Correction: Investment Scam story

Published on NewsOK Modified: April 4, 2013 at 3:54 pm •  Published: April 4, 2013
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LEXINGTON, N.C. (AP) — In a story March 30 about a $600 million investment scam, The Associated Press, relying on information from state regulators, reported erroneously that the Securities and Exchange Commission began investigating the company at the center of the scheme in the summer of 2012. The federal agency, which declined to address the AP's questions when the story was being reported, said after it was published that it began investigating the company, ZeekRewards, in March 2012. Court records show the agency had begun looking into the company at least by that April.

The story also should have clarified that securities complaints from consumers in all 50 states are entered into a national database, which the SEC can access, and that the database included tips about ZeekRewards that came in prior to the SEC's investigation.

The AP also misspelled the first name of SEC spokeswoman Christina D'Amico.

A corrected version of the story is below:

Authorities: $600M scheme incubated in NC town

Authorities: $600M Ponzi scheme incubated in small NC town; regulators ignored complaints

By MITCH WEISS

Associated Press

LEXINGTON, N.C. (AP) — In the hardware store on South Main Street, the owner pulled Caron Myers aside to tell her about the best thing to happen in years to this once-thriving furniture and textile town.

Did she hear about the online company ZeekRewards? For a small investment, she could make a fortune. He had invested. So had his grandsons. And so were more and more people in Lexington, including doctors, lawyers and accountants.

Skeptical 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 the truth: ZeekRewards was a scam.

"I was duped," Meyer said. "We trusted this man. The community is still in shock."

Authorities say owner Paul Burks was the mastermind of a $600 million Ponzi scheme — one of the biggest in U.S. history — that attracted 1 million investors, including nearly 50,000 in North Carolina. Many were recruited by friends and family in Lexington, a quintessential small town where neighbors look out for each other.

But what investors didn't know was that state 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 Securities and Exchange Commission, which closed the operation Aug. 17, accused Burks in a civil complaint of fraud and selling unregistered securities. The Ponzi scheme 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 with a crime.

In his first public comments, Burks told The Associated Press he couldn't discuss details because of lawsuits by victims trying to recoup 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.

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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 checks in Facebook photos.

People who didn't trust the mail traveled long distances to drop off checks 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 check.

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