How Do Unique Bid Auctions Really Work, aka Zeek Rewards, DubLi Network, or BidiFy

Over the last 9 to 12 months, we have seen the Unique Bid Auctions start to take off in the USA as well as around the world. DubLi Network was the first to penetrate the US market back in 2009 with their Reverse Auction Platform. However, since 2010, it has been the Penny Auctions which have caught the attention of affiliate marketers, internet marketers and network marketers alike. Plus it has attracted some folks which have been known to join several programs which have been deemed ponzi schemes by the regulators in the USA and abroad. In the next couple of article my goal is to shed some light on the Unique Bid Auction niche and how reverse and penny auctions work.

Two basic forms of Unique Bid Auctions:

1. Penny Auctions – These are known as “Highest Unique Bid Auctions” Zeekler is the most well known due to the fact they use an exclusive hybred affiliate/network marketing arm (Zeek Rewards) to market their penny auctions.

ZeekRewards - The Rewards Program of a Lifetime!Bidify - Homepage

2. Reverse Auctions – These are known as “Lowest Unique Bid Auction” DubLi is the most well known worldwide due to the fact they also use an exclusive network marketing arm (DubLi Network) to market their reverse auctions.

DubLicom Ltd. -- MediaNet Group Technologies

Are Unique Bid Auctions Legal?

This is the #1 question that has face the unique bid niche over the last couple of years. Through some extensive research, several points have become clear.

1. There is not regulation of Unique Bid Auctions at this time in North America or worldwide that I could fine.

2. Due to a lack of regulation there have been several unique bid auctions shut down due to unethical business practices. The USA has is the leader in shutting down any unique bid auction operating in a manner which violates consumers rights.

3. To determine if a unique bid auction is legal is not easy to determine. The regulators use a combination of laws governing gaming, investments, lotteries, business opportunities, and the math (design) of the specific unique bid auction.

If a regulating authority determines that the auction is designed more like a slot machine (games of chance) vs. games of skill (Texas Holdem) then the auction may fall fall under lottery laws.

However, if the regulators find the math algorithms defining the auction strategy are more inline with games of skill, and that the outcome of the auction is mostly in the hands of the bidders, then the regulator may find the auction is completely legal.

Let’s take a look at the math behind the Unique Bid Auctions, which by the way, has been the subject of many studies since about 2007.

Purdue University has a report dated February 2007, which is the oldest I have found on the subject of Unique Penny Auctions. This report was written by F.Thomas Bruss, Guy Louchard, and Mark Daniel Ward (Click here to read)

The Social Science Research Network has a paper written in April 2007 Yaron Raviv (Claremont Colleges – Robert Day School of Economics and Finance), and Gabor Virag (Rotman School of Management) wrote a paper titled “Gambling By Auctions” covers “We provide theoretical and empirical analysis of a selling mechanism used by an Internet web-site that combines important features of auctions and gambling.” (click here to read)

The ACM Digital Library has a fantastic paper, or what I would call a series of papers on ransactions on Algorithms (TALG). It does have a $40 to $50 cost with it, but it does explain the math algorithms in detail. (Click here to purchase)

Munich Personal RePEc Archive, hosts a paper titled “Unique bid auctions: Equilibrium solutions and experimental evidence” , this paper was written in 2007, but was updated in 2009. It is written by Rapoport, Amnon; Otsubo, Hironori; Kim, Bora and Stein, and William E., and explains how these folks constructed the symmetric mixed-strategy equilibrium solutions to the two auctions, and then tested them in a sequence of experiments that vary the number of bidders and size of the strategy space.” (Click here to read)

IDEAS a service hosted by the Economic Research Division of the Federal Reserve Bank of St. Louis, hosts a very good read by Andrea Gallice titled “Lowest Unique Bid Auctions with Signals” which explains that a lowest unique bid auction allocates a good to the agent who submits the lowest bid that is not matched by any other bid. (Click here to read)

Cornell University Library has a paper listed under Computer Science > Computer Science and Game Theory titled “Equilibrium strategy and population-size effects in lowest unique bid auctions” which covers how the lowest unique bid auctions, $N$ players bid for an item. They use a grand canonical approach to derive an analytical expression for the equilibrium distribution of strategies. Then study the properties of the solution as a function of the mean number of players, and compare them with a large dataset of internet auctions. (Click here to read)

In my next article, I will cover the gaming theory behind the Unique Bid Auctions and some of the criticism surrounding this new online auction niche.

