How can 1 million people be this dumb?
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By Al Lewis | MarketWatch – <abbr title="2012-08-22T14:20:54Z" style="border: 0px; font-variant: normal; ">3 hours ago</abbr></cite>
DENVER (MarketWatch) — Ponzi scheme news was everywhere by January 2011.
Bernie Madoff and R. Allen Stanford were behind bars. Regulators had uncovered so many similar financial frauds it was starting to look like a pandemic. Even celebrities, including actor Kevin Bacon and former Denver Broncos quarterback John Elway, were fleeced.
How is it, then, that beginning in January 2011 an old multilevel marketing hack named Paul Burks of Lexington, N.C., was able to lure 1 million investors into what regulators now call a $600 million Ponzi scheme?
According to a civil fraud complaint that the Securities and Exchange Commission filed on Friday, Burks was able to accomplish all this in less than 20 months. This is nothing short of mind-blowing in an era when people should have known to keep their guard up. Read more on MarketWatch.
Burks, 65 years old, isn’t commenting. His Texas-based communications consultant, Clifton Jolley, said he has agreed to settle the charges without admitting nor denying the allegations, and that he is cooperating with a court-appointed receiver of his company’s remaining assets.
Burks, who is alleged to have siphoned off $11 million from the scheme, agreed to relinquish his companies and pay a $4 million penalty. The SEC said Burks’ companies were on the verge of collapse, and that the agency froze all of their assets in hopes of returning money to victims.
It was a cockamamie idea that involved an “affiliate advertising” website called ZeekRewards.com and a penny auction website called Zeekler.com.
ZeekRewards logo“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,” Stephen Cohen, an associate director in the SEC’s Division of Enforcement, explained in a press release. “In reality, their cash was just going to the earlier investor.”
The SEC called it both a “pyramid and Ponzi scheme,” a slick hybrid of fraudulent investment and dubious multilevel marketing practices. Just think: Victims not only put down their money but recruited their friends, too.
The game was to accumulate reward points that could be redeemed for cash payouts, but there were always incentives to reinvest the points, including “VIP Points.” Oooh, VIP Points!
I know it is impolitic to poke fun at fraud victims. And I don’t mean to point a finger of blame at anyone in particular. But there is something about this case that makes me want to scream, “How can 1 million people be this dumb?”
The answer seems to be a toxic combination of financial desperation, greed, sales-culture brainwashing, misplaced faith and the power of positive thinking. In August 2011, Burks wrote a rambling online letter to his many “affiliates” informing them of some changes to the reward system that were designed to cover his legal gluteus maximus.
“We hired the top [multi-level marketing] consultant in the industry ... and we hired the top MLM Law Firm ... to analyze everything we are doing in light of recent litigation and advise us where we might be vulnerable to regulatory attack,” he wrote.
“I just want you to understand that the sky is NOT falling,” Burks concluded. “The future is VERY bright. Grab your shades and let’s go there together! To your MASSIVE success.”
To the indoctrinated, this online letter was not a red flag, but reassurance. The comments some affiliates posted beneath Burks’s letter provide an easy explanation of how an alleged $600 million online Ponzi scheme, involving 1 million victims, came together in less than 20 months. Here are some of those comments:
• “I have heard people who said things like zeekrewards is a money game. I did not see it that way otherwise, as they say, I would have not touched it with a nine foot pole. I am glad you allowed the lawyers to look it over. That speaks volumes to what kind of man you are.”
• “I have been in the legal industry for 12.5 years and I can say I think you have made a FANTASTIC decision to be proactive with these type of business issues.”
• “I live in Hickory, N.C. We are most fortunate to have this great company in our backyard. Many, many thanks!”
• “I’m a very honest PERSON! By you putting all this in place ... tells me you are a honest company that is here for the people!”
• “As one of your very grateful affiliates, have you made provisions that just in case (God forbids) anything happens to you that you cannot continue to function as our most able CEO...?”
• “Thank you so much Mr. Burks for putting most of our questions to rest. I wake up every morning with a big smile on my face because I am so grateful to be a part of this incredibly exciting company!”
• “Before i found this co i was struggling very bad now i have decided that no one can stop me but me. dream big dreams and they will come true.”
• “I really like your new ideas, and look forward to watching my money grow. ...Prior to connecting with your company, I had an unfortunate introduction to someone on the Internet, who was only out for the money he could steal. He managed to take me for $1,500, right at Christmas time; it’s my own fault, and I don’t blame anyone else, but it sure did teach me a huge lesson. Lord willing, I shall be able to make back what I lost. ...I will be getting married.. Neither my fiancee nor I have anything to start up housekeeping; but we have chosen to just take it one day at a time; depending on Father God to supply our needs, not our greeds.”
Al Lewis is a columnist for Dow Jones Newswires.
