Foreign scheme. Probably the first thing that comes to mind is Bernie Madoff his company made off investment Securities defrauded 37 000 investors out of 65 billion dollars in what would become the highest profile Ponzi scheme in American history Madoff did not run the only Ponzi scheme in American history and you might be surprised to hear that his wasn't even the biggest. The single largest Ponzi scheme in U.S History actually happened a few years after Madoff was put behind bars. It was perpetrated by a North Carolina man named Paul Burks who founded an online auction site called Ziegler.com Berks created a highly sophisticated Ponzi scheme which convinced his victims that they can make one and a half percent returns every single day.

If you know anything about investing, you know that this is absurd. 1.5 daily returns adds up to 23 000 per year when compounded, but with a combination of Highly Effective marketing campaign and a pyramid-shaped referral program, Berks was able to convince over one million individuals to hand over over 600 million dollars in what would be become the largest Ponzi scheme in U.S History by number of victims 27 times larger than Bernie Madoff One of the reasons Ziegler didn't get nearly as much media attention is that its victims were financially unsophisticated and poor people who Garner little interest from the national media. If Bernie Madoff was a Ponzi scheme equivalent of an elite Wall Street firm, Ziegler was the equivalent of the neighborhood pawn shop. While Ziegler stole less money in aggregate than Madoff, the victims had less money to lose by the time the fraud was shut down in 2012, hundreds of thousands of people were left financially ruined in this video.

We'll take a deep dive into how Paul Burks created the largest Ponzi scheme in U.S History thank you Paul Burks Founded Ziegler.com in 2010. Ziegler was a penny auction site which was kind of sleazy, but wasn't technically a fraud at least not in the beginning. Here's a clip from CBS News talking about Ziegler in 2010. Move over.

eBay There's a new auction in town and it only takes a penny to get in on the action. Dorothy Tucker takes a look at Penny auctions which can be a bargain Bonanza 400 golf club for about six and a half dollars. no coupons, no rebates Holly McDowell won all this stuff I Think it's a good way to get something less expensive than you would get at the store Stewart Cruz has won 800 worth of merchandise spending only 300 which means he controls his bidding. Stewart does a little homework Before he biz on an item.

he checks to see how much it's sold for the last time it was auctioned off. so your 10 gift card might go for a dollar. so I might start entering at 80 cents or 75 cents as a first time bidder I Got lucky I I I I Want a coffee maker sold to me for 52 cents? I also won five gift cards for a few pennies. Now let's take a closer look at my winnings.

Remember this is the 1999 coffee maker that I got my winning bid 52 cents. You're easy to please too I am I Get excited as well. And you also got some gift cards. So the gift cards yeah, this one 25 gift card.

my bid a nickel. I Got a 10 gift card I think it cost me 17 cents. A little pricey there. that is incentive to get on thank you very much.

Ziegler Would sell products in an auction starting at one penny, You can put in bids to increase the price by one penny at a time after which other bidders have 30 seconds to help bid you by another. Penny If nobody outbids you within 30 seconds, you win the product. Typically the products end up being sold at a massive discount to retail value sometimes as much as 90 percent. These weren't Surplus items and Ziegler didn't have any special deals to acquire.

The merchandise had discounted prices. In fact, they were so blatant as to even sell cash at the auction. For example, this 100 Bill sold for 58.77 So how is this possible? How was Ziegler able to sell products at such a massive discount? This is because in order to place a bid, you have to pay a 65 Cent fee regardless of whether or not you win the product. For example, let's say that Ziegler was selling an iPod with a retail price of one hundred dollars.

Eventually, someone wins it with a 10 bid because the price only moves up by 1 cent. increments. 650 worth of bids had to be made before the winning bid. Far greater than the retail price.

Penny Auctions are akin to gambling because if you place a bid, the chances of weighing the product are very low. You can increase your chances by placing a lot of bids. but if you place too many bids, the cost of making the bids alone will be greater than the retail value of the item. So while a few people might get lucky and win a product for a cheap price, the vast majority of people waste money on bids and don't win anything.

While Penny auctions are morally questionable, they were perfectly legal at the time. After playing a few times, most people realized it's basically a scam. After wasting a few bucks, they would give up and never use the website again. Paul Burks Founded Ziegler.com in 2010.

