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30 Mar 2013 19:18
The closed office of Zeekler Corporation is shown in Lexington, USA. (Chuck Burton, AP)
Of the people scammed nearly 50 000 were from his home state of North Carolina. Many were recruited by friends and family in Lexington, a once-thriving furniture and textile town where neighbours look out for each other.
But what investors didn't know was that regulators had received nearly a dozen complaints about ZeekRewards and the related site Zeekler.com, but failed to take action for months, leaving the company free to recruit tens of thousands of new victims.
The US Securities and Exchange Commission, which closed the operation August 17, said Burks was selling securities without a license.
He allegedly operated a Ponzi scheme that was using money from new investors to pay the earlier ones.
Burks has agreed to pay a $4-million penalty and cooperate with a federal court-appointed receiver trying to recover hundreds-of-millions of dollars.
Investigators say Burks, a former nursing home magician, siphoned millions for his personal use.
But he has not been charged.
Caron Myers said she was sceptical at first when the owner of a hardware store on South Main Street pulled her aside to tell her about the best thing to happen in years in Lexington.
He told her that for a small investment in ZeekReards, she could make a fortune.
Sceptical at first, Myers drove a few blocks to the company's one-story, red-brick office and spotted a line of people circling the building.
She was sold, and plunked down several-thousand dollars. But months later, Myers, like hundreds-of-thousands of others, discovered that ZeekRewards was a scam.
"I was duped," Meyer said. "We trusted this man. The community is still in shock."
In his first public comments, Burks told The Associated Press he couldn't discuss details because of lawsuits by victims trying to recoup their money.
"Everything will come out in time," said Burks (66) standing in the doorway of his home.
Asked if he had anything to say to victims, he shook his head.
"I never told anyone to invest more money than they could afford," Burks snapped. "I didn't tell them to do that. Never".
He said if they lost money, "it's their fault. Not mine. Don't blame me."
But Cal Cunningham, a former prosecutor representing investors in a lawsuit, slammed Burks – and regulators for taking so long to act.
"It's why we need a full hearing on what happened in a court of law -whether that be our civil case or a criminal proceeding. A lot of people were hurt," he said.
A sure thing
Burks started Zeekler in early 2010 as an online penny auction site. His business experience included nearly four decades in multilevel marketing programs – such as Amway – including failed attempts to launch similar businesses of his own.
In penny auctions, consumers compete to pay pennies on the dollar for name brand products such as iPads. Each bid costs as much as $1, so participating can become expensive and the sites can earn nice profits when multiple users bid against each other.
In January 2011, he incorporated aspects of multilevel marketing into the business when he launched ZeekRewards.
The program offered a share of the penny auction's profits to people who invested money, promoted the company on other websites and recruited other participants. Under a complicated formula, investors were issued "profit points" that grew every day.
Investments were capped at $10 000, but people could invest on behalf of their spouses, children or other relatives. Some mortgaged homes to raise their investment.
At first, ZeekRewards complied when investors sought to cash out. And that became the best ad of all: happy investors with their cheques in Facebook photos.
People who didn't trust the mail traveled long distances to drop off cheques at the cramped office building where security guards allowed only seven inside at a time.
Employees collected money and wrote out receipts at the office cluttered with dozens of plastic mail bins stuffed with check-filled envelopes. To withdraw money, investors filed an online request – or called – and then had to wait for a cheque.
By the end of 2011, it seemed like everybody in Lexington was talking about ZeekRewards. Many saw it as a way to make extra cash to pay bills or help family.
"No one was in it to get rich," said Mary Bell, a 75-year-old seamstress from Lexington who scraped together money to invest.
Sarah Chavez wanted extra money for her daughter's frequent hospital visits for leukaemia. Her husband worked in a factory, and they invested $7 000.
"It's hard to believe in something like that. But everyone told us it was a sure thing," she said.
Burks mostly kept to himself, and few locals knew anything about the quiet, balding man with thick glasses.
In the 1980s and early 1990s, the Shreveport, Louisiana, native toured nursing homes in the South as a magician with country singer David Houston. Burks moved to Lexington in the early 1990s because his wife was from the area.
In 2000, Burks ran for the state House as a Libertarian, but he collected only 330 votes.
Then he became a local celebrity.
Most afternoons, he ate lunch at the same downtown restaurant with an entourage of managers. Conference calls with investors were posted on YouTube. He produced glossy brochures touting the company.
"In addition to the mind-blowing savings, you can create more wealth than you have ever thought possible with ZeekRewards' geometrically progressive matric compensation plan," the brochure said.
Burks also hired some of the industry's top attorneys and analysts to promote his company.
The publicity paid off. When the Association of Network Marketing Professionals held its annual convention in March 2012, it called ZeekRewards the model of legal compliance.
'Gave them the roadmap'
But behind the scenes, there were troubling signs, according to documents, company emails and consumer complaints reviewed by the Associated Press (AP).
In early June, the state of Montana gave ZeekRewards the boot. Montana requires multilevel marketing companies to register. But ZeekRewards didn't submit any paperwork – even after warnings, said Luke Hamilton, a spokesperson for the Montana attorney general's office.
"We started getting a lot of complaints," he said.
In August, a North Carolina employees' credit union warned customers not to invest in ZeekRewards because it was a "fraudulent company."
But regulators received complaints long before then.
In a November 23 2011 complaint filed with the North Carolina Attorney General's office, Wayne Tidderington of Florida called ZeekRewards an "illegal" Ponzi scheme. He said a relative had invested $8 000 and the company guaranteed a return of 125% every 90 days.
The attorney general's office can ask a judge to shut down a business because of deceptive trade practices. But it forwarded Tidderington's complaint to the secretary of state's office because it looked like it might involve securities. The secretary of state's office, however, declined to take action because it didn't believe it had the jurisdiction, spokesperson Liz Proctor said.
The complaint died.
"I put it all together," Tidderington told the AP. "I gave them the roadmap. I said, 'Here's a snake. Here's the gun. Here's the bullets. Shoot the snake.' But they ignored me."
Over the next seven months, the attorney general's office received nearly a dozen more complaints.
But it wasn't until July 6 that it issued an order giving Burks until the end of the month to turn over all Zeek-related documents. He missed that deadline.
Kevin Anderson, senior deputy attorney general for consumer protection, insisted his agency correctly handled the case, saying his office receives thousands of complaints a year.
"We have to have more concrete evidence than a couple of consumer complaints before we go to court," he said.
The federal Securities and Exchange Commission (SEC) received similar complaints during the same period, but the agency didn't begin its investigation until the summer.
SEC spokesperson Christine D'Amico declined to comment on the investigation, except to say the agency took action "as soon as we believed we had sufficient evidence to obtain an emergency court order to halt the fraud."
Months later, people in Lexington are wondering what's next.
Kenneth Bell, the court-appointed receiver, said ZeekRewards may have taken in $800-million. So far, he's recovered $312-million. Hundreds of millions were paid out to investors. Just how much is missing? He doesn't know.
Myers said the community is still recovering – but the wounds are deep. People are wondering why investigators didn't act more quickly and why no one, including Burks, has been charged.
"There are thousands and thousands of victims who might not have lost a penny had the government intervened more quickly," she said. – Sapa-AP.
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