Zeek Rewards Update: FTC Issues Consumer Alert On Penny Auctions Which May Explain Why Zeek Suspended Some International Affiliates

This weekend the online conversation surrounding Zeek Rewards took off in a big way, when international affiliates found their accounts suspended. Sadly, some of the conversation (mind included) has been based on subjective conclusions, and not fully based on the facts.

What we do know for sure is Zeek Rewards CEO Paul Burks found it necessary to shut down an undetermined amount of international affiliates some several different countries.

What we do know for sure, is that over the last few months, Zeek Rewards has been very clear, they have faced international fraud exposure in several cases and at one point made the decision to shut off credit cards for Zeek Reward affiliates, while continuing to accept them at the Zeekler penny auction site.

What we are not for sure about is if this development over the weekend, has anything to do with the international credit card fraud that has been causing issues in the past.

With that said, the FTC issued a Consumer Alert back in August of 2011 which does bring to light some of the issues I have mentioned over the weekend and some none of us may have known about.

However, what is most interesting is the fact is it has not been until now that some people have decided to use this FTC Consumer Alert to try and raise the questions about Zeek Rewards being some form of scam! Instead I believe this Alert helps explain more about what faces both the penny auction companies and those who take part in them.

Something else that stands out, is the fact, the FTC has been aggressive in shutting down illegal penny auctions for over a year. Common sense would tell us that with the massive growth this company has had, they have caught the eyes of the FTC and to date have not had any issues.

In my opinion, based on the amount of money Zeek Rewards have invested in compliance and legal teams over the last 90-days it is clear they are going above and beyond what other companies in the same niche seem to be doing.

After reading this FTC Consumer Alert, I stand by my concerns on any U.S. based individual or corporation being involved with any offshore company, that has not established a legal entity in the USA to transact business in the penny auction niche.

FTC Consumer Alert On Penny Auctions

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14 thoughts on “Zeek Rewards Update: FTC Issues Consumer Alert On Penny Auctions Which May Explain Why Zeek Suspended Some International Affiliates”

  1. Cathy,

    Thank you for stopping by and commenting. I am going to ask a few questions to gain some clarity on your statements.

    1. What country are you located?
    2. Were your checks being mailed or put into some online account?
    3. When you state you did not get payment? Were to qualified to receive payout, or were some of your downline part of an ongoing investigation into potential fraud activity.
    4. When you say support is unhelpful, can you give specific details?

  2. they start to late with the checks!!

    2 month i didnt got my payment!

    the support is very very unhelpfull

  3. GDorn,

    Thanks for sharing these thoughts. I will add these to other questions I am going to be asking the powers to be, while I am there.

  4. Troy, a few small points. I understand how internal consumption of a physical product isn't necessarily a red flag from a compliance stand point. But I believe the winner of one of Zeek's auctions can chose the cash value instead of the item they bid on. I'm not a lawyer but I suspect one of them could argue that physical products (the auction items) were incidental to the buisness plan and the three "products" Zeek deals in are money, bids and VIP points. All three are related to each other in a rather cyclical manner with the (after compliance lectures) unspoken promise that if you turn your money into bids and VIP points, you will receive more money from them than you paid for them.

    That sorta sharpens the "internal consumption" argument just a bit. Every bid purchase made which involves VIP points also carries with it a promise to pay from Zeek. The money to make those payments has to come from somewhere and if all of those bid sales being made to pay those profits also carry future promises to pay, well you get the picture. There has to be outside money flowing in which isn't also a future liability, there have to be retail customers and I am sure that there are.

    But how many? Enough to pay all promised commissions? This is where I liked your comment about Independent analysts when they aren't provided with enough information to reach definitive conclusions. Might I ask you to forward a suggestion to Mr. Burks? I salute the fact that he has hired some top flight legal talent to review his operation but ask him if he'd be willing to take compliance to the next level. All the most legitimate questions about Zeek involve money, Paul could go above and beyond by hiring an independent auditor.

    Paul has described some parts of his buisness model as proprietary and I can respect that and I realize this isn't a publicly traded company so he doesn't HAVE TO conform to required disclosures but that doesn't mean he couldn't do something like that if he wanted to. Draft a list of probative questions, hire a recognized and licensed firm to take an endoscopic look at Zeek's financial records and, without revealing any proprietary secrets, publish the answers to that list of questions in a manner formal enough that the auditing firm could be held liable for errors in the report.

    I respect the attorneys that Zeek has hired but the central question to this entire issue is if Zeek, as it is operating today is making enough money to pay all the future liabilities all the VIP points they have awarded to date. And if there is enough revenue coming in that doesn't add to future VIP point liabilities to pay those same liabilities on a forward going basis. These aren't questions for attorneys, you need a qualified accounting firm for this and Paul Burks could silence a great number of his critics if he were to hire one under circumstances that the public at large were taking the firms word for the accuracy of the findings, and not Paul's.

  5. BI,

    Thanks for stopping by.

    I fully agree with you on the ROI issue. Although the term is now used interchangeably these days to talk about money "spent" instead of "invested" the true definition has to do with an investment, and in the case of Zeek the "big buys" are an expense, not an investment.

    As I get to better understand the business model, it is easy to see that "zeek bids" or any auction bid, be it a penny auction or a reverse auction are similar to any product sold by any other network marketing company.