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31 thoughts on “How Do Unique Bid Auctions Really Work, aka Zeek Rewards, DubLi Network, or BidiFy”

  1. @Truth or Dare,

    Let me ask a few questions to get a better understanding of what you are suggesting.

    1. If a person joins a company where it costs them $600, personal sponsor 3 people and then those 3 leaders go on and sponsor enough that the original guy has earned $70K that is a ponzi? That is less than $10K per month. I can do that in Primerica and several other network marketing companies. Maybe I am missing something but can you give a little more details

    2. Why do you believe I think Zeek is a ponzi and would not say something? If you have watched every video I have done, read each word I have written then you should know without a shadow of a doubt where I stand. But I am willing to learn from others, so please explain in detail why you feel I know it is a ponzi and that I am not telling folks.

    3. By the way, what ads on my site are Zeekler ads? We do have three or four BidiFy reps who advertise on our site. But sport, my Google Ad Sense and private ads support the bandwidth. If we had to live on our advertising, I would be building a company not reporting on them. 🙂 This is such an antiquated argument. Plus it would be totally unethical and I might be held legal responsible for violating my fiduciary responsibility as a voice in the network marketing community. If you or anyone think I would risk my family for a few bucks, then you might want to get to know a little more about my background in and outside of network marketing.

    4. It is so easy to point fingers at others when you are hiding your true identity.

    Seriously, please give more detail than you have. your opinion is valid because everyone is entitled. But to throw accusations without facts is very immature and dangerous.

  2. Zeek is a ponzi, plain and simple. I know an affiliate that started 8 months ago by putting $600 in to zeek, sponsored 3 people, and now has made over $70,000. Comon guys, wake up! It can't go on forever. It is a ponzi. I believe the owners of mlmhelpdesk know this, but won't say outright because they are making so much money from the ads on this site and the number of people coming here to keep reading the saga of: are zeek etc ponzies or not. All crooks.

  3. Maybe they should auction a mustang every day then…

    There seems to be quite a few auctions every day like the one I mentioned above.

    I would stick with quibids, if you lose the auction the amount you spent on bids goes toward the retail purchase of the item.

    In zeek it evaporates like Solyndra

  4. Gen3Benz,

    Retail bids run between $0.65 – $1.00. If the auction is marked with the penny head icon then each bid is $.65 cents. VIP bids are marked with a "%" sign.

    When a bidder places a bid, they are using a $.65 – $1.00 bid, and the price of the auction rolls up $.01 (one cent).

    So going back to the Mustang auction earlier this year. If I remember right there was a total of 400,000 to 500,000 bids used in that auction. The winner used somewhere around 100 bids. So he or she not sure which, paid $100 to bid, somewhere under $5000.00 which was the winning bid, for a $25K car. The company earned a profit, which it shared with the affiliates who market the Zeekler auctions.

    Now back to your thought above. If you personally were bidding on an auction with a penny head icon, and you were the only one bidding or you were bidding against someone else then you could pay $.65 cents to $1.00 per bid and pay between $237.66 to $349.00 in an auction. However, since the winning bid for the Mustang was made with 100 bids out of 450,000 we can see that the averages do not seem to lean in that direction.

  5. Am i missing something here?

    Do all the retail bids(that are purchased, not won)cost $.65?

    Thats why I assumed if I bid 349 times on an item to win it, then I have paid $237.66 to win the item.

    But they way you described it that I only pay $.65 for the first 5 then each one is $.01 and not a retail bid.

  6. So the only bids that cost $.65 are the first 5, then after that I am charged $.01 each?

    I thought every single bid cost $,65

    So if I had used 349 bids I would have paid $226.85 to win this item plus the shipping and the $.01 per bid total.

    So in the auction above there were a total of 1081 bids, not every bid costs $.65 just the first 5 of each bidder?

  7. @cramoremor

    So your premise is "ZR want you to do promotion, by buying bids and give them away to (somebody). In return, they give you profitpoints, which entitles you to some share of the profit". is that correct?

    So you are in effect, trading bids for profitpoints.

    Which is what I said in the first place.

  8. Gen2Benz,

    Overall I think you have the process down pretty good.

    From what you wrote above, the company will generate $237.66. The winner bidder will pay for their bids plus the final price of $10.81 plus shipping. So if my math is correct they will pay $16.01 plus shipping.

    So, again if my math is right, the winner will pay far less than they would if they bought it at Amazon (even using their own affiliate account) with the free shipping.

    Now as for the total amount generated for the company, I do not see an issue with this at all, since it is the business model. FarmVille, Second Life and other online communities generate far more than this from virtual value, at least these folks are getting a great deal.

    Living An Epic Adventure,
    Troy

  9. Probably a bad scenario to bring up as i didnt know the VIP bid auctions only charge you .01 and not a bid.

    Paid retail bid auctions do charge you a bid everytime you bid…….correct?

    Retail bids are $.65 each

    This is a premier 5 auction.

    Your first bid will deduct 5 bids from your account. After that, normal rules apply.

    Free bids are NOT accepted on this auction.

    Bids Allowed:

    [You can use Zeekler Retail Bids] Retail Paid Bids

    Dremmel 8000 – Cordless

    Retail Price: $133.74

    End Price: $10.81

    Savings: $122.93

    Share/Bookmark

    Current Price: $10.81

    – : — : –

    Won with 349 Bids

    *Each bid increases the auction price by $0.01

    Bid History

    Bidders in the last 15 minutes: 0

    $10.81 lili282855 ABE

    $10.80 wssd1dolly Single Bid

    $10.79 jordan2t Single Bid

    $10.78 lili282855 ABE

    $10.77 wssd1dolly Single Bid

    $10.76 jordan2t Single Bid

    $10.75 lili282855 ABE

    $10.74 wssd1dolly Single Bid

    $10.73 jordan2t Single Bid

    349 x $.65 = $226.85+$10.81=$237.66

    Actual amazon price, $69.99 + free shipping

    This doesnt include the 5 bids for the first bid

    Each bid raises the price of the item .01 but you are still charged a bid.

    Thats how I thought the auctions worked.

  10. Gen3Benz,

    You are going to have to help me out because I am not just I fully understand your comment. Let me walk through what I see that you wrote then you tell me where I am off.

    1. The first bid, is 10 points 10x.01 – $1.00, then every bid after that is $0.01 (a penny each).
    2. The ending price paid for the Galaxy was $113.18 (plus shipping)
    3. Now here is where I am somewhat lost. You stated the 430 bids represent a $1.00 each. However, this does not seem to be the case. Without a doubt some of those bids (the first for each bidder, would represent a $1.00) but after that they would be $0.01 each.
    4. Since the final price is not a whole dollar amount, it seems there were plenty of $0.01 penny bids used. So what am I missing? I just don;t understand how you came up with $430(bids)+$113.18(final price) = $543.18

    If seems the max price that could be paid by the winner would be as follows: $1.00 (first 10 bids) + $4.29 (429 penny bids) + $113.19 winning bid + whatever shipping might cost.

    Living An Epic Adventure,
    Troy

  11. This auction is in the winners circle right now…

    This is a premier 10 auction.

    Your first bid will deduct 10 bids from your account. After that, normal rules apply.

    Free bids are NOT accepted on this auction.

    Bids Allowed: VIP Paid Bids

    Auction ID: 31583 Samsung Galaxy Tab 2 (7-Inch, Wi-Fi)

    Keep yourself entertained at home and on the road with the Samsung Galaxy Tablet 2 (7.0).

    Retail Price: $249.99

    End Price: $113.18

    ——————————————————————————–

    Savings: $136.81

    Current Price: $113.18

    — : — : —

    Won with 430 Bids

    *Each bid increases the auction price by $0.01

    Assuming this is a retail customer that paid $1 each for bids…

    430 bids x $1 each =$430+$113.81=$443.81

    $443 for a galaxy tab that would cost me $249+free shipping

    Why would I buy bids as a retail customer?

    Lots of bid inflation going on

  12. @chang we are buying bids to give away as samples to generate more business to our auction sites. The fact that they turn to dollars is just a plus

  13. Jeff,

    Thank you for the kind words. I agree there is a boatload of conversation going on. I think it is because most of us are still trying to wrap are minds around the whole concept. 🙂

  14. @Cramoremor,

    There is no way to give you tax advice because each situation is different. However, you can gather additional information at TroysTaxTips.com

    Now talking in generalities, I can tell you that anytime a business person, buys products and gives them away to advertise their business the IRS sees that as a business expense.

  15. I agree with you that the bids do seem to be a profit center.

    However, as I noted before, ZR's system seem to encourage people to "game" it by making up shill bidders to allow affiliates pump money into the system as giveaway bids, then trading those for Profitpoints, which then entitles them to $$$.

