Maximizing Recoveries in Tech-Driven Ponzi Schemes
The New Era of Fraud Tactics
July 17, 2018
In one of the largest Ponzi schemes in U.S. history, penny-auction site ZeekRewards defrauded hundreds of thousands of people worldwide, to the magnitude of more than $822 million in victim losses.
ZeekRewards encouraged participants to drive visitors to the auction site by purchasing “VIP” bids and subsequently giving them to potential “customers.” For each VIP bid given away to potential customers, a VIP point was awarded. VIP points were subsequently totaled and ZeekRewards shared a percentage of the site’s daily revenue with participants based upon their balance. The daily award could be taken as a cash award or VIP bids that could then be given away to generate more VIP points and a higher daily award. As it turns out, this mechanism represented the crux of the fraud.
In addition to the staggering size and scope that makes this case historic, it also marks a new era of fraud tactics that attorneys and investigators must be prepared to face for the foreseeable future. Unlike traditional brick and mortar fraud cases, an increasing number of Internet-based or mobile schemes like ZeekRewards are emerging, presenting a complicated range of challenges and opportunities for asset recovery.
When it comes to investigating these technology-driven matters, which typically are supported by loosely maintained financial books and records, attorneys in receivership roles and their investigative forensic accountants can no longer solely rely on their standard approaches of reconciling losses against a general ledger. As with the ZeekRewards investigation, the underlying information and data points become extremely complex, making it difficult to piece together the fraud, identify the flow of funds, and ultimately recover victim assets. Following the SEC shutdown of ZeekRewards, our team at FTI Consulting was engaged to work with the receiver representing the victims to prove the fraud, identify losses and maximize asset recovery.