SEC Alleges Zhunrize To Be A Pyramid Scheme – Assets Frozen

Jeff Pan, CEO, Zhunrize, Todd Spencer, Marc Brachman, Garry Regier, Richard Ramos


Zhunrize, launched in 2013 is a shopping and savings portal and offers affiliates a replicated storefront, which the company has branded “ZhunCity”. The shopping portal starts at $99 and $30 a month,  up to $3,000 and $100 a month.

Carlos Rey is the VP of Sales, leading the field together with Todd Spencer, Marc Brachman, Garry Regier and Richard Ramos according to the companies regional event in Las Vegas in July.

According to a SEC Press release:

On September 22, 2014, the Securities and Exchange Commission filed a civil injunctive action in the Northern District of Georgia against Zhunrize, Inc. (Zhunrize) and its CEO, Jeff Pan (Pan). In connection with the filing of this action, the Commission obtained a temporary restraining order against the defendants and an order freezing all of defendants' assets.

The Commission alleges that Zhunrize, an Atlanta-based multi-level marketing company, and Pan have been operating a fraudulent pyramid scheme that has raised over $100 million from investors worldwide.

According to the Commission's complaint, Zhunrize purports to be a legitimate multi-level marketing business by which members purchase online stores and then sell merchandise through them, while earning commissions on products purchased by their customers and through store sales to other members and hosting fees paid by those members.

In fact, the company is operating as a pyramid scheme because its commission structure is based on the continual recruitment of new members, with the most lucrative returns dependent on the downline recruitment of other members through store sales irrespective of any product sales. To date, the company has taken in approximately $105 million from approximately 77,000 investors since 2012.

The Commission's complaint further alleges that in its promotional materials, Zhunrize touts the ability to earn commissions from the sale of products, both through the owner's store and through downstream owners' stores. For example, a Zhunrize promotional video differentiates Zhunrize from other on-line multi-level marketing plans, claiming that Zhunrize has sustainability.

According to the video, the Zhunrize model will sustain itself because we will have millions more customers than distributors. Later, the narrator in the video claims we have the Vendor Relationships, the Logistics, the Payment Gateways to reach millions of new customers each month.

The Commission's complaint also alleges that Zhunrize does not disclose, however, that to date substantially all of its revenue has comes from the sale of memberships (referred to as stores) and the corresponding monthly internet hosting fees associated with operating those stores, rather than the sale of products.

Indeed, both Pan and a Zhunrize vice-president testified that the company currently derives 80-90% of its revenue from selling online stores and the monthly internet hosting fees for them, as opposed to actual products from these stores. Thus, contrary to the representations to potential investors, Zhunrize is actually a fraudulent pyramid scheme.

The Commission's complaint, filed in the United States District Court for the Northern District of Georgia, alleges that each defendant violated Sections 5(a), (c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5 thereunder, and seeks against each defendant permanent injunctions, disgorgement with prejudgment interest and civil monetary penalties pursuant to Section 21A of the Exchange Act.

Zhunrize leaders

Zhunrize leaders, Jeff Pan, Todd Spencer, Marc Brachman, Carlos Rey, Garry Regier, Richard Ramos

About Jeff Pan according to the Zhunrize website:

Jeff oversees the strategic vision and growth of Zhunrize, Inc.  Jeff has a total of 24 years extensive experience in the areas of international trade, capital advisory, VC and PE investing, manufacturing, sales and marketing franchise management, team building and network marketing.

Earlier in his career, he served as the General Manager of Contract Management Services, Inc., from 1993-1997, a Chesterfield-Missouri-based importing corporation. He had complete responsibility for the business performance of the company. By significantly improving operating efficiencies and developing more markets, he led it to a multi-million dollar company. 

In 2005, Mr. Pan was Chief Executive Officer of Hangzhou D & A Electronics Company Limited in China. While directed and maintained the vision of the company, he consistently promoted employee engagement and leadership development. He also oversaw the company's growth, managed all areas of designing, manufacturing and marketing mobile electronics. 

An interview with Jeff Pan

Prior to joining Zhunrize, Inc., Jeff involved in D & A Capital Partners, LLC in 2010, a Georgia-based capital advisory firm. In this role, his areas of focus included helping business entities in both China and USA to raise seed and growth capital.

Mr. Pan received a B. S. degree in mechanical engineering from Yangzhou University, and a master's degree in management engineering from Jilin University of Technology in China. He also earned a master's degree in industrial engineering from Kansas State University.

Todd Spencer, COO ZhunrizeAbout Todd Spencer – VP of Business & Product Development

Todd helps drive the company's steady growth as an industry leader in providing outsourced sales campaigns. Todd is an early pioneer in telecom with more than a decade of front-line customer acquisition and direct sales experience.

Spencer has a 25 year successful track record in creating solid growth companies. In 1995, he launched sales for three different CLEC's in Atlanta, all voice and broadband Internet providers for small businesses.

As a pioneer in local telephone deregulation, Spencer served in a variety of capacities in sales management. In addition to developing these companies’ core sales he has 10 years of direct sales experience building a sales organization with $200 million in sales.

In 2008, Spencer co-founded Vodaplex, an outsourced sales and network marketing company, where he built and lead a national sales team in launching the nation’s first 4G mobile internet nationally acquiring 19,000 customers.

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