Analyzing ZeekRewards and Zeekler, is Zeek Rewards a legal business? Who is Paul Burks? Detailed Investigation here

Introduction

There are a ton of income opportunities on the Internet and all of them promise long-term legal and viable income. One of the most recent to be popular is known as "ZeekRewards", run by Paul Burks of "Rex Venture Group".

In this hub, I will go through all the publicly available information about Paul Burks, Rex Venture Group, and Zeekler / Zeek Rewards. I will separate the facts from the analysis, and detail the source of information. This is so you can make up your own mind.

I am not going to tell you what to think. In fact, I question anyone who want you to think a certain way, on why they would want to do so. And I would suggest you think about why would any one want you to think a particular way, instead of giving you information so you can make up your own mind.

Instead, I am going to pose a couple questions that you *should* have already asked BEFORE you joined (and if you already joined, it's not too late to ask now...)

I am not going to sugarcoat the analysis as I am NOT trying to sell you anything. If this comes across as "negative", consider how much "positive" propaganda you have been exposed to , and how much information they did NOT tell you. Think about that as you read through this hub.

NOTE: This hub is in chronological order. The most recent updates are at the very end.

Latest updates:

• 30-OCT-2012 Receiver sent out 1200 subpoenas in preparation of clawbacks from people who benefited from this Ponzi scheme
• 27-SEP-2012 Receiver announced he had secured over 300 million that will be returned to victims, will continue to do his job
• 27-AUG-2012 Receiver appointed by court to shut down Zeek and return money to victims
• 17-AUG-2012 ZEEK REWARDS SHUT DOWN BY SEC
• 04-AUG-2012 ZeekRewards parent company claims to have contact North Carolina credit union and "shut down misinformation" at the source
• 03-AUG-2012 Upcoming "qualifiers" and Zeebates worries affiliates
• 02-AUG-2012 Rex Venture Group / ZeekRewards BBB rating back to F
• 02-AUG-2012 Reports surface about North Carolina Credit Union warning members about Zeek being possibly fraudulent
• 02-AUG-2012 Keith Laggos, MLM consultant to ZeekRewards, revealed he is an affiliate, as well as consulting for ZeekRewards, AND published favorable articles about it on his magazine. After reveal, he no longer consulted for ZeekRewards, claimed credit for pushing payment solutions offshore, predicted FTC will hit Zeek in less than a year
• 27-JUL-2012 Consultant who claimed to work for Zeek parent company sent takedown notice and knocked this hub offline, but did not follow up with details on how this hub is violating trademarks and libel.
• 27-JUL-2012 Randy Schroeder, MLM veteran and head of big MLM, calls ZeekRewards a Ponzi scheme, predicts swift end and grief to any one who joined

About Zeekler

According to a Zeek "training" website, Zeekler started its life in March 2010 as "FSCAuction". FSC was a part of Rex Venture Group called "Free Store Club". In June the auction was renamed Zeekler, and for a few months, it was also known as a different auction under Rex Venture Group called MyBidShack, but was made a separate auction in December 2010.

NPros, however, had a different story. It claimed that Zeekler didn't start until they acquired a Georgia Penny Auctioneer called iTicketBid, in September 2010. iTicketBid had a history of failing to deliver promised items. Georgia had ruled that penny auctions must be licensed by the state auction commission and drove "Wavee" out of business as of July 2010.

It seems the truth is a combination of the two: Rex Venture Group did start FSCAuctions in April 2010 (some remnants can still be found on Facebook and such via Google search), FSC Auctions was renamed Zeekler in June 2010, and some time after that it acquired or merged with MyBidShack. For a while both are living together, but with different comp plans. Zeekler bought iTicketBid in September 2010 and merged it into Zeekler. In December 2010 the two separate websites (Zeekler and MyBidShack) are merged again with a new affiliate plan and relaunched as merely Zeekler. MyBidShack remained active but is a portal into Zeekler.