    Without knowing who are the "real" customers (who buy bids and use them) and who are the shill customers (who only exist so the affiliate can buy more bids to trade for profit points) we don't know how much is "real" profit per se.

    And if the system is being gamed, then the income disclosure statement would have a column that Zeek wouldn't even know about: money REALLY spent on Zeek (i.e. buying bids).

    I've constructed a spreadsheet to test the scenarios, and I found a typical member, who merely bought $100 in bids to get started on 1-JAN, and keep doing 80/20 repurchase, at 31-DEC will report over 5600 in income, (that should be what the 1099 would say), but will report over 4400 in bid purchases as expenses.

    So "net" income for affiliates will be merely 1200 or so (pre-tax), but Zeek can claim they paid out 5600+ to that person.

    Which means a new look at that income disclosure statement may be needed. It is accurate, but it may not be the "whole" truth.

  16. Want to follow up on Morton's reply to your 2nd reply to my comment but there's no more reply buttons. 🙂

    I think he's thinking along the line I posed earlier: Zeekler is about penny auctions. But what exactly is ZeekRewards?

    Bids do have value… to bidders.

    But are the promoters (i.e. ZR affiliates) buying bids for their intrinsic value (love that term from Mr. Nehra) as bids to be used in auctions , or are they buying bids merely for the ability to be "traded" for VIP Profitpoints at 1:1 ratio?

    Your papers about the legality of penny auctions address the legality of bids used in their intrinsic value as bids for auctions. I don't doubt they are right. I am not debating those.

    However, they do NOT address the OTHER use: traded for profitpoints which is entitlement for profit, which can be construed as investment and ROI.

  17. @Troy

    My statements about where revenue is generated was some kind of "technical analysis". It means I separated each and every part from each other, and analysed where the actual transactions happened.

    Spending BIDS in an auction like Zeekler do NOT generate any significant revenue. The real transaction happens when the bids are BOUGHT, not when they are used in an auction. The auction is mostly a place where people can use the bids after they have bought them. Of course the auction is important for the business, but the transaction happens when the bids are bought.

    Being so detailed is important, because in Zeek Rewards most affiliates will pay for bids using the daily profit share (Profit points). And Profit points are NOT real money, so they won't contribute to any real revenue either.

    To generte revenue or profit, you'll need to have some sort of transaction where people pay money IN to the company, in exchange for the goods or services they buy. The transaction will also have to be about real money or something equal to money (credit cards, etc.). Profit points are NOT equal to money, they are only an "internal currency" with no real value outside Zeek Rewards.

    In Zeek Rewards, an average affiliate will have an initial purchase of bids using real money to pay for them. The bids generates VIP Points when they are sold or given away to a customer (1 point for each dollar worth of bids).

    The VIP Points are then used to calculate the affiliate's part of the daily Profit share, which is paid to his backoffice as Profit points, where they can be withdrawn as cash or be used to purchase more bids.

    A typical affiliate will use 100% of his daily profit share to buy bids for 3-6 months, in order to increase his VIP Point balance to many times it's original balance (in order to be paid more daily profit). Then he will switch to 20% withdrawal, and use 80% to purchase bids. The 80/20 plan will keep the VIP Point balance slowly growing or close to stable.

    The problem here is that most of the time he has paid for the bids using Profit points, a method that don't contribute to the revenue. The only time this particular affiliate paid for the bids with money was in his initial purchase of bids. And during these 3-6 months he has received enough Profit points to increase his VIP Point balance to 4 times the original balance, and the daily Profit points have also increased to 4 times the original amount.

    My question to Zeek Rewards would be "How do you separate the bids bought for real money from the bids bought by affiliates using their daily Profit points, when you're calculating the daily profit share?".

  18. Great Job Troy…….. I have to say I have NEVER seen so much conversation about (1) company in my life.

  19. GDorn,

    Great observation and it does raise a great question!

    Now as for the daily winners circle, I have already asked about this. The free auctions, are different than the paid auctions. In the majority of the free auctions, the product is never requested. Instead the winner has the bragging rights of winning, seeing their name in lights, and that is where it ends. All cashflow, commissions, bonuses etc, come strictly from the sale of the bids, and the promotion of Zeekler to the general public.

    This does not negate your question, just a little of what I have already been told.

    Now as for you and I agreeing, we are not to far off. Although we are coming at this from different angles, I do believe with ALL of us presenting different perspectives, we are giving the general public plenty of facts so they can decide if the unique bid auction companies using the network marketing channel is worth the risk for them personally.

