Pyramid scheme still stings 1 year later
Retired small business owner Hugh Holliman of Lexington still senses the reverberations of the Zeek Rewards pyramid scheme a year after the massive swindle imploded, leaving people stunned at their financial setback.
Holliman said that he hears from acquaintances who wonder if they’ll ever recover a portion of their losses through an ongoing case in a federal court, if they’ll ever receive definitive answers about how many people were responsible for the scam.
Holliman was approached more than a year ago about becoming an affiliate of Zeek Rewards, but he declined. The returns that Zeek Rewards promised seemed too good to be true, he told The High Point Enterprise.
But others were taken in by the lure, and Holliman feels a deep sense of sympathy for them.
“The sad part is that there were a lot of people who invested in Zeek Rewards who shouldn’t have. It hurt some very vulnerable people in our community,” said Holliman, a former state legislator.
The true nature of Zeek Rewards began to become apparent a year ago this week.
On Aug. 17, 2012, the U.S. Securities and Exchange Commission issued an order shutting down Zeek Rewards and its parent company, Rex Venture Group. Run from a small, nondescript office on W. Center Street in Lexington, Zeek Rewards was described by federal authorities as a $600 million pyramid scheme on the verge of collapse.
By this time a year ago, former affiliates who thought they could make money through Zeek Rewards were facing the harsh reality that they had been conned. The amounts lost ranged from $200 or less for some people to dollar amounts totaling five or six figures. Tens of thousands of people in North Carolina were duped by Zeek Rewards, including a still-undetermined number in the High Point area and Triad.
But Zeek Rewards was more than just a local and statewide scam — authorities estimate upward of 1 million people could have been taken in worldwide. The receiver in the case, who’s trying to recover money for victims, said Zeek Rewards may turn out to be the largest pyramid scheme in U.S. history to go through receivership in the federal courts.
Zeek Rewards billed itself as an online multilevel marketing business and auction site. But authorities determined Zeek Rewards fit the mold of a classic Ponzi scheme — initial investors were paid with proceeds from later ones until the swindle collapsed. In a federal court filing, the SEC contends that “approximately 98 percent of Zeek Rewards’ total revenues, and correspondingly the purported share of ‘net profits’ paid to current investors, are comprised of funds received from new investors.”
Before the SEC took action, consumer advocates such as the Better Business Bureau and the N.C. Attorney General’s Office sensed that something was amiss based on consumer complaints. Indeed, it was a request by the Attorney General’s Office for documentation from Zeek Rewards proving it was a legitimate business that put the pyramid scheme operators into a tailspin. It wasn’t long after the attorney general’s request a little more than a year ago that Zeek Rewards ceased operating and federal authorities intervened.
“With Zeek Rewards, we saw that tough economic times seem to make people more likely to believe in investment schemes that promise too-good-to-be-true profits,” Attorney General Roy Cooper said in a statement to the Enterprise. “We also saw how technology, especially social media, can fuel the rapid, global spread of this kind of scheme.”
The Better Business Bureau of Central North Carolina was warning people that Zeek Rewards looked sketchy in the time leading up to its implosion. Based on consumer concerns, the BBB office in Greensboro advised people to be cautious, said local agency President Kevin Hinterberger.
“The returns they were promising were way out of line with anything else out in the market,” Hinterberger said.
Holliman said the only positive outcome of the pyramid scheme may be that it serves as a cautionary example for future ones.
“I hope a lot more people will be careful what they invest in. They need to be more skeptical. That’s the only good thing that could come out of this,” Holliman said.
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The receiver overseeing the recovery of money from the Zeek Rewards pyramid scheme is taking claims online through Sept. 5. Claims can be filed through the website www.zeekrewardsreceivership.com — the case is through the U.S. District Court for the Western District of North Carolina.