GOLD MINE PROMOTERS CHARGED WITH FRAUD, TARGETED SPANISH, PORTUGUESE COMMUNITIES IN U.S.

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
07/02/2015 01:10 PM EDT

The Securities and Exchange Commission announced fraud charges and an asset freeze against the operators of a pyramid and Ponzi scheme falsely promising a gold mine of investment opportunity to investors in Spanish and Portuguese-speaking communities in Massachusetts, Florida, and elsewhere in the U.S.

The SEC alleges that DFRF Enterprises, named for its founder Daniel Fernandes Rojo Filho, claimed to operate more than 50 gold mines in Brazil and Africa, but the company’s revenues came solely from selling membership interests to investors and not from mining gold.  With the help of several promoters, they lured investors with such false promises as their money would be fully insured, DFRF has a line of credit with a Swiss private bank, and one-quarter of DFRF’s profits are used for charitable work in Africa.  The scheme raised more than $15 million from at least 1,400 investors by recruiting new members in pyramid scheme fashion to keep the fraud afloat, and commissions were paid to earlier investors in Ponzi-like fashion for their recruitment efforts.  The SEC further alleges that Filho has withdrawn more than $6 million of investor funds to buy a fleet of luxury cars among other personal expenses.

“DFRF and its operators falsely claimed that they were running a lucrative gold mining business when in reality they were operating a Ponzi and pyramid scheme that preyed on investors in particular ethnic communities who stand to lose millions of dollars,” said John T. Dugan, Associate Regional Director of the SEC’s Boston Regional Office.  “Investors were not given the full story about the true value and security of their investments.”

According to the SEC’s complaint filed June 30 and unsealed today in federal court in Boston, Filho is a Brazilian native who lives in Winter Garden, Fla., and he orchestrated the scheme with assistance from six promoters also charged in the case: Wanderley M. Dalman of Revere, Mass.; Gaspar C. Jesus of Malden, Mass.; Eduardo N. Da Silva of Orlando, Fla.; Heriberto C. Perez Valdes of Miami; Jeffrey A. Feldman of Boca Raton; and Romildo Da Cunha of Brazil.

The SEC alleges that Filho and others began selling “memberships” in DFRF last year through meetings with prospective investors primarily in Massachusetts hotel conference rooms, private homes, and businesses.  DFRF promoted the investment opportunity through online videos in which Filho falsely claimed that the company had registered with the SEC and its stock would be publicly traded.  As DFRF’s marketing reach widened, membership sales dramatically increased from under $100,000 in June 2014 to more than $4 million in March 2015 alone.

The SEC’s complaint alleges that all defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act.

The SEC’s investigation was conducted by Caitlyn M. Campbell, Mark Albers, John McCann, Frank C. Huntington, and Michele T. Perillo of the SEC’s Boston Regional Office, and assisted by Carlos Costa-Rodrigues in the agency’s Office of International Affairs.

The SEC appreciates the assistance of the U.S. Attorney’s Office for the District of Massachusetts, the Boston field office of the Federal Bureau of Investigation, the Massachusetts Securities Division of the Massachusetts Secretary of Commonwealth’s office, the Office of the Commissioner of Financial Institutions of the Commonwealth of Puerto Rico, the British Columbia Securities Commission, the Swiss Financial Market Supervisory Authority, the Financial Services Commission  of Barbados, and the United Kingdom Financial Conduct Authority.

SEC ANNOUNCES CHARGES AGAINST ALLEGED FRAUDSTERS TARGETING LATINO COMMUNITIES

 FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23209 / February 27, 2015
Securities and Exchange Commission v. Tropikgadget FZE, et al., Civil Action No. 1:15 cv 10543-IT (United States District Court for the District of Massachusetts)

SEC Charges Operators of International Pyramid Scheme Targeting Latino Communities

The Securities and Exchange Commission today announced that it filed charges against three company officers and 12 promoters behind an international pyramid scheme targeting Latino communities in the U.S. The agency also obtained a court order to freeze the assets of the company officers, promoters, and related parties.

