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Feds Seek to Seize Home From a Vermont Woman Who Promoted Ponzi Scheme

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SEAN METCALF
  • Sean Metcalf

A Vermont woman made millions promoting one of the largest Ponzi schemes in history, and now the feds want to seize a house they say she built with her illicit winnings.

For five years, the U.S. Securities and Exchange Commission has sought to recoup funds that Trudy Gilmond of Franklin County received in a frenzied online scam that bilked a million people out of nearly $1 billion. Gilmond has not paid any of the subsequent $2.1 million civil judgments against her, telling the feds she spent all of her money on her high-profile attorney.

But in a new filing in U.S. District Court in Burlington, the SEC says Gilmond scrambled to protect her winnings as the scheme unraveled. Just days after she received notice in 2014 that the federal government was coming for her earnings, Gilmond transferred a nine-acre plot of land in Georgia, Vt., to her mother. She then "managed construction" of a $250,000 home at the site — across the street from her family's dairy farm — and paid for it in cash, the SEC alleged.

The SEC's September 26 complaint accuses her of fraudulent transfer and asks a federal judge to order a sale of the property.

Gilmond declined to comment for this story, referring to the scheme as a "closed book that I'm not dealing with."

Her mother, Olive Gilmond, said she was unaware of the SEC's latest complaint and questioned the allegations as described to her by a reporter. She is named as a defendant in the suit, but the feds do not claim she intended to defraud anyone. "I don't know what's going on. I'm in the dark," she said. "Those facts aren't right at all."

While no one associated with the case would speak with Seven Days for this story, court records from numerous federal lawsuits describe how a middle-age woman working from a dairy farm became a millionaire overnight by persuading others that they could get rich quick.

Trudy Gilmond made her small fortune as a high-ranking promoter for an online penny auction site called Zeekler.com that opened in 2010. By the time the federal government shut down the North Carolina-based company two years later, it had raised more than $850 million from roughly 1 million investors worldwide, making it one of the largest Ponzi schemes ever.

It had an unlikely origin story: Paul Burks, a Lexington, N.C., businessman whose résumé included stints as a radio host and a magician who performed at nursing homes, launched the website.

At the time, online penny auctions were an emerging trend as thrifty, recession-weary consumers migrated online in search of deals. The controversial model turned bidding into something closer to gambling: Bidders must purchase bids in bulk, such as 100 for $50. Bids increase prices on items such as cameras and computers by a single cent, hence the name "penny auction." Frantic bidding wars are the norm, and the losers can be out real money for a product they didn't receive.

Zeekler.com was not attracting much business, so Burks created a related program called ZeekRewards that was ostensibly designed to help advertise the site's penny auctions.

He structured ZeekRewards as a multi-level marketing program, the business model used by companies such as Mary Kay, LuLaRoe and Herbalife Nutrition. MLMs use independent salespeople, often called distributors or affiliates, who pay to join the sales team and can earn money by selling products or, more often, by recruiting more salespeople.

Critics argue that most, if not all, MLMs are just illegal pyramid schemes in disguise — that the systems aren't actually designed to sell nutritional shakes or makeup to anyone besides the new "salespeople" themselves. More than 99 percent of MLM sellers actually lose money, according to a 2011 analysis by the Consumer Awareness Institute.

"MLM has convinced millions of people to believe in an economic fairy tale," said longtime critic Robert FitzPatrick, who has a forthcoming book on such schemes. "MLMs' message has always been that the American dream offers a pathway to prosperity for everybody. It ain't happening for you, but that has to be your fault because the dream doesn't lie. The system can deliver wealth for all who try."

MLMs tend to be complex, and ZeekRewards' was nearly incomprehensible.

"If you were to try to tell your readers how Zeek worked ... they would fall asleep," FitzPatrick said. "The thing makes no sense."

How, then, did it attract hundreds of thousands of recruits? With false promises peddled by skilled promoters such as Gilmond, according to the SEC.

Gilmond was an experienced MLM marketer when one of Burks' coconspirators, Dawn Wright-Olivares, recruited her as a ZeekRewards affiliate. For 11 months, she worked full time as an independent "field liaison," spoke at company events and hosted training calls to recruit new affiliates.

