Lexington, N.C. — A Lexington-based company is accused of swindling hundreds of thousands of people out of money through its online auction website. The government called it a Ponzi scheme and shut it down, yet no one has been charged.
As many as 840,000 people could be fighting to get their money back, including 47,000 North Carolinians. Meanwhile, others are fighting to keep the online auction concept alive.
Before the company was shut down last August, customers lined up every day outside ZeekRewards’ storefront at 803 West Center St. in Lexington, hoping to get rich. People all over the world signed up for the membership-based sites ZeekRewards.com and Zeekler.com, also hoping to get rich, and then the sites went dark.
The company had two sides. One was a so-called penny auction, where people could bid on items such as TVs, computers and cars. Similar to gambling, it allowed participants to place small, incremental bids. Once the auction ended, the last person who placed a bid won and had to pay the final bid price.
The other side of the company was the investment side, which encouraged customers to put their money into the company with the promise that it would grow when they recruited others to do the same.
A local man, who asked not to be identified, said he was skeptical of the company but decided to put money in anyway after talking with people he trusted who had used the site.
“I know every time I went to Lexington, there was 3, 4, 500 people standing outside the door every day ready to put their check in,” the man said. “Anybody you sign up, you make 10 percent of what they make.”
His money was essentially for sale, and ZeekRewards presented it as a company with products for sale. The man sold every penny of his money for $1 to an auction bidder, and that bidder could bid to get things for a steal on the auction side. “So, every time they bid a penny, I made 99 cents,” he said.
The man was told he made $73,000 in three months, but he never saw it. He received one check for $1,000 before ZeekRewards was shut down, he said.
Government calls operation a fraud
The government says the whole operation was a fraud. The company was not legally registered to sell investments, and it could never pay investors what they were told they made.
On Aug. 17, 2012, the U.S. Securities and Exchange Commission filed a complaint in U.S. District Court against Rex Venture Group, which was doing business as ZeekRewards.com, and owner Paul R. Burks. The SEC alleged that Rex Venture and Burks fraudulently offered and sold securities in an unregistered offering as part of a combined Ponzi and pyramid scheme.
Criminal charges could follow the SEC's civil filing, but no charges were brought as of Feb. 21. As for Burks, he agreed last August to relinquish his interest in the company and its assets, plus pay a $4 million penalty. The court appointed a receiver, attorney Kenneth Bell, to collect, manage and distribute remaining money to those who invested.
Bell says about $300 million has been recovered so far, and he expects to have claims forms on ZeekRewardsReceivership.com by March 31. He estimates about $295.5 million may have been fraudulently transferred to net winners in the scheme and may be subject to what are known as clawback claims, meaning the money would be taken back.
About 98 percent of ZeekRewards' total revenue and profit paid to investors consisted of money received from new investors. Based on its financial statements, ZeekRewards would have had to pay out $45 million per day to all of its qualified investors if they elected to receive their daily award in cash. That's why the government says the business would have soon collapsed.
Retired SBI agent: Paper trails tough to track
Dozens of YouTube videos are devoted to the topic of ZeekRewards. Some tell potential users where to find other penny auctions. Some try to explain the U.S. Securities and Exchange Commission court filings. Others who run affiliate companies tied to ZeekRewards argue that the site was legal.
WRAL News interviewed Robert Craddock and Todd Disner about ZeekRewards. The government believes Craddock has information on the company, and Disner is a well-known businessman who is also the original founder of Quiznos.
"I was what we call an affiliate or a representative of the company. My purpose was to sell bids to the auction, so people could play the auction and build a team that would do that and help push and market traffic to the site," Disner said.
After the interview, Disner and Craddock said they didn't want to speak publicly on the advice of attorneys.
North Carolina Attorney General Roy Cooper isn't investigating ZeekRewards, but he did receive the complaints that prompted the federal investigation.
“When you have these penny auctions, it’s often based on the recruitment of other people into the process and paying fees into the process,” Cooper said.
WR Myers, a retired SBI agent who spent 25 years specializing in white-collar crime and now has his own consulting business, says these investigations can be time-consuming with paper trails that are tough to track.
“An investigator is playing catch-up. Law enforcement is playing catch-up, because you don’t really know about these things until a problem arises and the complaints start coming in to the Better Business Bureau or to the state Attorney General’s Office,” Myers said.
"If you put money in something like this, the old saying, 'the buyer beware,' you're really in danger of losing your money, and that's what's going to happen to a lot of people," Myers added. "People want to believe. They want to believe in something good. They want to believe in something profitable."