Atlanta-Based Web Marketer Accused Of $105M Pyramid Scheme

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Atlanta-Based Web Marketer Accused Of $105M Pyramid Scheme

The SEC filed a case yesterday against Atlanta, Georgia-based Zhunrize Inc. and its chief executive in a Georgia federal court, alleging that the Internet marketing and product brokerage company operates as a fraudulent pyramid scheme that has scammed investors out of $105 million since 2012.

Zhunrize allows members to purchase online stores and subsequently sell merchandise through those stores. The SEC claims that the company relies on the “continual recruitment of new members to generate the returns it pays its members.” Most of the company’s revenue by a wide margin is brought in through membership sales and monthly Internet hosting fees paid by members. The SEC’s complaint goes on to say that Zhunrize and its chief executive “have misled investors by representing that the income stream available to investors is generated by product sales, when in reality, product sales make up a minimal portion of Zhunrize’s overall revenues.”

$103.7 million, almost 99% of Zhunrize’s revenues from July 2012 to July 2014, came from membership sales and initial hosting fees. Only $1.4 million came from actual product sales, the SEC alleges. Zhunrize has admitted that it paid $340,000 in commissions to its members this year based on product sales, while paying nearly $51 million in commissions based on membership sales and hosting fees.

The SEC further alleges that Zhunrize misled investors by claiming in an online video that its model is different from other profit sharing companies and that it “will sustain itself because [it] will have millions of more customers than distributors.” The SEC claims that this is misleading because it represents that the company is legitimate while it actually operates as a pyramid scheme. The company also misrepresents that it engages in “worldwide sales,” when in reality it cannot ship products outside of the United States. Zhunrize does have 40,000 stores in Korea and 1,000 in China but has waived the product sales requirement for those members.

The SEC is asking for an injunction preventing the company from violating federal securities laws, disgorgement of all illicit gains, and other relief.

If you or someone you know has lost money as a result of an investment or Ponzi scheme, please contact Richard Frankowski at 888-741-7503 to discuss your potential legal remedies or complete the contact form.

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