SEC Sues ZeekRewards Ponzi Promoter
The Securities and Exchange Commission took the unusual step of filing an action against what it alleged was one "of the most successful and prolific promoters" of the $850 million ZeekRewards Ponzi scheme that was shut down in August 2012. Trudy Gilmond, 45, was charged with the unregistered sale of securities, failing to register as a broker-dealer, and with fraudulently offering securities related to her role as a "field liaison" to promote ZeekRewards to investors around the world. The Commission is seeking injunctive relief, disgorgement of ill-gotten gains, and imposition of civil monetary penalties. Ponzitracker readers may remember that Bernard Madoff's former lawyer, Ira Sorkin, previously represented Gilmond in an unsuccessful attempt to dissolve the receivership shortly after the Commission's enforcement action against ZeekRewards was filed.
ZeekRewards was an online penny auction website that attracted users at an exponential pace due to a lucrative investment program that promised annual returns exceeding 200% and provided incentives for participants to recruit new investors. The program, masterminded by Paul Burks, attracted over one million participants before the Commission filedan emergency enforcement action in August 2012 alleging the venture was a massive Ponzi and pyramid scheme. Following Bell's appointment, his subsequent investigation revealed that over 700,000 participants suffered collective losses exceeding $700 million.
Bell's investigation also showed that tens of thousands of participants had not only recouped their initial investment but also varying amounts of "false profits" that, by virtue of Zeek's operation as a Ponzi scheme, were simply the redistribution of investments by other victims.
According to the Commission, Gilmond is a "self-described network marketer" who has been involved in numerous multi-level marketing programs and had been able to build her "downline" by recruiting investors to follow her to those programs. Gilmond joined ZeekRewards as an affiliate in January 2011, which eventually became a full-time position that included purchasing customer leads, posting advertisements, and distributing business cards to potential investors. Gilmond also spoke at ZeekRewards company events and hosted conference calls to prospective investors and new affiliates. By identifying new investors and enrolling them in ZeekReward's program, Gilmond was entitled to earn substantial commissions. Gilmond ultimately earned more than $1.7 million in commissions and fictitious profits from her involvement in ZeekRewards - making her one of the largest "net winners" in the scheme. The Commission also alleged that, because of her access to scheme insiders and responsibilities as a "field liaison" that included ensuring that affiliates did not describe the scheme with any key words suggesting it was an investment, Gilmond knew or should have known that Zeek was a giant Ponzi and pyramid scheme.
Gilmond's name first surfaced several months after the Commission shut down ZeekRewards when Ike Sorkin, the famed New York lawyer whose past clients have included Bernard Madoff, filed a motion seeking to intervene in the Commission's enforcement action and dissolve the appointment of a receiver. While the motion did not attempt to argue that ZeekRewards had been operating a Ponzi or pyramid scheme, Sorkin argued on behalf of Gilmond and another affiliate that the investment products at issue did not constitute a security and thus were not subject to the Commission's jurisdiction. That motion was denied in July 2013.
The action is the first filed by the Commission against any promoter of the ZeekRewards scheme. Gilmond is currently being sued by the ZeekRewards receiver for the return of her false profits, who alleged that she received the second-most amount of illicit distributions from her affiliation with ZeekRewards.
A copy of the SEC's Complaint against Gilmond is below.