In a complaint filed February 25, 2015 in federal court in Boston that was unsealed yesterday, the SEC alleges that the Portuguese companies - operating under the name Wings Network - claimed to run a multi-level marketing company that offered digital and mobile solutions to customers, including apps and cloud storage. However, Wings Network's revenues actually came solely from selling memberships to investors, not from the sale of any products. The company relied upon the recruitment of new members, and commissions were paid to earlier investors with money received from later investors. The scheme raised at least $23.5 million from thousands of investors, including many in Brazilian and Dominican immigrant communities in Massachusetts.

According to the SEC's complaint, the scheme was orchestrated by Wings Network officers Sergio Henrique Tanaka of São Paulo, Brazil and Davie, Fla., Carlos Luis da Silveira Barbosa of Lisbon, Portugal, and Claudio de Oliveira Pereira Campos of Lisbon, Portugal. After establishing a network of lead promoters, recruitment of new members surged through the use of social media such as Facebook and YouTube. The promoters used Facebook to publicize "business meetings" that took place at hotels and other locations in Connecticut, California, Florida, Massachusetts, Pennsylvania, Texas, Georgia, and Utah. The promoters also set up storefronts or "training centers" to lure investors into attending Wings Network presentations. For example, one promoter used a storefront in downtown Philadelphia to make presentations to prospective investors, and another promoter rented office space in Pompano Beach, Fla., and spread the word in the local Latino community to attract prospective investors to come in and hear presentations.

Several of the scheme's promoters charged in the SEC's complaint live in Marlborough, Mass., while others reside in Clinton, Mass., Sandy, Utah, Duluth, Ga., and Waco, Texas.

The SEC's complaint alleges that the Portuguese entities and principals Tanaka, Barbosa and Campos violated antifraud provisions Section 17(a) of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10-b-5 thereunder, and registration provisions Section 5(a) and 5(c) of the Securities Act, and that the promoter defendants violated Section 5(a) and 5(c) of the Securities Act.

The SEC's investigation was conducted by Scott R. Stanley, Dawn Edick, John McCann, Deena Bernstein, and Amy Gwiazda of the SEC's Boston Regional Office. The SEC's litigation will be led by Ms. Bernstein.

The SEC appreciates the assistance of the Massachusetts Securities Division of the Massachusetts Secretary of the Commonwealth's office, which previously filed its own action against Wings Network and other parties, as well as the Comissão do Mercado de Valores Mobiliários of Portugal and the Procuradoria-Geral da República of Portugal.

SEC SHUTS DOWN ALLEGED PYRAMID AND PONZI SCHEME THAT USED 'TRIPLE ALGORITHM' AND '3-D MATRIX'

FROM:  U.S. SECURITIES  AND EXCHANGE COMMISSION 

The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze against two operators of a Colorado-based pyramid and Ponzi scheme that promises investors extraordinary returns of 700 percent through a purported “triple algorithm” and “3-D matrix.”

In a complaint unsealed yesterday afternoon in federal court in Denver, the SEC alleges that Kristine L. Johnson of Aurora, Colo., and Troy A. Barnes of Riverview, Mich., have raised more than $3.8 million since April 2014 from investors they enticed into buying positions in their company Work With Troy Barnes Inc., which is doing business as “The Achieve Community.”  In Internet videos and other web promotions, investors were pitched “you and anyone you know can make as much money as you want” by purchasing positions that cost $50 each, and as they progress through the matrix they would receive a $400 payout on each position within three to six months.  Barnes claimed to have hired a seasoned programmer to perfect the triple algorithm investment formula supposedly generating the extraordinary returns.

The SEC alleges that while Johnson and Barnes explicitly claimed their program was not a pyramid scheme, their company has no legitimate business operations and they are merely paying purported investment returns to earlier investors as they receive funds from new investors.  Meanwhile, Johnson and Barnes have been making cash withdrawals of investor funds for such personal uses as buying a new car and paying credit card bills.

