ZeekRewards and Rex Venture Group Ponzi Scheme Case: The Daily Profit Was a Number Someone Typed

ZeekRewards’ owner agreed to pay a $4 million civil penalty in the Securities and Exchange Commission’s Ponzi scheme case involving Rex Venture Group. The agency’s complaint alleged that the program raised more than $850 million through subscriptions and bid purchases, with daily profits entered into a database without any connection to actual earnings. If you handled the advertising, software, customer accounts or payments for a similar program, you may recognize the gap between the business advertised to members and the money that paid them.

Rex Venture Group operated Zeekler’s penny auctions and ZeekRewards, its purported affiliate-advertising division, from Lexington, North Carolina. This page follows the bids, points and cash behind this Ponzi scheme, along with the SEC action, criminal trial evidence and asset freeze. Our comparison of online advertising and membership schemes follows the same payment-source question across other businesses.

What Did ZeekRewards Sell?

ZeekRewards sold Premium Subscriptions and VIP Bids, with the prospect of earning money through the Retail Profit Pool and the Matrix. The SEC alleged that these programs sold unregistered investment contracts beneath the language of affiliate advertising. The pitch emphasized passive income through participation and recruitment.

The underlying auction had a different transaction: a participant paid a nonrefundable fee to place each incremental bid on merchandise. In the SEC’s account, most ZeekRewards affiliates bought VIP Bids to give away as samples, earning Profit Points that determined their share of supposed profits.

Qualification required a monthly subscription, enrollment of penny-auction customers, selling or buying and giving away at least ten bids, and posting a free advertisement each day. Yet the company supplied automated programs that generated purported customers and distributed bids to them. Affiliates could copy ready-made ads or use a third-party program to generate them automatically.

In the complaint’s account, an affiliate could improve the advertising without improving the return:

The Retail Profit Pool’s Daily Number

The Retail Profit Pool purported to share up to 50% of daily net profits with qualified affiliates. According to the SEC complaint, the daily award averaged approximately 1.5%, but the owner chose the rate arbitrarily and varied it slightly to make the business appear profitable. The programmer entered the chosen rate into the databases that established each investor’s award.

The SEC alleged that the operating executive and programmer learned that the rate was fabricated. When the owner was unavailable, the operating executive sometimes instructed the programmer to mimic the prior week’s payouts without regard to earnings. We see a business that did not have to earn the number. Someone had to enter it.

Affiliates could take their daily awards in cash, additional Profit Points or a combination. The SEC alleged that management encouraged them to convert at least 80% into more points, ostensibly to compound their returns. Most followed that recommendation, which slowed cash leaving the company while the reported balances grew.

For someone maintaining the software, the rate instruction and the account credit show different parts of the same transaction. The instruction identifies where the supposed earnings figure originated. The credit shows what the affiliate was told they had earned, while the withdrawal record shows whether money actually left the business.

What Is the Difference Between a Ponzi Scheme and a Pyramid Scheme?

At ZeekRewards, the Ponzi mechanism funded supposed investment returns with incoming investor money, while the pyramid mechanism rewarded recruitment through the Matrix. The SEC alleged that both operated inside the same company. Its complaint identified the Retail Profit Pool and the Matrix separately, allowing the payment and recruitment mechanisms to be followed through their own rules.

The Matrix placed new affiliates in a two-by-five recruitment structure with 63 positions. A paid subscription and recruitment of at least two other paying customers qualified an affiliate for bonuses on paid subscriptions below that affiliate, including people someone else recruited. According to the complaint, those payments rewarded recruitment regardless of efforts to sell bids or support the auctions.

The same recruitment incentive appears in the SEC’s complaint concerning Going Platinum. The agency alleged that pooled investor funds paid commissions to existing members for recruiting new members. In both accounts, the internal commission records connect the recruit’s payment to the earlier member’s income.

Where Did the Money for ZeekRewards’ Payouts Come From?

The Securities and Exchange Commission alleged that approximately 98% of ZeekRewards’ revenue came from new investors rather than legitimate retail sales. Subscription fees and VIP Bid purchases supplied the money behind the supposed profit distributions. Investor money and auction revenue were pooled in the company’s financial accounts. New investors were paying earlier investors, who were told they had earned a share of retail profits.