By 2011, it was a complete flock with almost no users, so he decided he would turn his failed Penny auction site into a Ponzi scheme. In 2011, Paul Burke's launched Zeke Rewards, which was ostensibly an affiliate marketing program for the Ziegler Penny auction website. By becoming an affiliate, you could earn a revenue share. 50 of revenue generated by Ziegler.com would be paid out to the Affiliates Pro Rata based on how many profit points they earn.

So it was effectively like owning shares in Ziegler. At first, it sounds like it maybe makes sense. The Ziegler.com penny auction would be an incredibly profitable business if they could get anyone to use it. If Affiliates convince people to start bidding on Ziegler this could be very valuable and Ziegler could afford to pay them generous affiliate commissions.

To become a Ziegler affiliate, you had to do three things: Firstly, you had to pay a monthly fee between 10 and 99 with the higher tier giving you the most profit points. Secondly, you had to buy a minimum of 1 000 so-called VIP bids at a cost of one dollar each. These VIP bids allow you to place biz for items on the Ziegler auction site. The VIP bids would be given away to new consumers as an advertising promotion to get them to use the website.

And finally, you're required to place one online ad for Ziegler on a classifieds website per day. At first, none of this sounds too weird. Giving away free VIP bits to new users is kind of like a food delivery app, giving you five dollars off your first meal. It's a pretty standard marketing technique.

The requirement to post at least one online ad promoting Zikler.com each day also seems reasonable. People would see the online ads and hopefully start spending money on Zieclair.com bringing in Revenue to the company. The Ziegler Affiliates are basically independent salesmen trying to acquire new customers. But when you look a little bit closer, things get weird.

Zeke Rewards had an online system called the Customer Co-op program where they automatically find prospective customers for you. You just press a button on the website and the VIP bids you bought will automatically be given away to purported customers. It requires zero effort. The requirement to place at least one online ad per day was even more weird.

You just have to go to the Zeke's reward website, copy a pre written ad, click on a link to some website, and paste it into that website. They even advertise this as a seven minute Work Week Taking one minute per day to copy and paste the ad. In fact, placing the ads was so easy that on GitHub you can find Python codes to do the whole process for you autonomously just by doing a few simple actions per day, which you could frankly train a monkey to do. You could become a Zeke Rewards affiliate and start earning the revenue share.

and Zeke Affiliates were promised life-changing amounts of money. The more VIP bids you buy, the more profit points you receive. Supposedly fifty percent of the revenue from Ziegler.com was distributed to the Affiliates Pro Rata based on how many profit points you have. Thus, the more VIP bids you buy, the greater is your daily profit.

The returns were incredible. The revenue share was approximately 1.5 percent of the money you put in every single day. Affiliates Could choose to either receive their payouts as cash or as additional profit points. If you accept them as profit points, your number of profit points grows which creates a compounding effect effect.

This chart shows a hypothetical growth of a 100 investment into Zeke Rewards. If you take the payments as cash with no compounding, your 100 will turn into six hundred fifty dollars after one year. However, if you would like to receive more profit points instead, your returns will compound and after one year your 100 investment will turn into twenty three thousand dollars. You can see why most Affiliates elected to compound their profit points.

Of course, if you know anything about investing, you'll know that these returns are impossible. But Zeke Rewards specifically targeted unsophisticated victims and by making the process so complicated, it was difficult to tell exactly how it worked. This made it difficult to see that was a fraud. People just saw that if they put in some money, they could receive huge returns.

As you probably guessed, the entirety of Zeke Rewards was a scam. Not a single part of it was legitimate. The copy and paste ads were completely ineffective. They were placed on free classified websites and almost nobody ever clicked them.

The customer Co-op program was completely fake. Affiliates Thought the VIP bids they purchase were given to new customers as promotions. In reality, 99.75 of the VIP bids were never used because nobody wanted them. The fact of the matter was that nobody wanted to use the Ziegler Penny auction platform because it was obviously a bad deal for the customer.

