadily increased, reaching approximately $2.8 billion in August 2012 despite available cash reserves of less than 4300 million. Due to the likelihood that those funds would soon be exhausted, the Commission initiated an emergency enforcement proceeding and sought an asset freeze in August 2012.
Burks, as principal of Rex Ventures and Zeek Rewards, is alleged to have withdrawn over $10 million in investor funds for the benefit of himself and his family members.
January 2015 Trial Date
Indicted in late October 2014, Burks' case was scheduled on the January 2015 trial docket - an ambitious task given the sheer magnitude of the alleged scheme and the fact that hundreds of thousands invested from all over the world. Burks is the third former Zeek employee to be charged after former Zeek chief operating officer Dawn Wright-Olivares and computer programmer Daniel Olivares pleaded guilty in December 2013 for their role in the fraud. Neither of the latter two have been sentenced yet, leading to speculation that their agreement includes providing testimony in support of the government's case against Burks.
The Motion is below: