ZeekRewards Closing Down – The MLM Attorney Speaks Out!
by Kevin Thompson on August 17, 2012
The Law Office of Kevin Thompson specializes in providing legal services specializes in providing legal services for startup direct sales organizations.
Named as one of the top 25 most influential people in direct sales, Kevin Thompson has extensive experience and helps entrepreneurs launch their businesses on secure legal footing.
Disclaimer: This article contains my opinions. I’m not stating with certainty that Zeek is fraudulent; however, in my opinion, I believe that to be the case. I think the investigation is timely and will serve a valuable function.
It’s official. Zeek Rewards has recently closed its doors. Literally. In fact, the SEC and U.S. Secret Service are now involved. This is what we know: the doors are locked and the website is down. It’s not looking good. Was this done voluntarily? Were they required to do this by the SEC? This all has occurred recently after the North Carolina AG’s office expressed “concern” over the Zeek model.
I’ve got mixed emotions.
I’m both angry and relieved.
Why am I angry?
I really think we lost our minds with this model. The MLM community took the bait and walked off a cliff like a herd of lemmings. Do you want to know what happened? I’m going to be candid:
Zeek exploited the gray. They took a bath in it. They skinned it and made a coat out of it. They hired the right people and adopted the right lexicon. And who is going to pay the price? The entire industry. This is bigger than just the participants. There’s an ocean of gray separating legitimate network marketing companies from pyramid schemes. Instead of shrinking the gray, we fight like hell to obfuscate. As an industry, we’re self-delusional. It’s true. We think it’s better to have vague standards. But now we’re seeing first hand what happens when the inmates take over the asylum.
“Those are not investments, those are ‘samples’ given to ‘customers’ in an effort to entice them into buying more….it’s like Amway distributors giving samples of soap to customers.”
It’s not the same thing! Amway distributors are not spending $50,000 on soap, giving it all away to strangers while dramatically increasing their earning potential. Amway distributors have a direct, real connection with customers. With Zeek, it’s just a combination of 1s and 0s on a computer screen. Who in the hell were these customers? Where were they coming from? Were they real? Were they ever asked to verify their accounts? Nobody knew and nobody seemed to care. People knew the angle. They read from the script, mastered the narrative and explained with eloquence why Zeek was “just like Amway, but with penny auctions.” Zeek affiliates were essentially rewarded IMMEDIATELY after they bought the bids, regardless if they were ever used. This is not consistent with traditional MLMs.
I’m angry because they leveraged your credibility. They leveraged the credibility of my colleagues and competitors. They leveraged mine. And we all look like idiots.
I’m angry because this recent news is going to be devastating for tens of thousands of people. People that will likely associate this horrible experience with “network marketing.” These were the people that cashed in on their 401(k)s because they were promised tremendous gains in a short amount of time. These were the people that “invested” more money than they could afford to lose, hoping that maybe, for once in their life, they could get a decent ROI. If the money ends up being locked away in receivership, which is a possibility, it’s not coming out without a court order. Will everyone get their money out? I’m not sure.
I’m angry because this actually impacted my relationships with clients, current and former. When I gave my candid advice, I was sometimes met with hostility. I was considered “out of touch.” I was told that Zeek was “spending countless dollars to be compliant” and I was just envious to be on the outside.
I’m angry because we allowed the cancer to infiltrate the host and spread. We opened the door and welcomed it with open arms. Zeek leadership took on top positions with trade associations, recruited top distributors from reputable companies and networked intelligently with industry influencers. Have cash? We’ll dance. We provided them with the semblance of legitimacy, and they ran with it. We empowered them.
Why am I relieved?
I’m relieved because the conversation is finally over. I’ve been fielding calls at least twice a week with somebody else looking to launch their version of Zeek. It’s hard to tell someone “no” when there’s someone across the street making a fortune with the exact same model. Finally, it’s over. We can resume normal business.
I’m relieved because this should mark the end for companies having to defend themselves from Zeek. Zeek was soaking up a lot of leaders from a lot of different companies, causing a considerable disruption in the space. Companies, trying to hold onto their people, found themselves in the cross hairs between zealous distributors looking for a quick buck and industry pundits, all defending the Zeek model. It put company executives in an awkward spot.
What did we learn?