“Johnson and Barnes allegedly claim to be operating a successful investment program when in fact they are taking funds from new investors to pay phony profits to earlier investors,” said Julie Lutz, Director of the SEC’s Denver Regional Office.

The SEC’s complaint alleges that Work With Troy Barnes, Johnson, and Barnes violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  The SEC’s complaint names Achieve International LLC as a relief defendant for the purpose of recovering ill-gotten gains from the scheme in its accounts.  The Honorable Robert E. Blackburn, U.S. District Judge for the District of Colorado, granted a temporary restraining order that in part freezes the assets of Johnson, Barnes, and their company.  

The SEC’s investigation, which is continuing, is being conducted by Jeffrey Felder, Kerry Matticks, and Jay A. Scoggins in the Denver office.  The SEC’s litigation is being led by Nicholas Heinke of the Denver office.  The SEC appreciates the assistance of the Colorado Division of Securities.

ONE ARRESTED, ANOTHER SOUGHT AS A FUGITIVE FOR ROLES IN PYRAMID SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Criminal Charges Filed Against Two Principals of Massachusetts-Based Telexfree

On Friday, May 9, 2014, the U.S. Attorney for the District of Massachusetts charged James M. Merrill, of Ashland, Massachusetts, and Carlos N. Wanzeler, of Northborough, Massachusetts, with conspiracy to commit wire fraud in connection with the alleged TelexFree pyramid scheme previously charged by the Securities and Exchange Commission. Federal authorities arrested Merrill on Friday, and an arrest warrant was issued for Wanzeler, who the Department of Justice announced is a fugitive. The Department of Justice also announced it has executed 37 seizure warrants seizing assets relating to the fraudulent pyramid scheme.

The criminal charges against Merrill and Wanzeler related to the same conduct charged in a civil enforcement action filed by the SEC on Tuesday, April 15, 2014, against Merrill, Wanzeler, and others. Those charges were filed under seal, in connection with the Commission's request for an immediate asset freeze. That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, April 16, secured millions of dollars of funds and prevented the potential dissipation of investor assets. After the SEC staff implemented the asset freeze, at the SEC's request the Court lifted the seal on April 17. On April 30, 2014, the Court entered preliminary injunctions extending the asset freeze as to defendants Santiago De La Rosa, of Lynn, Massachusetts, and Randy N. Crosby, of Alpharetta, Georgia. On May 8 and 9, the Court entered preliminary injunctions extending the asset freeze as to all the remaining defendants (Merrill, Wanzeler, TelexFree, Inc., TelexFree, LLC, Joseph H. Craft, of Boonville, Indiana, Steve Labriola, of Northbridge, Massachusetts, Faith R. Sloan, of Chicago, Illinois, and relief defendants (TelexFree Financial, Inc., TelexElectric, LLLP, and Telex Mobile Holdings, Inc.).

 The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme. In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds. According to the SEC's complaint filed in federal court in Massachusetts, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites. The SEC complaint alleges that TelexFree's VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters. As a result, in classic pyramid scheme fashion, TelexFree was paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

In related proceedings, on May 6, 2014, the U.S. Bankruptcy Court in the District of Nevada granted the SEC's motion to transfer venue of those proceedings from Nevada to Massachusetts. The SEC had contended that the TelexFree entities hastily filed for bankruptcy in Nevada on Sunday night, April 13, 2014, in a transparent attempt to avoid Massachusetts. The SEC had noted that TelexFree does virtually no business in Nevada but rather was headquartered in Marlborough, Massachusetts. The SEC also argued that TelexFree did not have a legitimate business capable of reorganization under the bankruptcy code. The bankruptcy case will be transferred to Massachusetts for all further proceedings.

SEC CHARGES OPERATORS OF ALLEGED PYRAMID SCHEME TARGETING DOMINICAN AND BRAZILIAN IMMIGRANTS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced that on Tuesday it filed charges against the Massachusetts-based operators of a large pyramid scheme that mainly targeted Dominican and Brazilian immigrants in the U.S.  The charges were filed under seal, in connection with the Commission’s request for an immediate asset freeze.  That asset freeze, which the U.S. District Court in Boston ordered on Wednesday, secured millions of dollars of funds and prevented the potential dissipation of investor assets.  After the SEC staff implemented the asset freeze, at the SEC’s request the court lifted the seal today, permitting public announcement of the SEC’s charges.