    Affiliates in the case of Zeek buy the bids and either self-consume them, sell them or as in most cases give them away as a way to advertise the business and give people an opportunity to "try before you buy" if you will.

    Now, I may have simplified the process some, but in looking at my white board, I think I have this part down pretty good.

    When I look, at other industries that people have tried to compare Zeek too, I do not find people talking about the "chips" they bought as an investment, or the bingo plays as an investment, or vent lottery changes as investments. And as I review the network marketing profession as a whole, I do not see distributors calling their monthly purchase of Numis collectible coins as an "investment". Nor does the IRS see any of these as investments.

    So, if we continue to truly dig deep to fully understand the business model, instead of trying to cut them down as just another "scam" we should all learn something.

  6. Troy, The biggest problem that I see on many other sites is they seem to use the term ROI when reffering to zeek rewards. I think that it is this misunderstanding that these individuals have that is causing such a problem. It is understood that affiliates do not invest any money in the company. Affiliates simply buy a product known as bids and they can choose to keep them to use in the auction or give them away as samples to new or existing penny auction customers and earn a cash reward. There is ofcourse more requirements but this is not the place to get into it.

    It is just great to see an individual getting in the trenches and looking for the real truth behind zeekrewards and other MLMs instead of ranting on and on about opinions and calling them facts. The sad thing is the reporting used to be informative on one other site in particular but has become very one sided almost a lenching party infact I see other comments here from the ranters. Please keep up the reporting whether it be bad or good you have many readers here that look to you.

  7. JC

    Thanks for asking the RIGHT QUESTION. This is the risk..the risk that the ratio is extraordinarily tilted toward the buying of bids. This is not sustainable in my opinion and puts anyone, especially the late comers at a financial disadvantage.

  8. @JC,

    You bring up a great point of contention that has plagued network marketing company for years. And currently is exactly what the attorneys are all talking about. I posted yesterday on what MLM Attorney Kevin Thompson wrote about the deception of MLM.

    However, the funny thing with Independent analysts, unless they have access to all the numbers (as in a public company) their analyst can sometimes lead to speculation. I would agree that at this stage of operation and the success of the Zeek Rewards side of things, that the retail revenue more than likely is driven more by internal consumption, then organic growth from retail sales.

    This would be similar to all start-up companies using a direct sales channel. Statics have shown that it takes several years to turn the model in most cases. ViSalus as an example did not turn the corner until around their 5th year. (I use them because of their massive growth today).

    DubLi network, did not take that long, but most of their growth came internationally. Now, they are ready to re-launch not leading with reverse auctions aka unique bids. I would take a calculated guess that we will see something like that happen at Zeek before it is over.

    In talking about the "fake" customer issue. I do know this is one of the issues legal and compliance has been addressing. And it seems that some of the accounts that have been suspended lately may have to do with this very issue. I am still working to verify some of that info, and may not get it all until I am there next week.

    I will take your two questions and make sure I ask Paul when I interview him!

    Thank you for adding value here in this community.

  9. Troy,

    Your statement about increased scrutiny on Penny Auctions and the "massive growth" that Zeekler is seeing would be valid only if Zeekler retail revenue is a significant part of the business model.

    Most independent analysts believe the actual retail revenue into the Zeek Rewards MLM is 95-98% or thereabouts all driven from the initial investment that affiliates make. The actual revenue from real retail customers is likely not very high when you consider that Zeekler is not a competitive penny auction, the number of free and inflated bids in circulation, the low number of prizes per day relative to bids available for bidding, and the fact that many affiliates create a "fake" customer or a retail account as a family member for the sole purpose of buying VIP bids for the matching virtual points. Since Zeek Rewards pays daily profit share on an ever increasing virtual points balance, many affiliates view the purchase of buying retail bids as "free money" because they receive both 20% commission and matching VIP points (from which they get profit share for 90 days).

    So the questions I would ask Paul Burks is:

    – What is the ratio of revenue from the retail penny auction vs. the revenue affiliates use to "buy up" more VIP points (to build a higher balance for the daily profit share)?

    – What is the purpose of paying matching VIP points on retail bid purchases in addition to the 20% commission, if an affiliate will receive over a 100% ROI on the VIP points in 90 days? In other words, there is no net revenue to Zeek Rewards so long at the 90 day ROI is over 100%.

  10. @AliiMaMa,

    Thank you for the kind words. Zeek is truly an interesting business model, and one I am enjoying getting to understand. I do pray my reporting can benefit and not hinder both sides as they try and decide if Zeek is the business for them.

  11. Troy – I have been following your posts for a while now in regards to ZeekRewards and I appreciate your honesty and unbiased posts. I am an affiliate with ZR and I too am impressed with the commitment to compliance and I also appreciate your simple explanation of the behind the scenes "going ons" in this industry that I am now a part of. I continuously try to educate myself about whatever industry I am a part of and you are helping me keep on top of things! Keep up the great work:) Thanks and I always look forward to your updates!

  12. Oz, You are correct, I just checked the IPs. I will correct the comments and update the post. However, it is still a good FTC Alert and is relevant for distributors and Auction bidders to understand 🙂 Seems the IP is located in Israel

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