Money Clouds Judgment
When people have a serious economic position with something, they’ll fight hard to protect it. They’ll go to great lengths to find a mental justification, even if it defies all logic and intuition. There were a lot of distributors in Zeek that really should have known better. They were around for the FutureNet, SkyBiz and Equinox cases. They knew better. And despite that experience, they really believed they were in the clear on this one. I think their belief was genuine. They were just under a spell. Once they got a taste of the enormous commissions, they were hooked and went to great lengths to defend the business. Adults under the influence of serious cash are like teenage boys with girls…all logic goes out the door.
Watch Out For Name Dropping
People relied heavily on the credibility of Zeek’s lawyers: Gerald Nehra and Kevin Grimes. They said “These guys are good; therefore, we’re good.” I can speak on this first hand: hiring an attorney by itself does not legitimize a program. At the end of the day, we MLM attorneys explain the boundaries for our clients and provide advice. It’s on them to follow the advice and stay within the lines. I can guarantee you of one thing with 110% certainty, Zeek is not surprised by recent events. Grimes and Nehra are both good attorneys and good competitors. I’m confident Zeek was fully informed of these potential issues. MLM attorneys can lead horses to water…we can never make them drink.
Commissions Must Be EARNED
If someone promises you easy, run fast!. We can do better. Any measure of success in life requires hard work. Really, really hard work. In the network marketing industry, we need to stand for meritocracy: as you perform, so shall you bonus. We work hard to ensure the pay plans are fair and that reps are rewarded commensurate with the work they do. With Zeek, the general tone was that people could make money with minimal effort. There was very little effort involved in reaping the rewards from the penny auction platform (with the exception of buying some customers and placing ads online). I understand that measures were taken to strengthen the program i.e. the compliance course, eliminating the customer co-op, etc; however, rewards were still allocated immediately upon purchases, regardless if the bids were ever used. This was a problem. There must always be a direct connection between the rewards received and work performed.
With modern technology, there seems to be more “make money while sitting on your rear-end.” And as typical Americans, we’re drawn to it! As network marketers, we need to promise VALUE instead of promising EASE.
If It Looks Like a Duck….
Richard Brooke recently said, “If it quacks like a duck, it may not be technically a duck but duck hunters WILL KILL IT!” Zeek just looked too much like a security. I understand that there are countervailing arguments, but the bottom line is simple: Zeek fought hard to train people to NOT call it an investment opportunity because that’s exactly what it looked like. People, when they were pitching the program as an investment opportunity, were just following their instincts. Why? Because it looked like a duck….
There are a number of issues that will likely come to light during this investigation. Is it a Ponzi scheme? Is it a pyramid? Is it an unregistered security? Is it all of the above? Will criminal charges follow? Who knows…
As an industry, I think it’s time to tighten up the skates. This should serve as a wake up call. This is embarrassing. Absolutely embarrassing. Zeek flew under the banner of protection provided by US, the network marketing community. They danced in the gray and profited. We need to stop drinking our own kool-aide and shrink the gray. When I first started practicing, I wrote an ebook that has been “read” (according to scribd.com) over 12,000 times). It’s titled, Pyramid Schemes: Saving the network marketing industry by defining the gray. I propose some ideas on ways to make the space better. I think it’s time. Otherwise, this WILL happen again. And at the pace of technology, it will happen soon.
As for my representation of Bidify, which I’m sure will be an issue, they’re paying attention to this situation. Since retaining me, they’ve made a number of difficult decisions. I’m not going to comment further on their business other than to say they’re working hard to stay within the lines. Their recent decision to reduce the max cost to 5,000 euros forever is proof of it. If you want to park a lot of cash, Bidify is not the spot for you.
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Kevin Thompson is one of the most sought after attorneys in the country in the direct sales industry. Named as one of the top 25 most influential people in the industry, Kevin Thompson has extensive experience and helps entrepreneurs launch their businesses on secure legal footing.
As a Direct Sales Association supplier member, Kevin Thompson is actively involved on the Ethics Committee and Government Relations Board to help steer the industry into a promising future.
Kevin has published multiple ebooks accruing over 65,000 reads and 2,500 downloads. He has served as a keynote speaker at multiple conferences throughout the world.
Prior to starting his law practice, Kevin gained valuable experience while serving as Chief Counsel for Signature Management Team. Team is one of the largest providers of sales aids for marketers in the direct sales industry.
While at Team, Kevin worked closely with Amway and MonaVie’s compliance departments to ensure all marketing materials passed regulatory review. He has the experience, knowledge, connections and tools necessary to help entrepreneurs launch their businesses on solid legal footing.