The Core Business of Ziegler generated almost zero. Revenue The Zeke Rewards Affiliates were contributing nothing to the operations of the company. the only thing they were supplying was their own money. While the Zeke Rewards program was completely ineffectual at getting anyone to use Ziegler.com it was highly effective at getting more people to sign up.

as Affiliates it was pitched as a business opportunity where you could make life-changing amounts of money with zero expertise and almost zero effort. In addition to being a Ponzi scheme, Zeke Rewards was also a pyramid scheme. Affiliates were rewarded if they could bring on new Affiliates creating a chain reaction of exponential growth. Zeke Rewards Affiliates would convince their family and friends to join.

They would also create glowing reviews on YouTube Facebook and other social media sites asking others to join them. In 2012, after just one year of operation, Zeke Rewards had already sucked in over 1 million affiliates. The fact that most Affiliates opted to compound their profit points help the cash flow position of Ziegler until you withdraw your money. The profit points are just numbers on a screen.

Even if the Affiliates have billions of dollars worth of profits until they try to withdraw the money, Ziegler can keep the scam afloat. By 2012, only two percent of Ziegler's Revenue came from the core auction business. The remaining 98 came from people buying into the affiliate. Zeke Rewards Needless to say, the money for the award payouts was coming from money raised by new investors in a classic ponzi-like manner.

Foreign: ER Paul Burks Personally withdrew 11 million dollars from the business to his personal bank account, which he used to fund a lavish lifestyle. but these ill-gotten gains would not last long. By 2012, the scheme was on the brink of collapse. In total, they had raised over 600 million dollars.

375 million dollars had already been paid out to Prior investors. Another 225 million dollars was sitting in their bank account. at the time, Affiliates had accumulated 3 billion profit points. If they elected to receive their payments in cash, this would translate to about 45 million dollars per day.

So Ziegler would have gone bankrupt within less than a week if investors asked for their cash. In August of 2012, the SEC found out about this game and shut it down. But even if they hadn't shut it down, it was months away from crumbling on its own way. Burks was eventually sentenced to 14 years in federal prison with a release date scheduled for 2028.

By that time, he'll be 79 years old, so he will likely die. Behind Bars What remainder of the cash was distributed to the victims, but much of the funds had already been paid out to people who got in on the ground floor or had been spent by Burke himself. Most victims only received Pennies on the dollar of what was, in many cases their life savings. The reason why the Zeke's Ponzi scheme was so successful was multi-fold.

Firstly, there appeared to be a legitimate business, the penny auction platform. This made it more credible. Secondly, the victims were required to copy and paste secular ads onto various websites. As ridiculous as this exercise looks, in hindsight, it made the whole system slightly more believable.

The Affiliates thought that they were engaging in legitimate advertising activities that would generate revenue for the company. This gave the false impression that Ziegler's core auction business was profitable incapable of generating Revenue to fund the affiliate payouts. Thirdly, they targeted unsophisticated victims. This is portrayed even by their cartoonish logo, which was obviously meant to Target Ordinary People non-sophisticated investors people without proper financial education would hear about this great money making opportunity from their friends or see glowing testimonials on social media.

And finally, it's important to remember that this fraud happened in 2011 and 2012 when the US was still experiencing the Great Recession Following the global financial crisis. with unemployment and wages low, many families were desperate to improve their financial situation. This state of desperation made them more susceptible to get rich quick schemes. We've seen similar situations throughout history.

The largest Ponzi scheme ever was formed in Russia during the 1990s, immediately after the collapse of the Soviet Union. We've made a video about this previously Link in the description below. At the time, the company is gripped by a severe economic crisis and people were willing to part with what little money they had and desperate attempt to improve their situation. Ponzi Schemes come in many shapes and sizes and can victimize people from all walks of life, but there are a few ways you can protect yourself.

If someone comes to you with a business opportunity, ask them, how do you make money and what do you want from me besides my money. If they can't give you a simple and satisfactory answer, chances are it's a scam. The entire Ezekiel fraud could have been avoided if the Affiliates just asked a simple question. Why are you paying me to copy and paste a paragraph which takes one minute per day? Why can't you just do it yourself? Alright guys, that wraps it up for this video.

what do you think about Ziegler Let us know in the comments section below. As always, thank you so much for watching and we'll see in the next one. Wall Street Millennial Signing out.