The US securities watchdog said today it had shut down ZeekRewards.com because it was a “massive" Ponzi scheme on the verge of collapse.
ZeekRewards, which describes itself as a “private, invitation-only, affiliate advertising division” of penny auction site Zeekler, had attracted more than $600 million from more than one million investors around the world since it was set up by online marketer Paul Burks in January 2011, the Securities and Exchange Commission said in a statement.
Reuters reported that ZeekRewards promised investors up to 50 percent of “daily net profits” through a rewards points system, creating the false impression that the company was profitable.
But in reality 98 percent of revenue and so-called net profits paid to earlier investors came from newer investors.
"ZeekRewards misused the power of the Internet and lured investors by making them believe they were getting an opportunity to cash in on the next big thing," the SEC said in a statement.
"The obligations to investors drastically exceed the company's cash on hand, which is why we need to step in quickly, salvage whatever funds remain and ensure an orderly and fair payout to investors."
A message on the ZeekRewards.com website said it was “currently unavailable.”
CNN Money said the SEC had frozen about $225 million in investor funds that remained in the ZeekRewards’ bank accounts.
Burks has paid a $4 million fine to settle the case but has not admitted wrongdoing. He could face criminal charges.
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