If you search MyBidShack's DNS you'll see its registrar is indeed Zeekler, handled by Paul Burks, and shares same address as Zeekler / ZeekRewards. What's really interesting is MyBidShack was owned in early 2011 by Darryl Douglas, who's now one of the top three at Zeekler.

UPDATE: North Carolina Auctioneer Board confirms that Rex Venture Group holds Auction Firm license #9401, issued in March 2012. Zeekler operated for almost TWO full year without obtaining the proper auction license.

About ZeekRewards

ZeekRewards claims to be a "rewards program" for Zeekler, a "penny auction" website where bidders purchase bids, to be spent on items. Zeekler / ZeekRewards is a part of Rex Venture Group, which is run by Paul Burks, who has a pretty long history in MLM, spanning over 14 years as of early 2012. However, his history was hardly spotless. The current Better Business Bureau rating for Rex Venture Group is "F", or FAIL (as of 07-MAY-2012). This was changed to "No Rating" as of 14-JUL-2012, but a recheck at 01-AUG-2012 shows it's back to F again.

NOTE: Zeekler has NOT been in business for 14-15 years. Rex Venture Group has been in business for 14-15 years. Zeekler name was only used since June 2010, and ZeekRewards since 2011.

What is Zeekler?

Zeekler is a penny auction site, where people pay for bids (each of which cost about a dollar or less), which they submit for various items up for bidding, using one bid at a time. The last person to get a bid in "wins" the item. Then they can pay for the item and have it shipped to them, or choose to "cash out" the item and receive the difference between the MSRP and the "bid price".

Scroll to Continue

Synth Single Review: “Over Again’’ by Future Analog

30 Quotes by Nelson Mandela That Will Transform Your Life

Falling in Love: A Poem

Here's a sample auction: Item for bid is a cheap Android tablet with MSRP of $100. A "premier 5" auction means you need to use up 5 bids to start bidding. Each bid raises the cost of the item by 1 penny. Let' say you win the item at 12.50 (being the last person to submit a bid), which would suggest that 1250 bids had been submitted by various bidders, each of whom also paid extra 5 bids to join the process. You likely spent 200 bids or more to win (probably closer to 400). As the winner, you can then pay $12.50, and shipping, and the item will reach you in a few weeks.

How much can Zeekler clear? Each bid is 65 cents or so. Assuming there are 100 bidders, 1250 bids would net $812.5 on bids alone, plus another 5 bids per bidder (it's a premier 5 auction) which would add 325. Then there's $12.50 for the item itself. Total revenue for one item: $1150. This is not counting the cost of running the whole thing or the cost of the item, of course. (Or shipping and handling)

Let's assume you spend 200 bids to win this item (a bit on the low side if total bids exceed 1000), that's $130, plus $12.50 for the item, plus $10 in shipping and handling... You actually paid $152.50 for an item with MSRP of $100, even though you "felt" you paid only 12.50. And we are using optimistic numbers (rather minimal number of bids). This is so dangerous, the Federal Trade Commission actually put out a consumer alert specifically warning all people about penny auctions.

There are some anomalous patterns. Some people are using ridiculous amount of bids, such as over 1400 bids (valued at approximately $910) for $100 cash. And that's just ONE PERSON, not overall number of bids (that's believed to be over 5400 bids) That makes absolutely no sense from the bidder's POV. This leads to some to suspect that there be shill bidding bots just to bid up the prices, but there is no proof.

What is Zeek Rewards?

ZeekRewards is the "invitation only advertising division" of Zeekler. It was started in late 2010 (perhaps as late as January 2011).

ZeekRewards itself does NOT make money, based on the official explanation. Members are simply given a share of the profits (from Zeekler) for doing some promotions and putting money INTO the system by purchasing and "giving away" bids, and for NOT taking profits out of the system.

ZeekReward members do need to pay a monthly subscription fee. There are "free affiliates", but they are not eligible for the profit sharing.

ZeekRewards Compensation Plan

In any income opportunity, you perform some activities for the company, and in return, you get paid for performing that activity. This is called the compensation plan, and determines the viability and the legality of the business.