The SEC alleges that TelexFree, Inc. and TelexFree, LLC claim to run a multilevel marketing company that sells telephone service based on “voice over Internet” (VoIP) technology but actually are operating an elaborate pyramid scheme.  In addition to charging the company, the SEC charged several TelexFree officers and promoters, and named several entities related to TelexFree as relief defendants based on their receipt of investor funds.

According to the SEC’s complaint, the defendants sold securities in the form of TelexFree “memberships” that promised annual returns of 200 percent or more for those who promoted TelexFree by recruiting new members and placing TelexFree advertisements on free Internet ad sites.  The SEC complaint alleges that TelexFree’s VoIP sales revenues of approximately $1.3 million from August 2012 through March 2014 are barely one percent of the more than $1.1 billion needed to cover its promised payments to its promoters.  As a result, in classic pyramid scheme fashion, TelexFree is paying earlier investors, not with revenue from selling its VoIP product but with money received from newer investors.

“This is one of several pyramid-scheme cases that the SEC has filed recently where parties claim that investors can earn profits by recruiting other members or investors instead of doing any real work,” said Paul G. Levenson, director of the SEC’s Boston Regional Office.  “Even after the SEC and other regulators have alleged that such programs are a fraud, the promoters of TelexFree continued selling the false promise of easy money.”

According to the SEC’s complaint, the defendants have continued enrolling new investors but recently changed TelexFree’s method of compensating promoters, requiring them to actually sell the VoIP product to qualify for payments that TelexFree had previously promised to pay them.  The complaint also alleges that since December 2013, TelexFree has transferred $30 million or more of investor funds from TelexFree operating accounts to accounts controlled by TelexFree affiliates or the individual defendants.

In addition to the TelexFree firms, the complaint charges TelexFree co-owner James Merrill, of Ashland, Mass., TelexFree co-owner and treasurer Carlos Wanzeler, of Northborough, Mass., TelexFree CFO Joseph H. Craft, of Boonville, Ind., and TelexFree’s international sales director, Steve Labriola, of Northbridge, Mass.  The SEC also charged four individuals who were promoters of TelexFree’s program:  Sanderley Rodrigues de Vasconcelos, formerly of Revere, Mass., now of Davenport, Fla., Santiago De La Rosa, of Lynn, Mass., Randy N. Crosby, of Alpharetta, Ga., and Faith R. Sloan of Chicago.  The SEC’s complaint alleges that TelexFree, Inc., TelexFree, LLC, Merrill, Wanzeler, Craft, Labriola, Rodrigues de Vasconcelos, De La Rosa, Crosby, and Sloan violated the registration and antifraud provisions of U.S. securities laws and the SEC’s antifraud rule. The SEC also charged three entities related to TelexFree as relief defendants based on their receipt of investor funds.

The SEC’s investigation was conducted by Scott R. Stanley, James M. Fay, Mark Albers, John McCann, Frank Huntington, and Kevin Kelcourse, all of the SEC’s Boston Regional Office.

SEC HALTS PONZI SCHEME TARGETING ASIAN AND LATINO COMMUNITIES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION

The Securities and Exchange Commission today announced charges and asset freezes against the operators of a worldwide pyramid scheme targeting Asian and Latino communities in the U.S. and abroad.

The SEC alleges that three entities collectively operating under the business names WCM and WCM777 are posing as multi-level marketing companies in the business of selling third-party cloud computing services, which can include website hosting, data storage, and software support.  The entities are based in California and Hong Kong and controlled by “Phil” Ming Xu, who is a resident of Temple City, California.

