U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23421 / December 8, 2015
Securities and Exchange Commission v. Trudy R. Gilmond, U.S. District Court for Western District of North Carolina (Civil Action No. 3:15-CV-00591)
SEC Charges ZeekRewards Pyramid-Ponzi Scheme Promoter
On December 4, 2015, the Securities and Exchange Commission filed suit in the United States District Court for the Western District of North Carolina against Trudy R. Gilmond for her participation in the fraudulent unregistered offer and sale of securities through Rex Venture Group LLC d/b/a ZeekRewards.com, an internet-based combined Ponzi and pyramid scheme. According to the Complaint, from approximately January 2011 until August 2012, when the ZeekRewards website was shut down, Rex Venture Group raised more than $850 million from approximately one million internet customers nationwide and overseas through the website.
The Complaint alleges that Gilmond solicited investors through the Internet and other means to participate in the ZeekRewards program, a self-described "affiliate advertising division" for the companion website, Zeekler.com, through which the company operated penny auctions. The ZeekRewards program offered customers several ways to earn money, two of which - the "Retail Profit Pool" and the "Matrix" - involved purchasing securities in the form of investment contracts. These securities offerings were not registered with the SEC as required under the federal securities laws.
According to the Complaint, Gilmond and others lured investors to ZeekRewards by promising investors a share of the company's daily net profits in the form of daily profit share awards. The company's purported calculations consistently resulted in daily award averaging approximately 1.5 percent per day, fraudulently conveying the false impression that the company was extremely profitable. In fact, the daily award percentage was fabricated and investor payouts bore no relation to the company's net profits. Approximately 98% of ZeekRewards' total revenues and the "net profits" paid to investors were comprised of funds received from new investors in classic Ponzi scheme fashion. When the company was shut down in August 2012, it was teetering on collapse.
The Complaint further alleges that Gilmond was one of the most successful and prolific promoters of ZeekRewards. From at least September 2011 until ZeekRewards was shut down in August 2012, Gilmond worked closely with the company founders and served as a senior "field liaison" to promote the scheme, persuading scores of unsophisticated retail investors to buy ZeekRewards securities upon the promise of profit sharing. Gilmond also helped conceal from investors and regulators the true nature of the ZeekRewards scheme. She policed affiliate advertisements and communications to ensure they did not use investment-related terms that otherwise may have triggered regulatory scrutiny. Gilmond reaped more than $1.7 million in transaction-based commissions and bogus profit-sharing for her recruiting efforts.
The Commission alleged that Gilmond offered and sold securities in violation of the registration provisions of Section 5 of the Securities Act, acted as an unregistered broker-dealer in violation of Section 15 of the Exchange Act, and violated the antifraud provisions of the Section 17 of the Securities Act. The Complaint requests a permanent injunction, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties.
The SEC's investigation is continuing.