Regarding ZeekRewards, you get paid six different ways, which is listed on their website under "Get Paid". Instead of regurgitating their verbiage, I'll just tell you the bottom line:

• ZAP Commission -- get paid when you refer people who buy "bid packs"
• Retail Store -- sell stuff from your "retail store" and pocket profits
• Retail Points Pool (previously known as Profit pool ) -- post ads elsewhere, one a day, and make sure you have people (who paid to join) under you (see EDIT below), "give away" the bids to select customers, and you can get a share of the "retail points pool" (described as 50% of daily revenue or profit).
  
  EDIT: The requirement "have people under you" was removed in March 2012. Thanks to Georgi for spotting this mistake.
• Retail subscription -- get commission off people who "subscribed" to Zeek (i.e joined as affiliate)
• Shopping Daisy -- earn commission by giving away this shopping browser toolbar (also recruits people, but at least it cost nothing)
• Matrix Commission -- you also get paid for people under you... who paid into the system by buying bids either with their own money, or with proceeds obtained from Retail Points Pool share as explained above.

There are no statistics or chart that explains how much an average affiliate earned in the past from each of the six ways to earn. Out of the six ways to earn, four involves recruiting people, instead of selling things. The "income disclosure statement" released in March 2012 does not shed any light on this situation. However, the "median" earning of an affiliate, according to their 2011 Income Disclosure Statement, is ZERO. Though they claim to have 15000 "active" affiliates in the US, and paid out over 58.5 million.

Based on study of various forum postings, people are mainly interested in the "retail points pool", which uses a very peculiar system to calculate how much profit you can "share", which we will explain in the next section. But basically, your "share" of the profit is mainly dependent on how much money you have spent into the system and how long you are keeping it in and NOT taking it out.

(Thanks to Joe for nitpicking about "penny auction" vs. "reverse auction")

Q: Is ZeekRewards rewarding affiliates for the work they did, or for the amount of money they spent on Zeek? (The former is a job, the latter is an investment.)

Profit Sharing... how does it work?

In ZeekRewards, to "share" in the profit pool, you need to give away at least 10 bids (i.e. you have to buy them first), and post an ad every 24 hours. You, of course, need to be a paying affiliate as well. Prior to a major change in early 2012, you were required to have at least two paying affiliates under you (silver, gold, or diamond, $10, $50, or $99 per month respectively) as well. This was removed.

For every bid you buy and give away, you earn one "VIP ProfitPoint" in your pool. At the end of every day, ZeekRewards will declare a profit share, which averages about 1.4%.

Let us assume you had previously purchased 1000 bids, and thus, gained 1000 VIP points. 1.4% of 1000 is 14, so that's your "profit share" of that day, $14. You can choose to spend all $14 on repurchase of bids, which is added to your total (so you now own 1014 points). Or you can choose 100% cashout, which means you will receive 14 dollars and $14 is added to your cash balance. Or you can do a mix of whatever proportion you wish between repurchase and cash out.

Each point has a life of 90 days, including the points earned on "profit share". If you bought 1000 bids, and got 1000 points, at end of day 1 you will have 1014 points, 1000 of which expires in 89 days, and 14 expires in 90 days (if you choose full repurchase). In the meanwhile your points are entitling you to additional shares of the profit.

The payment is usually sent by check, with a lag of 15 days plus transit time. Though ZeekRewards made a push to use payment processor such as AlertPay and Solidtrust Pay starting 2012. Zeek have also added NxPay. All three have continued to experience glitches for many months, as of end of July 2012 (see updates below).

NOTE: Free affiliates can get "bonus points", which is basically a way for your points to remain when you choose to convert your points into VIP points by upgrading your membership later.

Q: Where does the profit come from? Do they come from the customers you supposedly will recruit? Or are they from the bids YOU PURCHASED?

Is ZeekRewards paying out too much money?