According to the SEC’s complaint filed in federal court in Los Angeles, WCM and WCM777 have raised more than $65 million since March 2013 by falsely promising tens of thousands of investors that the return on investment in the cloud services venture would be 100 percent or more in 100 days.  Investors were told they would receive “points” for making investments or enrolling other investors.  The points would be convertible into equity in initial public offerings of high-tech companies their money would help launch.  However, rather than building out cloud services or incubating high-tech companies, Xu and the WCM entities used investor funds to make Ponzi payments of purported investment returns to some investors.  They also spent investor money to purchase golf courses and other U.S.-based properties among other unauthorized expenditures.

The court has granted the SEC’s request for an asset freeze and the appointment of a temporary receiver over the assets of WCM, WCM777, and several other entities named as relief defendants for the purpose of recovering money from the scheme in their possession.

“Xu and his entities claimed they were using investor funds to build a strong cloud services company that would then ignite other high-tech companies and ultimately make their investors very wealthy,” said Michele Wein Layne, director of the SEC’s Los Angeles Regional Office.  “In reality, they were operating a pyramid scheme that preyed on investors in particular ethnic communities, leaving them with nothing left to show for their investment.”

According to the SEC’s complaint, WCM and WCM777 sell their products exclusively to investors and have no other apparent sources of revenue.  Their offerings and operations depend almost entirely on the recruitment of new investors and purchases by existing investors to provide the money for returns.  On its website, WCM777 specifically addressed the question “Is WCM777 a Ponzi Game?” by writing, “In summary, we are not a Ponzi game company. We are creating a new business model.”

The SEC alleges that Xu and his entities made various false claims to investors about purported partnerships with more than 700 major companies such as Siemens, Denny’s, and Goldman Sachs – in some instances falsely representing that they had permission to use their logos.  Meantime, besides buying two golf courses with investor money, Xu and his entities also purchased a warehouse, vacant land, and several single family homes  They also used investor funds to play the stock market and make other related investments through intermediary companies, such as an oil and gas offering.  They also sent investor money to a rough diamond jewel merchant in Hong Kong and another unrelated company affiliated with Xu.

The SEC’s complaint alleges that WCM, WCM777, and Xu violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5.  The complaint further alleges that Xu violated Section 20(a) of the Exchange Act.  In addition to the asset freezes and appointment of a temporary receiver, the Honorable Christina A. Snyder also granted the SEC’s request for an order prohibiting the destruction of documents and requiring the defendants to provide accountings. A court hearing has been scheduled for April 10, 2014.

The SEC’s investigation has been conducted by Peter Del Greco, Maria Rodriguez, and Marc Blau of the Los Angeles office.  The SEC’s litigation will be led by John Bulgozdy.  

COURT ACTS TO STOP FRAUDULENT PYRAMID SCHEME ON FACEBOOK, TWITTER

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission announced an emergency enforcement action to stop a fraudulent pyramid scheme by phony companies masquerading as a legitimate international investment firm.

The SEC has obtained a federal court order to freeze accounts holding money stolen from U.S. investors by Fleet Mutual Wealth Limited and MWF Financial – collectively known as Mutual Wealth.  The SEC alleges that Mutual Wealth has been exploiting investors through a website and social media accounts on Facebook and Twitter, falsely promising extraordinary returns of 2 to 3 percent per week for investors who open accounts with the firm.  Mutual Wealth purports to invest customer funds using an “innovative” high-frequency trading strategy that allows “capital to be invested into securities for no more than a few minutes.”  In classic pyramid scheme fashion, Mutual Wealth encourages existing investors to become “accredited advisors” and recruit new investors in exchange for a referral fee or commission.

According to the SEC’s complaint filed in U.S. District Court for the Central District of California, almost nothing that Mutual Wealth represents to investors is true.  The company does not purchase or sell securities on behalf of investors, and instead merely diverts investor money to offshore bank accounts held by shell companies.  Mutual Wealth’s purported headquarters in Hong Kong does not exist, nor does its purported “data-centre” in New York.  Mutual Wealth also lists make-believe “executives” on its website, and falsely claims in e-mails to investors that it is “registered” or “duly registered” with the SEC.  Approximately 150 U.S. investors have opened accounts with Mutual Wealth and collectively invested a total of at least $300,000.

