ZeekRewards founder arraigned in $850 million scam
Nov. 13, 2014
CHARLOTTE, N.C. (AP) — A North Carolina man who prosecutors say masterminded an $850 million Internet-based Ponzi scheme pleaded not guilty Thursday to federal charges of wire and mail fraud, conspiracy and tax fraud.
Paul Burks, 67, was arraigned before U.S. Magistrate David Cayer in U.S. District Court in Charlotte.
Dressed in a business suit and tie, Burks sat quietly as Cayer read the charges. If convicted, he could face a sentence of 65 years in prison and a $1 million fine.
When Cayer asked Burks about a plea, his attorney, Noell Tin said his client was innocent. A trial date is pending.
Cayer then released Burks on $25,000 bond.
Burks was president of ZeekRewards and the online penny auction site Zeekler.com, which he operated in a one-story brick building in Lexington, North Carolina.
The company was shut down by the U.S. Securities and Exchange Commission in 2012. Prosecutors say Burks and his conspirators had used the promise of massive profits to lure more than 1 million investors, including nearly 50,000 in North Carolina.
Authorities said Burks diverted more than $10 million to himself.
The former nursing-home magician and country music disc jockey told The Associated Press last year that he never asked people to invest more money than they could afford.
After the arraignment, Tin said Burks "did not commit any crime. We look forward to presenting our case in court."
Burks ignored questions about his role and the scheme's impact on victims.
Two of his assistants have already pleaded guilty to related charges and await sentencing.
A federal court-appointed receiver, Kenneth Bell, has been trying to recoup money from ZeekRewards executives and investors who made money in the scam.
Investigators have recovered $320 million so far and have sued 9,000 people to collect about $200 million more.
The SEC closed ZeekRewards on Aug. 17, 2012, accusing Burks in a civil complaint of fraud. Burks agreed to pay a $4 million penalty and cooperate with the receiver.
But until three weeks ago — when Burks was indicted — victims wondered if he would ever face criminal charges. After ZeekRewards, Burks moved from Lexington to a house in an upscale community on the outskirts of Winston-Salem.
"I think many of us had feared Paul Burks would not face prosecution. I'm relieved to know he will face justice," said Caron Myers of Lexington who lost money.
She knew dozens of people in the community who also got sucked in — including one family that invested to help pay for mounting medical bills for their young daughter with leukemia. That family is still struggling.
After years of creating multilevel marketing ventures, Burks in January 2010 launched Zeekster.com, a penny auction site, and ZeekRewards, a business designed to drive traffic to the penny auction. Burks promised investors returns of up to 125 percent.
But long before ZeekRewards, Burks, who grew up in Louisiana, worked as a country music disc jockey and sold products for Amway and other multilevel marketing companies. He also became friends with country singer David Houston, who had a string of country hits in the 1960 and 1970s.
In the 1980s, Houston began performing at nursing homes, saying he wanted to give something back to the community. Burks joined him, opening as a magician who also sometimes sang and told jokes. He worked with Houston until the country singer's death in 1993. At the time of Houston's death, Burks was living in Lexington, his wife's hometown.