    What I love about our community, is we respect each other, and provide plenty of room for folks to present their opinions, insight, facts and editorials. Thank you for making this community a better value for all.

  20. Morten,

    I respectfully disagree with you you on your conclusion. The bids are what activates the auctions period. Without the purchase of the bids, you have no business model.

    I also question your conclusion that "Bids spent in a Penny Auction will NOT generate significant profit." Even the critics agree there is massive profits inside of the penny auctions from the purchase of bids, which is some of their frustrations. Let's take the auction early this year for the 2012 Mustang. The high bid was around $5000.00. From doing a quick calculation, we all agree Rex Venture took in somewhere between $400 and $500K in bid purchases.

    Now, where you have a point is the free bids. However the free bid auctions are used to give potential customers a chance to feel out an auction before deciding on becoming a regular attendee in any auction.

    You are also correct, that the majority of the revenue is generated when bids are purchased. In the case of Zeek Rewards or the Dubli Network, the affiliates purchase two types of bids. Free bids they give away and VIP bids they use for themselves. In the case of the retail customers to Zeekler, they buy VIP bids to use in the pay auctions. Revenue is generated on both ends just like any network marketing business. I would also point out, that some revenue is made in the shipping and handling of products. This does offset the actual expenses of the company in this area.

    Your conclusion on the "real money vs. virtual points, is a solid one. I brought this up in 2009 with DubLi. However, after studying the unique bid auction niche and talking with the attorneys involved I have a far better understanding of things, and although the virtual points only have value inside the auction platform, the products bid on do have actual fair market value.

    I will take to the corporate folks your question on the purchased bids, from profit bids. Great question!!!

  21. @Morten,

    In looking at the unique bid auctions, penny or reverse which have been hit by regulators and shut down, nowhere do we see the regulators questioning whether the bids are a product or not. As a matter of fact when you read the documentation, you see that the manipulation of the auctions, which can only happen after a purchase of bids has taken place, supports the fact the bids are a viable product within the business model.

    When you review the research done (some of which I put in this article) you see the bids are what supports the auctions, and makes the math work.

    If you have taken time to watch the video in this article, and reviewed the research I placed in the body of the article, I am not sure how you can come to the conclusion I am being vague at all.

    In reading my above statement, remember when I comment I am always commenting within the context of the article I have just written, or I am answering a direction question in a comment 🙂

    Living An Epic Adventure,

    Troy

  22. Another question for you to give to ZR…

    What exactly is the business model of an ZR affiliate? Their website was NOT very clear. Are ZR affiliates merely promotional agents? Or are they considered "resellers"?

    In every business, the role of the affiliate is clear.

    Amazon: sell Amazon books (and more) but not as reseller (i.e. promoter only)

    Amway: resell Amway products

    Not so with Zeekrewards. There's SOME hint that it's to promote Zeekler, and some about selling bids packs (to be used on Zeekler).

    Their website suggests that all the VIP bid purchases for giveaway are consider promotional expenses. Add that to the part where you don't actually resell bids, but rather, earn commission/ referral on bid pack purchases, that would suggest the affiliates are promotional agents, not resellers of bids.

    However, the February Q&A with Howard Kaplan, then makes no sense:

    http://earnfinancialrewards.blogspot.com/2012/02/
    (I can't find the actual link on ZeekRewards but I'm sure it's there)

    QUOTE:

    2 I understand that I will receive a 1099 for VIP bids on a “Constructive Receipt.” Therefore, I should be able to deduct from my 1099 the points that expire as an expense…Correct?

    Assuming that you operate as a sole proprietorship, your Zeek business is reportable on Schedule C. See Part I, line 2.

    UNQUOTE

    The answer reads like a non-sequitur. It should be a Yes/No, but it goes off on a tangent instead!

    Furthermore, according to IRS, the instructions for Schedule C, Part I, Line 2 is "for allowances and returns"
    http://www.irs.gov/formspubs/article/0,,id=253098…

    "Allowances and returns" is define here
    http://www.irs.gov/publications/p334/ch07.html

    That suggests line 2 is only for selling of products, which conflicts with their (alleged) affiliate business model of being solely a promotional agent.

    Not to mention expired points has nothing to do with "allowances and returns", whether physical or virtual products!

    You can *sort* of make an argument that points expiring are like product going stale and need to be adjusted… but, really? Bids don't go stale… It's the ProfitPoints, not bids, that expire. That logic doesn't work…

    There is no uniform answer on what sort of Zeek expenses are deductible that makes sense.

