HELENA, Mont. – On Thursday, a district court judge granted Commissioner of Securities Monica J. Lindeen a temporary restraining order against FunkyShark.com, a penny auction website that Lindeen’s office suspects may be a pyramid scheme.
The restraining order prevents Bozeman-based Scott Wacker, promoter of Funky Shark LLC, from conducting further business or accessing investors’ money.
According to the Funky Shark website, members who pay a $24.95 fee can join a “rewards program” and earn “passive income” from new members they recruit. For a non-refundable, $1,000 investment, members become “founders” and get a share of each day’s auction profits and a bonus for every new founder they recruit.
When Lindeen’s office filed the restraining order, Funky Shark had already raised $1 million selling founders shares, though the Funky Shark website was not yet offering penny auctions.
Penny auctions differ from traditional auctions in that participants pay for each bid they place, even if they lose the auction. Non-refundable bids are purchased for around one dollar, and each bid placed in an auction raises the final “price” of the auctioned item by one cent.
Because penny auctions profit from every bid placed, websites like Funky Shark can make money while appearing to give away expensive electronics and other goods at a fraction of their retail price.
In September of 2012, Wacker began soliciting investors through a series of webinars and emails. On Oct. 19, Wacker’s bank reported suspicious transfers from the Funky Shark business accounts that funneled money to Wacker’s personal accounts. By Oct. 30, Funky Shark posted a notice on its website acknowledging that its founders program “may violate certain securities laws in the United States” and promising to refund investors.
Neither Wacker nor Funky Shark were licensed to offer securities in Montana.
Lindeen filed the restraining order to ensure no additional investor money would be transferred to Wacker’s personal accounts. A hearing on an injunction against Funky Shark is scheduled for Nov. 15.
In August, Lindeen’s office issued a consumer alert about a separate penny auction pyramid scheme called ZeekRewards. More than 1,200 Montanans had invested $3 million in that scheme before the Securities and Exchange Commission shut it down.