Of approximately ten billion VIP Bids purchased by or awarded to investors, the complaint alleged that less than one-quarter of one percent were used in Zeekler auctions. The bid records could distinguish buying access to points from using the auction those bids supposedly promoted.

Near shutdown, the SEC alleged that ZeekRewards would owe nearly $45 million per day if all qualified affiliates chose cash instead of points. Actual daily revenue averaged approximately $5 million, itself drawn almost entirely from affiliate subscriptions and bid purchases. The points kept those awards on paper.

The Justice Department’s account of the criminal trial evidence put the total promised value against the available cash. By August 2012, the operators told investors their investments were worth nearly $3 billion, while only $340 million was available to pay investors. A payments employee could see the cash behind the balance an affiliate saw on screen.

What Evidence Is Needed for Whistleblowing?

For a program like ZeekRewards, useful evidence connects the promised source of earnings to the actual deposits, account credits and payouts. The records behind the customer-facing number can sit in different systems: compensation plans explain the promise, bid and customer records explain the activity, and bank or payment-processor records explain the cash. We work with the person who can explain how those pieces connect.

The Securities and Exchange Commission’s complaint makes the internal roles concrete. The operating executive worked on marketing, affiliate support, product development and program features. The programmer designed and managed databases tracking subscriptions, bid purchases and distributions of supposed earnings. Those responsibilities put the pitch, the rate instruction and the payment history in different hands.

Plan revisions also mattered. The SEC alleged that staff removed references to investment and return on investment from the website and required VIP Bid giveaways to create the appearance of investor effort. Earlier and later versions of the website and compensation plan could show what management changed while the underlying payment source stayed the same.

The criminal trial supplied another record an account administrator would recognize. In its account of the trial evidence, the Justice Department reported fraudulent tax forms for phantom income that investors had never received. A tax form, the credited balance and the cash withdrawal history could tell different stories about the same supposed earnings.

A 2018 study, The Significance of Whistleblowing as an Anti-Fraud Measure, in the Journal of Forensic & Investigative Accounting, found that occupational fraud involving more perpetrators was more likely to be detected through whistleblowing. Its discussion points to the difficulty of controlling information as more people become involved. ZeekRewards’ alleged division of work shows why that finding matters here: the person maintaining a database may see something the person delivering the sales pitch never shows investors.

How ZeekRewards Was Shut Down

The Securities and Exchange Commission obtained an emergency asset freeze to halt ZeekRewards. The owner agreed to relinquish his interest in the company and its assets, and the court appointed a receiver to manage assets for return to harmed investors.

The SEC’s settlement announcement reported agreements with the former operating executive and the database architect. In the separate criminal case, the Justice Department reported that a jury convicted the former chief executive of wire and mail fraud, fraud conspiracy and tax fraud conspiracy, and that the former operating and technology officers had pleaded guilty to investment fraud conspiracy. It credited the Secret Service and IRS Criminal Investigation with investigating that case and the SEC with assisting.

The Justice Department’s trial account reported that the operators lacked the books needed to calculate the daily profits they advertised. For an insider responsible for those numbers, the missing calculation connects the sales promise to the decision made inside the business.

Whistleblower Rewards for Online Investment Scheme Evidence

The SEC whistleblower program can pay eligible whistleblowers 10% to 30% of qualifying sanctions collected when an action results in more than $1 million in monetary sanctions. A separate program concerns fraud against government money: a whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. For an insider who knows how an online investment program sets its returns and pays its members, we assess the conduct and the information you hold to identify the program that fits.

You Know Where the Daily Number Came From

If you saw return rates entered by instruction, bid giveaways used for appearances or new member deposits used to fund payouts, speak to one of our Whistleblower Experts about where the daily number came from. We develop the case with you and bring in securities fraud whistleblower lawyers who understand online investment programs and the transactions behind their advertised returns. We stay with you from the first call through the case, turning your knowledge of those decisions into your strongest securities fraud whistleblower case.