  23. It could be important to identify where revenue is generated in a business?

    Bids spent in a Penny Auction will NOT generate any significant profit. I know people believes in this idea, but the idea is false. If they had spent MONEY in the auctions instead of BIDS it would have generated revenue.

    The revenue is generated when the bids are SOLD, not when they are spent in auctions. Revenue is only generated from real money, so using some virtual points to buy bids won't generate any real revenue either.

    For some businesses, I believe these basic ideas are far more important than "Penny auction theories". A business should first of all be able to handle basic business principles.

    @Troy

    Next time you're talking to Zeek's management, ask them how they separate the bids bought for real money from the bids bought for Profit points? Lots of affiliates are using their daily profit share instead of real money when they buy bids.

  24. @Troy

    Can you be more specific about the "All the legal opinions, and the research"?

    From this quote:

    "Now as for your thoughts, that the regulators may see the bids as investments. I do not see any grounds for that conclusion. All the legal opinions, and the research points to the fact, that “bids” are purchases, not investments."

    It's impossible to evaluate statements like that, because they are very unspecific and vague. Zeek Rewards have used different legal advisors, and none of them seems to have addressed this specific issue – "investment" or "purchase". It seems more like they have focused on other parts of the business.

    You are vague when it comes to "the research", too.

  25. There is an option for winner of the auction to "cash out" the winnings, from what i understand.

    For example, in the above example, the "winner" could ask the winnings to be cashed out. In that case, let's say the price is, 46.50, the winning is $100, so the winner pays ZeekRewards $46.50 (the winning bid), and Zeekler sends the winner $100. No shipping and handling needed.

    I've been told that it is possible to cash out physical products, like dinnerware sets, e-readers, and so on. So the MSRP goes into the winner's account, if the winner will pay for the auction price first. I cannot confirm this as I am not a member, but several members claimed to have done it. This is supposedly often done by non-US members as they don't seem to actually need the items (which is another possible sign of a shill bidder)

    This may cause far more than cash auctions to fall under lottery laws. It's certainly a sobering thought.

  26. Troy, perhaps what I'm about to mention is a better fit for the second part of your report but there are some very significant differences between the statistical abstracts you posted above and how Zeekler auctions actually function in the real world.

    Correct me if I'm wrong (I read the first link and only skimmed the subsequent ones) but don't they all assume that each bidder is paying the same amount to make each bid as everyone else is? In Zeekler thousands of people are given hundreds of VIP bids for free and it stands to reason that if I payed face value for bids I would be more cautious with using them than someone who was handed 500 bids for free.

    Look at Zeekler's "winners circle" and every day you will see some pretty funky auction results. Right now there's one where someone used 250 bids to win a $25 Subway Sandwich gift card and another where the winning bidder used 342 bids to win $150. That second one at least makes some sense, the winning bid was $91.88 so it's possible that someone used 342 free VIP bids and traded them for $58.12. The sandwich one still leaves me scratching my head.

    I am looking forward to your game theory analysis because there is no way statistics can be used to explain bidding behavior in Zeekler. You may not agree with me but this is a very significant red flag. It would be somewhere between foolish to down right stupid to pay retail price for Zeekler bids without first paying to join the comp plan.

    You can never know how many people you are bidding against have a tall stack of free bids set to automatically outbid you. But without retail customers buying bids and bringing fresh outside money into the company all they have left is to move money from one affiliate to another. If that is in any way significantly true, it throws up more red flags than an old Soviet May Day parade.

  27. K. Chang,

    Totally agree on the Dubli Network of old!!! I called out several of the concerns and was glad to see they hired some of the same folks Zeek hired and quickly started moving in the right direction.

    I see your point with ADS. However the Secret Service, did not raid them based on the Ponzi side of things, as much as I think it was money laundering concerns, due to the fact rumor had it, Andy was getting ready to move the cash offshore. And you are correct the U.S. Attorney and even the Florida AG got involved. I think, Ponzi, RICO, Business Opportunity, and just about every other illegal activity was thrown in before it was over. From what I have picked up over a Patrick Pretty, some of the players are still being hit with additional charges. I even read where Andy may have had active warrants in a couple of other states at the time for possible money fraud issues.

    And I want to be clear, any zealous regulator could come down on Zeek or any of the companies just as hard, if they do not get their act together and fast. One such issue, is the fact so many people who do play in the illegal international HYIPs have joined Zeek, BidiFy and others and are not presenting the company in the correct manner.