An online video Gilmond created in 2009 for an earlier pyramid-like outfit illustrates her approach. In the 55-second clip, Gilmond sits at a booth inside a McDonald's, holding up two checks. She grins: The checks are "proof" that the online moneymaking opportunity isn't mere "hype."

"I got $800 there, plus the $400 there. That is a total of $1,200 in one week," she says. "Giddyup, get involved! It'll be the best decision of your life!"

At ZeekRewards, new recruits who paid a monthly subscription fee of up to $99 to become an affiliate and helped advertise the penny auctions were promised a daily "profit share" from the company. Their profit potential increased if they recruited new affiliates. The company advertised the program as an investment opportunity with returns as high as 125 percent.

The arrangement was a sham. Almost all of the company's revenue came from new subscriptions at the bottom of the ZeekRewards affiliate pyramid, not the penny auctions. Likewise, the "profits" shared each day were merely subscription fees from new investors. Burks simply invented a different profit figure each day.

More than 90 percent of ZeekRewards participants lost money in the combined pyramid-Ponzi scheme, the SEC said. Vermonters were among them. Three people lodged consumer protection complaints with the Attorney General's Office, according to records obtained from the state. One person wrote that the "pyramid scheme" was being circulated among state employees, some of whom were tempted to sign up.

"I know many people ready to jump on board," the complainant wrote.

Besides the company's managers, only the few affiliates at the top of the sales pyramid made a profit. The SEC said Gilmond "received at least $461,963.90 in transaction-based commissions, at least $1.3 million in bogus profit sharing and helped ensure ZeekRewards' success."

Burks is serving a nearly 15-year prison sentence for criminal fraud; the company's chief operating officer, Wright-Olivares, received a 90-month prison term in 2016.

Meanwhile, the SEC has sought to recoup the lost money through a receivership, and it later pursued Gilmond individually for fraud. Unlike Burks and Wright-Olivares, Gilmond has not been charged criminally. The SEC's actions against her are civil.

Gilmond and business partner Kellie King, also from Vermont, were among the "net winners" who came out ahead in the ZeekRewards scheme. In an attempt to dissolve the federal receivership, the pair hired New York City attorney Ira Lee Sorkin. He was best known for representing notorious Ponzi-scheme mastermind Bernie Madoff, who defrauded 4,800 client-investors in a scam worth $64.8 billion. Their legal maneuver failed, and the receiver has collected about $350 million to date.

King, who made nearly $200,000 as an affiliate, according to court records, could not be reached for comment. She and Gilmond are general partners of a registered business called KTK Marketing, according to records filed with the Vermont Secretary of State's Office.

The SEC filed a separate enforcement lawsuit in 2015 against Gilmond, then 45, accusing her of fraudulent sale of securities for her work with ZeekRewards. Gilmond stopped cooperating as the case progressed, leading the judge to conclude that she was acting in "bad faith."

"I don't have any money, I don't have a lawyer," she wrote in a November 2016 message to an SEC attorney from a "lovecats22" email address. "All the extra money I had I used on my lawyers in the [receivership] case."

The judge in 2017 leveled a $1.9 million default judgment against Gilmond, plus a $150,000 civil penalty. Gilmond later agreed not to sell securities in the future or associate with any brokers.

When contacted last week, Gilmond appeared unaware of the SEC's latest lawsuit. She said she had an attorney but did not provide a name or contact information.

Seven Days reached Gilmond at a phone number that appeared on a website for Valentus, a South Dakota-based MLM company that sells coffee promised to promote weight loss.

"From creating significant levels of income, to building strong networks, healthy long-lasting relationships, making new friends, participating in activities you never even knew existed, [and] having the time to do the things you love with the people you love to be with, VALENTUS can help you PREVAIL in ALL of your goals!" the company's site reads.

When asked how she was affiliated with Valentus, Gilmond ended the conversation. She said she had to take another call.

The original print version of this article was headlined "Hunted House | Feds move to seize home from a Vermont woman who promoted a massive Ponzi scheme"

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