According to ZeekRewards, the daily profit share is calculated by a proprietary formula using figures that are business secrets and will NEVER be released. However, the number is known to vary from 0.9% all the way to 2.0%, with an average of 1.4% or 1.5%. To put it into perspective, a noted scam prosecuted by the SEC and US Secret Service, "Ad Surf Daily", offered "rebate" of 1% on weekdays and 0.5% on weekends.

Furthermore, in April, after they announced banning of several countries (see below), there were several outages of Zeekler for up to 14 hours. Yet the profit share for the outage days remain virtually unchanged. Many critics have questioned how is this "profit share" actually calculated. Burks have previously stated that this formula is a proprietary business secret and will never be revealed. Critics on multiple websites charged that it is far more likely that Burks simply made up the numbers in his head without regard to reality.

Many members and critics have constructed spreadsheets to model theoretical returns based on investment amount, profit share percentages, reinvestment amount, and so on. Models show that if the "profit share" is larger than 1.1% 100% reinvestment would just barely offset any expiring points. Thus, one can withdraw "profit" as long as the average profit share exceed 1.1%.

Q: How is Zeek generating well beyond 1.1% profit based on total amount of VIP Profit points, which is likely in the TENS OF MILLIONS nowadays?

Based on the ZeekRewards 2011 Income Disclosure Statement, using number of affiliates at each level, and average income of such users, the total payout to members in 2011 is estimated to be 58.5 million dollars. Which comes out to be $160,000 profit PER DAY shared.

UPDATE: In the end of May 2012, ZeekReward put in one day profit share of 8.9%, then immediately posted a correction that they had a "manual decimal point misplacement". This is the full quote from their news website:

A manual decimal placement error occurred tonight when starting the RPP. Adjustments will be made to all accounts affected shortly. All unaffected accounts will run normally. Thanks, Zeek.

Clearly, the daily profit share is NOT calculated, but rather, MANUALLY ENTERED. How else can they mistakenly typed in 8.9% instead 0.89%?

Q: Do you believe that ZeekRewards, holding only a few hundred auctions a day, is earning over $320,000 (and increasing) per day, probably well over 400,000 DAILY now? (Remember, they share "up to 50% of daily profit") And can consistently earn grow such to outpace point growth in the foreseeable future?

Compliance Enforcement

ZeekRewards started operating in 2011, and at one time promised an ROI (return on investment) of guaranteed 125%. This was advertised all over the Internet by its affiliates. That all changed in Early 2012, when ZeekRewards hired a lawyer and a MLM consultant (among several other people) to make sure their business is compliant with all applicable laws. After a few weeks, policy update was pushed out to all affiliates:

STOP REFERRING TO ZEEKREWARDS AS INVESTMENT IMMEDIATELY

All US based members are required to pay $10 for a "compliance package" and confirm that they understand these limitations, or their membership will be terminated immediately.

There are other misc changes, but that is the one that affected the most members. Hundreds, perhaps thousands of Youtube videos and websites, articles, and postings, advertising ZeekRewards disappeared almost overnight.

ZeekRewards hired several prominent lawyers and attorneys as well as MLM expert Laggos to check for compliance. One such lawyer is Gerald Nehra of Nehra and Waak. Mr. Nehra is an MLM expert, having served as head of Amway's legal division for 9 years before making it his primary business as both consultant and MLM attorney and is well known in the industry. However, Gerald Nehra was also known for filing an affidavit (after checking Ad Surf Daily for compliance) telling a Federal Court that "Ad Surf Daily" is NOT a Ponzi scheme, something the Federal Court disagreed with. Ad Surf Daily was sued and shut down by FTC in 2008 and 55 million dollars forfeited and refunded to participants in 2011.

UPDATE: It has been brought to my attention that MLM Expert Keith Laggos, who was hired by Zeek as consultant, also filed an amicus brief with the court telling the judge that ASD is NOT a Ponzi. Clearly, he was wrong as well. Please also see news update at the end when Laggos was caught promoting something else and promptly no longer consults for Zeek.

UPDATE: Compliance package was finally published as of 07-MAY-2012, and initial reaction by members is mixed, as it is a generic MLM compliance course, NOT customized for Zeekrewards. It appears to be the same generic compliance course at mlmcompliancevt.com.