    You bring up a valid point on the "but to be traded for VIP Profitpoints, may lead some regulators to think otherwise. In a certain sense (painting very broad strokes), this is similar to ASD claiming they are selling “ad units”, not running an investment."

    And another fact we should be reminded of, is the fact in 1986 the Feds changed the rules for Real Estate Investments, and caused major real estate holding companies to go bankrupt, and owners of Savings and Loans, to flip upside down. Now we do not see any Savings & Loan aka Thrift companies around. If specific regulation were to come into play and some or all of the Unique Bid Companies could not find a way to operate using a network marketing arm, it would truly cause some huge issues, especially for the affiliates.

    I understand your point on the $100 auction. Do we know if the highest bidder claimed the $100.00? If the $100.00 was not claimed, then the auction would not be seen as an issue. However, if the winner claimed the $100.00 and not just the bragging rights, then I would question the legality just from the selling of U.S. currency at more than face amount. This could fall under lottery laws.

    I will ask some pointed questions when I am back up there in a couple of weeks. I can see your point and although I am not sure I would want someone playing around with all actions, it does seem there should be some process to monitor for shill activity.

    Some sound things for us all to think about.

  28. I should have said "previous incarnation of Dubli", sorry for not being clear.

    Perhaps I was not being very "precise" in my wording on what laws governs what. It is true that network marketing is government usually by 'business opportunity' laws. Indeed, Zamzuu was sued by Jerry Brown (then AG of California) under it, while Ponzi is generally the turf of the SEC, but state AGs also have gone after various Ponzi schemes.

    There is one notable case: ASD, that was considered Ponzi. ASD repeatedly told everybody "we're not investment", and they were raided by Secret Service any way, right? And was indicted by US Attorney's office for wire fraud and securities fraud. Just SAYING "we're not investment, we sell something" is no excuse.

    I understand "at first glance" the bid purchases are indeed bid purchases, but the fact that bids are NOT BOUGHT for their intrinsic value (as put by Mr. Nehra), but to be traded for VIP Profitpoints, may lead some regulators to think otherwise. In a certain sense (painting very broad strokes), this is similar to ASD claiming they are selling "ad units", not running an investment. The difference is, of course, bids actually have intrinsic value to SOME people, while ASD's ad units are virtually worthless to everybody (except ASD).

    I have no problem with the auction side. People are welcome to SPEND money any way they wish as long as they know what they're getting into. I have many questions regarding the MLM side.

    Shills are well documented in Zeekler, where one bidder was known to spend 1400+ bids (at 65 cents each) for $100 cash (bidding up the price to $45.60, which means 4560 bids were submitted by unknown number of bidders) That's spending 1000+ dollars for $100 cash. That is NOT the sign of a real bidder, who sees bids as a useful commodity with intrinsic value. It *could* be the act of a stupid bidder, but there are plenty of other examples, sometimes involving the same bidder. these are premier auctions, not free bid auctions.

    The question is who control these shills. Some have alleged that these shills were created by members to soak up the "bid giveaways" to get VIP Profitpoints (and thus, profitshare). If so, they are gaming ZR's comp model,

    I don't see ZR shutting down this sort of shill bidding because it is profitable for them. bids are already purchased (i.e. ZR already have the money) and why should they bother to shut down people who want to blow the bids on nearly worthless stuff? They can even claim complete innocence (and it is probably true): we can't tell who are shills and who are real customers!

    Is there a way to tell a "real customer", i.e. those who buy bids regularly, vs. a shill account, who only exist to soak up the bids "give away"? I believe there is. (the shills only exist to receive the free bids, real customers BUY bids then use them without joining as affiliate, and do so over longer periods of time)

    Will ZR ever look into the situation? Perhaps you can ask them.

    If there are not enough "real customers" who buy bids regularly, then people have turned ZR into a Ponzi, whether ZR knows it or not (or will ever admit it)

  29. K Chang,

    It seems you may not have had a chance to read all the articles I referred to about Unique Bid Auctions, Penny or Reverse. Although some auctions have been found to operate off of math which goes along the line of games of chance, then majority, have been found to be based on games of skill.

    As for DubLi being in trouble. I never knew dubLi was in trouble at all. Do you have some documentation you can share?

    Now as for Rex Venture operating two separate businesses, Zeekler and Zeek Rewards, I am sure glad someone finally understand things. This is just like MediaNet which runs DubLi and DubLi Network. Zeek Rewards, and DubLi Network, (as I have reported on many times) are the exclusive marketing arms for the auction side of the businesses.