“Mutual Wealth used Facebook and Twitter as well as a team of recruiters to spread a steady stream of lies that tricked investors out of their money,” said Gerald W. Hodgkins, an associate director in the SEC’s Division of Enforcement.  “Fortunately we were able to quickly trace the fraud overseas and obtain a court order requiring Mutual Wealth to shut down its website before the scheme gains more momentum.”

According to the SEC’s complaint, Mutual Wealth operates through entities in Panama and the United Kingdom and uses offshore bank accounts in Cyprus and Latvia and offshore “payment processors” to divert money from investors.  Mutual Wealth’s sole director and shareholder presented forged and stolen passports and a bogus address to foreign government authorities and payment processors.

The SEC alleges that Mutual Wealth leverages the scope and reach of social media to solicit investors with its fraudulent pitch.  Mutual Wealth maintains Facebook and Twitter accounts that link to its website and serve as platforms through which it lures new investors.  Some of Mutual Wealth’s “accredited advisors” then use social media channels ranging from Facebook and Twitter to YouTube and Skype to recruit additional investors and earn referral fees and commissions.  Mutual Wealth’s Facebook page spreads such misrepresentations as “HFT portfolios with ROI of up to 250% per annum.  Income yield up to 8% per week.”  A Facebook post on Aug. 12, 2013, boasted “$1000 investment into the Growth and Income Portfolio made on April 8th, 2013 is now worth $2,112.77.”  Mutual Wealth regularly posts status updates for investors on its Facebook page, and the comment sections beneath the posts are often filled with solicitations by the accredited advisors.  Mutual Wealth also tweets announcements posted on its Facebook page.

The SEC’s complaint charges Mutual Wealth with violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5.  For the purposes of recovering investor money in their possession, the complaint names several relief defendants linked to offshore accounts to which investor funds were diverted from the scheme: Risort Partners Inc., Hullstar Capital LLP, Camber Alliance LLP, Kimrod Estate LLP, and Midlcorp Trade LTD.

The Honorable Dolly M. Gee has granted the SEC’s request for a court order deactivating Mutual Wealth’s website and freezing assets in all accounts at any bank, financial institution, brokerage firm, or third-payment payment processor (including those commercially known as SolidTrust Pay, EgoPay, and Perfect Money) maintained for the benefit of Mutual Wealth.

The SEC’s investigation, which is continuing, has been conducted by H. Norman Knickle and Mark M. Oh and supervised by Conway T. Dodge.  The SEC’s litigation will be led by Melissa Armstrong and Mr. Knickle.  The SEC appreciates the assistance of the Federal Bureau of Investigation, Financial and Capital Market Commission of Latvia, Ontario Securities Commission, and Cyprus Securities and Exchange Commission.

A FAMILY WORKING TOGETHER IN A PYRAMID AND PONZI ENTERPRISE

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

SEC Charges Woman and Stepson for Involvement in Zeekrewards Pyramid and Ponzi Scheme; Parallel Criminal Charges and Plea Agreements Also Announced

On December 20, 2013, the Securities and Exchange Commission filed suit in the United States District Court for the Western District of North Carolina against Dawn Wright-Olivares and Daniel Olivares for their roles in perpetrating the fraudulent unregistered offer and sale of securities through Rex Venture Group LLC d/b/a ZeekRewards.com, an internet-based combined Ponzi and pyramid scheme. According to the Complaint, from approximately January 2011 until August 2012 when the ZeekRewards website was shut down, Rex Venture Group raised more than $850 million from approximately one million internet customers nationwide and overseas through the website. Both defendants have agreed to settle the Commission’s allegations against them, and their settlement papers were submitted to the Court for its consideration.

The Complaint alleged that defendants solicited investors through the internet and other means to participate in the ZeekRewards program, a self-described “affiliate advertising division” for the companion website, Zeekler.com, through which the defendants operated penny auctions. The ZeekRewards program offered customers several ways to earn money, two of which — the “Retail Profit Pool” and the “Matrix” — involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.