Q: What exactly was the MLM compliance course supposed to teach? That ZeekRewards is not an investment? The actual business model determines whether the business is an investment with application of the Howey test. So is the compliance course meant to correct a misunderstanding by the affiliates, or to propagate a mirage?

International Controversy

In April 2012, ZeekRewards abruptly terminated many international affiliates. To date, ZeekRewards refused to list the countries that are affected, or how many affiliates were affected. However, by comparing the country list before and after the change, six countries were found to be absent in the latter version. ZeekRewards have not confirmed the list of banned countries, nor explained why this was done.

Speculations were rampant, with at least one MLM supporter speculating that this had to do with FTC Warning about Penny Auctions (except this makes no sense as FTC is an American agency dealing with American law, so why ban international affiliates?) One Zeekreward support response claimed this is due to actions / policies from those countries, NOT ZeekRewards. Members in those countries will be only refunded their monthly membership fees and initial bid purchases. All VIP points earned are lost.

One week later, on ZeekRewardNews, Paul Burks, CEO, claimed that countries that were banned were done to comply with US Department of Treasury, Office of Foreign Asset Control (OFAC) who maintains a list of sanctions. Burks only referred to "banned countries" and offered no specifics.

Request to OFAC for comment and study of OFAC list of sanctions shows that there are currently NO sanctions against those six countries that would cause blanket ban of those six countries.

ZeekRewards currently has no comment or clarifications, leading to outcry among other international affiliates, both in and out of the affected countries. There are also reports on how the company is only using a free Gmail address to process refunds, and is very slow or just flat out not responding to queries. This however, cannot be confirmed. Many of those complaining from the affected countries have been members for over a year and is believed to have significant VIP point balances.

Q: Clearly the Paul Burks explanation is NOT CONSISTENT WITH FACTS. So why was it offered? What was the REAL story?

Problem with Profit Sharing System

In a true business where you work for the money, your compensation should depend on how hard you work and what results you were able to achieve with that work.

In Zeek Rewards, the profit sharing system encourages people who have very low balance to NOT withdrawn any money, while people who have large point balances can withdraw plenty of money. In other words, you are NOT being rewarded for the amount of work you do, but for amount of money you put into the system and keeping it there, and for recruiting other people who do the same.

Assuming 1.5% compound daily, and 100% repurchase, 100 points will become 244 points in 60 days. However, this is all "virtual growth". No actual money has reached your pocket. Instead, you have paid in at least 100+10+10 dollars into the system. If you spend the next 30 days (before the first 100 points expire) doing 100% withdrawal, you can draw about 3.5 dollars per day (steadily decreasing). which should mean you will make back your $100 and a bit more so it's a zero-sum game. If you play a longer term game you may actually make some money.

This points to three fundamental problems:

1. They say this is not an investment, when it works just like an investment
2. Business model makes no sense, as ZeekReward is a pure loss center with no gain (it pays out money, but has no income to match, as it needs to take profit from Zeekler)
3. People who put in a little money gains virtually nothing, people who put in a lot of money (and allow the money to compound for more than 90 days) gains LOTS of money

First problem... this very much FEELS like an investment, despite every attempt by it to NOT refer to itself as an investment. In fact, in February and March 2012, the new compliance team at ZeekRewards had a crackdown on all affiliates forcing them to take down any mention of ZeekRewards as "investment". They even formed a volunteer "Zeek Squad" to go after non-compliant affiliates.

Second problem... this business model makes no sense. ZeekRewards, if it is indeed paying out a ton of $$$ to the affiliates, what are they GETTING out of the affiliates? There's a) membership fees, b) posting of ads, and c) recruitment. All three have problems.

If you pay to join a program, then get paid by recruiting other people who also pay to join, what you have is a pyramid scheme. This is very clear from FTC past rulings. (See FTC vs. Koscot,) Having a free affiliate level is irrelevant.