    Now I am not sure where you got your info, but MLM has NEVER been governed by Ponzi or Pyramid laws. You might want to get a little better understanding of the laws at a federal and state level. There are a set of laws which network marketing opportunities. Just like there are separate laws which govern business opportunities, investments, gaming etc. Why do you feel network marketing is govern by the security/investment laws which govern ponzi and pyramids? By the way section 5 of the FTC rules govern direct sales, which network marketing happen to be a payment structure under.

    Now on the purchase of the bids. You are correct the bids sold through Zeek Rewards to affiliates, are used as samples, similar to how nutritional companies provides samples of their products. Potential customers then use the free bids, and if they enjoy the experience and find something they want to bid on, they buy additional bids. Some join Zeek Rewards, before they tell their friends so they can earn some of their bids for free, instead of having to buy all of them.

    Now as for your thoughts, that the regulators may see the bids as investments. I do not see any grounds for that conclusion. All the legal opinions, and the research points to the fact, that "bids" are purchases, not investments.

    The confusion, comes from the ability of certain Zeek Rewards affiliates positions to participate in a "profit pool" similar to what most network marketing companies offer top leader positions.

    Some critics have "rightfully so) compared Unique Auction companies like HYIPs, which they are not. Because some who have joined HIYPs in the past have also joined the Unique Bid Auctions and are fully out of compliance because they are calling money they earn in the profit pool as some form of ROI, it has given critics plenty to write about. However, when anyone takes the time to review the business model, and see what the companies have done to maintain high compliance at a corporate level, and review the termination of rouge affiliates, it becomes clear, Zeek Rewards and DubLi Network are not taking any risk of allowing affiliates to get away with anything.

    Now, knowing the SEC, Secret Service and FTC monitor this website, and have been watching the Unique Bid Auctions for close to two years, there is nothing that Zeek or DubLi is doing that these regulators do not know about. The fact, that the FTC has shut down far smaller auctions, than Zeekler, also leads one to believe, they can see that Rex Venture and MediaNet (a public company) are doing everything they can do, to stay well inside the letter of the law.

    Now if the Shill accounts you are referring, in the "Free Auctions", those are not classified shills. Since no money have transferred hands between the affiliate, or the company and the customer (bidder), these are seen as trial auctions.

    Now, if shills are being used in a paying auction, then issues will arise and legal action would be warranted.

    My next article, does provide plenty of critical opinions on the Unique Bid Auctions. It will also show where equity firms have seen value in the industry and have investment millions to help launch some of these companies.

    Always good to see you comment, you bring real value to both sides of this issue.

  30. Glad you put out this primer. I hope you go into how they may be vulnerable to legal actions.

    IMHO, the majority of the controversy with Zeekrewards is i's MLM side, which is also what got DubLi in trouble.

    You can almost regard them as two separate businesses, the auction side, and the MLM/promo side.

    The auction side itself may be threatened under lottery laws as you stated already.

    The MLM side is more complicated, but MLM is usually governed through pyramid / Ponzi laws through FTC and individual state laws.

    However, Zeekrewards (and possibly DubLi and Bidify) has some unique "vulnerabilities" due to its comp plan.

    Officially, the participants in the comp plans are promoting the auction side by performing promotional activities. Indeed, the official Zeek position on the bid purchases by participants is that they are considered business expenses, as they are free samples to be given away to customers.

    However, instead of paying the participants on this activity (giving bids away), or the other requirement: post one ad per day somewhere, a complicated system of "giving away one bid gets you one VIP Profitpoint, which entitles you to some daily profitshare".

    Regulators may view these "bid purchases" not as business expense, but an "investment" (i.e. pay to play) into Zeek, where the participants expect a return, and that would make Zeek vulnerable to SEC action for selling unregistered investment instruments (i.e. securities).

    Furthermore, it is possible "game" the ZR comp plan to give away the bids to shill accounts, thus earning the VIP Profitpoints and not lose control of the bids. Which results in a Ponzi scheme: people are essentially paying themselves with profit they themselves generated by buying bids. And that may attract the attention of the FTC as well.

    Zeek seems to be taking a few steps in addressing these vulnerabilities. Hiring Gerry (Nehra) and that SEC guy will probably address the SEC concerns, but so far, the changes seem to be rather cosmetic. Are there further actions coming?

    It seems little is done by ZR to combat the shill account situation, though you may have more info on that.

    Look forward to your part 2.

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