If you’ve been following us here at Beezid Scam, then you already know that penny auction sites like Beezid frequently get a bad rap…usually from people who don’t properly understand the business model and think it all sounds a little too good to be true.
Beezid Scam and sites like it exist to educate people on the facts: how penny auctions work, what the real risks are, and how people can use strategy to minimize those risks and be successful.
But that doesn’t mean there are no penny auction scams out there.
Case in point: just last Friday, the U.S. Securities and Exchange Commission brought fraud charges against Paul Burks, owner of penny auction site Zeekler, alleging that his company Rex Venture Group was running a $600 million Ponzi scheme.
For those unfamiliar, Zeekler offered a unique profit sharing system to its members through a sister site, ZeekRewards. Members could invest money and earn reward points redeemable for cash payouts. Theoretically, investors were entitled to up to 50% of the company’s daily profits.
This system, however, turned out to be a Ponzi scheme: the company massively misrepresented its value, with virtually all returns paid out to investors coming not from company profits, but from new investors wanting to buy into the program.
Schemes like this are ultimately unsustainable, because as more and more investors participate, ever larger amounts of money are needed to meet obligations to them. When the company can no longer bring in enough new investors to pay the current ones, the whole scheme collapses.
And this is what nearly happened with ZeekRewards. Last month, the company made $162 million while paying out $160 million to investors—outflow that could easily exceed revenue if investors continued to redeem reward points for cash payouts rather than reinvesting their money.
“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,” said Stephen Cohen, of the SEC’s Division of Enforcement. “In reality, their cash was just going to the earlier investor.”
As a result, the SEC has frozen nearly $225 million in investor funds under an emergency asset freeze granted by a federal court in Charlotte, North Carolina.
As part of a settlement—in which he has neither denied nor admitted to the charges—Burks has agreed to pay a $4 million penalty and cooperate with a court-appointed receiver to ensure that ZeekRewards’ remaining assets are properly managed and distributed to investors.
The moral of the story, as we’ve said before, is that you always need to be informed before you start spending money.
Penny auctions are an amazing opportunity to save, and there are legit sites out there—Beezid, BidCactus, Quibids, and others. But you need to do your homework and know what you’re getting into first.
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