Paying people to post ads is fine, but why would Zeek pay someone who had more points (i.e. put more money into the system) more money, when he or she did the SAME amount of work as someone who had less points? People who have 10000 points are paid 100 times more than people who have 100 points, who did the same work. The difference is how much money they paid into the system, NOT what they did for the company. Clearly, the ad placement is NOT the real benefit to ZeekRewards.

Finally, if you study the system, you will realize that the most "points" an affiliate has, the more that affiliate benefits. And how *do* you get more points? by doing two things:

• Put money into the system (buy bids for giveaway)
• Keep the money in system (repurchase bids as much as possible), take nothing out

The more you do these things, the better you are supposedly rewarded through this "profit share" thing. This is an investment. So why would they insist it is NOT an investment? What sort of investment that only encourages people to keep putting money IN, and never take any out?

At least one member speculated that this profit sharing is simply for placing advertisements. However, this makes no sense. The going rate for paying someone to post ads on Craigslist and such is a mere 50 cents per ad. ZeekRewards does NOT publish total paid out but the rate itself is dependent on how many points you have. If you only have 10 points, then you are paid pennies. If you have 10000 points, you are paid 150. dollars (assuming 1.5% profit share). Both for doing THE SAME WORK DAILY.

Furthermore, in the international controversy above, the international members, many of whom have been with ZeekRewards for over a year, is ONLY getting back the money they put in (monthly fees and bids purchased). All the work done during that year? Completely worthless.

When you add the two facts together, conclusion is inevitable: ZeekRewards is NOT after your work, but is ONLY AFTER YOUR MONEY. Work is an afterthought.

Furthermore, those who were already in, and have amassed a ton of VIP points, will be getting most of the profit. Late joiners are getting virtually nothing.

-----

Q: Why would they say they are not an investment, when they really want your money?

Is ZeekRewards an Investment?

In the US, it is illegal to offer up investment contracts for sale to the public without registration with the Securities and Exchange Commission (SEC), a federal financial regulatory agency. Many companies, including Ponzi schemes, were investigated by the SEC and charged with selling "unregistered securities", and for disguising the fact that they are doing so. The fact that ZeekRewards started this "compliance movement" in February 2012 to deliberate stop referring itself as an investment would suggest it could be construed as an investment contract in some circumstances. Is it really an investment contract though?

According to American University's course on financial regulations, the Federal test on what is a "financial contract" has four elements (established in SEC vs. Howey, also known as the "Howey Test"):

1. investment of money
2. in a common enterprise
3. w/ expectation of profits
4. solely from the efforts of others

As you buy bid from Zeek, trade it for VIP Profitpoints, then expect profit share, it appears that Zeekrewards at least conforms to elements 1, 2, and 3. So the main question is element 4... Do the additional requirements, such as "post one ad per day" negate element 4?

While a strict interpretation of the word "solely" would appear to support the position that the additional requirements ZeekRewards would mean it is NOT an investment contract, historically the Federal Courts have ruled that "solely" is interpreted rather loosely. Generally speaking, element 4 is a test on how much control do the participant have over day-to-day operations.

The fourth element of the Howey test, “to be derived solely from the efforts of others,” requires an examination into the level of control retained by the investor. Courts will examine the investor’s involvement in the day-to-day operations or management decisions of the business enterprise to determine whether the investment depends solely on the efforts of others. Here, the courts are more interested in substance over form.
http://businesslaw.ncbar.org/newsletters/nbinov2010/security.aspx (dead link)

Example 1: In the case SEC vs. Glenn Turner Enterprises, Turner argued that participant have to recruit in order to get a return, thus the return is NOT "solely" from efforts of other. The court rejected the argument. The "efforts" in element 4 are regarded as essential managerial decisions that affects the success of the scheme, and recruiting is NOT such a decision.

Example 2: In the case SEC vs. Ad Surf Daily, Boudwin, head of ASD, and his lawyer argued that because they require participants to click on ads, to get the profits, the return is NOT "solely" from the efforts of others. The court rejected the argument for the same reason.