Nine Louisiana investors recently filed suit in federal court leveling allegations of fraud against ZeekRewards.com, parent company Rex Ventures, LLC and the companies’ owner, Paul Burks. The business litigation follows a federal seizure of company assets in what the Securities and Exchange Commission described as a massive ponzi scheme.

The lawsuit focuses on a subscription membership service spun off from the marginally profitable penny-auction website Zeekler.com, but the complaint also alleges that the website’s parent company has operated a number of online, multi-level marketing programs since its inception in 1997.

The Louisiana lawsuit addresses investments totaling $38,450, whereas a suit filed two days earlier in the companies’ home state seeks to recover more than $319,000 on behalf of 83 investors. In total, the SEC estimates that the companies took in more than $600 million from over 1 million investors since January, 2011.

Both pending business law actions echo SEC allegations of deceptive practices in the solicitation and sale of investment opportunities. The original SEC complaint describes the website’s membership and investment offerings as illegal offerings of unregistered securities and accuses the owner of diverting more than $4 million from the parent company and distributing more than $1 million of subscriber investments in the rewards website to family members.

According to the SEC, the rewards website reported almost $375 million as net profits paid out to investors but 98 percent of that amount actually came from new investments. The company took in about $5 million dollars daily at the time it was shut down, but it would have been obligated to distribute more than $45 million daily if every qualified investor elected to be paid out in cash.

A court-appointed receiver states that his goal is to track down every dollar fraudulently taken from investors, but he acknowledges that the process will take time and, ultimately, investors may not be made entirely whole.

Source: Winston-Salem Journal, “Lexington’s ZeekRewards.com hit by federal class-action lawsuit,” Richard Craver, Aug. 27, 2012