According to the Complaint, Wright-Olivares and others lured investors to ZeekRewards by promising investors a share of the company’s daily net profits in the form of daily profit share awards. The company’s purported calculations consistently resulted in daily award averaging approximately 1.5 percent per day, fraudulently conveying the false impression that the company was extremely profitable. In fact, the daily award percentage was fabricated and investor payouts bore no relation to the company’s net profits. Approximately 98% of ZeekRewards’ total revenues and the “net profits” paid to investors were comprised of funds received from new investors in classic Ponzi scheme fashion. When the company was shut down in August 2012, it was teetering on collapse.

The Complaint further alleged that Wright-Olivares conceived of the idea for operating penny auctions, helped develop the technical specifications for the Zeekler.com program and its key features, marketed ZeekRewards to investors, managed some of RVG’s operations, and helped design and implement features that concealed the fraud. She was a principal spokesperson for ZeekRewards, and she also served as chief operating officer from September 2011 to June 2012. For the duration of the company’s existence, Olivares was the chief architect of the company’s computer databases that tracked all investments (including subscription and bid purchases), managed the electronic operations, and perpetuated the illusion of a successful retail business.

The Commission alleged that Wright-Olivares offered and sold securities in violation of the registration provisions of Section 5 of the Securities Act, and both defendants violated the antifraud provisions of the Section 17 of the Securities Act and Section 10(b) of the Securities Exchange Act and Rule 10b-5 thereunder. The Complaint requested permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against the defendants. Without denying the allegations—and while also admitting the facts set forth in the Factual Summary filed contemporaneously with their respective plea agreements in the parallel criminal case — both defendants have agreed to settle the Commission’s charges against them, and their settlement papers were submitted to the Court for its consideration. In particular, both consented to permanent injunctions against future violations of the respective registration and antifraud provisions with which they were each charged. Wright-Olivares also agreed to disgorge at least $8,184,064.94 and Olivares agreed to disgorge at least $3,272,934.58 — amounts that represent the entirety of their ill-gotten gains plus prejudgment interest. In light of their anticipated incarceration, no civil penalty will be imposed. The settlements are subject to approval by the court. In a parallel action, the U.S. Attorney’s Office for the Western District of North Carolina simultaneously announced criminal charges against, and plea agreements by, the pair.

The SEC acknowledges the assistance of the United States Attorney’s Office for the Western District of North Carolina and the United States Secret

PYRAMID AND PONZI FINANCIAL SCHEMES



Chart From:  U.S. Securities And Exchange Commission

FROM: U.S. SECURITIES AND EXCHANGE COMMISSION

Pyramid Scheme

In the classic "pyramid" scheme, participants attempt to make money solely by recruiting new participants. The hallmark of these schemes is the promise of sky-high returns in a short period of time.

Pyramid scheme promoters may go to great lengths to make the program look like a multi-level marketing program selling legitimate products or services. But these fraudsters use money from new recruits to pay off early stage investors until eventually, the pyramid collapses. At some point, the schemes get too big, the promoter cannot raise enough money from new investors to pay earlier investors, and people lose their money.

Typical "hook
Earn high profits by making one payment and finding a set number of others to become distributors of a product. The scheme typically does not involve a genuine product. The purported product may not exist or it may only be "sold" within the pyramid scheme

Interaction with original promoter

Must recruit new distributors to receive payments.

Payments

Sometimes none. New participants may enter scheme at a different level

Source of payments

From new participants – always disclosed.

　

Ponzi Scheme

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme.

Ponzi scheme "red flags"
Many Ponzi schemes share common characteristics. Look for these warning signs:
High returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any "guaranteed" investment opportunity.
Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.
Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.
Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.
Secretive, complex strategies. Avoid investments if you don’t understand them or can’t get complete information about them.
Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.
Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.
　
Typical "hook"

Earn high investment returns with little or no risk by simply handing over your money; the investment typically does not exist.

Payments

No recruiting necessary to receive payments.

Interaction with original promoter

Promoter generally acts directly with all participants.

Source of payments

From new participants – never disclosed.