The Securities and Exchange Commission (SEC) has shut down Zeek Rewards, a website that is linked with the penny auction site Zeeker.com. Penny Auctions allow users to compete for expensive items one penny at a time, often paying only pennies on the dollar for items purchased. However, since each bid costs money, the money for each item usually exceeds the retail price, but is paid by all bidders rather than one buyer.
ZeekRewards.com was a site that purported to allow users to become "affiliates," with users paying a subscription fee and earning a share of the company's profits. However, the money that was paid out to the first batch of investors was actually gathered from the second batch, and so forth. A Ponzi scheme in other words.
Last year, the site opened up to investors and, according to the SEC, attracted more than a million "affiliates." However, officials filed fraud charges to the tune of $600 million on Friday and said that the scheme was "on the verge of collapse." Unfortunately, that's the inherent danger of these schemes. Eventually, they catch up to you.
Zeek Rewards is owned by parent company Rex Venture Group, with Paul Burks as the head of the company. According to sources, Burks pocketed millions himself, and paid out around $375 million to investors. The SEC has frozen the $225 million or so in the company's bank accounts. It isn't clear how this will be distributed to investors, or what percentage of the money they invested will actually be returned.
Lawyers for the company or the man himself haven't yet commented, but the SEC is only able to pursue civil charges against Burks. It is unknown if criminal charges will be filed later, but it is certainly a possibility.
Currently, the website, ZeekRewards.com is down, with a message saying that "more information will be available shortly."